Standard Costs and Variance Analysis
STANDARD COSTS AND VARIANCE ANALYSIS
A.
B.
C.
D.
THEORIES:
Standard cost system
1. A primary purpose of using a standard cost system is
A. To make things easier for managers in the production facility.
B. To provide a distinct measure of cost control.
C. To minimize the cost per unit of production.
D. b and c are correct
No incentive bonus will be paid.
Most variances will be unfavorable.
Employees will be strongly motivated to attain the standard.
Costs will be controlled better than if lower standards were used.
7. To measure controllable production inefficiencies, which of the following is the best basis for a
company to use in establishing the standard hours allowed for the output of one unit of
product?
A. Average historical performance for the last several years
B. Engineering estimates based on ideal performance
C. Engineering estimates based on attainable performance
D. The hours per unit that would be required for the present workforce to satisfy expected
demand over the long run
2. Which one of the following statements is true concerning standard costs?
A. Standard costs are estimates of costs attainable only under the most ideal conditions, but
rarely practicable.
B. Standard costs are difficult to use with a process-costing system.
C. If properly used, standards can help motivate employees.
D. Unfavorable variances, material in amount, should be investigated, but large favorable
variances need not be investigated.
8. Which of the following statements about the selection of standards is true?
A. Ideal standards tend to extract higher performance levels since they give employees
something to live up to.
B. Currently attainable standards may encourage operating inefficiencies.
C. Currently attainable standards discourage employees from achieving their full
performance potential.
D. Ideal standards demand maximum efficiency which may leave workers frustrated, thus
causing a decline in performance.
3. Which of the following is a purpose of standard costing?
A. Determine “breakeven” production level
B. Control costs
C. Eliminate the need for subjective decisions by management
D. Allocate cost with more accuracy
Standard costs vs. budgeted costs
9. A difference between standard costs used for cost control and the budgeted costs
representing the same manufacturing effort can exist because
A. standard costs must be determined after the budget is completed
B. standard costs represent what costs should be while budgeted costs represent expected
actual costs
C. budgeted costs are historical costs while standard costs are based on engineering studies
D. budgeted costs include some “slack” or “padding” while standard costs do not
4. When evaluating the operating performance management sometimes uses the difference
between expected and actual performance. This refers to:
A. Management by Deviation
C. Management by Objective
B. Management by Control
D. Management by Exception
Standard setting
5. The best basis upon which cost standards should be set to measure controllable production
inefficiencies is
A. Engineering standards based on ideal performance
B. Normal capacity
C. Engineering standards based on attainable performance
D. Practical capacity
Process costing
10. When standard costs are used in a process-costing system, how, if at all, are equivalent units
involved or used in the cost report at standard?
A. Equivalent units are not used.
B. Equivalent units are computed using a “special” approach.
C. The actual equivalent units are multiplied by the standard cost per unit.
6. A company employing very tight (high) standards in a standard cost system should expect that
203
Standard Costs and Variance Analysis
D. The standard equivalent units are multiplied by the actual cost per unit.
A.
B.
C.
D.
Normal costing
11. The fixed overhead application rate is a function of a predetermined “normal” activity level. If
standard hours allowed for good output equal this predetermined activity level for a given
period, the volume variance will be
A. Zero
B. Favorable
C. Unfavorable
D. Either favorable or unfavorable, depending on the budgeted overhead.
Total overhead application rate
Volume of total expenses at various activity levels
Variable overhead application rate
Fixed overhead application rate
17. Assuming that the standard fixed overhead rate is based on full capacity, the cost of available
but unused productive capacity is indicated by the:
A. Factory overhead cost volume variance
B. Direct labor cost efficiency variance
C. Direct labor cost rate variance
D. Factory overhead cost controllable variance
Types of standards
12. The absolute minimum cost possible under the best conceivable operating conditions is a
description of which type of standard?
A. Currently attainable (expected)
C. Theoretical
B. Normal
D. Practical
18. In analyzing manufacturing overhead variances, the volume variance is the difference between
the:
A. Amount shown in the flexible budget and the amount shown in the debit side of the
overhead control account
B. Predetermined overhead application rate and the flexible budget application rate times
actual hours worked
C. Budget allowance based on standard hours allowed for actual production for the period
and the amount budgeted to be applied during the period
D. Actual amount spent for overhead items during the period and the overhead amount
applied to production during the period
13. Standards, which are difficult to achieve due to reasons beyond the individual performing the
task, are the result of firm using which of the following methods to establish standards?
A. Ideal Standards
C. Practical Standards
B. Lax Standards
D. Employee Standards
14. Standards that represent levels of operation that can be attained with reasonable effort are
called:
A. Theoretical standards
C. Variable standards
B. Ideal standards
D. Normal standards
19. The variance least significant for purposes of controlling costs is the:
A. Material usage variance
B. Variable overhead efficiency variance
C. Fixed overhead spending variance
D. Fixed overhead volume variance
Variances
Generic variances
15. When performing input/output variance analysis in standard costing, “standard hours allowed”
is a means of measuring
A. Standard output at standard hours
C. Actual output at standard hours
B. Standard output at actual hours
D. Actual output at actual hours
20. The variance most useful in evaluating plant utilization is the:
A. Variable overhead spending variance
B. Fixed overhead spending variance.
C. Variable overhead efficiency variance
D. Fixed overhead volume variance
Two way variances
Volume variance
16. A company uses a two-way analysis for overhead variances: budget (controllable) and
volume. The volume variance is based on the
Four way variances
21. The choice of production volume as a denominator for calculating its factory overhead rate
A. Has no effect on the fixed factory overhead rate for applying costs to production
204
Standard Costs and Variance Analysis
B. Has an effect on the variable factory overhead rate for applying costs to production
C. Has no effect on the fixed factory overhead budget variance
D. Has no effect on the fixed factory overhead production volume variance
position of a production process on a learning curve?
A. Materials mix
C. Labor rate
B. Materials price
D. Labor efficiency
22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to
product are the same amount
A. for both variable and fixed overhead costs.
B. only when standard hours allowed is less than normal capacity.
C. for variable overhead costs.
D. for fixed overhead costs.
27. Which of the following is the most probable reason with a company would experience an
unfavorable labor rate variance and a favorable labor efficiency variance?
A. The mix of workers assigned to the particular job was heavily weighted toward the use of
higherly paid, experienced individuals.
B. The mix of workers assigned to the particular job was heavily weighted toward the use of
new, relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other production areas were assigned
to assist in this particular process.
D. Defective materials caused more labor to be used in order to produce a standard unit.
Responsibility for variances
23. Which department is customarily held responsible for an unfavorable materials usage
variance?
A. Quality control
C. Purchasing
B. Engineering
D. Production
Two-way overhead variance
28. The budget for a given cost during a given period was P1,600,000. The actual cost for the
period was P1,440,000. Considering these facts, it can be said that the plant manager has
done a better than expected job in controlling the cost if:
A. The cost is variable and actual production was 90% of budgeted production
B. The cost is variable and actual production equaled budgeted production
C. The cost is variable and actual production was 80% of budgeted production
D. The cost is discretionary fixed cost and actual production equaled budgeted production
Variance analysis
24. Which of the following should be least considered when deciding whether to investigate a
variance?
A. Whether the variance is favorable or unfavorable
B. Significance of the variance
C. Cost of investigating the variance
D. Trend of the variances over time
Budget variance
29. The budget variance for fixed factory overhead for the normal-volume, practical-capacity, and
expected-activity levels would be the:
A. Same except for normal volume
C. Same except for expected activity
B. Same except for practical capacity
D. Same for all three activity levels
Total materials variance
25. If the total materials variance (actual cost of materials used compared with the standard cost
of the standard amount of materials required) for a given operation is favorable, why must this
variance be further evaluated as to price and usage?
A. There is no need to further evaluate the total materials variance if it is favorable
B. Generally accepted accounting principles require that all variances be analyzed in three
stages
C. All variances must appear in the annual report to equity owners for proper disclosure
D. To allow management to evaluate the efficiency of the purchasing and production
functions
Volume variance
30. You have leased a 5,000-gallon storage tank for P5,000 per month. You stored 4,000 gallons
of liquid in the tank during the month. The cost of storage was P1.25 per gallon, rather than
P1.00 per gallon based on 5,000 gallon capacity. Therefore, the cost of storing 4,000 gallons
was P1,000 more (P.25 x 4,000) in total than if you had stored 5,000 gallons of liquid in the
tank. Which variance is being described?
