Chapter 10

Standard Costs and the Balanced Scorecard

True/False

1. Standard costs should generally be based on the actual costs of prior periods.
F
Easy

2. The standard direct labor rate should not include fringe benefits.
F
Easy

3. From a standpoint of cost control, the most effective time to recognize material price variances is when the
F materials are placed into production.
Medium

4. The material quantity variance is computed based on the quantity of all materials purchased during the
F period.
Medium

5. Purchase of poor quality materials will generally result in a favorable materials price variance and an
F unfavorable labor rate variance.
Medium

6. A balanced scorecard is an integrated set of performance measures that support management's strategy
T throughout the organization.
Easy

7. The performance measures on a balanced scorecard tend to fall into four groups: financial measures,
F customer measures, internal business process measures, and external business process measures.
Medium

8. The emphasis in the balanced scorecard is on improvement rather than meeting a preset standard.
T
Easy

9. A balanced scorecard should contain every performance measure that can be expected to influence a
F company's profits.
Medium

10. Process Time is the only value-added component of Throughput Time.

T
Easy

ManagerialAccounting,9/e 102
11. (Appendix) A favorable labor efficiency variance would result in a credit balance in the labor efficiency
T variance account.
Medium

12. Management by exception means that a manager's attention is directed toward those parts of the
T organization where things are not proceeding according to plans.
Easy

13. The production manager is usually held responsible for the labor efficiency variance.
T
Easy

14. Quantity standards indicate how much of an input should be used for manufacturing a unit of product or in
T providing a unit of service.
Easy

15. All cost variances should be considered exceptions that require the attention of management.
F
Easy

Multiple Choice

16. The standards that allow for no machine breakdowns or other work interruptions and that require peak
C efficiency at all times are referred to as:
Easy a. normal standards.
b. practical standards.
c. ideal standards.
d. budgeted standards.

17. To measure controllable production inefficiencies, which of the following is the best basis for a company to
C use in establishing the standard hours allowed for the output of one unit of product?
Medium a. Average historical performance for the last several years.
CPA adapted b. Engineering estimates based on ideal performance.
c. Engineering estimates based on attainable performance.
d. The hours per unit that would be required for the present workforce to satisfy expected demand over
the long run.

18. Which of the following statements concerning practical standards is incorrect?

C a. Practical standards can be used for product costing and cash budgeting.
Easy b. Practical standards can be attained by the average worker.
CMA adapted c. When practical standards are used, there is no reason to adjust standards if an old machine is replaced by
a newer, faster machine.
d. Under practical standards, large variances are less likely than under ideal standards.

19. If a company follows a practice of isolating variances at the earliest point in time, what would be the
B appropriate time to isolate and recognize a direct material price variance?
Easy a. When material is issued.
CPA adapted b. When material is purchased.
c. When material is used in production.
d. When production is completed.

20. An unfavorable labor efficiency variance indicates that:

C a. The actual labor rate was higher than the standard labor rate.
Medium b. The labor rate variance must also be unfavorable.
CPA adapted c. Actual labor hours worked exceeded standard labor hours for the production level achieved.
d. Overtime labor was used during the period.

103ManagerialAccounting,9/e
21. A favorable labor rate variance indicates that
D a. actual hours exceed standard hours.
Easy b. standard hours exceed actual hours.
c. the actual rate exceeds the standard rate.
d. the standard rate exceeds the actual rate.

22. (Appendix) What does a credit balance in a direct labor efficiency variance account indicate?
B a. the average wage rate paid to direct labor employees was less than the standard rate.
Hard b. the standard hours allowed for the units produced were greater than actual direct labor hours used.
CPA adapted c. actual total direct labor costs incurred were less than standard direct labor costs allowed for the units
produced.
d. the number of units produced was less than the number of units budgeted for the period.

23. If the actual labor hours worked exceed the standard labor hours allowed, what type of variance will occur?
C a. Favorable labor efficiency variance.
Easy b. Favorable labor rate variance.
c. Unfavorable labor efficiency variance.
d. Unfavorable labor rate variance.

ManagerialAccounting,9/e 104
24. Which of the following is the most probable reason a company would experience an unfavorable labor rate
A variance and a favorable labor efficiency variance?
Medium a. The mix of workers assigned to the particular job was heavily weighted towards the use of higher
CPA adapted paid, experienced individuals.
b. The mix of workers assigned to the particular job was heavily weighted towards the use of new
relatively low paid, unskilled workers.
c. Because of the production schedule, workers from other production areas were assigned to assist this
particular process.
d. Defective materials caused more labor to be used in order to produce a standard unit.

