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MAS Standard costing and variance analysis
Bachelor of Science in Accountancy (Philippine School of Business Administration)
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MAS-07 – STANDARD COSTING AND VARIANCE ANALYSIS
Batch 1
STANDARDS
- Standards are predetermined or targeted costs set by management for various purposes like
product costing and pricing, budgeting, cost control, motivation, and performance
measurement.
- Standards are similar to budgeted amounts stated on a per unit basis, but standards differ
from budgets in that they actually appear in general ledger accounts, while budgeted
amounts do not.
- Because of the impact of the fixed costs in most businesses, a standard costing system is
usually not effective unless the company uses a flexible budgeting system.
- Standards are developed for each factor of production (materials, labor and overhead) based
on accounting, engineering or statistical quality control studies and usually fit into one of the
two (2) broad categories:
(1) IDEAL/THEORETICAL Standards – presume perfect efficiency and 100% capacity
and hence not useful for control purposes as they are not practically attainable.
(2) CURRENTLY ATTAINABLE (practical) Standards – based on higher than average
levels of efficiency, but are clearly achievable and hence typically used for employee
motivation, product costing and budgeting.
- Standards are not only based on historical information as this may incorporate previous
inefficiencies.
- Standards may be used by service and nonprofit organizations as well as manufacturing
organizations.
- Standards may be used in both process costing and job-order costing systems.
- In manufacturing companies, standards are broadly classified into two (2) categories:
(1) QUANTITY Standard – usually indicates the quantity of raw materials or labor time
required to produce a unit of product. This is normally expressed per unit of output (e.g.,
3 pieces per unit).
(2) COST Standard – usually indicates what the peso amount of the quantity standard
should be. This is normally expressed per unit of input (e.g., P 2.00 per piece).
Direct Materials Price Standard
 The direct materials price standard is the cost per unit of direct materials that
should be incurred.
 This standard is based on the purchasing department’s best estimate of the cost of
raw materials.
 This standard should include an amount for related costs such as receiving,
storing, and handling.
Direct Materials Quantity Standard
 The direct materials quantity standard is the quantity of direct materials that
should be used per unit of finished goods.
 This standard is expressed as a physical measure, such as pounds, barrels, or
board feet.
 This standard should include allowances for unavoidable waste and normal
spoilage.
Direct Labor Price Standard
 The direct labor price standard is the rate per hour that should be incurred for
direct labor.
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

This standard is based on current wage rates adjusted for anticipated changes,
such as cost of living adjustments included in many union contracts.
This standard generally includes employer payroll taxes and fringe benefits, such
as paid holidays and vacations.
Direct Labor Quantity Standard
 The direct labor quantity standard is the time that should be required to make
one unit of the product.
 This standard is especially critical in labor-intensive companies.
 In setting this standard, allowances should be made for rest periods, cleanup,
machine setup, and machine downtime.
Manufacturing Overhead Standard
 For manufacturing overhead, a standard predetermined overhead rate is used
in setting the standard.
 This overhead rate is determined by dividing budgeted overhead costs by an
expected standard activity index.
VARIANCE ANALYSIS
Variances from Standards
 A variance is the difference between total actual costs and total standard costs.
 When actual costs exceed standard costs, the variance is unfavorable. An
unfavorable variance suggests that too much was paid for materials and labor or
that there were inefficiencies in using materials and labor.
 If actual costs are less than standard costs, the variance is favorable. Favorable
variances indicate efficiencies in incurring costs and in using materials and labor.
However, be careful: a favorable variance could be obtained by using inferior
materials.
 To properly interpret the significance of a variance, you must analyze it to
determine the underlying factors. Analyzing variances begins with a
determination of the cost elements that comprise the variance.
 For each manufacturing cost element, a total PESO variance is computed. Then
this variance is analyzed into a price variance and a quantity variance.
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Relationships of Variances:
I.Direct Materials Variances: Total
 The total materials variance is computed from the following formula:
a. Direct Materials Variances: Price
 The materials price variance is computed from the following
formula:
Actual Quantity
x Actual Price
(AQ) x (AP)
–
Actual Quantity
x Standard Price
(AQ) x (SP)
=
Materials
Price Variance
(MPV)
b. Direct Materials Variances: Quantity
 The materials quantity variance is computed from the following
formula:
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Causes of Materials Variances
 The causes of variances may relate to both internal and external
factors.
 The investigation of a materials price variance usually begins in the
purchasing department.
 A variance may be beyond the control of purchasing such as with
inflation or actions by groups over which the company has no control.
 The starting point for determining the cause(s) of a materials
quantity variance is in the production department.
 A variance may be beyond the control of production, such as with
inferior materials bought by purchasing.
II.Direct Labor Variances: Total
 The total labor variance is computed from the following formula:
a. Direct Labor Variances: Price
 The labor price variance is computed from the following
formula:
b. Direct Labor Variances: Quantity
 The labor quantity variance is computed from the following
formula:
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




Causes of Labor Variances:
Labor price variances usually result from two factors:
– paying workers higher than expected wages, and
– misallocation of workers.
When companies are not unionized, there is a higher likelihood of these variances.
The responsibility of these variances usually rests with the manager that
authorized the wage increase or the production department.
Labor quantity variances relate to the efficiency of the workers.
These variances are usually the responsibility of the production department.
III. Manufacturing Overhead Variances
 The computation of the manufacturing overhead variances is conceptually the
same as the computation of the materials and labor variances.
 However, the task is more challenging for manufacturing overhead because both
variable and fixed overhead costs must be considered.
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Other approach – One way, Two way, Three Way and Four Way
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Reporting Variances
 All variances should be reported to appropriate levels of management as soon as
possible so that corrective action can be taken.
 The form, content, and frequency of variance reports vary considerably among
companies.
