Cole Laboratories Makes and Sells a Lawn Fertilizer Called Fastgro

question 28

Multiple Choice

Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows: The company had no beginning inventories of any kind on Jan. 1. Variable overhead is applied to production on the basis of standard direct labor-hours. During January, the following activity was recorded by the company:
Production of Fastgro: 4,000 bags
Direct materials purchased: 85,000 pounds at a cost of $32,300
Direct labor worked: 390 hours at a cost of $4,875
Variable overhead incurred: $1,475
Inventory of direct materials on Jan. 31: 3,000 pounds
-The total variance (both rate and efficiency) for variable overhead for January is:

• A) $85 F
• B) $40 F
• C) $100 U
• D) $125 F

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Definitions:

After-Tax Discount Rate

This is the discount rate that has been adjusted to reflect the impact of taxes on a project's cash flow.

Income Tax Rate

The percentage at which an individual or corporation is taxed; the rate may vary by income level, type of income, or other factors.

Working Capital

The distinction between a firm's current assets and its current liabilities, revealing the company's short-term financial health.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal installments.