25. Which department is usually held responsible for an unfavorable materials quantity variance?
D a. Marketing
Easy b. Purchasing
CPA adapted c. Engineering
d. Production

26. A favorable material price variance coupled with an unfavorable material usage variance would MOST
B likely result from:
Easy a. problems with processing machines.
CMA adapted b. the purchase of low quality materials.
c. problems with labor efficiency.
d. changes in the product mix.

27. Tower Company planned to produce 3,000 units of its single product, Titactium, during November. The
C standards for one unit of Titactium specify six pounds of materials at P0.30 per pound. Actual production in
Medium November was 3,100 units of Titactium. There was a favorable materials price variance of P380 and an
CMA adapted unfavorable materials quantity variance of P120. Based on these variances, one could conclude that:
a. more materials were purchased than were used.
b. more materials were used than were purchased.
c. the actual cost per pound for materials was less than the standard cost per pound.
d. the actual usage of materials was less than the standard allowed.

28. A labor efficiency variance resulting from the use of poor quality materials should be charged to:
B a. the production manager.
Medium b. the purchasing agent.
c. manufacturing overhead.
d. the engineering department.

29. Which of the following represents value-added time in the manufacturing cycle?
D a. Inspection time.
Easy b. Queue time.
c. Move time.
d. Process time.

30. Throughput time consists of:

D a. Process time.
Medium b. Inspection time and move time.
c. Process time, inspection time, and move time.
d. Process time, inspection time, move time, and queue time.

31. Manufacturing Cycle Efficiency (MCE) is computed as:

C a. Throughput Time Delivery Cycle Time
Easy b. Process Time Delivery Cycle Time
c. Value-Added Time Throughput Time
d. Value-Added Time Delivery-Cycle Time

105ManagerialAccounting,9/e
32. (Appendix) Drake Company purchased materials on account. The entry to record the purchase of materials
D having a standard cost of P1.50 per pound from a supplier at P1.60 per pound would include a:
Medium a. credit to Raw Materials Inventory.
b. debit to Work in Process.
c. credit to Materials Price Variance.
d. debit to Materials Price Variance.

33. (Appendix) Which of the following entries would correctly record the charging of direct labor costs to Work
A in Process given an unfavorable labor efficiency variance and a favorable labor rate variance?
Medium a. Work in Process
Labor Efficiency Variance
Labor Rate Variance
Wages Payable
b. Work in Process
Wages Payable
c. Work in Process
Labor Efficiency Variance
Labor Rate Variance
Wages Payable
d. Work in Process
Labor Rate Variance
Labor Efficiency Variance
Wages Payable

ManagerialAccounting,9/e 106
34. Under a standard cost system, the material price variances are usually the responsibility of the:
C a. production manager.
Easy b. sales manager.
CMA adapted c. purchasing manager.
d. engineering manager.

35. The terms "standard quantity allowed" or "standard hours allowed" mean:
C a. the actual output in units multiplied by the standard output allowed.
Medium b. the actual input in units multiplied by the standard output allowed.
c. the actual output in units multiplied by the standard input allowed.
d. the standard output in units multiplied by the standard input allowed.

36. Dahl Company, a clothing manufacturer, uses a standard costing system. Each unit of a finished product
D contains 2 yards of cloth. However, there is unavoidable waste of 20%, calculated on input quantities, when
Medium the cloth is cut for assembly. The cost of the cloth is P3 per yard. The standard direct material cost for cloth
CPA adapted per unit of finished product is:
a. P4.80.
b. P6.00.
c. P7.00.
d. P7.50.

37. Cox Company's direct material costs for the month of January were as follows:
C
Hard Actual quantity purchased ............. 18,000 kilograms
Actual unit purchase price ............ P 3.60 per kilogram
Materials price variance--
unfavorable (based on purchases) .... P 3,600
Standard quantity allowed
for actual production ............... 16,000 kilograms
Actual quantity used .................. 15,000 kilograms

For January there was a favorable direct material quantity variance of:
a. P3,360.
b. P3,375.
c. P3,400.
d. P3,800.

38. The Porter Company has a standard cost system. In July the company purchased and used 22,500 pounds of
C direct material at an actual cost of P53,000; the materials quantity variance was P1,875 Unfavorable; and
Hard the standard quantity of materials allowed for July production was 21,750 pounds. The materials price
variance for July was:
a. P2,725 F.
b. P2,725 U.
c. P3,250 F.
d. P3,250 U.