A. Variable-overhead efficiency variance
B. Fixed-overhead spending variance
C. Variable-overhead spending variance
Labor variances
26. Which of the following unfavorable cost variances would be directly affected by the relative
205
Standard Costs and Variance Analysis
D. Fixed-overhead volume variance
31. Favorable fixed overhead volume variance occurs if:
A. There is a favorable labor efficiency variance
B. There is a favorable labor rate variance
C. Production is less than planned
D. Production is greater than planned
PROBLEMS:
Standard setting
Raw Materials
i. Shampoo Company is a chemical manufacturer that supplies industrial users. The company
plans to introduce a new chemical solution and needs to develop a standard product cost for
this new solution.
32. The unfavorable volume variance may be due to all but which of the following factors?
A. Failure to maintain an even flow of work
B. Machine breakdowns
C. Unexpected increases in the cost of utilities
D. Failure to obtain enough sales orders
The new chemical solution is made by combining a chemical compound (Nyclyn) and a
solution (Salex), boiling the mixture; adding a second compound (Protet), and bottling the
resulting solution in 20-liter containers. The initial mix, which is 20 liters in volume, consists of
24 kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction in volume occurs during the
boiling process. The solution is then cooled slightly before 10 kilograms of Protet are added;
the addition of Protet does not affect the total liquid volume.
33. How will a favorable volume variance affect net income under each of the following methods?
Absorption
Variable
A.
Decrease
No effect
B.
Decrease
Increase
C.
Increase
No effect
D.
Increase
Decrease
The purchase prices of the raw materials used in the manufacture of this new chemical
solution are as follows:
Nyclyn
P15.00 per kilogram
Salex
P21.00 per liter
Protet
P28.00 per kilogram
The total standard materials cost of 20 liters of the product is:
A. P1,043.20
C. P 834.56
B. P1,304.00
D. P1,234.00
34. Favorable volume variances may be harmful when:
A. Machine repairs cause work stoppages
B. Supervisors fail to maintain an even flow of work
C. Production in excess of normal capacity cannot be sold
D. There are insufficient sales orders to keep the factory operating at normal capacity
ii.
Three-way Overhead variance
35. During 2006, a department’s three-variance overhead standard costing system reported
unfavorable spending and volume variances. The activity level selected for allocating
overhead to the product was based on 80% of practical capacity. It 100% of practical capacity
had been selected instead, how would the reported unfavorable spending and volume
variances be affected?
Spending Variance
Volume Variance
A.
Increased
Unchanged
B.
Increased
Increased
C.
Unchanged
Increased
D.
Unchanged
Unchanged
iii. Each finished unit of Product EM contains 60 pounds of raw material. The manufacturing
process must provide for a 20% waste allowance. The raw material can be purchased for
P2.50 a pound under terms of 2/10, n/30. The company takes all cash discounts. The
standard direct material cost for each unit of EM is:
A. P180.00
C. P187.50
206
El Andre Co. uses a standard costing system in connection with the manufacture of a line of Tshirts. Each unit of finished product contains 2.25 yards of direct material. However, a 25
percent direct material spoilage calculated on input quantities occurs during the manufacturing
process. The cost of the direct materials is P150 per yard. The standard direct material cost
per unit of finished product is
A. P 253
C. P 450
B. P 422
D. P 405
Standard Costs and Variance Analysis
B. P183.75
D. P176.40
Laborers’ fringe benefits treated as direct labor costs
What is the standard direct labor cost per unit of Part J35?
A. P62.500
C. P41.670
B. P78.125
D. P84.125
iv. The Vandana Company has a signature scarf for ladies that is very popular. Certain
production and marketing data are indicated below:
Cost per yard of cloth
P40.00
Allowance for rejected scarf
5% of production
Yards of cloth needed per scarf
0.475 yard
Airfreight from supplier
P1.00/yard
Motor freight to customers
P0.90 /scarf
Purchase discounts from supplier
3%
Sales discount to customers
2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have
no market value. Materials are used at the start of production.
Calculate the standard cost of cloth per scarf that Vandana Company should use in its cost
sheets.
A. P19.85
C. P19.40
B. P20.00
D. P19.90
Materials & Labor
Questions Nos. 7 and 8 are based on the following:
Supercold Company is a small producer of fruit-flavored frozen desserts. For many years,
Supercold’s products have had strong regional sales on the basis of brand recognition. However,
other companies have begun marketing similar products in the area, and price competition has
become increasingly important. Haydee Mejia, the company’s controller, is planning to implement
a standard costing system for Supercold and has gathered considerable information on production
and material requirements for Supercold’s products. Haydee believes that the use of standard
costing will allow Supercold to improve cost control and make better pricing decisions.
Supercold’s most popular products is strawberry sherbet. The sherbet is produced in 10-gallon
batches, and each batch requires six quarts of good strawberries. The fresh strawberries are
sorted by hand before entering the production process. Because of imperfections in the
strawberries and normal spoilage, one quart of berries is discarded for every four quarts of
acceptable berries. Three minutes is the standard direct labor time for sorting that is required to
obtain one quart of acceptable berries. The acceptable berries are then blended with the other
ingredients; blending requires 12 minutes of direct labor time per batch. After blending, the sherbet
is package in quart containers. Haydee has gathered the following information from Rizza Alano,
Supercold’s cost accountant.
Direct labor
v. Double M company is a chemical manufacturer that supplies various products to industrial
users. The company plans to introduce a new chemical solution called Bysap, for which it
needs to develop a standard product cost. The following labor information is available on the
production of Bysap.
• The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex,
and Protet.
• The finished product is highly unstable, and one 10-liter batch out of six is rejected at final
inspection. Rejected batches have no commercial value and are thrown out.
• It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work on
eight-hour a day, including one hour per day for rest breaks and cleanup.
What is the standard labor time to produce one 10-liter batch of Bysap?
A. 35 minutes
C. 48 minutes
B. 40 minutes
D. 45 minutes
vi. The following direct labor information pertains to the manufacture of Part J35:
Number of hours required to make a part
Number of Direct workers
Number of total productive hours per week
Weekly wages per worker
25% of wages
Supercold purchases strawberries at a cost of P8.00 per quart. All other ingredients cost a total of
P4.50 per gallon.
Direct labor is paid at the rate of P50 per hour.
The total cost of material and labor required to package the sherbet is P3.80 per quart.
Rizza Alano has a friend who owns a berry farm that has been losing money in recent years.
Because of good crops, there has been an oversupply of strawberries, and prices have dropped to
P5.00 per quart. Rizza has arranged for Supercold to purchase strawberries form her friend and
hopes that P8.00 per quart will help her friend’s farm become profitable again.
2.5 DLH
75
3000
P1,000
vii. The standard materials cost per 10-gallon batch of strawberry sherbet is:
A. P 85.00
C. P101.00
B. P 60.00
D. P105.00
207
Standard Costs and Variance Analysis
A. P6,000 unfavorable
B. P5,200 unfavorable
viii. The standard direct labor cost per 10-gallon batch of sherbet is:
A. P50.00
C. P25.00
B. P28.75
D. P15.00
C. P3,200 unfavorable
D. P2,000 unfavorable
xiv. The Bohol Company uses standard costing. The following data are available for October:
Actual quantity of direct materials used
23,500 pounds
Standard price of direct materials
P2 per pound
Material quantity variance
P1,000 U
The standard quantity of materials allowed for October production is:
A. 23,000 lbs
C. 24,000 lbs
B. 24,500 lbs
D. 25,000 lbs
Materials variance
ix. Under a standard cost system, the materials quantity variance was recorded at P1,970
unfavorable, the materials price variance was recorded at P3,740 favorable, and the Goods in
Process was debited for P51,690. Ninety-six thousand units were completed. What was the
per unit price of the actual materials used?
A. P0.52 each
C. P0.54 eac
B. P0.53 each
D. P0.51 each
xv. Information on Dulce’s direct material costs for May is as follows:
Actual quantity of direct materials purchased and used
Actual cost of direct materials
Unfavorable direct materials usage variance
Standard quantity of direct materials allowed for May production
For the month of May, Dulce’s direct materials price variance was:
A. P2,800 favorable
C. P2,800 unfavorable
B. P6,000 unfavorable
D. P6,000 favorable
x. Blake Company has a standard price of P5.50 per pound for materials. July’s results showed
an unfavorable material price variance of P44 and a favorable quantity variance of P209. If
1,066 pounds were used in production, what was the standard quantity allowed for materials?
A. 1,104
C. 1,066
B. 1,074
D. 1,100
xi. Elite Company uses a standard costing system in the manufacture of its single product. The
35,000 units of raw material in inventory were purchased for P105,000, and two units of raw
material are required to produce one unit of final product. In November, the company
produced 12,000 units of product. The standard allowed for material was P60,000, and there
was an unfavorable quantity variance of P2,500. The materials price variance for the units
used in November was
A. P 2,500 U
C. P12,500 U
B. P11,000 U
D. P 3,500 F
xvi. Information on Katrina Company’s direct material costs is as follows:
Standard unit price
Actual quantity purchased
Standard quantity allowed for actual production
Materials purchase price variance – favorable
What was the actual purchase price per unit, rounded to the nearest centavos?
