STANDARD COSTS AND VARIANCE ANALYSIS
1.
Gem Company uses a standard cost system. Information for raw materials for Product G forthe month of
November is as follows:
Standard unit price
P1.60
Actual purchase price per unit
P1.55
Actual quantity purchased
2,000 units
Standard quantity allowed for actual production
1,800 units
What is the materials purchase variance?
a. P90 favorable
b. P90 unfavorable
c. P100 favorable
d. P100 unfavorable
2. Egay Corporation uses a standard cost system. Direct labor information for Product E for themonth of
October is as follows:
Standard unit price
P6.10 per hour
Actual rate paid
P6.00 per hour
Standard quantity allowed for actual production
1,500 hours
Labor efficiency variance
P600 unfavorable
What is the actual hours worked?
a. 1,400
b. 1,402
c. 1,598
d. 1,600
3. Nice, Inc. uses a standard cost system. Overhead cost information for product A for the month of May is as
follows:
Total actual overhead incurred
P12,600
Fixed overhead budgeted
P 3,300
Total standard overhead rate per direct labor
P 4.00
Variable overhead rate per direct labor hour
P 3.00
Standard hours allocated for actual production
3,500
What is the overall (or net) overhead variance?
a. P1,200 favorable
c. P1,400 favorable
b. P1,200 unfavorable
d. P1,400 unfavorable
ITEMS 4 and 5 ARE BASED ON THE FOLLOWING INFORMATION:
Edil Company’s budgeted fixed factory overhead cost is P50,000 per month plus a variable factory
overhead rate of P4 per direct labor hour. The standard direct labor hours allowed for October production
was 18,000. An analysis of the factory overhead indicates that in October, Edil had an unfavorable budget
(controllable) variance of P1,000 and a favorable volume variance of P500. Edil uses a two-way analysis
of overhead variance.
4. The actual factory overhead measured in October is:
a. P121,000
c. P122,300
b. P122,000
d. P123,000
5. The applied factory overhead in October is:
a. P121,000
b. P122,000
c. P122,500
d. P123,000
6. The following information is available from the Olenny 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 direct labor hour
P2.50
Assuming that Olenny uses a three-way analysis of overhead variances, what is the spendingvariance?
a. P750 favorable
c. P 550 favorable
b. P750 unfavorable
d. P1,500 unfavorable
ITEMS 7, 8, and 9 ARE BASED ON THE FOLLOWING INFORMATION:
The data below relate to the month of April for Tim, Inc. which uses a standard cost system:
Actual direct labor cost
Actual hours used
Standard hours allowed for good output
Direct labor rate variance – debit
Actual total overhead
P43,400
14,000
15,000
1,400
32,000
Budgeted fixed cost
“Normal” activity in hours
Total application rate per standard direct-labor hour
9,000
12,000
2.25
Tim uses a two-way analysis of overhead variance (controllable and volume).
7. What was Tim’s direct labor usage (efficiency) variance for April?
a. P3,000 favorable
c. P3,200 favorable
b. P3,000 unfavorable
d. P3,200 unfavorable
8. What was Tim’s budget (controllable) variance for April?
a. P500 favorable
c. P2,250 favorable
b. P500 unfavorable
d. P2,250 unfavorable
9. What was Tim’s volume variance for April?
a. P500 favorable
b. P500 unfavorable
c. P2,250 favorable
d. P2,250 unfavorable
ITEMS 10, 11, and 12 ARE BASED ON THE FOLLOWING INFORMATION:
The following information relates to a given department of Mervi Company for the first quarter of the year:
Actual total overhead (fixed plus variable)
P178,500
Budget formula:
Total FOH Cost = P110,000 + P0.50/hr
Total overhead application rate
P1.50 per hour
Spending variance (from three-way analysis)
P8,000 unfavorable
Volume variance (from two-way analysis)
P5,000 favorable
10. What were the actual hours worked in this department during the quarter?
a. 110,000
c. 137,000
b. 121,000
d. 153,000
11. What were the standard hours allowed for good output in this department?
a. 105,000
c. 110,000
b. 106,667
d. 115,000
12. Each unit takes five hours to manufacture and the selling price is P4.50 per unit. Based on the overhead
budget formula, how many units must be sold to generate P30,000 more than total budgeted overhead
costs?
a. 27,500
c. 55,000
b. 35,000
d. 70,000
13. Which of the following is true concerning standard costs?
a. Standard costs are estimates of costs attainable only under the most idealconditions, 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, when material in amount, should be investigated, but largevariance
need not be investigated.