39. Information on Fleming Company's direct material costs follows:

C
Medium Actual amount of direct materials used ...... 20,000 pounds
CPA adapted Actual direct material costs ................ P40,000
Standard price of direct materials .......... P2.10 per pound
Direct material efficiency variance--favorable P3,000

What was the company's direct material price variance?

a. P1,000 favorable.
b. P1,000 unfavorable.
c. P2,000 favorable.
d. P2,000 unfavorable.

107ManagerialAccounting,9/e
40. Last month 75,000 pounds of direct material were purchased and 71,000 pounds were used. If the actual
C purchase price per pound was P0.50 more than the standard purchase price per pound, then the material
Easy price variance was:
a. P2,000 F.
b. P37,500 F.
c. P37,500 U.
d. P35,500 U.

41. During March, Younger Company's direct material costs for product T were as follows:
A
Medium Actual unit purchase price ............... P6.50 per meter
CPA adapted Standard quantity allowed for actual
production ............................. 2,100 meters
Quantity purchased and used for actual
production ............................. 2,300 meters
Standard unit price ...................... P6.25 per meter

Younger's material quantity variance for March was:

a. P1,250 unfavorable.
b. P1,250 favorable.
c. P1,300 unfavorable.
d. P1,300 favorable.

ManagerialAccounting,9/e 108
42. The following materials standards have been established for a particular product:
B
Easy Standard quantity per unit of output .. 1.7 meters
Standard price ........................ P19.80 per meter

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 5,800 meters

Actual cost of materials purchased .... P113,680
Actual materials used in production ... 5,100 meters
Actual output ......................... 3,200 units

What is the materials quantity variance for the month?

a. P13,720 U
b. P6,732 F
c. P13,860 U
d. P6,664 F

43. The following materials standards have been established for a particular product:
A
Easy Standard quantity per unit of output .. 8.3 grams
Standard price ........................ P19.15 per gram

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 7,500 grams

Actual cost of materials purchased .... P141,375
Actual materials used in production ... 7,100 grams
Actual output ......................... 700 units

What is the materials price variance for the month?

a. P2,250 F
b. P7,540 U
c. P24,317 U
d. P7,660 U

109ManagerialAccounting,9/e
44. Information on Kennedy Company's direct material costs follows:
C
Hard Standard price per pound of raw materials ....... P3.60
CPA adapted Actual quantity of raw materials purchased ...... 1,600 pounds
Standard quantity allowed for actual production.. 1,450 pounds
Materials purchase price variance--favorable .... P 240

What was the actual purchase price per unit, rounded to the nearest penny?
a. P3.06.
b. P3.11.
c. P3.45.
d. P3.75.

45. The Fletcher Company uses standard costing. The following data are available for October:
B
Hard Actual quantity of direct materials used ... 23,500 pounds
Standard price of direct materials ......... P2 per pound
Material quantity variance ................. P1,000 favorable

The standard quantity of material allowed for October production is:

a. 23,000 lbs.
b. 24,000 lbs.
c. 24,500 lbs.
d. 25,000 lbs.

46. Yola Company manufactures a product with standards for direct labor of 4 direct labor-hours per unit at a
B cost of P12.00 per direct labor-hour. During June, 1,000 units were produced using 4,100 hours at P12.20
Easy per hour. The direct labor efficiency variance was:
CPA adapted a. P1,200 favorable.
b. P1,200 unfavorable.
c. P2,020 favorable.
d. P2,020 unfavorable.

47. The following labor standards have been established for a particular product:
D
Easy Standard labor hours per unit of output .. 8.3 hours
Standard labor rate ...................... P12.10 per hour

The following data pertain to operations concerning the product for the last month:

Actual hours worked ...................... 6,100 hours

Actual total labor cost .................. P71,370
Actual output ............................ 900 units

What is the labor efficiency variance for the month?

a. P19,017 F
b. P19,017 U
c. P16,029 F
d. P16,577 F

ManagerialAccounting,9/e 110
48. The following labor standards have been established for a particular product:
A Standard labor hours per unit of output .. 1.7 hours
Easy Standard labor rate ...................... P14.05 per hour

The following data pertain to operations concerning the product for the last month:

Actual hours worked ...................... 3,700 hours

Actual total labor cost .................. P50,690
Actual output ............................ 2,300 units
What is the labor rate variance for the month?
a. P1,295 F
b. P2,877 F
c. P4,246 F
d. P4,246 U

49. Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October
D follows:
Hard
CPA adapted Standard direct labor rate ................. P6.00 per hour
Actual direct labor rate paid .............. P6.10 per hour
Standard hours allowed for actual production 1,500 hours
Labor efficiency variance--unfavorable ..... P600

What are the actual hours worked?

a. 1,400.
b. 1,402.
c. 1,598.
d. 1,600.

