STANDARD COSTING
Problem 1. the ABC Corp. Manufactures a product with the following standard costs:
Direct Materials - 20 yards at P1.35/yard
Direct labor - 4 direct labor hours at P9/hr
FOX - 4 direct labor hours at P7.50/he; ratio of variable OH to fixed OH is 2:1
Total standard cost per unit
P27
P36
P30
P93
Standards are based on normal monthly capacity of 2,400 direct labor hours. The following information pertains to
August:
Units produced in July
Direct materials purchased - 18,000 yards at P1.38
Materials used - 9,500 yards
Direct labor - 2,100 hours at P9.15
Actual Factory Overhead
500
P24,840
19,215
16,650
Required:
1. Compute the following variances and indicate whether they are favorable or unfavorable
a) Materials Purchased price, price usage and quantity variance
b) Labor rate and efficiency variance
c) FOD controllable and volume variance. Show the computation of variable and fixed OG per direct labor hour
and the total budgeted FOH into variable and fixed
2. Prepare journal entries
Problem 2. ABC manufactures doors with the following standard quantity and cost information per door.
Aluminum
Copper
Direct labor
Variable Overhead
Fixed Overhead
4 sheets at P2
3 sheets at P5
7 hrs at P7
6 machine hrs. at P3
5 machine hrs. at P2
P8
15
49
18
10
Overhead rates were based on normal monthly capacity of 5,000 machine hours.
During August, the company produced only 800 doors and the following costs were incurred in August:
Materials
Aluminum
Copper
3,400 sheets purchased and used at P2.20
2,500 sheets purchased and used at P4.20
Labor
Direct Labor
5,250 hours at P8.00
Overhead
Variable Overhead
Fixed Overhead
11,800 (based on 4,250 machine hours)
P9,500 (based on 4,250 machine hours)
Required:
1. Material usage price variance and quantity variance
2. Labor rate and efficiency variance
3. Variable overhead spending and variable efficiency variance
4. Fixed overhead spending and fixed volume variance
DNF, CPA
MAS UPDATES – HO3 Standard Cost Variance Analysis
1
Problem 3 Materials and Labor Variance Analysis
ABC has established the following standards for one unit of its product.
Inputs
Standards
Direct Materials
3 metal bars at P2 per bar
Direct labor
1/2 labor hour at P10 per hour
At the start of the month, the budgeted indicated a planned production of 100 units of tripod based on normal
capacity, at the end of the month, actual production was 120 units of tripod, which resulted to using 400 bars of metal,
purchased at a cost of P2.10 per bar.
Required:
1. Based on the budgeted production of 100 units.
a) How many bars must the company plan to use? (budgeted quantity)
b) How much materials cost is included in the budgeted? (budgeted cost)
2. Determine the actual cost of materials used (actual costs)
3. Based on Actual production of 120 units:
a) How many bars should have been used? (standard quantity)
b) How much materials costs should have been incurred? (standard material cost)
c) How many labor hours should have been spent? (standard hours)
d) How much labor cost should have been incurred? (standard labor cost)
4. Determine the following
a) Material budget variance
b) Materials standard cost variance
c) Materials qty. And price variance
5. In following month, the company purchased 500 bars at a total cost of P850 while only 400 bars out of these were
used; standard quantity allowed for actual production was 380 bars. Determine the following:
a) Total material variance
b) Material quantity variance
c) Materials price usage variance
d) Materials purchase price variance
6. During the month, a total payroll of P540 was paid to laborers, working 45 labor hours, to produce the 120 units of
tripod. Determine the following:
a) Total labor variance
b) Labor efficiency variance
c) Labor rate variance
Problem 4. Factory Overhead budget
N shows the following data regarding its factory overhead:
Flexible budget formula: FOH = 200,000 +1x; where x is the number of labor hours
Normal capacity:2,500 units
Standard: 1 unit of product requires 4 labor hours
Budgeted hours
Fixed overhead
Variable overhead
Total budgeted overhead
Fixed overhead rate
Variable overhead rate
Standard overhead rate
Required:
1. Compute for missing amounts:
2. What is the flexible budget for FOH for 7,500 actual hours?
3. What is the flexible budget for FOH for 8,000 standard hours?
DNF, CPA
MAS UPDATES – HO3 Standard Cost Variance Analysis
2
Problem 5. FOH variance analysis (Two, Three, Four-way variance method)
Z provides the following production data:
Total standard overhead cost per unit of product: 4 hours at P3.00 per hour
Budgeted fixed FOH @ Budgeted 10,000 hrs
P20,000
Normal production
2,500 units
Actual production
2,000 units
Actual hours
7,500 hours
Actual FOH incurred (75% fixed)
P26,000
Required: Determine the following
1. Budgeted FOH
2. Standard FOH
3. Budgeted FOH based on actual hours
4. Budgeted FOH based on standard hours
5. Controllable variance
6. Volume Variance
7. Spending variance
8. Efficiency variance
9. Variable spending variance
10. Fixed spending something
11. Budget (flexible) variance 2 way
12. Budget (flexible) variance 3 way
13. Variable controllable variance
14. Fixed volume variance
15. Variable FOH variance
16. Fixed FOH variance
Problem 6. Materials Price, Mix and Yield variance
BBB Produced face powder. BBB has in its budget the following standard for one kilo of face powder:
Ingredients
Actual QTY
Input
Grams
Actual Unit Price
Actual Total Cost
X
200
P3
P600
Y
700
P4
P2,800
Z
100
P5
P500
Total
1,000
P3,900
The company reported the following production and cost a data for the 2020 operations:
Ingredients
Actual QTY
Input
Grams
Actual Unit Price
Actual Total Cost
X
45,000
P4
P180,000
Y
125,000
P3
P375,000
Z
30,000
P6
P180,000
Total
200,000
P735,000
BBB produced 190 kilos of face powder in 2020:
Required:
1. Total materials cost variance
2. Materials price variance
3. Materials Mix Variance
4. Materials yield Variance
DNF, CPA
MAS UPDATES – HO3 Standard Cost Variance Analysis
3
Theories:
1. The variance that is most useful in assessing the performance of the purchasing department manager is:
A. The materials quantity variance
B. The materials price variance
C. The labor rate variance
D. The labor efficiency variance.
2. The production department should generally be responsible for material price variances that resulted from:
A. Purchases made in uneconomical lot-sizes.
B. Rush orders arising from poor scheduling
C. Purchase of the wrong grade of materials
D. Changes in the market prices of raw materials
3. A debit balance in the labor efficiency variance account indicates that:
A. Standard hours exceed actual hours
B. Actual hours exceed standard hours
C. Standard rate and standard hours exceed actual rate and actual hours
D. Actual rate and actual hours exceed rate and standard hours
4. The variance least significant for purposes of controlling costs is the
A. Material quantity variance
B. Variable overhead efficiency variance
C. Fixed overhead spending variance
D. Fixed overhead volume variance
5. A standard costs may be used for
A. Job order costing, but not process costing
B. Process costing, but not job order costing
C. Either job order costing or process costing
D. Neither job order costing nor process costing
6. Standard costs may be used for
A. Product costing
B. Planning
C. Controlling
D. All of the above
7. A purpose of standard costing is to
A. Replace budgets and budgeting
B. Simply costing procedures
C. Eliminate the need for actual costing for external reporting purposes
D. Eliminate the need to account for year-end under-applied or over-applied manufacturing overhead
8. Standard costs
A. Are estimates of costs attainable only under the most ideal conditions
B. Are difficult to use with a process costing system.
C. Can, if properly used, help motivate employees.
D. Require that significant unfavorable variances be investigated, but do not require that significant
favorable variance be investigated.
9. A total variance is best defined as the difference between total
A. Actual cost and total costs applied for the standard output of the period.
B. Standard cost and total cost applied to production
C. Actual cost and total standard cost of actual input of the period
D. Actual cost and total cost applied of the actual output of the period
DNF, CPA
MAS UPDATES – HO3 Standard Cost Variance Analysis
4
10. The term “standard hours allowed” measures
A. Budgeted output at actual hours.
B. Budgeted output at standard hours
C. Actual output at standard hours
D. Actual output at actual hours.
11. A large labor efficiency variance is prorated to which of the following at year-end?
Cost of Good Sold
Inventory
Inventory
A.
no
no
no
B.
no
yes
yes
C.
yes
no
no
D.
yes
yes
yes
12. Which of the following factors should not considered when deciding whether to investigate a variance?
A. Magnitude of the variance
B. Trend of the variance over time
C. Likelihood that an investigation will reduce or eliminate future occurrences of the variances
D. Whether the variance is favorable or unfavorable
13. At the end of a period, a significant material quantity variance should be
A. Closed to cost of goods sold
B. Allocated among raw material, work in process, finished goods, and cost of goods sold.
C. Likelihood that an investigation will reduce or eliminate future occurrences of the variance
D. Whether the variance is favorable or unfavorable
14. When computing variances from standard costs, the difference between actual and standard price multiplied by
actual quantity used yields a
A. Combined price-quantity variance
B. Price variance
C. Quantity variance
D. Mix variance
15. A company wishing to isolate variances at the point closest to the point of responsibility will determine its material
price variance when
A. Material is purchased
B. Material is issued to production
C. Material is used in production
D. Production is completed
16. The material price variance (computed at point of purchase) is
A. The difference between the actual cost of material purchased and the standard cost of material
purchased.
B. The difference between the actual cost of material purchased and the standard cost of material used.
C. Primarily the responsibility of the production manager
D. Both A and C
17. A company would most likely have an unfavorable labor rate variance and a favorable labor efficiency variance if
A. The mix of worker used in the production process was more experienced than the normal mix.
B. The mix of workers used in the production process was less experienced than the normal mix
C. Workers from another part of the plant were used due to an extra heavy production schedule
D. The purchasing agent acquired very high quality material that resulted in less spoilage
DNF, CPA
MAS UPDATES – HO3 Standard Cost Variance Analysis
5