 Variance reports facilitate the principle of management by exception. In using
variance reports, top management normally looks for significant variances.
Multiple Choice:
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.
2. A standard cost system may be used in
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.
3. A purpose of standard costing is to
a. replace budgets and budgeting.
b. simplify costing procedures.
c. eliminate the need for actual costing for external reporting purposes.
d. eliminate the need to account for year-end underapplied or overapplied manufacturing
overhead.
4. 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 variances be investigated.
5. A total variance is best defined as the difference between total
a. actual cost and total cost 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 the actual input of the period.
d. actual cost and total cost applied for the actual output of the period.
6. The term standard hours allowed measures
a. budgeted output at actual hours.
b. budgeted output at standard hours.
c. actual output at standard hours.
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d. actual output at actual hours.
7. 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. allocated among Work in Process, Finished Goods, and Cost of Goods Sold.
d. carried forward as a balance sheet account to the next period.
8. A company would most likely have an unfavorable labor rate variance and a favorable
labor efficiency variance if
a. the mix of workers 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.
9. Management would generally expect unfavorable variances if standards were based on
which of the following capacity measures?
Ideal Practical Expected Annual
a.
yes.
No
no
b.
no
no
yes
c.
no
yes
yes
d.
no.
no
no
10. Which of the following capacity levels has traditionally been used to compute the
fixed overhead application rate?
a. expected annual
c. theoretical
b. normal
d. prior year
11. 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.
12. A 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.
13. A favorable fixed overhead spending variance indicates that
a. budgeted fixed overhead is less than actual fixed overhead.
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b. budgeted fixed overhead is greater than applied fixed overhead.
c. applied fixed overhead is greater than budgeted fixed overhead.
d. actual fixed overhead is less than budgeted fixed overhead.
14. An unfavorable fixed overhead volume variance is most often caused by
a. actual fixed overhead incurred exceeding budgeted fixed overhead.
b. an over-application of fixed overhead to production.
c. an increase in the level of the finished inventory.
d. normal capacity exceeding actual production levels.
15. In a just-in-time inventory system,
a. practical standards become ideal standards.
b. ideal standards become expected standards.
c. variances will not occur because of the zero-defects basis of JIT.
d. standard costing cannot be used.
Rivera Company
The following July information is for Marley Company:
Standards:
Material
3.0 feet per unit @ P4.20 per foot
Labor
2.5 hours per unit @ P7.50 per hour
Actual:
Production 2,750 units produced during the month
Material
8,700 feet used; 9,000 feet purchased @ P4.50
Labor.
7,000 direct labor hours @ P7.90 per hour
(Round all answers to the nearest pesoP.)
16. Refer to Rivera Company. What is the material price variance (calculated at point of
purchase)?
a. P2,700 U b. P2,700 F c. P2,610 F.
d. P2,610 U
17. Refer to Rivera Company. What is the material quantity variance?
a. P3,105 F b. P1,050 F c. P3,105 U
d. P1,890 U
18. Refer to Rivera Company. What is the labor rate variance?
a. P3,480 U b. P3,480 F c. P2,800 U
d. P2,800 F
19. Refer to Rivera Company. What is the labor efficiency variance?
a. P1,875 U b. P938 U
c. P1,875 U
d. P1,125 U
Villamin Company
Villamin Company has the following information available for October when 3,500 units
were produced (round answers to the nearest pesoP).
Standards:
Material 3.5 pounds per unit @ P4.50 per pound
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Labor
5.0 hours per unit @ P10.25 per hour
Actual:
Material purchased 12,300 pounds @ P4.25
Material used
11,750 pounds
17,300 direct labor hours @ P10.20 per hour
20. Refer to Villamin Company. What is the labor rate variance?
a. P875 F
b. P865 F
c. P865 U
d. P875 U
21. Refer to Villamin Company. What is the labor efficiency variance?
a. P2,050 F b. P2,050 U c. P2,040 U d. P2,040 F
22.Referto Villamin Company.What is the material price variance (based on quantity
purchased)?
a. P3,075 U b. P2,938 U c. P2,938 F d. P3,075 F
23. Refer to Villamin Company. What is the material quantity variance?
a. P2,250 F b. P2,250 U c. P225 F
d. P2,475 U
24. Refer to McCoy Company. Assume that the company computes the material price
variance on the basis of material issued to production. What is the total material
variance?
a. P2,850 U b. P5,188 U c. P5,188 F d. P2,850 F
De Leon Manufacturing
The following March information is available for De Leon Manufacturing Company
when it produced 2,100 units:
Standard:
Material
2 pounds per unit @ P5.80 per pound
Labor.
3 direct labor hours per unit @ P10.00 per hour
Actual:
Material.
Labor
4,250 pounds purchased and used @ P5.65 per pound
6,300 direct labor hours at P9.75 per hour
25. Refer to De Leon Manufacturing. What is the material price variance?
a. P637.50 U b. P637.50 F c. P630.00 U d.P630.00 F
26. Refer to De Leon Manufacturing. What is the material quantity variance?
a. P275 F
b. P290 F
c. P290 U
d. P275 U
27. Refer to De Leon Manufacturing. What is the labor rate variance?
a. P1,575 U b. P1,575 F c. P1,594 U
d. P0
28. Refer to De Leon Manufacturing. What is the labor efficiency variance?
a. P731.25 F c. P750.00 F
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b. P731.25 U d. none of the answers are correct
Balmediano Company
Balmediano Company uses a standard cost system for its production process and applies
overhead based on direct labor hours. The following information is available for August
when Balmediano made 4,500 units:
Standard:
DLH per unit
Variable overhead per DLH
Fixed overhead per DLH
Budgeted variable overhead
Budgeted fixed overhead.