A. P3.06
C. P3.11
B. P3.45
D. P3.75
xii. Sheridan Company has a standard of 15 parts of component BB costing P1.50 each.
Sheridan purchased 14,910 units of component BB for P22,145. Sheridan generated a P220
favorable price variance and a P3,735 favorable quantity variance. If there were no changes
in the component inventory, how many units of finished product were produced?
A. 994 units.
C. 1,000 units
B. 1,090 units.
D. 1,160 units
30,000 lbs.
P84,000
P 3,000
29,000 lbs
P 3.60
1,600
1,450
P 240
xvii. Palmas Company, which has a standard cost system, had 500 units of raw material X in its
inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of
P1.00. The following information pertains to raw material X for the month of June:
Actual number of units purchased
1,400
Actual number of units used
1,500
Standard number of units allowed for actual production
1,300
Standard cost per unit
P1.00
Actual cost per unit
P1.10
The unfavorable materials purchase price variance for raw material X for June was:
xiii. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent
P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of
finished product. The material quantity variance is:
208
Standard Costs and Variance Analysis
A. P 0
B. P130
C. P140
D. P150
Total
Actual output
The material yield variance is:
A. P 280 unfavorable
B. P3,989 unfavorable
xviii.During March, Lumban Company’s direct material costs for the manufacture of product T were
as follows:
Actual unit purchase price
P6.50
Standard quantity allowed for actual production
2,100
Quantity purchased and used for actual production
2,300
Standard unit price
P6.25
Lumban’s material usage variance for March was:
A. P1,250 unfavorable
C. P1,250 favorable
B. P1,300 unfavorable
D. P1,300 favorable
20,160
18,500
C. P 280 favorable
D. P3,989 favorable
Labor variance
xxi. The flexible budget for the month of May 2007 was for 9,000 units with direct material at P15
per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual
output for the month was 8,500 units with P127,500 in direct material and P77,775 in direct
labor expense. Direct labor hours of 6,375 were actually worked during the month. Variance
analysis of the performance for the month of May would show a(n):
A. Favorable material quantity variance of P7,500.
B. Unfavorable direct labor efficiency variance of P1,275.
C. Unfavorable material quantity variance of P7,500.
D. Unfavorable direct labor rate variance of P1,275.
xix. Razonable Company installs shingle roofs on houses. The standard material cost for a Type R
house is P1,250, based on 1,000 units at a cost of P1.25 each. During April, Razonable
installed roofs on 20 Type R houses, using 22,000 units of material cost of P26,400.
Razonable’s material price variance for April is:
A. P1,000 favorable
C. P1,100 favorable
B. P1,400 unfavorable
D. P2,500 unfavorable
xxii. The standard hourly rate was P4.10. Standard hours for the level of production are 4,000. The
actual rate was P4.27. The labor rate variance was P654.50, unfavorable. What were the
actual labor hours?
A. 3,700
C. 3,850
B. 4,150
D. 4,000
xx. Samson Candle Co. manufactures candles in various shapes, sizes, colors, and scents.
Depending on the orders received, not all candles require the same amount of color, dye, or
scent materials. Yields also vary, depending upon the usage of beeswax or synthetic wax.
Standard ingredients for 1,000 pounds of candles are:
Input:
Standard Mix
Standard Cost per Pound
Beeswax
200 lbs.
1.00
Synthetic wax
840 lbs.
0.20
Colors
7 lbs.
2.00
Scents
3 lbs.
6.00
Totals
1,050 lbs.
9.20
Standard output
1,000 lbs.
Price variances are charged off at the time of purchase. During January, the company was
busy manufacturing red candles for Valentine’s Day. Actual production then was:
Input:
In Pounds
Beeswax
4,100
Synthetic wax
13,800
Colors
2,200
Scents
60
xxiii.Clean Harry Corp. uses two different types of labor to manufacture its product. The types of
labor, Mixing and Finishing, have the following standards:
Labor Type
Standard Mix
Std Hourly Rate
Standard Cost
Mixing
500 hours
P10
P5,000
Finishing
250 hours
P5
P1,250
Yield:
4,000 units
During January, the following actual production information was provided:
Labor Type
Actual Mix
Mixing
4,500 hours
Finishing
3,000 hours
Yield:
36,000 units
What is the labor mix variance?
A. P2,500 F
C. P2,500 U
B. P5,000 F
D. P5,000 F
209
Standard Costs and Variance Analysis
xxiv.
How much labor yield variances should be reported?
A. P6,250 U
C. P5,250 F
B. P6,250 F
D. P5,250 U
xxix.
Simbad Company’s operations for the month just ended originally set up a 60,000 direct
labor hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of
P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and
that the unfavorable variable overhead variance was P40,000. Labor trouble caused an
unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates
resulted in an actual average wage rate of P16.40 per hour. The total number of standard
direct labor hours allowed for the actual units produced is
A. P52,500
C. P62,500
B. P77,500
D. P70,000
xxv. Hingis had a P750 unfavorable direct labor rate variance and an P800 favorable efficiency
variance. Hingis paid P7,150 for 800 hours of labor. What was the standard direct labor
wage rate?
A. P8.94
C. P8.00
B. P7.94
D. P7.80
xxvi.
Powerless Company’s operations for April disclosed the following data relating to direct
labor:
Actual cost
P10,000
Rate variance
1,000 favorable
Efficiency variance
1,500 unfavorable
Standard cost
P 9,500
Actual direct labor hours for April amounted to 2,000. Powerless’ standard direct labor rate per
hour in April was:
A. P5.50
C. P5.00
B. P4.75
D. P4.50
Questions 30 and 31 are based on the following information.
Information on Goodeve Company’s direct labor costs are presented below:
Standard direct labor hours
Actual direct labor hours
Direct labor efficiency variance Favorable
Direct labor rate variance Favorable
Total payroll
xxx. What was Goodeve’s standard direct labor rate?
A. P3.54
C. P3.80
B. P4.00
D. P5.80
xxvii.
Lion Company’s direct labor costs for the month of January were as follows:
Actual direct labor hours
20,000
Standard direct labor hours
21,000
Direct labor rate variance – Unfav.
P 3,000
Total payroll
P126,000
What was Lion’s direct labor efficiency variance?
A. P6,000 favorable
C. P6,150 favorable
B. P6,300 favorable
D. P6,450 favorable
Using the information given below, determine the labor efficiency variance:
Labor price per hour
Standard labor price per gallon of output at 20 gal./hr
Standard labor cost of 8,440 gallons of actual output
Actual total inputs(410 hours at P21/hr)
A. P 410 unfavorable
C. P 240 favorable
B. P 170 unfavorable
D. P 410 favorable
30,000
29,000
P 4,000
P 5,800
P110,200
xxxi.
What was Goodeve’s actual direct labor rate?
A. P3.60
C. P3.80
B. P4.00
D. P5.80
xxxii. The Islander Corporation makes a variety of leather goods. It uses standards costs and a
flexible budget to aid planning and control. Budgeted variable overhead at a 45,000-direct
labor hour level is P27,000.
During April material purchases were P241,900. Actual direct-labor costs incurred were
P140,700. The direct-labor usage variance was P5,100 unfavorable. The actual average
wage rate was P0.20 lower than the average standard wage rate.
The company uses a variable overhead rate of 20% of standard direct-labor cost for flexible
budgeting purposes. Actual variable overhead for the month was P30,750.
What were the standard hours allowed during the month of April?
A. 50,250
C. 58,625
B. 48,550
D. 37,520
xxviii.
P 20
P
1
P8,440
P8,610
210
Standard Costs and Variance Analysis
xxxiii.
Information on Barber Company’s direct labor costs for the month of January is as follows:
Actual direct labor hours
34,500
Standard direct labor hours
35,000
Total direct labor payroll
P241,500
Direct labor efficiency variance – favorable
P 3,200
What is Barber’s direct labor rate variance?
A. P17,250 U
C. P21,000 U
B. P20,700 U
D. P21,000 F
xxxvii.
Kent Company sets the following standards for 2007:
Direct labor cost (2 DLH @ P4.50)
P 9.00
Manufacturing overhead (2 DLH @ P7.50)
15.00
Kent Company plans to produce its only product equally each month. The annual budget for
overhead costs are:
Fixed overhead
P150,000
Variable overhead
300,000
Normal activity in direct labor hours
60,000
In March, Kent Company produced 2,450 units with actual direct labor hours used of 5,050.
Actual overhead costs for the month amounted to P37,245 (Fixed overhead is as budgeted.)