14. Grace Company manufactures tables with glass tops. The standard material cost for the glass used per
Type-R table is P7.80 based on six square-feet of vinyl at a cost of P1.30 per square- foot. A production
run of 1,000 tables in January resulted to usage of 6,400 square-feet of vinyl at a cost of P1.20 per squarefoot, a total of P7,680. The usage variance resulting from the above production run was:
a. 120 favorable
c. 520 unfavorable
b. 480 unfavorable
d. 640 favorable
15. X’tine Company has a standard absorption and flexible budgeting system and uses two-way analysis for
overhead variances. Selected data for February production activity is as follows:
Budgeted fixed factory overhead costs
P64,000
Actual factory overhead incurred
P230,000
Variable factory overhead rate per direct-labor hour
P5
Standard direct-labor hours
32,000
Actual direct-labor hours
33,000
The budget (controllable) variance for February is:
a. 1,000 favorable
c. 6,000 favorable
b. 1,000 unfavorable
d. 6,000 unfavorable
16. Jae Company’s direct-labor costs for the month of January were as follows:
Actual direct-labor hours
20,000
Standard direct-labor hours
21,000
Direct-labor rate variance, unfavorable
3,000
Total payroll
P126,000
What was Jae’s direct-labor efficiency variance?
a. P6,000 favorable
c. P6,450 favorable
b. P6,150 favorable
d. P6,300 favorable
17. Roy Corporation’s direct-labor costs for the month of March were as follows:
Standard direct-labor hours
42,000
Actual direct-labor hours
40,000
Direct-labor rate variance, favorable
P8,400
Standard direct-labor rate per hour
P6.50
What was Roy’s direct-labor payroll for the month of March?
a. P243,000
c. P251,600
b. P244,000
d. P260,000
18. Shirl Company installs solar panels on residential houses. The standard material cost for a Type-S house
is P1,250 based on 1,000 units at a cost of P1.25 each. During April, Shirl installed solar panels on 20
Type-S houses, using 22,000 units of material at a cost of P1.20 per unit, and a total cost of P26,400.
Shirl’s materials price variance is:
a. P1,000 favorable
c. P1,400 unfavorable
b. P1,100 favorable
d. P2,500 unfavorable
19. Information on Reng Company’s overhead costs for January production activity is as follows: Budgeted
fixed overhead
P75,000
Standard fixed overhead rate per direct-labor hour
P3
Standard variable overhead rate per direct-labor hour
P6
Standard direct-labor hours allowed for actual production
24,000
Actual total overhead incurred
P220,000
Reng has a standard absorption and flexible budgeting system, and uses the two-variance method (twoway analysis) for overhead variances. The volume (denominator) variance for January is:
a. P3,000 unfavorable
c. P4,000 unfavorable
b. P3,000 favorable
d. P4,000 favorable
20. Information on Aicel Company’s direct-material costs is as follows:
Actual units of direct materials used
20,000
Actual direct-materials costs
40,000
Standard price per unit of direct materials
P2.10
Direct material efficiency variance, favorable
3,000
What was Aicel’s direct-material price variance?
a. P1,000 favorable
c. P2,000 favorable
b. P1,000 unfavorable
d. P2,000 unfavorable
21. Information on Jho Company’s overhead costs is as follows:
Standard applied overhead
P80,000
Budgeted overhead based on standard direct-labor hours allowed 84,000
Budgeted overhead based on actual direct-labor hours allowed
83,000
Actual overhead
86,000
What is the total overhead variance?
a. P2,000 unfavorable
b. P3,000 favorable
c. P4,000 favorable
d. P6,000 unfavorable
22. Information on Yhan Company’s direct-labor costs is as follows:
Standard direct-labor rate
Actual direct labor-labor rate
Standard direct-labor hours
usage (efficiency) variance, unfavorable
P3.75
P3.50
10,000Direct-labor
4,200
What were the actual total hours worked (rounded to the nearest hour)?
