The opportunity cost of making a component part in a factory with excess capacity for which there is no alternative use is:

Multiple Choice

• the variable manufacturing cost of the component.

• the total manufacturing cost of the component.

• the fixed manufacturing cost of the component.

• zero.

• 2

• Which of the following is false?

  Multiple Choice

• Outsourcing decisions are often referred to as "make-or-buy" decisions.

• Outsourcing refers to having work performed overseas.

• Contract manufacturers are manufactures that make products for other companies.

• Outsourcing decisions should take into consideration the intended use of freed capacity.

3

Irving Corporation makes a product with the following standards for direct labor and variable overhead:

	Standard Quantity or Hours			Standard Price or Rate			Standard Cost Per Unit
Direct labor		0.2	hours	$	15.00	per hour	$	3.00
Variable overhead		0.2	hours	$	5.10	per hour	$	1.02

In November the company's budgeted production was 5,400 units, but the actual production was 5,200 units. The company used 1,660 direct labor-hours to produce this output. The actual variable overhead cost was $7,802. The company applies variable overhead on the basis of direct labor-hours.

The variable overhead rate variance for November is:

Multiple Choice

• $416 U

• $664 U

• $664 F

• $416 F