The amount of overhead volume variance for Kent Company is
A. P250 unfavorable
C. P500 unfavorable
B. P750 Unfavorable
D. P375 Unfavorable
xxxiv. STA Company uses a standard cost system. The following information pertains to direct
labor costs for the month of June:
Standard direct labor rate per hour
P 10.00
Actual direct labor rate per hour
P 9.00
Labor rate variance (favorable)
P12,000
Actual output (units)
2,000
Standard hours allowed for actual production
10,000 hours
How many actual labor hours were worked during March for STA Company?
A. 10,000
C. 8,000
B. 12,000
D. 10,500
Information of Hanes’ direct labor costs for the month of May is as follows:
Actual direct labor rate
Standard direct labor hours allowed
Actual direct labor hours
Direct labor rate variance – favorable
What was the standard direct labor rate in effect for the month of May?
A. P6.95
C. P8.00
B. P7.00
D. P8.05
xxxviii. Calma Company uses a standard cost system. The following budget, at normal capacity,
and the actual results are summarized for the month of December:
Direct labor hours
24,000
Variable factory OH
P 48,000
Fixed factory OH
P108,000
Total factory OH per DLH
P 6.50
Actual data for December were as follows:
Direct labor hours worked
22,000
Total factory OH
P147,000
Standard DLHs allowed for capacity attained
21,000
Using the two-way analysis of overhead variance, what is the controllable variance for
December?
A. P 3,000 Favorable
C.
P 5,000 Favorable
B. P 9,000 Favorable
D.
P10,500 Unfavorable
xxxv.
P7.50
11,000
10,000
P5,500
Two-way overhead variance
xxxvi. The overhead variances for Big Company were:
Variable overhead spending variance:
P3600 favorable.
Variable overhead efficiency variance:
P6,000 unfavorable.
Fixed overhead spending variance:
P10,000 favorable.
Fixed overhead volume variance:
P24,000 favorable.
What was the overhead controllable variance?
A. P31,600 favorable
C. P24,000 favorable
B. P13,600 favorable
D. P 7,600 favorable
xxxix. Heart Company uses a flexible budget system and prepared the following information for
the year:
Percent of Capacity
80 Percent
90 Percent
Direct labor hours
24,000
27,000
Variable factory overhead
P 54,000
P 60,750
Fixed factory overhead
P 81,000
P 81,000
Total factory overhead rate per DLH
P5.625
P5.25
Heart operated at 80 percent of capacity during the year, but applied factory overhead based
211
Standard Costs and Variance Analysis
on the 90 percent capacity level. Assuming that actual factory overhead was equal to the
budgeted amount of overhead, how much was the overhead volume variance for the year?
A. P 9,000 unfavorable
C. P 9,000 favorable
B. P15,750 unfavorable
D. P15,750 favorable
A. P1,000 favorable
B. P6,000 favorable
C. P1,000 unfavorable
D. P6,000 unfavorable
xliv. The standard factory overhead rate is P10 per direct labor hour (P8 for variable factory
overhead and P2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor
hours. The standard cost and the actual cost of factory overhead for the production of 5,000
units during May were as follows:
Standard: 25,000 hours at P10
P250,000
Actual:
Variable factory overhead
202,500
Fixed factory overhead
60,000
What is the amount of the factory overhead volume variance?
A. 12,500 favorable
C. 12,500 unfavorable
B. 10,000 unfavorable
D. 10,000 favorable
xl. The Fire Company has a standard absorption and flexible budgeting system and uses a twoway analysis of overhead variances. Selected data for the June production activity are:
Budgeted fixed factory overhead costs
P 64,000
Actual factory overhead
230,000
Variable factory overhead rater per DLH
P
5
Standard DLH
32,000
Actual DLH
32,000
The budget (controllable) variance for June is
A. P1,000 favorable
C. P1,000 unfavorable
B. P6,000 favorable
D. P6,000 unfavorable
Three-way overhead variance
xlv. The following data are the actual results for Wow Company for the month of May:
Actual output
4,500 units
Actual variable overhead
P360,000
Actual fixed overhead
P108,000
Actual machine time
14,000 MH
Standard cost and budget information for Wow Company follows:
Standard variable overhead rate
P6.00 per MH
Standard quantity of machine hours
3 hours per unit
Budgeted fixed overhead
P777,600 per year
Budgeted output
4,800 units per month
The overhead efficiency variance is
A. P3,000 Favorable
C. P3,000 Unfavorable
B. P5,400 Favorable
D. P5,400 Unfavorable
xli. Sorsogon Company had actual overhead of P14,000 for the year. The company applied
overhead of P13,400. If the overhead budgeted for the standard hours allowed is P15,600, the
overhead controllable variance is
A. P 600 Favorable
C. P1,600 Favorable
B. P2,200 Unfavorable
D. P1,600 Unfavorable
xlii. Compo Co. uses a predetermined factory O/H application rate based on direct labor cost. For
the year ended December 31, Compo’s budgeted factory O/H was P600,000, based on a
budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of P6 per hour.
Actual factory O/H amounted to P620,000, with actual direct labor cost of P325,000. For the
year, over-applied factory O/H was
A. P20,000
C. P30,000
B. P25,000
D. P50,000
xlvi. The Libiran Company produces its only product, Menthol Chewing Gum. The standard
overhead cost for one pack of the product follows:
Fixed overhead (1.50 hours at P18.00)
P27.00
Variable overhead (1.50 hours at P10.00)
15.00
Total application rate
P42.00
Libiran uses expected volume of 20,000 units. During the year, Libiran used 31,500 direct
labor hours for the production of 20,000 units. Actual overhead costs were P545,000 fixed
and P308,700 variable.
The overhead efficiency variance is
xliii. The Terrain Company has a standard absorption and flexible budgeting system and uses a
two-way analysis of overhead variances. Selected data for the June production activity are:
Budgeted fixed factory overhead costs
P 64,000
Actual factory overhead
230,000
Variable factory overhead rater per DLH
P
5
Standard DLH
32,000
Actual DLH
32,000
The budget (controllable) variance for the month of June is:
212
Standard Costs and Variance Analysis
A. P22,500 Favorable
B. P22,500 Unfavorable
C. P15,000 Favorable
D. P15,000 Unfavorable
Budgeted output
The overhead efficiency variance is:
A. P3,000 Favorable
B. P5,400 Favorable
xlvii.Abbey Company produces a single product. Abbey employs a standard cost system and uses
a flexible budget to predict overhead costs at various levels of activity. For the most recent
year, Abbey used a standard overhead rate equal to P8.50 per direct labor hour. The rate was
computed using normal activity. Budgeted overhead costs are P100,000 for 10,000 direct
labor hours and P160,000 for 20,000 direct labor hours. During the past year, Abbey generate
the following data:
Actual production: 1,400 units
Fixed overhead volume variance: P5,000 U
Variable overhead efficiency variance: P3,000 F
Actual fixed overhead costs: P42,670
Actual variable overhead costs: P82,000
The number of direct labor hours used as normal activity are:
A. 16,000
C. 14,000
B. 15,000
D. 13,500
xlviii.
Using the information presented below, calculate the total overhead spending variance.
Budgeted fixed overhead
P10,000
Standard variable overhead (2 DLH at P2 per DLH)
P4 per unit
Actual fixed overhead
P10,300
Actual variable overhead
P19,500
Budgeted volume (5,000 units x 2 DLH)
10,000 DLH
Actual direct labor hours (DLH)
9,500
Units produced
4,500
A. P 500 U
C. P1,000 U
B. P 800 U
D. P1,300 U
4,800 unit per month
C. P3,000 Unfavorable
D. P5,400 Unfavorable
l.
The following information is available from the Tyro Company:
Actual factory overhead
Fixed overhead expenses, actual
Fixed overhead expenses, budgeted
Actual hours
Standard hours
Variable overhead rate per DLH
Assuming that Tyro uses a three-way analysis of overhead variances, what is
variance?
A. P 750 F
C. P 950 F
B. P 750 U
D. P1,500 U
li.
The Sacto Co.’s standard fixed overhead cost is P3 per direct labor hour based on budgeted
fixed costs of P300,000. The standard allows 2 direct labor hours per unit. During 2006,
Sacto produced 55,000 units of product, incurred P315,000 of fixed overhead costs, and
recorded P106,000 actual hours of direct labor. What are the fixed overhead variances?
Spending variance
Volume variance
A.
P15,000 U
P30,000 F
B.
P33,000 U
P30,000 F
C. P15,000 U
P18,000 F
D.