Actual:
Direct labor hours
Variable overhead
Fixed overhead
2.50
P1.75
P3.10
P21,875
P38,750
10,000
P26,250
P38,000
29. Refer to Balmediano Company. Using the one-variance approach, what is the total
overhead variance?
a. P6,062.50 U
b. P3,625.00 U
c. P9,687.50 U
d. P6,562.50 U
30. Refer to Balmediano Company. Using the two-variance approach, what is the
controllable variance?
a. P5,812.50 U
b. P5,812.50 F
c. P4,375.00 U
. P4,375.00 F
31. Refer to Balmediano Company. Using the two-variance approach, what is the
noncontrollable variance?
a. P3,125.00 F
b. P3,875.00 U
c. P3,875.00 F
d. P6,062.50 U
32. Refer to Balmediano Company. Using the three-variance approach, what is the
spending variance?
a. P4,375 U
b. P3,625 F
c. P8,000 U
d. P15,750 U
33. Refer to Balmediano Company. Using the three-variance approach, what is the
efficiency variance?
a. P9,937.50 F
b. P2,187.50 F
c. P2,187.50 U
d. P2,937.50 F
34. Refer to Balmediano Company. Using the three-variance approach, what is the
volume variance?
a. P3,125.00 F
b. P3,875.00 F
c. P3,875.00 U
d. P6,062.50 U
35. Refer to Balmediano Company. Using the four-variance approach, what is the
variable overhead spending variance?
a. P4,375.00 U
b. P4,375.00 F
c. P8,750.00 U
d. P6,562.50 U
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36. Refer to Balmediano Company. Using the four-variance approach, what is the
variable overhead efficiency variance?
a. P2,187.50 U
b. P9,937.50 F
c. P2,187.50 F
d. P2,937.50 F
= P2,187.50 F
37. Refer to Balmediano Company. Using the four-variance approach, what is the fixed
overhead spending variance?
a. P7,000 U
b. P3,125 F
c. P750 U
d. P750 F
38. Refer to Forrest Comp Balmediano Company any. Using the four-variance approach,
what is the volume variance?
a. P3,125 F
b. P3,875 F
c. P6,063 U
d. P3,875 U
Andrew Company
Andrew Company uses a standard cost system for its production process. Andrew
Company applies overhead based on direct labor hours. The following information is
available for July:
Standard:
Direct labor hours per unit
Variable overhead per hour
Fixed overhead per hour
(based on 11,990 DLHs)
Actual:
Units produced
Direct labor hours
Variable overhead
Fixed overhead
2.20
P2.50
P3.00
4,400
8,800
P29,950
P42,300
39. Refer to Andrew Company. Using the four-variance approach, what is the variable
overhead spending variance?
a. P7,950 U
b. P25 F
c. P7,975 U
d. P10,590 U
40. Refer to Andrew Company. Using the four-variance approach, what is the variable
overhead efficiency variance?
a. P9,570 F
b. P9,570 U
c. P2,200 F
d. P2,200 U
41. Refer to Andrew Company. Using the four-variance approach, what is the fixed
overhead spending variance?
a. P15,900 U
b. P6,330 U
c. P6,930 U
d. P935 F
42. Refer to Andrew Company. Using the four-variance approach, what is the volume
variance?
a. P6,930 U
b. P13,260 U
c. P0
d. P2,640 F
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43. Refer to Andrew Company. Using the three-variance approach, what is the spending
variance?
a. P23,850 U
b. P23,850 F
c. P14,280 F
d. P14,280 U
44. Refer to Andrew Company. Using the three-variance approach, what is the efficiency
variance?
a. P11,770 F
b. P2,200 F
c. P7,975 U
d. P5,775 U
45. Refer to Andrew Company. Using the three-variance approach, what is the volume
variance?
a. P13,260 U
b. P2,640 F
c. P6,930 U
d. P0
46. Refer to Andrew Company. Using the two-variance approach, what is the controllable
variance?
a. P21,650 U
b. P16,480 U
c. P5,775 U
d. P12,080 U
47. Refer to Andrew Company. Using the two-variance approach, what is the
noncontrollable variance?
a. P26,040 F
b. P0
c. P6,930 U
d. P13,260 U
48. Refer to Andrew Company; Using the one-variance approach, what is the total
variance?
a. P19,010 U
b. P6,305 U
c. P12,705 U
d. P4,730 U
49. Actual fixed overhead is P33,300 (12,000 machine hours) and fixed overhead was
estimated at P34,000 when the predetermined rate of P3.00 per machine hour was set. If
11,500 standard hours were allowed for actual production, applied fixed overhead is
a. P33,300.
b. P34,000.
c. P34,500.
d. not determinable without knowing the actual number of units produced.
50. One unit requires 2 direct labor hours to produce. Standard variable overhead per unit
is P1.25 and standard fixed overhead per unit is P1.75. If 330 units were produced this
month, what total amount of overhead is applied to the units produced?
a. P990
b. P1,980
c. P660
d. cannot be determined without knowing the actual hours worked
51. Miggy Company has made the following information available for its production
facility for the month of June. Fixed overhead was estimated at 19,000 machine hours for
the production cycle. Actual machine hours for the period were 18,900, which generated
3,900 units.
Material purchased (80,000 pieces)
P314,000
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Material quantity variance
Machine hours used (18,900 hours)
VOH spending variance
Actual fixed overhead
Actual labor cost
Actual labor hours
Michigan’s standard costs are as follows:
Direct material
Direct labor
Variable overhead
(applied on a machine hour basis)
Fixed overhead
(applied on a machine hour basis)
P6,400 U
P50 U
P60,000
P40,120
5,900
20 pieces @ P4 per piece
1.5 hours @ P6 per hour
4.8 hours @ P2.50 per hour
4.8 hours @ P3 per hour
Determine the following items:
a. material purchase price variance
b. standard quantity allowed for material
c. total standard cost of material allowed
d. actual quantity of material used
e. labor rate variance
f. standard hours allowed for labor
g. total standard cost of labor allowed
h. labor efficiency variance
i. actual variable overhead incurred
j. standard machine hours allowed
k. variable overhead efficiency variance
l. budgeted fixed overhead
m. applied fixed overhead
n. fixed overhead spending variance
o. volume variance
p. total overhead variance
71. ANS:
a. actual material cost
actual pieces at standard cost (80,000  P4)
material purchase price variance
P314,000
320,000
P 6,000 F
b.