a. 10,714
c. 11,200
b. 11,120
d. 11,914
23. Information on Ruby Company’s direct-material costs is as follows:
Standard unit price
P3.60
Actual quantity purchased
1,600
Standard quantity allowed for actual production
1,450
Materials purchase price variance, favorable
P240
What was the actual purchase price per unit, rounded to the nearest centavo?
a. P3.06
c. P3.45
b. P3.11
d. P3.75
24. Information on Del Company’s overhead costs is as follows:
Actual variable overhead
Actual fixed overhead
Standard hours allowed for actual production
Standard variable overhead rate per direct-labor hour
Standard fixed overhead rate per direct-labor hour
What is the total overhead variance?
a. P1,000 unfavorable
b. P6,000 favorable
P73,000
P17,000
32,000
P2.50
P0.50
c. P6,000 unfavorable
d. P7,000 favorable
THEORY
1. Which one of the following terms best describes the rate of output which qualified workers can achieve as an
average over the working day or shift, without over-exertion, provided they adhere to the specified method of
working and are well motivated in their work?
a. Standard time
b. Standard hours
c. Standard unit
d. Standard performance
2. The best characteristic of a standard cost system is that
a. Standard can pinpoint responsibility and help motivation
b. All variances from standard should be reviewed
c. All significant unfavorable variances should be reviewed
d. Standard cost involves cost control which is cost reduction
3. Standard costs are used for all of the following except:
A. income determination
C. measuring efficiencies
B. controlling costs
D. forming a basis for price setting
4. Standard costs are least useful for
a. Measuring production efficiency
b. Simplifying costing procedures
c. Job order production systems
d. Determining minimum inventory levels
5. To which of the following is a standard cost nearly like?
a. Estimated cost.
b. Budgeted cost.
c. Product cost.
d. Period cost.
6. A difference between standard costs used for cost control and budgeted costs
A. Can exist because standard costs must be determined after the budget is completed.
B. Can exist because standard costs represent what costs should be while budgeted costsrepresent
expected actual costs.
C. Can exist because budgeted costs are historical costs while standard costs are based onengineering
studies.
D. Can exist because establishing budgeted costs involves employee participation and standard costs do
not.
7. Normal costing and standard costing differ in that
a. the two systems can show different overhead budget variances.
b. only normal costing can be used with absorption costing.
c. the two systems show different volume variances if standard hours do not equal actual hours.
d. normal costing is less appropriate for multiproduct firms
8. When standard costs are used in a process-costing system, how, if at all, are equivalent units ofproduction
(EUP) 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.
9. The type of standard that is intended to represent challenging yet attainable results is:
A. theoretical standard
D. normal standard
B. flexible budget standard
E. expected actual standard
C. controllable cost standard
10. A company using very tight standards in a standard cost system should expect that
a. Most variances will be unfavorable
b. No incentive bonus will be paid
c. Costs will be controlled better than if lower standards were used
d. Employees will be strongly motivated to attain the standard
11. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a
predetermined overhead rate is
a. based on an input factor like direct labor hours and a standard cost per unit is based on a unit of
output.
b. based on practical capacity and a standard fixed cost can be based on any level of activity.
c. used with variable costing while a standard fixed cost is used with absorption costing.
d. likely to be higher than a standard fixed cost per unit.
12. If a company wishes to establish factory overhead budget system in which estimated costs canbe derived
directly from estimates of activity levels, it should prepare a
a. Flexible budget.
b. Fixed budget.
c. Capital budget.
d. Discretionary
budget.
13. Lanta Restaurant compares monthly operating results with a static budget. When actual sales are less than
budget, would Lanta usually report favorable variances on variable food costs and fixed supervisory salaries.
Variable food costs
Fixed supervisory salaries
a.
Yes
Yes
b.
Yes
No
c.
No
Yes
d.
No
No
14. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a fixed
budget:
A. cannot be changed after the period begins; while a variable budget can be changed after the period
begins
B. is a plan for a single level of sales (or other measure of activity); while a variable budget consists of
several plans, one for each of several levels of sales (or other measure of activity)
C. includes only fixed costs; while variable budget includes only variable costs
D. is concerned only with future acquisitions of fixed assets; while a variable budget is concerned with
expenses that vary with salesWhich of the following term is best identified with a system of standard
cost?
a. Contribution approach.
c. Marginal costing.
b. Management by exception.
d. Standard accounting system.