P33,000 U
P18,000 F
P15,000
P 7,200
P 7,000
3,500
3,800
P 2.50
the spending
lii. Using the information in the preceding number, the amounts of controllable variances for
variable overhead are:
Spending
Efficiency
A. P20,000 Fav
P20,000 Unf
B. P20,000 Unf
P20,000 Fav
C. P 5,000 Unf
P20,000 Unf
D. P20,000 Fav
P 5,000 Unf
xlix. The following data are the actual results for Bustos Company for the month of May:
Actual output
4,500 units
Actual variable overhead
P360,000
Actual fixed overhead
P108,000
Actual machine time
14,000 MH
Standard cost and budget information for Bustos Company follows:
Standard variable overhead rate
P6.00 per MH
Standard quantity of machine hours
3 hours per unit
Budgeted fixed overhead
P777,600 per year
Four-way overhead variance
liii. Safin Corporation’s master budget calls for the production of 5,000 units of product monthly.
The annual master budget includes indirect labor of P144,000 annually. Safin considers
213
Standard Costs and Variance Analysis
indirect labor to be a variable cost. During the month of April, 4,500 units of product were
produced, and indirect labor costs of P10,100 were incurred. A performance report utilizing
flexible budgeting would report a budget variance for indirect labor of:
A. P1,900 Unfavorable.
C. P1,900 Favorable.
B. P 700 Unfavorable.
D. P 700 Favorable.
lviii. Calvin Klein Company has a standard fixed cost of P6 per unit. At an actual production of
8,000 units a favorable volume variance of P12,000 resulted. What were total budgeted fixed
costs?
A. P36,000.
C. P48,000.
B. P60,000.
D. P75,000.
liv. Wala Company applies overhead on a direct labor hour basis. Each unit of product requires 5
direct labor hours. Overhead is applied on a 30 percent variable and 70 percent fixed basis;
the overhead application rate is P16 per hour. Standards are based on a normal monthly
capacity of 5,000 direct labor hours.
During September 2006, Wala produced 1,010 units of product and incurred 4,900 direct labor
hours. Actual overhead cost for the month was P80,000.
What is total annual budgeted fixed overhead cost?
A. P 56,000
C. P672,000
B. P 56,560
D. P678,720
lix. Puma Company had an 25,000 unfavorable volume variance, a P18,000 unfavorable variable
overhead spending variance, and P2,000 total under applied overhead. The fixed overhead
budget variance is
A. P41,000 favorable
C. P45,000 favorable
B. P41,000 Unfavorable
D. P45,000 Unfavorable
lx. Arlene had an P18,000 unfavorable volume variance, a P25,000 unfavorable variable
overhead spending variance, and P2,000 total under applied overhead. The fixed overhead
budget variance is:
A. P41,000 favorable
C. P45,000 favorable
B. P41,000 Unfavorable
D. P45,000 Unfavorable
lv. Budgeted variable overhead for the level of production achieved is 40,000 machine-hours at a
budgeted cost of P62,000. Actual variable overhead at the level of production achieved was
38,000 hours at an actual cost of P62,400. What is the total variable overhead variance?
A. P400 favorable
C. P3,100 unfavorable
B. P400 unfavorable
D. P3,100 favorable
lxi. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were
budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed
overhead spending variance was P16,000 unfavorable, fixed manufacturing overhead applied
must be:
A. P516,000
C. P512,000
B. P504,000
D. P496,000
lvi. The Pinatubo Company makes and sells a single product and uses standard costing. During
January, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units
of product. The standard cost card for one unit of product includes the following:
Variable factory overhead: 3.0 DLHs @ P4.00 per DLH
Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH
For January, the company incurred P22,000 of actual fixed overhead costs and recorded a
P875 favorable volume variance.
The budgeted fixed overhead cost for January is:
A. P31,500
C. P30,625
B. P32,375
D. P33,250
lxii. CTV Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 units
a favorable volume variance of P12,000 resulted. What were total budgeted fixed costs?
A. P36,000
C. P48,000
B. P60,000
D. P75,000
lxiii. Richard Company employs a standard absorption system for product costing. The standard
cost of its product is as follows:
Raw materials
P14.50
Direct labor (2 DLH x P8)
16.00
Manufacturing overhead (2 DLH x P11)
22.00
Total standard cost
P52.50
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor
lvii. The variable-overhead spending variance is P1,080, unfavorable. Variable overhead budgeted
at 40,000 machine hours is P50,000. Actual machine hours were 36,000. What was the actual
variable-overhead rate per machine hour?
A. P1.28
C. P1.39
B. P1.25
D. P1.52
214
Standard Costs and Variance Analysis
hours. Richard planned to produce 25,000 units each month during the year. The budgeted
annual manufacturing overhead is:
Variable
P 3,600,000
Fixed
3,000,000
P 6,600,000
During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in
November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000
fixed and P315,000 variable. The total manufacturing overhead applied during November was
P572,000.
The fixed manufacturing overhead volume variance for November is:
A. P10,000 favorable
C. P10,000 unfavorable
B. P3,000 unfavorable
D. P22,000 favorable
Applied
(Standard input allowed for actual output achieved x the budgeted rate)
Fixed overhead
Variable overhead spending variance
Production volume variance
P125,000
1,200 F
5,000 U
lxvi. The fixed overhead efficiency variance is:
A. P 3,000 favorable
B. P10,000 unfavorable
C. P 3,000 unfavorable
D. Never a meaningful variance
The following information pertains to the month of March:
Units actually produced
Actual direct labor hours worked
Actual overhead incurred:
Variable
Fixed
Question Nos. 65 and 66 are based on the following:
Tiny Bubbles Company had the following activity relating to its fixed and variable overhead for the
month of July.
Actual costs
Fixed overhead
P120,000
Variable overhead
80,000
P 90,000
C. 100 direct labor hours efficient
D. 440 direct labor hours efficient
Questions 67 and 68 are based on a monthly normal volume of 50,000 units (100,000 direct labor
hours). Raff Co.’s standard cost system contains the following overhead costs:
Variable
P6 per unit
Fixed
P8 per unit
lxiv. Using the information for Richard Company in the preceding number, the total variance related
to efficiency of the manufacturing operation for November is:
A. P 9,000 unfavorable
C. P12,000 unfavorable
B. P21,000 unfavorable
D. P11,000 unfavorable
Flexible budget
(Standard input allowed for actual output achieved x the budgeted rate)
Variable overhead
A. 100 direct labor hours inefficient
B. 440 direct labor hours inefficient
38,000
80,000
P250,000
384,000
lxvii.For March, the unfavorable variable overhead spending variance was:
A. P6,000
C. P12,000
B. P10,000
D. P22,000
lxviii. For March, the fixed overhead volume variance was:
A. P96,000U
C. P80,000U
B. P96,000F
D. P80,000F
lxix. Edney Company employs standard absorption system for product costing. The standard cost
of its product is as follows:
Raw materials
P14.50
Direct labor (2 DLH x P8)
16.00
Manufacturing overhead (2 DLH x P11)
22.00
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor
hours. Edney planned to produce 25,000 units each month during the year. The budgeted
annual manufacturing overhead is
Variable
P3,600,000
Fixed
3,000,000
During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in
lxv. If the budgeted rate for applying variable manufacturing overhead was P20 per direct labor
hour, how efficient or inefficient was Tiny Bubbles in terms of using direct labor hours as an
activity base?
215
Standard Costs and Variance Analysis
November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000
fixed and P315,000 variable. The total manufacturing overhead applied during November was
P572,000.
The variable manufacturing overhead variances for November are:
Spending
Efficiency
A. P9,000 unfavorable
P3,000 unfavorable
B. P6,000 favorable
P9,000 unfavorable
C. P4,000 unfavorable
P1,000 favorable
D. P9,000 favorable
P12,000 unfavorable
A. P1,600 Favorable
B. P 800 Favorable
Questions 75 through 78 are based on Darf Company, which applies overhead on the basis of
direct labor hours. Two direct labor hours are required for each product unit. Planned production
for the period was set at 9,000 units. Manufacturing overhead is budgeted at P135,000 for the
period, of which 20% of this cost is fixed. The 17,200 hours worked during the period resulted in
production of 8,500 units. Variable manufacturing overhead cost incurred was P108,500 and fixed
manufacturing overhead cost was P28,000. Darf Company uses a four variance method for
analyzing manufacturing overhead.
lxx. The fixed manufacturing overhead variances for November are:
Spending
Volume
A. P10,000 favorable
P10,000 favorable
B. P10,000 unfavorable
P10,000 favorable
C. P 6,000 favorable
P 3,000 unfavorable
D. P 4,000 unfavorable
P22,000 favorable
lxxv.
The variable overhead spending variance for the period is
A. P5,300 unfavorable
C. P6,300 unfavorable
B. P1,200 unfavorable
D. P6,500 unfavorable
lxxvi. The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 unfavorable
C. P1,200 unfavorable
B. P1,500 unfavorable
D. P6,500 unfavorable
The following information will be used to answer Question Nos. 71 through 74:
Garch, Inc. analyzes manufacturing overhead in the production of its only one product, CD. The
following set of information applies to the month of May, 2006:
Budgeted
Actual
Units produced
40,000
38,000
Variable manufacturing OH
P 4/DLH
P16,400
Fixed manufacturing overhead
P20/DLH
P88,000
Direct labor hours
6 min/unit
4,200 hr
lxxi. What is the fixed overhead spending variance?
