The Euro Company Wants to Compare the Performance of Three

question 51

Multiple Choice

The Euro Company wants to compare the performance of three business units. All the business units produce the same product with similar output per month. The company uses a flexible budget to plan and control manufacturing overhead costs. Overhead costs are applied to products on the basis of direct labour-hours. The standard cost card shows that 5 direct labour-hours are required per unit of product. Phelps Company had the following budgeted and actual data for March: $\begin{array}{lll}&\text { Actual }&\text { Budgeted }\\ \text { Units produced } & 11,000 & 10,000 \\\text { Directlabour-hours } & 65,000 & 60,000 \\\text { Variable overhead costs } & £ 84,000 &£ 80,000 \\\text { Fiked overhead costs } & £ 44,000 &£ 40,000\end{array}$
$\text { *Represents the denom inator activity for the month. }$
German Business Unit
$\begin{array}{lll}&\text { Actual }&\text { Budgeted }\\ \text { Units produced } & 11,000 & 10,000 \\\text { Directlabour-hours } & 65,000 & 60,000 \\\text { Variable overhead costs } & £ 84,000 &£ 80,000 \\\text { Fiked overhead costs } & £ 44,000 &£ 40,000\end{array}$
$\text { *Represents the denom inator activity for the month. }$
French Business Unit
$\begin{array}{lll}&\text { Actual }&\text { Budgeted }\\ \text { Units produced } & 11,000 & 10,000 \\\text { Directlabour-hours } & 65,000 & 60,000 \\\text { Variable overhead costs } & £ 84,000 &£ 80,000 \\\text { Fiked overhead costs } & £ 44,000 &£ 40,000\end{array}$
$\text { *Represents the denom inator activity for the month. }$
- The variable overhead efficiency variance for March for the Italian Business Unit is

• A)£8,000 unfavourable.
• B)£6,667 favourable.
• C)£8,000 unfavourable
• D)£4,667 unfavourable.

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Definitions:

Cash Payback Period

The duration required for an investment to generate cash flows sufficient to recover the initial outlay or cost.

Net Income

A company's earnings that remain after subtracting all expenses and taxes from total revenue.

Expenditure

Money spent or cost incurred in an organization's efforts to generate revenue, representing the consumption of goods and services.

Discount Period

The time period between the date of sale and the due date, during which a payment may be made at a reduced rate.