50. The standards for direct labor for a product are 2.5 hours at P8 per hour. Last month, 9,000 units of the
D product were made and the labor efficiency variance was P8,000 F. The actual number of hours worked
Hard during the past period was:
a. 23,500.
b. 22,500.
c. 20,500.
d. 21,500.

51. In a certain standard costing system the following results occurred last period: labor rate variance, P1,000
C U; labor efficiency variance, P2,800 F; and the actual labor rate was P0.20 more per hour than the standard
Hard labor rate. The number of actual direct labor hours used last period was:
a. 9,000.
b. 5,400.
c. 5,000.
d. 4,800.

52. The Reedy Company uses a standard costing system. The following data are available for November:
A
Hard Actual direct labor hours worked ... 5,800 hours
Standard direct labor rate ......... P9 per hour
Labor rate variance ................ P1,160 favorable

The actual direct labor rate for November is:

a. P8.80.
b. P8.90.
c. P9.00.
d. P9.20.

111ManagerialAccounting,9/e
53. For the month of April, Thorp Co.'s records disclosed the following data relating to direct labor:
A
Hard Actual cost ............... P10,000
CPA adapted Rate variance ............. P 1,000 favorable
Efficiency variance ....... P 1,500 unfavorable

For the month of April, actual direct labor hours amounted to 2,000. In April, Thorp's standard direct labor
rate per hour was:
a. P5.50.
b. P5.00.
c. P4.75.
d. P4.50.

54. Borden Enterprises uses standard costing. For the month of April, the company reported the following data:
B
Hard Standard direct labor rate: P10 per hour
Standard hours allowed for actual production: 8,000
Actual direct labor rate: P9.50 per hour
Labor efficiency variance: P4,800 F

The labor rate variance for April is:

a. P3,760 U.
b. P3,760 F.
c. P2,850 F.
d. P2,850 U.

55. The following standards for variable manufacturing overhead have been established for a company that
B makes only one product:
Easy
Standard hours per unit of output ...... 7.8 hours
Standard variable overhead rate ........ P12.55 per hour

The following data pertain to operations for the last month:

Actual hours ........................... 2,900 hours

Actual total variable overhead cost .... P36,975
Actual output .......................... 200 units

What is the variable overhead efficiency variance for the month?

a. P17,397 U
b. P16,817 U
c. P312 F
d. P17,085 U

56. The following standards for variable manufacturing overhead have been established for a company that
B makes only one product:
Easy
Standard hours per unit of output ...... 5.6 hours
Standard variable overhead rate ........ P12.00 per hour

The following data pertain to operations for the last month:

Actual hours ........................... 2,600 hours

Actual total variable overhead cost .... P31,330
Actual output .......................... 400 units

What is the variable overhead spending variance for the month?

a. P112 F
b. P130 U
c. P4,450 U
d. P4,338 U

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113ManagerialAccounting,9/e
Reference: 10-1
Bryan Company employs a standard cost system in which direct materials inventory is carried at standard cost. Bryan has
established the following standards for the prime costs of one unit of product:

Standard Standard Standard

Quantity Price Cost
Direct materials .... 6 pounds P 3.50/pound P21.00
Direct labor ........ 1.3 hours P11.00/hour 14.30
P35.30

During March, Bryan purchased 165,000 pounds of direct material at a total cost of P585,750. The total factory wages for March
were P400,000, 90 percent of which were for direct labor. Bryan manufactured 25,000 units of product during March using
151,000 pounds of direct material and 32,000 direct labor hours.

57. The price variance for the direct material acquired by the company during March is:
B a. P7,550 favorable.
Medium b. P8,250 unfavorable.
Refer To: 10-1 c. P7,550 unfavorable.
d. P8,250 favorable.

58. The direct material quantity variance for March is:

A a. P3,500 unfavorable.
Medium b. P3,550 favorable.
Refer To: 10-1 c. P3,500 favorable.
d. P3,550 unfavorable.

59. The direct labor rate variance for March is:

C a. P 8,000 favorable.
Medium b. P48,000 unfavorable.
Refer To: 10-1 c. P 8,000 unfavorable.
d. P48,000 favorable.