15. Which department is typically responsible for a materials price variance?
A. Engineering.
B. Production.
C. Purchasing.
D. Sales.
16. Under a standard cost system, the materials efficiency variance are the responsibility of
a. Production and industrial engineering.
c. Purchasing and sales.
b. Purchasing and industrial engineering.
d. Sales and industrial engineering.
17. Which of the following people is most likely responsible for an unfavorable variable overhead efficiency
variance?
a. production supervisor
c. supplier
b. accountant
d. purchasing agent
18. Which variance is LEAST likely to be affected by hiring workers with less skill than those already working?
a. Material use variance.
c. Material price variance.
b. Labor rate variance.
d. Variable overhead efficiency variance.
19. Which of the following standard costing variances would be least controllable by a productionsupervisor?
a. Overhead volume. b. Materials usage.
c. Labor efficiency.
d. Overhead
efficiency.
20. The variance resulting from obtaining an output different from the one expected on the basis ofinput is the:
A. mix variance
B. usage variance
C. yield variance
D. efficiency variance
21. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of flour with a
quality rating two grades below that which the company normally purchased. This purchase covered about
90% of the flour requirement for the period. As to the material variances, what will be the likely effect?
a.
b.
c.
d.
Price variance
Unfavorable
Favorable
No effect
Favorable
Usage variance
Favorable
Unfavorable
Unfavorable
Favorable
22. Using the two-variance method for analyzing overhead, which of the following variances contains both
variable and fixed overhead elements?
A.
B.
C.
D.
Controllable (Budget) Variance
Yes
Yes
Yes
No
Volume Variance
Yes
Yes
No
No
Efficiency Variance
Yes
No
No
No
23. Which of the following unfavorable variances is directly affected by the relative position of a production
process on a learning curve?
a. Materials mix.
b. Materials price.
c. Labor rate.
d. Labor efficiency.
24. A manager prepared the following table by which to analyze labor costs for the month:
Actual Hours at
Actual Hours at
Standard Hours at
Actual Rate
Standard Rate
Standard Rate
P10,000
P9,800
P8,820
What variance was P980?
A. Labor efficiency variance.
B. Labor rate variance.
C. Volume variance.
D. Labor spending variance.
25. A credit balance in the labor efficiency variance indicates that:
A. standard hours exceed actual hours
B. actual hours exceed standard hours
C. standard rate and standard hours exceed actual rate and actual hours
D. actual rate and actual hours exceed standard rate and standard hours
26. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the number of
hours allowed, the labor rate variance and labor efficiency variance will be
A.
B.
C.
D.
Labor Rate Variance
Favorable
Favorable
Unfavorable
Unfavorable
Labor Efficiency Variance
Favorable
Unfavorable
Favorable
Unfavorable
27. In the analysis of standard cost variances, the item which receives the most diverse treatment in accounting
is
a. Direct labor cost
c. Direct material cost
b. Factory overhead cost
d. Variable cost.
28. When expenses estimated for the capacity attained differ from the actual expenses incurred, the resulting
balance is termed the
a. Activity variance.
c. Unfavorable variance.
b. Budget variance.
d. Volume variance.
29. The total overhead variance is
A. The difference between actual overhead costs and budgeted overhead.
B. Based on actual hours worked for the units produced.
C. The difference between actual overhead costs and applied overhead.
D. The difference between budgeted overhead and applied overhead.
30. Management scrutinizes variances because
a. Management desires to detect such variances to be able to plan for promotions.
b. Management needs to determine the benefits foregone by such variances.
c. It is desirable under conventional knowledge on good management.
d. Management recognizes the need to know why variances happen to be able to makecorrective
actions and fairly reward good performers.
31. If a company uses a predetermined rate for absorption of manufacturing overhead, the volumevariance is
a. The under- or over-applied fixed cost element of overhead.
b. The under- or over-applied variable cost element of overhead.
c. The difference between budgeted cost and actual cost of fixed overhead items.
d. The difference between budgeted cost and actual cost of variable overhead items.