A. P4,000 Favorable
C. P8,000 Unfavorable
B. P8,000 Favorable
D. P4,000 Unfavorable
lxxii.What is the volume variance?
A. P4,000 Favorable
B. P4,000 Unfavorable
lxxvii. The fixed overhead budget (spending) variance for the period is
A. P6,300 unfavorable
C. P2,500 unfavorable
B. P1,500 unfavorable
D. P1,000 unfavorable
lxxviii. The fixed overhead volume (denominator) variance for the period is
A. P 750 unfavorable
C. P2,500 unfavorable
B. P1,500 unfavorable
D. P1,000 unfavorable
Comprehensive
lxxix. Big Marat, Inc. began operations on January 3. Standard costs were established in early
January assuming a normal production volume of 160,000 units. However, Big Marat
produced only 140,000 units of product and sold 100,000 units at a selling price of P180 per
unit during the year. Variable costs totaled P7,000,000, of which 60% were manufacturing and
40% were selling. Fixed costs totaled P11,200,000, of which 50% were manufacturing and
50% were selling. Big Marat had no raw materials or work-in-process inventories at December
31. Actual input prices and quantities per unit of product were equal to standard.
Using absorption costing, Big Marat’s income statement would show:
A.
B.
C.
D.
Cost of Goods Sold at Standard Cost P8,200,000 P7,200,000 P6,500,000 P7,000,000
C. P8,000 Favorable
D. P8,000 Unfavorable
lxxiii. How much was the variable overhead spending variance?
A. P 400 Favorable
C. P400 Unfavorable
B. P1,200 Favorable.
D. P1,200 Unfavorable
lxxiv.
C. P1,600 Unfavorable
D. P800 Unfavorable
How much overhead efficiency variance resulted for the month of May?
216
Standard Costs and Variance Analysis
Overhead Volume Variance
It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that
to avoid looking like a bungling fool you must somehow generate the necessary “backup” data
for the variances before the meeting begins. Without backup data it will be impossible to lead
the discussion or answer any questions.
P800,000 U P800,000 F P700,000 U P700,000 F
Questions No. 80 through 85 are based on the following information:
You have recently graduated from a university and have accepted a position with Villar Company,
the manufacturer of a popular consumer product. During your first week on the job, the vice
president has been favorably impressed with your work. She has been so impressed, in fact, that
yesterday she called you into her office and asked you to attend the executive committee meeting
this morning for the purpose of leading a discussion on the variances reported for last period.
Anxious to favorably impress the executive committee, you took the variances and supporting data
home last night to study.
lxxx.
How many pounds of direct materials were purchased and used in the production of
22,500 units?
A. 138,000 lbs.
C. 135,000 lbs.
B. 132,000 lbs.
D. 137,300 lbs.
lxxxi. What was the actual cost per pound of material?
A. P3.00
C. P2.95
B. P3.05
D. P3.10
On your way to work this morning, the papers were laying on the seat of your new, red convertible.
As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew
them over the edge of the bridge and into the stream below. You managed to retrieve only one
page, which contains the following information:
Standard Cost Summary
Direct materials, 6 pounds at P3
Direct labor, 0.8 hours at P5
Variable overhead, 0.8 hours at P3
Fixed overhead, 0.8 hours at P7
lxxxii. How many actual direct labor hours were worked during the period?
A. 18,000
C. 19,400
B. 16,600
D. 18,970
P18.00
4.00
2.40
5.60
P30.00
lxxxiii. How much actual variable manufacturing overhead cost was incurred during the period?
A. P55,300
C. P56,900
B. P58,200
D. P59,500
lxxxiv. What is the total fixed manufacturing overhead cost in the company’s flexible budget?
A. P112,500
C. P139,500
B. P140,000
D. P125,500
Total
VARIANCES REPORTED
Standard
Price or Spending or Quantity or
Volume
Cost
Rate
Budget
Efficiency
Direct materials
P405,000
P6,900 F
P9,000 U
Direct labor
90,000
4,850 U
7,000 U
Variable overhead
54,000
P1,300 F
?@
Fixed overhead
126,000
500 F
P14,000U
Applied to Work in process during the period
@ Figure obliterated.
lxxxv. What were the denominator hours for last period?
A. 18,000 hours
C. 20,000 hours
B. 22,000 hours
D. 25,000 hours
Productivity measures
Manufacturing cycle efficiency
lxxxvi. Fireout Company manufactures fire hydrants in Bulacan. The following information
pertains to operations during the month of May:
Processing hours (average per batch)
8.0
Inspection hours (average per batch)
1.5
Waiting hours (average per batch)
1.5
Move time (average per batch)
1.5
You recall that manufacturing overhead cost is applied to production on the basis of direct
labor-hours and that all of the materials purchased during the period were used in production.
Since the company uses JIT to control work flows, work in process inventories are insignificant
and can be ignored.
217
Standard Costs and Variance Analysis
Units per batch
The manufacturing cycle efficiency (MCE) is:
A. 72.7%
C. 64.0%
B. 36.0%
D. 76.0%
Throughput time
lxxxvii. Choco Company manufactures fire hydrants in Bulacan.
pertains to operations during the month of May:
Processing time (average per batch)
Inspection time (average per batch)
Waiting time (average per batch)
Move time (average per batch)
Units per batch
The throughput time is:
A. 12.5 hours
C. 4.5 hours
B. 8.0 hours
D. 9.5 hours
20 units
must be
A. P516,000
B. P488,000
i.
The following information
8.0 hours
1.5 hours
1.5 hours
1.5 hours
20 units
Answer: D
Nyclyn
Salex
Protet
Total
C. P512,000
D. P496,000
(24 ÷ 0.80 x P15)
(19.20 ÷ 0.80 x P21)
(10 x P28)
P 450.00
504.00
280.00
P1,234.00
ii. Answer: C
Required inputs to be placed in process per unit of product: 2.25 ÷0.75
Standard Material cost per unit of product: 3.0 x P150
iii. Answer: B
Required inputs of raw materials (in pounds)
Standard price per pound
Standard materials cost per unit
Delivery cycle time
lxxxviii. Alabang Corporation is a highly automated manufacturing firm. The vice president of
finance has decided that traditional standards are inappropriate for performance measures in
an automated environment. Labor is insignificant in terms of the total cost of production and
tends to be fixed, material quality is considered more important than minimizing material cost,
and customer satisfaction is the number one priority. As a result, production and delivery
performance measures have been chosen to evaluate performance. The following information
is considered typical of the time involved to complete and ship orders.
Waiting Time:
From order being placed to start of production
8.0 days
From start of production to completion
7.0 days
Inspection time
1.5 days
Processing time
3.0 days
Move time
2.5 days
The Delivery Cycle Time is:
A. 22 days
C. 14 days
B. 11 days
D. 7 days
iv. Answer: D
Net price per yard:
Purchase price
Freight
Purchase discount
Standard cost per yard
Standard quantity per scarf
Standard cost per scarf:
0.03 x 40
0.475/0.95
0.50 x 39.80
(60 ÷ 0.80)
(2.5 x 0.98)
218
75.00
x 2.45
183.75
40.00
1.00
( 1.20)
39.80
0.50
19.90
v. Answer: C
Total Minutes per worker
(8 hours x 60)
Rest Time
Productive minutes
Output per day per worker
(420 ÷ 35) in 10-liter batch
Production hour – good units
Rest minutes
(60 ÷ 12)
Minutes used for rejects
(35 + 5) ÷ 5 good units
Total standard minutes per 10-good liter batch
lxxxix. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours
were budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed
overhead spending variance was P16,000 unfavorable, fixed manufacturing overhead applied
3.0 yards
P450
480
60
420
12
35 min
5 min
8 min
48 Min
Standard Costs and Variance Analysis
vi. Answer: B
Weekly wages per worker
Fringe benefits (1,000 x 0.25)
Total weekly direct labor cost per worker
Labor cost per hour (1,250 ÷ 40 hrs)
Labor cost per unit (31.25 x 2.50 hrs)
Standard price
Actual Quantity used:
Price variance based on usage:
1,000
250
1,250
31.25
P78.125
vii. Answer: D
Required number of quarts of berries (6 ÷ 0.80)
Cost of berries (7.50 @ P8.00)
Cost of other ingredients (10 x 4.50)
Standard materials cost per batch
viii. Answer: C
Minutes required by sorting good berries 6 quarts @ 3 min.