3,900 units  20 pieces per unit = 78,000 standard quantity allowed
c.
total standard cost of material (78,000  P4) P312,000
d.
standard cost of actual material used
P312,000 + P6,400 U quantity variance
P318,400 ÷ P4 = 79,600 actual pieces used
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P318,400
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e.
actual labor cost
5,900 actual DLHs  P6
labor rate variance
f.
3,900 units  1.5 standard hours per unit
g.
5,850 SHA  P6
P 35,100
h.
actual hours  standard rate (from e)
standard cost of labor allowed (from g)
labor efficiency variance
P 35,400
35,100
P 300 U
i.
actual machine hours  standard VOH rate (18,900 
P2.50)
VOH spending variance
actual VOH
j.
3,900 units  4.8 standard hours per unit = 18,720 MH
allowed
k.
standard hours allowed (from j)  standard VOH rate
(18,720  P2.50)
actual machine hours  standard rate (from i)
(18,900  P2.50)
variable overhead efficiency variance
l.
19,000 machine hours  P3
P 40,120
35,400
P 4,720 U
5,850 SHA
P 47,250
50 U
P 47,300
P 46,800
47,250
P 450 U
P 57,000
m. 3,900 units  4.8 hours per unit  P3.00
P 56,160
n.
actual fixed overhead
budgeted fixed overhead (from l)
fixed overhead spending variance
P 60,000
57,000
P 3,000 U
o.
budgeted fixed overhead (from l)
applied fixed overhead (from m)
volume variance
P 57,000
56,160
P 840 U
p.
total actual overhead
[P60,000 + P47,300 (from i)]
total applied overhead (18,720 SHA  P5.50)
Total overhead variance
P107,300
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102,960
P 4,340 U
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STANDARD COSTS AND VARIANCE ANALYSIS
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
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.
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
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
6. A company employing very tight (high) standards in a standard cost system should expect that
A. No incentive bonus will be paid.
B. Most variances will be unfavorable.
C. Employees will be strongly motivated to attain the standard.
D. 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?
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A.
B.
C.
D.
Average historical performance for the last several years
Engineering estimates based on ideal performance
Engineering estimates based on attainable performance
The hours per unit that would be required for the present workforce to satisfy expected demand
over the long run
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.
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
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.
D. The standard equivalent units are multiplied by the actual cost per unit.
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.
Types of standards
12. The absolute minimum cost possible under the best conceivable operating conditions is a description of
which type of standard?
C. Theoretical
A. Currently attainable (expected)
B. Normal
D. Practical
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
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14. Standards that represent levels of operation that can be attained with reasonable effort are called:
A. Theoretical standards
C. Variable standards
D. Normal standards
B. Ideal standards
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
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
A. Total overhead application rate
B. Volume of total expenses at various activity levels
C. Variable overhead application rate
D. 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
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
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
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
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
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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
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.
Responsibility for variances
23. Which department is customarily held responsible for an unfavorable materials usage variance?
A. Quality control
C. Purchasing
D. Production
B. Engineering
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
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
Labor variances
26. Which of the following unfavorable cost variances would be directly affected by the relative position of a
production process on a learning curve?
A. Materials mix
C. Labor rate
B. Materials price
D. Labor efficiency
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.
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:
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A.
B.
C.
D.
The cost is variable and actual production was 90% of budgeted production
The cost is variable and actual production equaled budgeted production
The cost is variable and actual production was 80% of budgeted production
The cost is discretionary fixed cost and actual production equaled budgeted production
Budget variance
29. The budget variance for fixed factory overhead for the normal-volume, practical-capacity, and expectedactivity levels would be the:
A. Same except for normal volume
C. Same except for expected activity
D. Same for all three activity levels
B. Same except for practical capacity
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
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
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
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
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
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?
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A.
B.
C.
D.
Spending Variance
Increased
Increased
Unchanged
Unchanged
Volume Variance
Unchanged
Increased
Increased
Unchanged
PROBLEMS:
Standard setting
Raw Materials
1. 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.
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.
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
2. El Andre Co. uses a standard costing system in connection with the manufacture of a line of T-shirts.
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
3.
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
B. P183.75
D. P176.40
4.
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%
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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
D. P19.90
B. P20.00
Direct labor
5. 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 eighthour 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
6. 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
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
2.5 DLH
75
3000
P1,000
25% of wages
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.
Supercold purchases strawberries at a cost of P8.00 per quart. All other ingredients cost a total of P4.50
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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.
7. The standard materials cost per 10-gallon batch of strawberry sherbet is:
A. P 85.00
B. P 60.00
C. P101.00
D. P105.00
8. The standard direct labor cost per 10-gallon batch of sherbet is:
A. P50.00
B. P28.75
C. P25.00
D. P15.00
Materials variance
9. 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
10. 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
11. 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
12. 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
D. 1,160 units
B. 1,090 units.
13. 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:
A. P6,000 unfavorable
C. P3,200 unfavorable
B. P5,200 unfavorable
D. P2,000 unfavorable
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14. The Bohol Company uses standard costing. The following data are available for October:
Actual quantity of direct materials used
Standard price of direct materials
Material quantity variance
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
23,500 pounds
P2 per pound
P1,000 U
15. 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
D. P6,000 favorable
B. P6,000 unfavorable
16. 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
30,000 lbs.
