Reference: 11-04
Cole Laboratories Makes and Sells a Lawn Fertilizer

Multiple Choice

Reference: 11-04
Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of Fastgro as follows: $$\begin{array} { | l | l | l | } \hline & \text { Standard Quantity } & \begin{array} { l } \text { Standard Cost per } \\\text { Bag }\end{array} \\\hline \text { Direct material } & 20 \text { grams } & \$ 8.00 \\\hline \text { Direct labour } & 0.1 \text { hours } & \$ 1.10 \\\hline \text { Variable manuf. overhead } & 0.1 \text { hours } & \$ 0.40 \\\hline\end{array}$$ The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on the basis of direct labour hours. During January, the following activity was recorded by the company:
Production of Fastgro: 4,000 bags
Direct materials purchased: 85,000 grams at a cost of $32,300
Direct labour worked: 390 hours at a cost of $4,875
Variable manufacturing overhead incurred: $1,475
Inventory of direct materials on Jan. 31: 3,000 grams
-Patridge Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labour-hours. The information below is taken from the company's flexible budget for manufacturing overhead: $$\begin{array} { | l | l | l | l | } \hline \text { Percent of capacity } & 70 \% & 80 \% & 90 \% \\\hline \text { Direct labour-hours } & 21,000 & 24,000 & 27,000 \\\hline \text { Variable overhead } & \$ 42,000 & \$ 48,000 & \$ 54,000 \\\hline \text { Fixed overhead } & 108,000 & 108,000 & 108,000 \\\hline \text { Total overhead } & \$ 150,000 & \$ 156,000 & \$ 162,000 \\\hline\end{array}$$ During the year, the company operated at exactly 80% of capacity, but applied manufacturing overhead to products based on the 90% level. The company's fixed overhead volume variance for the year was:

A) $6,000 favourable.
B) $12,000 unfavourable.
C) $12,000 favourable.
D) $6,000 unfavourable.