Minutes required by mixing
Total number of minutes
Standard labor cost per batch (0.50 @ P50)
P25
xii. Answer: D
Actual Quantity used
Favorable Quantity
3,735/1.5
Standard Quantity allowed
Production in units
17,400/15
7.50
60
45
105
xiii. Answer: A
AQ @ SP (3,150 x 40)
SQ @ SP (600 x 5 x 40)
Unfavorable Quantity Variance
xi. Answer: C
Actual materials price
Standard Quantity
14,910
2,490
17,400
1,160
P126,000
120,000
P 6,000
xv. Answer: D
Actual Purchase Costs – (AQ x SP)
= 84,000 – (30,000 x 3) 6,000 Favorable
Standard Price = Usage Variance ÷ (AQ – SQ)
3,000 ÷ (30,000 – 29,000) = P3
1,066
38
1,104
105,000/35,000
12,000 x 2
2.50
25,000
12,500
xiv. Answer: A
Actual quantity used (pounds)
23,500
Less: Excess pounds used (1,000 ÷ 2)
500
Standard Quantity Allowed
23,000
Alternative Solution using the formula for Usage Variance:
MUV = (AQ –SQ)SP
1,000 = (23,500 – SQ)2
1,000 ÷ 2 = 23,500 – SQ
500 = 23,500 – SQ
SQ = 23,000
18
12
30
ix. Answer: A
Unit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance Credit to Materials Price Variance)/Number of Units Completed
Total debits to work in process account
P51,690
Debit to materials quantity variance
1,970
Credit to materials price variance
( 3,740)
Actual materials cost
P49,920
Per unit cost: P49,920/96,000
P0.52
x. Answer: A
Actual quantity used
Add favorable quantity (209/5.5)
Standard quantity allowed
60,000/24,000
24,000 + (2,500/2.5)
25,000 x (3 – 2.50)
xvi. Answer: B
The actual purchase price per unit can be conveniently solved by using the purchase price
variance - MPV = AQ(AP-SP)
-240 = 1,600 (AP – 3.60)
-240 ÷ 1,600 = AP – 3.60
3.00
24,000
219
Standard Costs and Variance Analysis
0.15 = AP – 3.60
AP = 3.45
xvii.
xviii.
Answer: C
(AR - SR) x AH = rate variance
Therefore, the total variance (P654.50) when divided by the hourly difference (P4.27 - P4.10)
will equal the actual hours.
Actual hours (P654.50/P.17) = 3,850.
Proof: (P4.27 - P4.10) x 3,850 = P654.50
xxii.
Answer: C
MPV = 1,400(1.10 – 1.00)
= 140
Answer: A
MUV = (AQ – SQ)SP
= (2,300 – 2,100) 6.25
= 1,250 Unfavorable
xix. Answer: C
Actual materials cost
AQ @ SP (22,000 x 1.25)
Favorable Price Variance
xxiii.
26,400
27,500
( 1,100)
xxiv.
xx. Answer: A
Standard materials cost per batch (200 x 1) + (840 x 0.20) + (7 x 2) + (3 x 6) P400
Expected yield in batch (20,160 ÷ 1,050)
19.20
Actual yield
18.50
Unfavorable yield in batch
0.70
Unfavorable yield variance (0.70 x 400)
P 280
xxi. Answer: D
Materials
Actual cost
Budgeted cost (8,500 @ 15)
Materials cost variance
Labor
AH @ SR (6,375 @ 12)
SH @ SR (8,500 @ 0.75 @ 12)
Labor Efficiency Variance
Actual Payroll
AH @ SR (6,375 @ 12)
Labor Rate Variance
xxv.
127,500
127,500
0
xxvi.
76,500
76,500
0
77,775
76,500
1,275
Answer: A
Labor
AH
M
4,500
F
3,000
7,500
Std. Mix at AH
5,000
2,500
7,500
SR
P10
5
Labor Mix Variance
P (5,000)
2,500
P (2,500)Fav
Answer: A
Labor Yield Variance:
Expected Yield
Actual Yield
Difference
Multiply by Standard labor cost per unit
P1.5625*
Yield Variance
*Standard cost ÷ Standard Yield = P6,250 ÷ 4,000 = P1.5625
Answer: C
Direct labor cost at standard rate
Standard rate
7,150 – 750
6,400/800
Answer: A
Actual cost
Favorable Rate Variance
Actual hours @ standard rate
Standard Rate: 11,000 ÷ 2,000
Expected yield (400,000 units / 750 hrs) 7,500 = 40,000
xxvii. Answer: C
LEV: (20,000 – 21,000)6.15 = (6,150)F
Standard Rate:
3,000 = 126,000 – 20,000SR
220
Diff
(500)
500
-
40,000
36,000
4,000
P6,250U
6,400
8.00
10,000
1,000
11,000
5.50
Standard Costs and Variance Analysis
123,000 = 20,000SR
SR = 6.15
SR = 6.40
xxviii. Answer: C
LEV: (410 x 20) – 8,440 = (240)F
xxix.
Answer: C
Actual hours
Less Unfavorable hours
Standard hours allowed
Standard rate: 960,000/60,000
xxx.
Answer: B
SR = LEV ÷ (AH – SH)
= -4,000 ÷ (29,000 – 30,000)
= P4.00
xxxi.
Answer: C
AR = SR – (LRV ÷ AH)
AR = P4.00 – (5,800 ÷ 29,000)
= P3.80
1,148,000/16.40
120,000/16
Answer: B
Actual hours = Labor rate variance ÷(AR-SR)
P12,000 ÷ (P10 – P9)
12,000 hours
xxxv.
Answer: D
LRV = AH(AR – SR)
-5,500 = 10,000(7.50 – SR)
-5,500 ÷ 10,000 = 7.5 – SR
-0.55 = 7.50 – SR
SR = 8.05
70,000
7,500
62,500
16.00
xxxvi. Answer: D
The controllable variance is the sum of the spending variances plus the efficiency variance.
Variable overhead spending variance
P( 3,600)
Fixed overhead spending variance
P(10,000)
Variable overhead efficiency variance
P 6,000
Total controllable variance
P 7,600
The volume variance is not considered a controllable variance.
xxxvii.
xxxii. Answer: B
Variable OH rate/hr - P27,000 ÷ 45,000
Direct labor rate/hr = P0.60 ÷ 0.20
Variable OH is applied at 20% of direct labor cost
Actual hours P140,700 ÷ (P3 – P0.20)
Unfavorable hours P5,100 ÷ P3
SH allowed
xxxiii. Answer: B
Actual direct labor costs
Actual hrs at std labor rate
Unfavorable labor rate variance
Standard labor rate:
-3,200 = (34,500 – 35,000) SR
3,200 = 500SR
xxxiv.
P 0.60
P 3.00
(150,000/12)
(2,450 x 2 x 2.5)
xxxviii. Answer: A
Variable OH per DLH 48,000/24,000
Actual overhead
Budgeted OH at standard hours:
Variable 21,000 x 2
Fixed
Favorable controllable/budget variance
50,250
1,700
48,550
(34,500 x P6.4)
Answer: A
Monthly budgeted fixed overhead
Applied fixed overhead
Unfavorable volume variance
P241,500
220,800
P 20,700
xxxix.
221
12,500
12,250
250
2.00
147,000
42,000
108,000
Answer: A
Budgeted fixed overhead
Applied fixed overhead based on 80% achieved (24,000 x 3)
150,000
( 3,000)
81,000
72,000
Standard Costs and Variance Analysis
Unfavorable volume variance
Fixed overhead rate based on 27,000 hours: (81,000 ÷ 27,000)
xl. Answer: D
Actual overhead
Less Budgeted OH at standard hours
Variable
32,000 x 5
160,000
Fixed
64,000
Unfavorable budget variance
xli. Answer: C
Actual overhead
Budget at SH
Favorable controllable variance
xlvi. Answer: D
Efficiency Variance = (31,500 – 30,000) 10
Standard hours: 20,000 units x 1.5 hours
230,000
xlvii.Answer: A
Fixed overhead rate per hour
Denominator hours (previous number)
(224,000)
6,000
xlviii.
14,000
15,600
( 1,600)
xlii. Answer: C
OH application rate based on DL cost
Applied overhead
Actual overhead
Overapplied Overhead
600,000/(50,000 x 6)
325,000 x 2
xliii. Answer: D
Actual overhead
Budget at standard hours:
Fixed OH
Variable OH (32,000 x 5)
Unfavorable controllable variance
xliv. Answer: B
Budgeted fixed overhead
Applied FOH
Unfavorable volume variance
9,000
3.00
(30,000 x 2)
(25,000 x 2)
8.50 – 6.00
40,000/2.5
Answer: B
Actual OH (10,300 + 19,500)
Less: Budgeted OH at actual hours (P2 x 9,500 hrs) + P10,000
Unfavorable spending variance
xlix. Answer: C
EV = (AH – SH) SVOHR (14,000 – 13,500) 6
SH (4,500 x 3)
200%
650,000
620,000
30,000
230,000
64,000
160,000
15,000 Unfavorable
224,000
6,000
60,000
50,000
10,000
xlv. Answer: C
Efficiency variance = (AH – SH) x SVOHR (14,000 – 13,500) 6 = 3,000 UNF
Standard hours: 4,500 x 3 13,500
222
P29,800
29,000
P 800
3,000U
13,500
l.