P84,000
P 3,000
29,000 lbs
P 3.60
1,600
1,450
P 240
17. 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:
C. P140
A. P 0
B. P130
D. P150
18. During March, Lumban Company’s direct material costs for the manufacture of product T were as
follows:
Actual unit purchase price
Standard quantity allowed for actual production
Quantity purchased and used for actual production
Standard unit price
Lumban’s material usage variance for March was:
A. P1,250 unfavorable
C. P1,250 favorable
B. P1,300 unfavorable
D. P1,300 favorable
P6.50
2,100
2,300
P6.25
19. 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
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Type R houses, using 22,000 units of material cost of P26,400. Razonable’s material price variance for
April is:
C. P1,100 favorable
A. P1,000 favorable
B. P1,400 unfavorable
D. P2,500 unfavorable
20. 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
3 lbs.
6.00
Scents
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
60
Scents
20,160
Total
Actual output
18,500
The material yield variance is:
A. P 280 unfavorable
C. P 280 favorable
B. P3,989 unfavorable
D. P3,989 favorable
Labor variance
21. 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.
22. 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
23. 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
Mixing
500 hours
P10
Finishing
250 hours
P5
Yield:
4,000 units
Standard Cost
P5,000
P1,250
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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
24. How much labor yield variances should be reported?
A. P6,250 U
B. P6,250 F
C. P5,250 F
D. P5,250 U
25. 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
26. 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
27. Lion Company’s direct labor costs for the month of January were as follows:
Actual direct labor hours
Standard direct labor hours
Direct labor rate variance – Unfav.
Total payroll
What was Lion’s direct labor efficiency variance?
C. P6,150 favorable
A. P6,000 favorable
B. P6,300 favorable
D. P6,450 favorable
28. 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)
C. P 240 favorable
A. P 410 unfavorable
B. P 170 unfavorable
D. P 410 favorable
20,000
21,000
P 3,000
P126,000
P 20
P
1
P8,440
P8,610
29. 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
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A. P52,500
B. P77,500
C. P62,500
D. P70,000
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
30,000
29,000
P 4,000
P 5,800
P110,200
30. What was Goodeve’s standard direct labor rate?
A. P3.54
B. P4.00
C. P3.80
D. P5.80
31. What was Goodeve’s actual direct labor rate?
A. P3.60
B. P4.00
C. P3.80
D. P5.80
32. 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
33. Information on Barber Company’s direct labor costs for the month of January is as follows:
Actual direct labor hours
Standard direct labor hours
Total direct labor payroll
Direct labor efficiency variance – favorable
What is Barber’s direct labor rate variance?
A. P17,250 U
C. P21,000 U
B. P20,700 U
D. P21,000 F
34,500
35,000
P241,500
P 3,200
34. 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
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35. 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
D. P8.05
B. P7.00
P7.50
11,000
10,000
P5,500
Two-way overhead variance
36. 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
37. 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
38. 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
39. 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
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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 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
40. The Fire 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 June is
A. P1,000 favorable
C. P1,000 unfavorable
D. P6,000 unfavorable
B. P6,000 favorable
41. 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
C. P1,600 Favorable
A. P 600 Favorable
B. P2,200 Unfavorable
D. P1,600 Unfavorable
42. 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
43. 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:
A. P1,000 favorable
C. P1,000 unfavorable
D. P6,000 unfavorable
B. P6,000 favorable
44. 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
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B. 10,000 unfavorable
D. 10,000 favorable
Three-way overhead variance
45. 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
C. P3,000 Unfavorable
A. P3,000 Favorable
B. P5,400 Favorable
D. P5,400 Unfavorable
46. 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
15.00
Variable overhead (1.50 hours at P10.00)
P42.00
Total application rate
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
A. P22,500 Favorable
C. P15,000 Favorable
D. P15,000 Unfavorable
B. P22,500 Unfavorable
47. 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
48. Using the information presented below, calculate the total overhead spending variance.
Budgeted fixed overhead
Standard variable overhead (2 DLH at P2 per DLH)
Actual fixed overhead
Actual variable overhead
Budgeted volume (5,000 units x 2 DLH)
Actual direct labor hours (DLH)
Units produced
A. P 500 U
C. P1,000 U
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P10,000
P4 per unit
P10,300
P19,500
10,000 DLH
9,500
4,500
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B. P 800 U
D. P1,300 U
49. 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
Budgeted output
4,800 unit per month
The overhead efficiency variance is:
A. P3,000 Favorable
C. P3,000 Unfavorable
B. P5,400 Favorable
D. P5,400 Unfavorable
50. The following information is available from the Tyro Company:
Actual factory overhead
P15,000
Fixed overhead expenses, actual
P 7,200
Fixed overhead expenses, budgeted
P 7,000
Actual hours
3,500
Standard hours
3,800
Variable overhead rate per DLH
P 2.50
Assuming that Tyro uses a three-way analysis of overhead variances, what is the spending variance?
A. P 750 F
C. P 950 F
B. P 750 U
D. P1,500 U
51. 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
52. Using the information in the preceding number, the amounts of controllable variances for variable
overhead are:
Spending
A. P20,000 Fav
B. P20,000 Unf
C. P 5,000 Unf
D. P20,000 Fav
Efficiency
P20,000 Unf
P20,000 Fav
P20,000 Unf
P 5,000 Unf
Four-way overhead variance
53. 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 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:
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A. P1,900 Unfavorable.
B. P 700 Unfavorable.
C. P1,900 Favorable.
D. P 700 Favorable.
54. 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?
C. P672,000
A. P 56,000
B. P 56,560
D. P678,720
55. 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
56. 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:
C. P30,625
A. P31,500
B. P32,375
D. P33,250
57. 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 variableoverhead rate per machine hour?