32. The production volume variance occurs when using the
a. Absorption costing approach because of production exceeding the sales.
b. Absorption costing approach because production differs from that used in setting the fixedoverhead
rate used in applying fixed overhead to production.
c. Variable costing approach because of sales exceeding the production for the period.
d. Variable costing approach because of production exceeding the sales for the period.
33. Henley Company uses a standard cost system in which it applies manufacturing overhead to units of product
on the basis of direct labor hours. For the month of January, the fixed manufacturing overhead volume
variance was P2,220 favorable. The company uses a fixed manufacturing overhead rate of P1.85 per direct
labor hour. During January, the standard direct labor hours allowed for the month's output:
a. exceeded denominator hours by 1,000.
c. exceeded denominator hours by 1,200.
b. fell short of denominator hours by 1,000.
d. fell short of denominator hour by 1,200.
34. A spending variance for variable factory O/H based on direct labor hours is the difference between actual
variable factory O/H and the variable factory O/H that should have been incurred for the actual hours
worked. This variance results from
A. Price and quantity differences for overhead costs.
B. Price differences for overhead costs
C. Quantity differences for overhead costs
D. Differences caused by production volume variation
35. Which of the following is the most probable reason a company would experience an unfavorable labor rate
variance and a favorable efficiency variance?
a. The mix of workers assigned to the particular job was heavily weighted toward the use ofhigher-paid,
experienced individuals.
b. The mix of workers assigned to the particular job was heavily weighted toward the use ofnew,
relatively low-paid unskilled workers.
c. Because of the production schedule, workers from other production areas were assigned toassist in
this particular process.
d. Defective materials caused more labor to be used to product a standard unit.
36. The variable factory overhead rate under the normal volume, practical capacity, and expected activity
levels would be the
a. Same except for practical capacity
c. Same except for normal volume
b. Same except for expected capacity
d. Same for all three activity levels
37. A company reported a significant materials efficiency variance for the month of January. All ofthe
following are possible explanations for this variance except
A. Cutting back preventive maintenance.
B. Inadequately training and supervising the labor force.
C. Processing a large number of rush orders.
D. Producing more units than planned for in the master budget.
38. A debit balance in the labor efficiency variance indicates that
a. Standard hours exceed actual hours.
c. Standard rate exceeds actual rate.
b. Actual hours exceed standard hours.
d. Actual rate exceeds standard rate.
39. What type of direct material variances for price and usage will arise if the actual number of pounds of
materials used was less than standard pounds allowed but actual cost exceeds standard cost?
A.
B.
C.
D.
Usage
Unfavorable
Favorable
Favorable
Unfavorable
Price
Favorable
Favorable
Unfavorable
Unfavorable
40. Which one of the following would not explain an adverse direct labor efficiency variance?
a. Poor scheduling of direct labor hours
b. Setting standard efficiency at a level that is too low
c. Unusually lengthy machine breakdowns
d. A reduction in direct labor training
41. You used predetermined overhead rates and the resulting variances when compared with the results using
the actual rates were substantial. Production data indicated that volumes were lower than the plan by a
large difference. This situation can be due to
a. Overhead being substantially composed of fixed costs.
b. Overhead being substantially composed of variable costs.
c. Overhead costs being recorded as planned.
d. Products being simultaneously manufactured in single runs.
42. During the year, a department’s three-variance factory O/H standard costing system reported unfavorable
spending and volume variances. The activity level selected for allocating factory O/H to the product was
based on 80% of practical capacity. If 100% of practical capacity had been selected instead, how would the
reported unfavorable spending and volume variances have been affected?
a.
b.
c.
d.
Spending Variance
Increased
Increased
Unchanged
Unchanged
Volume Variance
Unchanged
Increased
Increased
Unchanged
43. The journal entry to record the direct materials quantity variance may be recorded
a. Only when direct materials are purchased
b. Only when direct materials are issued to production
c. Either (a) or (b)
d. When inventory is taken at the end of the year.
44. Overapplied factory overhead results when
a. A plant is operated at less than its normal capacity.
b. Factory overhead costs incurred are greater than the costs charged to production.
c. Factory overhead costs incurred are less than the costs charged to production.
d. Factory overhead costs incurred are unreasonably large in relation to the number of units produced.
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