Answer: A
Actual OH
Budgeted OH at actual hours (3,500 x P2.50) + P7,000
Favorable spending variance
li.
Answer: A
Fixed OH spending variance:
Actual Fixed OH - Budgeted Fixed OH (P315,000 – P300,000)
Fixed OH volume variance:
(Budgeted Units – Actual Units) x SFOH rate (50,000 – 55,000) x P6
Budgeted production: P300,000 ÷ P3 ÷ 2 hours
lii. Answer: A
Actual variable overhead
AH @ SVOHR (270,000 x 2)
Variable Oh spending variance, Favorable
AH @ SVOHR
SH @ SVOH (260,000 x 2)
Unfavorable VOH efficiency variance
2.50
16,000
P15,000
15,750
P( 750)
P15,000 U
P(30,000)F
520,000
540,000
( 20,000)
540,000
520,000
20,000
Standard Costs and Variance Analysis
liii. Answer: D
Actual
Budget (4,500 x 2.40)
Favorable Budget variance
liv. Answer: C
Fixed overhead per hour: 16 x 0.7
Annual fixed OH budget 5,000 x 12 x 11.20
lv. Answer: B
Actual variable overhead
Variable OH applied
Unfavorable variable OH variance
lvi. Answer: C
Applied fixed overhead
Less: Favorable volume variance
Budgeted fixed overhead
lvii. Answer: A
Standard rate:
Excess rate
Actual rate
Net OH variance, Unfavorable
Less: Unfavorable volume variance
Unfavorable spending variance
Favorable FOH budget variance
P10,100
10,800
P( 700)
11.20
672,000
62,400
62,000
400
(3,000 x 3 x 3.50)
50,000/40,000
1,080/3,600
lviii. Answer: A
Applied fixed overhead
Less favorable volume variance
Budgeted fixed overhead
lix. Answer: A
Unfavorable volume variance
Unfavorable VOH spending variance
Total
Net Unfavorable variance
Favorable fixed OH budget variance
31,500
875
30,625
2,000
( 18,000)
( 25,000)
41,000
lxi. Answer: C
Budgeted fixed OH
Add: Favorable volume variance
Applied fixed overhead
500,000
12,000
512,000
lxii. Answer: A
Applied FOH (8,000 x 6)
Less: Favorable volume variance
Budgeted FOH
48,000
12,000
36,000
lxiii. Answer: A
Budgeted fixed OH
(3,000,000 ÷ 12 months)
Applied fixed OH
(26,000 @ 2 x 5)
Favorable volume variance
Fixed OH rate per hour (3,000,000 ÷ 600,000)
1.25
0.03
1.28
lxiv. Answer: B
Labor Efficiency: (53,500 – 52,000) 8
Variable OH Efficiency (53,500 – 52,000) 6
Total efficiency variance
48,000
12,000
36,000
12,000
9,000
21,000
lxv. Answer: D
Total variable overhead variance (80,000 – 90,000)
Variable overhead spending variance
Variable overhead efficiency variance
8,800 ÷ 20
25,000
18,000
43,000
2,000
41,000
250,000
260,000
( 10,000)F
5.00
10,000 favorable
1,200 favorable
8,800 favorable
440 Favorable
lxvi. Answer: D
Fixed overhead volume variance is a more meaningful variance in evaluating the use of the
capacity.
lx. Answer: A
lxvii.Answer: B
223
Standard Costs and Variance Analysis
Actual variable OH
Budgeted VOH at actual hours (80,000 x P3)
Unfavorable VOH spending variance
lxviii.
P250,000
240,000
P 10,000
Answer: A
(38,000 units – 50,000 units) x P8 P96,000
lxix. Answer: B
Spending [P315,000 – (53,500 x P6)]
Efficiency [(53,500 – 52,000) x P6]
lxx. Answer: B
Spending [P260,000 – (P3M ÷ 12)]
Volume [(26,000 – 25,000) x P10]
P(6,000)
P 9,000
lxxiv.
lxxv.
Answer: A
Actual variable overhead
Budget at actual hours (4,200 x P4)
Favorable variable OH spending variance
lxxvii. Answer: D
The amount of fixed overhead budget (spending) variance is calculated by subtracting from
the actual fixed overhead the amount of budgeted fixed overhead.
Actual fixed overhead
28,000
Budgeted fixed overhead (135,000 x 0.2)
27,000
Unfavorable fixed overhead budget variance
1,000
P10,000U
P10,000F
lxxii.Answer: B
Budget fixed overhead
Applied fixed overhead (38,000 x 0.10 x P20)
Unfavorable volume variance
108,500
103,200
5,300
P6.00
lxxvi. Answer: C
The computation of variable overhead efficiency variance involves the comparison of the
actual hours and standard hours allowed by actual production.
(17,200 – 17,000) x P6
1,200 UNF
Standard hours allowed: 8,500 x 2
17,000
lxxi. Answer: C
Actual fixed overhead
Budget fixed overhead
(4,000 hrs @ P20)
Unfavorable fixed OH Spending variance
Budgeted (denominator) hours
(40,000 units x 6 ÷ 60)
lxxiii.
Actual variable overhead
Budgeted VOH at actual hours (17,200 x 6)
Variable overhead spending variance, UNF
VOH rate per hour (135,000 x 0.80) ÷ 18,000 hours
P88,000
80,000
P 8,000
4,000
lxxviii. Answer: B
The amount of volume variance (denominator or over/underapplied fixed overhead variance) is
calculated by comparing the budgeted fixed overhead and fixed overhead applied to
production.
Budgeted fixed overhead
(135,000 x 0.2)
27,000
Applied fixed overhead
(8,500 x 3)
25,500
Underapplied (unfavorable) volume variance
1,500
Alternative calculation:
(9,000 – 8,500) x 3
1,500
Fixed overhead per unit
(27,000 ÷ 9,000)
3
P80,000
76,000
P 4,000
P 16,400
16,800
P ( 400)
lxxix.
Answer: C
Unfavorable Efficiency Variance: (AH – SH) SVOHR
(4,200 – 3,800) x P4 = 1,600 UNF
SH allowed (38,000 units x 1 ÷ 10) = 3,800 hours
Answer: A
lxxx.
224
Answer: C
Std unit cost:
Variable
Fixed OH
Std unit cost
CGS – Std
OH Volume Variance:
Answer: A
(7,000,000 x 0.60) ÷ 140,000
(11,200,000 x 0.50) ÷ 160,000
(100,000 x 65)
(160,000 – 140,000) x 35
P30
35
P65
6,500,000
P 700,000 UNF
Standard Costs and Variance Analysis
SQ allowed (22,500 x 6)
Unfavorable usage variance
Actual quantity of materials
135,000
3,000
138,000
lxxxi.
Answer: C
Actual quantity purchased and used at standard price (138,000 x 3)
Favorable price variance
Actual Quantity @ Actual Price
Actual Price (407,100 ÷ 138,000)
414,000
6,900
407,100
P2.95
lxxxii.
Answer: C
SH @ SR
Efficiency Variance
AH @ SR
Actual hours (97,000 ÷ 5)
90,000
7,000
97,000
19,400
lxxxiii.
Answer: D
AH @ SR (19,400 x 3)
Spending variance
Actual Variable Overhead
58,200
1,300
59,500
lxxxiv.
Answer: B
Applied Fixed OH
Underapplied fixed overhead
Budgeted fixed overhead
lxxxv.
Answer: C
Denominator or Budgeted Hours: (140,000 ÷ 7) = 20,000
lxxxvi.
lxxxvii. Answer: A
lxxxviii. Answer: A
Delivery cycle time:
Total waiting time
Inspection time
Processing time
Move time
Delivery Cycle Time
15.00
1.50
3.00
2.50
22.00
lxxxix. Answer: C
A favorable volume variance arises when the applied fixed overhead is higher than the
budgeted fixed overhead.
Budgeted fixed overhead
500,000
Favorable volume variance (overapplied)
12,000
Applied fixed overhead
512,000
126,000
14,000
140,000
Answer: C
MCE = Value Added Hours ÷ Throughput Time
Processing hours
8.00
Inspection hours
1.50
Waiting time
1.50
Move time
1.50
Throughput time
12.50
MCE (8.00 ÷ 12.50)
64%
225