A. P1.28
C. P1.39
B. P1.25
D. P1.52
58. 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.
59. 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
60. 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
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61. 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:
C. P512,000
A. P516,000
B. P504,000
D. P496,000
62. 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
63. 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 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
64. 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
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
Flexible budget
(Standard input allowed for actual output achieved x the budgeted rate)
Variable overhead
P 90,000
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
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65. 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?
A. 100 direct labor hours inefficient
C. 100 direct labor hours efficient
D. 440 direct labor hours efficient
B. 440 direct labor hours inefficient
66. 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
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
The following information pertains to the month of March:
Units actually produced
Actual direct labor hours worked
Actual overhead incurred:
Variable
Fixed
38,000
80,000
P250,000
384,000
67. For March, the unfavorable variable overhead spending variance was:
A. P6,000
B. P10,000
C. P12,000
D. P22,000
68. For March, the fixed overhead volume variance was:
A. P96,000U
B. P96,000F
C. P80,000U
D. P80,000F
69. 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 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
70. The fixed manufacturing overhead variances for November are:
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A.
B.
C.
D.
Spending
P10,000 favorable
P10,000 unfavorable
P 6,000 favorable
P 4,000 unfavorable
Volume
P10,000 favorable
P10,000 favorable
P 3,000 unfavorable
P22,000 favorable
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
71. What is the fixed overhead spending variance?
C. P8,000 Unfavorable
A. P4,000 Favorable
B. P8,000 Favorable
D. P4,000 Unfavorable
72. What is the volume variance?
A. P4,000 Favorable
B. P4,000 Unfavorable
C. P8,000 Favorable
D. P8,000 Unfavorable
73. How much was the variable overhead spending variance?
A. P 400 Favorable
B. P1,200 Favorable.
C. P400 Unfavorable
D. P1,200 Unfavorable
74. How much overhead efficiency variance resulted for the month of May?
A. P1,600 Favorable
B. P 800 Favorable
C. P1,600 Unfavorable
D. P800 Unfavorable
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.
75. The variable overhead spending variance for the period is
A. P5,300 unfavorable
B. P1,200 unfavorable
C. P6,300 unfavorable
D. P6,500 unfavorable
76. The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 unfavorable
B. P1,500 unfavorable
C. P1,200 unfavorable
D. P6,500 unfavorable
77. The fixed overhead budget (spending) variance for the period is
A. P6,300 unfavorable
B. P1,500 unfavorable
C. P2,500 unfavorable
D. P1,000 unfavorable
78. The fixed overhead volume (denominator) variance for the period is
A. P 750 unfavorable
C. P2,500 unfavorable
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B. P1,500 unfavorable
D. P1,000 unfavorable
Comprehensive
79. 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:
C.
D.
A.
B.
Cost of Goods Sold at Standard Cost P8,200,000 P7,200,000 P6,500,000 P7,000,000
Overhead Volume Variance
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.
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
P18.00
4.00
2.40
5.60
P30.00
VARIANCES REPORTED
Total
Price or Spending or Quantity or
Volume
Standard
Rate
Budget
Efficiency
Cost
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.
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.
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
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before the meeting begins. Without backup data it will be impossible to lead the discussion or answer
any questions.
