Croissant Company's Standard Fixed Overhead Cost Is $6 Per Direct

question 94

Multiple Choice

Croissant Company's standard fixed overhead cost is $6 per direct labor hour based on budgeted fixed costs of $600,000. The standard allows 1 direct labor hour per unit. During 2016, Croissant produced 110,000 units of product, incurred $630,000 of fixed overhead costs, and recorded 212,000 actual hours of direct labor.
What is the standard activity level on which Croissant based its fixed overhead rate?

• A) 100,000 direct labor hours
• B) 105,000 direct labor hours
• C) 110,000 direct labor hours
• D) 50,000 direct labor hours

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Definitions:

Relevant Range

The range of activity within which the assumptions about fixed and variable cost behaviors hold true for a specific business.

Curvilinear Costs

Costs that change with the level of output or activity in a non-linear relationship, displaying variances in the cost per unit at different production volumes.

Break-even Analysis

A calculation that determines when an investment will reach a financial break-even point.

Margin of Safety

The difference between actual or projected sales and the break-even point, indicating the level of risk in missing sales projections.