80. How many pounds of direct materials were purchased and used in the production of 22,500 units?
A. 138,000 lbs.
B. 132,000 lbs.
C. 135,000 lbs.
D. 137,300 lbs.
81. What was the actual cost per pound of material?
A. P3.00
B. P3.05
C. P2.95
D. P3.10
82. How many actual direct labor hours were worked during the period?
A. 18,000
B. 16,600
C. 19,400
D. 18,970
83. How much actual variable manufacturing overhead cost was incurred during the period?
A. P55,300
B. P58,200
C. P56,900
D. P59,500
84. What is the total fixed manufacturing overhead cost in the company’s flexible budget?
A. P112,500
B. P140,000
C. P139,500
D. P125,500
85. What were the denominator hours for last period?
A. 18,000 hours
B. 22,000 hours
C. 20,000 hours
D. 25,000 hours
Productivity measures
Manufacturing cycle efficiency
86. Fireout Company manufactures fire hydrants in Bulacan.
operations during the month of May:
Processing hours (average per batch)
Inspection hours (average per batch)
Waiting hours (average per batch)
Move time (average per batch)
Units per batch
The manufacturing cycle efficiency (MCE) is:
A. 72.7%
C. 64.0%
B. 36.0%
D. 76.0%
The following information pertains to
8.0
1.5
1.5
1.5
20 units
Throughput time
87. Choco Company manufactures fire hydrants in Bulacan. The following information pertains to
operations during the month of May:
Processing time (average per batch)
8.0 hours
Inspection time (average per batch)
1.5 hours
Waiting time (average per batch)
1.5 hours
Move time (average per batch)
1.5 hours
Units per batch
20 units
The throughput time is:
A. 12.5 hours
C. 4.5 hours
B. 8.0 hours
D. 9.5 hours
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Delivery cycle time
88. 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
89. 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. P488,000
D. P496,000
1. Answer: D
Nyclyn
Salex
Protet
Total
(24 ÷ 0.80 x P15)
(19.20 ÷ 0.80 x P21)
(10 x P28)
P 450.00
504.00
280.00
P1,234.00
2. 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
3. Answer: B
Required inputs of raw materials (in pounds)
Standard price per pound
Standard materials cost per unit
(60 ÷ 0.80)
(2.5 x 0.98)
4. 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
40.00
1.00
( 1.20)
39.80
0.50
19.90
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3.0 yards
P450
75.00
x 2.45
183.75
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5. 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
6. 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)
480
60
420
12
35 min
5 min
8 min
48 Min
1,000
250
1,250
31.25
P78.125
7. 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
7.50
60
45
105
8. 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
18
12
30
9. 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
( 3,740)
Credit to materials price variance
P49,920
Actual materials cost
Per unit cost: P49,920/96,000
P0.52
10. Answer: A
Actual quantity used
Add favorable quantity (209/5.5)
Standard quantity allowed
11. Answer: C
Actual materials price
Standard Quantity
Standard price
Actual Quantity used:
Price variance based on usage:
1,066
38
1,104
105,000/35,000
12,000 x 2
60,000/24,000
24,000 + (2,500/2.5)
25,000 x (3 – 2.50)
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3.00
24,000
2.50
25,000
12,500
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12. Answer: D
Actual Quantity used
Favorable Quantity
3,735/1.5
Standard Quantity allowed
Production in units
17,400/15
13. Answer: A
AQ @ SP (3,150 x 40)
SQ @ SP (600 x 5 x 40)
Unfavorable Quantity Variance
14,910
2,490
17,400
1,160
P126,000
120,000
P 6,000
14. Answer: A
Actual quantity used (pounds)
23,500
Less: Excess pounds used (1,000 ÷ 2)
500
23,000
Standard Quantity Allowed
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
15. 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
16. 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
0.15 = AP – 3.60
AP = 3.45
17. Answer: C
MPV = 1,400(1.10 – 1.00)
= 140
18. Answer: A
MUV = (AQ – SQ)SP
= (2,300 – 2,100) 6.25
= 1,250 Unfavorable
19. Answer: C
Actual materials cost
AQ @ SP (22,000 x 1.25)
Favorable Price Variance
26,400
27,500
( 1,100)
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20. 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
18.50
Actual yield
0.70
Unfavorable yield in batch
Unfavorable yield variance (0.70 x 400)
P 280
21. 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
127,500
127,500
0
76,500
76,500
0
77,775
76,500
1,275
22. 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
23. Answer: A
Labor
M
F
AH
4,500
3,000
7,500
Std. Mix at AH
5,000
2,500
7,500
Diff
(500)
500
-
SR
P10
5
Labor Mix Variance
P (5,000)
2,500
P (2,500)Fav
24. 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
25. Answer: C
Direct labor cost at standard rate
Standard rate
7,150 – 750
6,400/800
26. Answer: A
Actual cost
Favorable Rate Variance
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40,000
36,000
4,000
P6,250U
6,400
8.00
10,000
1,000
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Actual hours @ standard rate
Standard Rate: 11,000 ÷ 2,000
Expected yield (400,000 units / 750 hrs) 7,500 = 40,000
11,000
5.50
27. Answer: C
LEV: (20,000 – 21,000)6.15 = (6,150)F
Standard Rate:
3,000 = 126,000 – 20,000SR
123,000 = 20,000SR
SR = 6.15
28. Answer: C
LEV: (410 x 20) – 8,440 = (240)F
29. Answer: C
Actual hours
Less Unfavorable hours
Standard hours allowed
Standard rate: 960,000/60,000
1,148,000/16.40
120,000/16
70,000
7,500
62,500
16.00
30. Answer: B
SR = LEV ÷ (AH – SH)
= -4,000 ÷ (29,000 – 30,000)
= P4.00
31. Answer: C
AR = SR – (LRV ÷ AH)
AR = P4.00 – (5,800 ÷ 29,000)
= P3.80
32. 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
P 0.60
P 3.00
50,250
1,700
48,550
33. 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
SR = 6.40
(34,500 x P6.4)
34. Answer: B
Actual hours = Labor rate variance ÷(AR-SR)
12,000 hours
P12,000 ÷ (P10 – P9)
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P241,500
220,800
P 20,700
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35. 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
36. 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.
37. Answer: A
Monthly budgeted fixed overhead
Applied fixed overhead
Unfavorable volume variance
(150,000/12)
(2,450 x 2 x 2.5)
12,500
12,250
250
38. 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
2.00
147,000
42,000
108,000
39. Answer: A
Budgeted fixed overhead
Applied fixed overhead based on 80% achieved (24,000 x 3)
Unfavorable volume variance
Fixed overhead rate based on 27,000 hours: (81,000 ÷ 27,000)
40. Answer: D
Actual overhead
Less Budgeted OH at standard hours
Variable
32,000 x 5
160,000
64,000
Fixed
Unfavorable budget variance
41. Answer: C
Actual overhead
Budget at SH
Favorable controllable variance
42. Answer: C
150,000
( 3,000)
81,000
72,000
9,000
3.00
230,000
(224,000)
6,000
14,000
15,600
( 1,600)
OH application rate based on DL cost
Applied overhead
600,000/(50,000 x 6)
325,000 x 2
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200%
650,000
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Actual overhead
Overapplied Overhead
620,000
30,000
43. Answer: D
Actual overhead
Budget at standard hours:
Fixed OH
Variable OH (32,000 x 5)
Unfavorable controllable variance
44. Answer: B
Budgeted fixed overhead
Applied FOH
Unfavorable volume variance
230,000
64,000
160,000
(30,000 x 2)
(25,000 x 2)
224,000
6,000
60,000
50,000
10,000
45. Answer: C
Efficiency variance = (AH – SH) x SVOHR (14,000 – 13,500) 6 = 3,000 UNF
Standard hours: 4,500 x 3 13,500
46. Answer: D
Efficiency Variance = (31,500 – 30,000) 10
Standard hours: 20,000 units x 1.5 hours
47. Answer: A
Fixed overhead rate per hour
Denominator hours (previous number)
15,000 Unfavorable
8.50 – 6.00
40,000/2.5
48. Answer: B
Actual OH (10,300 + 19,500)
Less: Budgeted OH at actual hours (P2 x 9,500 hrs) + P10,000
Unfavorable spending variance
49. Answer: C
EV = (AH – SH) SVOHR (14,000 – 13,500) 6
SH (4,500 x 3)
2.50
16,000
P29,800
29,000
P 800
3,000U
13,500
50. Answer: A
Actual OH
Budgeted OH at actual hours (3,500 x P2.50) + P7,000
Favorable spending variance
P15,000
15,750
P( 750)
51. 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
52. Answer: A
Actual variable overhead
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P15,000 U
P(30,000)F
520,000
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AH @ SVOHR (270,000 x 2)
Variable Oh spending variance, Favorable
AH @ SVOHR
SH @ SVOH (260,000 x 2)
Unfavorable VOH efficiency variance
53. Answer: D
Actual
Budget (4,500 x 2.40)
Favorable Budget variance
540,000
( 20,000)
540,000
520,000
20,000
P10,100
10,800
P( 700)
54. Answer: C
Fixed overhead per hour: 16 x 0.7
Annual fixed OH budget 5,000 x 12 x 11.20
55. Answer: B
Actual variable overhead
Variable OH applied
Unfavorable variable OH variance
56. Answer: C
Applied fixed overhead
Less: Favorable volume variance
Budgeted fixed overhead
57. Answer: A
Standard rate:
Excess rate
Actual rate
11.20
672,000
62,400
62,000
400
(3,000 x 3 x 3.50)
50,000/40,000
1,080/3,600
58. Answer: A
Applied fixed overhead
Less favorable volume variance
Budgeted fixed overhead
1.25
0.03
1.28
48,000
12,000
36,000
59. Answer: A
Unfavorable volume variance
Unfavorable VOH spending variance
Total
Net Unfavorable variance
Favorable fixed OH budget variance
60. Answer: A
Net OH variance, Unfavorable
Less: Unfavorable volume variance
Unfavorable spending variance
Favorable FOH budget variance
61. Answer: C
Budgeted fixed OH
25,000
18,000
43,000
2,000
41,000
2,000
( 18,000)
( 25,000)
41,000
500,000
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31,500
875
30,625
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Add: Favorable volume variance
Applied fixed overhead
12,000
512,000
62. Answer: A
Applied FOH (8,000 x 6)
Less: Favorable volume variance
Budgeted FOH
48,000
12,000
36,000
63. 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)
64. Answer: B
Labor Efficiency: (53,500 – 52,000) 8
Variable OH Efficiency (53,500 – 52,000) 6
Total efficiency variance
250,000
260,000
( 10,000)F
5.00
12,000
9,000
21,000
65. Answer: D
Total variable overhead variance (80,000 – 90,000)
Variable overhead spending variance
Variable overhead efficiency variance
8,800 ÷ 20
10,000 favorable
1,200 favorable
8,800 favorable
440 Favorable
66. Answer: D
Fixed overhead volume variance is a more meaningful variance in evaluating the use of the capacity.
67. Answer: B
Actual variable OH
Budgeted VOH at actual hours (80,000 x P3)
Unfavorable VOH spending variance
P250,000
240,000
P 10,000
68. Answer: A
(38,000 units – 50,000 units) x P8 P96,000
69. Answer: B
Spending [P315,000 – (53,500 x P6)]
Efficiency [(53,500 – 52,000) x P6]
70. Answer: B
Spending [P260,000 – (P3M ÷ 12)]
Volume [(26,000 – 25,000) x P10]
P(6,000)
P 9,000
P10,000U
P10,000F
71. 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)
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P88,000
80,000
P 8,000
4,000
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72. Answer: B
Budget fixed overhead
Applied fixed overhead (38,000 x 0.10 x P20)
Unfavorable volume variance
73. Answer: A
Actual variable overhead
Budget at actual hours (4,200 x P4)
Favorable variable OH spending variance
P80,000
76,000
P 4,000
P 16,400
16,800
P ( 400)
74. 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
75. Answer: A
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
108,500
103,200
5,300
P6.00
76. 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
77. 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
1,000
Unfavorable fixed overhead budget variance
78. 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
1,500
Underapplied (unfavorable) volume variance
Alternative calculation:
(9,000 – 8,500) x 3
1,500
Fixed overhead per unit
(27,000 ÷ 9,000)
3
79. Answer: C
Std unit cost:
Variable
Fixed OH
Std unit cost
CGS – Std
OH Volume Variance:
(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
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P30
35
P65
6,500,000
P 700,000 UNF
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80. Answer: A
SQ allowed (22,500 x 6)
Unfavorable usage variance
Actual quantity of materials
135,000
3,000
138,000
81. 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)
82. Answer: C
SH @ SR
Efficiency Variance
AH @ SR
Actual hours (97,000 ÷ 5)
90,000
7,000
97,000
19,400
83. Answer: D
AH @ SR (19,400 x 3)
Spending variance
Actual Variable Overhead
58,200
1,300
59,500
84. Answer: B
Applied Fixed OH
Underapplied fixed overhead
Budgeted fixed overhead
126,000
14,000
140,000
85. Answer: C
Denominator or Budgeted Hours: (140,000 ÷ 7) = 20,000
86. Answer: C
MCE = Value Added Hours ÷ Throughput Time
Processing hours
8.00
Inspection hours
1.50
Waiting time
1.50
1.50
Move time
12.50
Throughput time
MCE (8.00 ÷ 12.50)
64%
87. Answer: A
88. Answer: A
Delivery cycle time:
Total waiting time
Inspection time
Processing time
Move time
Delivery Cycle Time
414,000
6,900
407,100
P2.95
15.00
1.50
3.00
2.50
22.00
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89. Answer: C
A favorable volume variance arises when the applied fixed overhead is higher than the budgeted fixed
overhead.
Budgeted fixed overhead
500,000
12,000
Favorable volume variance (overapplied)
512,000
Applied fixed overhead
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