60. The direct labor efficiency variance for March is:

B a. P5,625 unfavorable.
Medium b. P5,500 favorable.
Refer To: 10-1 c. P5,625 favorable.
d. P5,500 unfavorable.

ManagerialAccounting,9/e 114
Reference: 10-2
The Litton Company has established standards as follows:

Direct material 3 lbs. @ P4/lb. = P12 per unit

Direct labor 2 hrs. @ P8/hr. = P16 per unit
Variable manuf. overhead 2 hrs. @ P5/hr. = P10 per unit

Actual production figures for the past year are given below. The company records the materials price variance when materials are
purchased.

Units produced 600

Direct material used 2,000 lbs.
Direct material purchased (3,000 lbs.) P11,400
Direct labor cost (1,100 hrs.) P 9,240
Variable manuf. overhead cost incurred P 5,720

The company applies variable manufacturing overhead to products on the basis of direct labor hours.

61. The materials price variance is:

C a. P400 U.
Easy b. P400 F.
Refer To: c. P600 F.
10-2 d. P600 U.

62. The materials quantity variance is:

A a. P800 U.
Easy b. P4,000 U.
Refer To: 10-2 c. P760 U.
d. P760 F.

63. The labor rate variance is:

D a. P480 F.
Easy b. P480 U.
Refer To: 10-2 c. P440 F.
d. P440 U.

64. The labor efficiency variance is:

A a. P800 F.
Easy b. P800 U.
Refer To: 10-2 c. P840 F.
d. P840 U.

65. The variable overhead spending variance is:

B a. P240 U.
Easy b. P220 U.
Refer To: 10-2 c. P220 F.
d. P240 F.

115ManagerialAccounting,9/e
66. The variable overhead efficiency variance is:
D a. P520 F.
Easy b. P520 U.
Refer To: 10-2 c. P500 U.
d. P500 F.

Reference: 10-3
The Albright Company uses standard costing and has established the following standards for its single product:

Direct materials .......... 2 gallons at P3 per gallon

Direct labor .............. 0.5 hours at P8 per hour
Variable manuf. overhead .. 0.5 hours at P2 per hour

During November, the company made 4,000 units and incurred the following costs:

Direct materials purchased ........ 8,100 gallons at P3.10 per gallon

Direct materials used ............. 7,600 gallons
Direct labor used ................. 2,200 hours at P8.25 per hour
Actual variable manuf. overhead ... P4,175

The company applies variable manufacturing overhead to products on the basis of direct labor hours.

67. The material price variance for November was:

C a. P2,310 U.
Easy b. P2,310 F.
Refer To: 10-3 c. P810 U.
d. P810 F.

68. The material quantity variance for November was:

B a. P1,200 U.
Easy b. P1,200 F.
Refer To: 10-3 c. P300 U.
d. P1,500 F.

69. The labor rate variance for November was:

B a. P1,050 U.
Easy b. P550 U.
Refer To: 10-3 c. P2,150 U.
d. P2,150 F.

70. The labor efficiency variance for November was:

D a. P1,050 U.
Easy b. P550 U.
Refer To: 10-3 c. P1,600 F.
d. P1,600 U.

71. The total variable overhead variance for November was:

A a. P175 U.
Medium b. P225 F.
Refer To: 10-3 c. P225 U.
d. P400 U.

Reference: 10-4
Cole laboratories makes and sells a lawn fertilizer called Fastgro. The company has developed standard costs for one bag of
Fastgro as follows:

Standard
Standard Quantity Cost per Bag
Direct material ........... 20 pounds P8.00

ManagerialAccounting,9/e 116
 Direct labor .............. 0.1 hours 1.10
Variable manuf. overhead .. 0.1 hours .40

The company had no beginning inventories of any kind on Jan. 1. Variable manufacturing overhead is applied to production on
the basis of direct labor hours. During January, the following activity was recorded by the company:

Production of Fastgro: 4,000 bags

Direct materials purchased: 85,000 pounds at a cost of P32,300
Direct labor worked: 390 hours at a cost of P4,875
Variable manufacturing overhead incurred: P1,475
Inventory of direct materials on Jan. 31: 3,000 pounds

72. The materials price variance for January is:

C a. P1,640 F.
Medium b. P1,640 U.
Refer To: 10-4 c. P1,700 F.
d. P1,300 U.

73. The materials quantity variance for January is:

A a. P800 U.
Medium b. P300 U.
Refer To: 10-4 c. P300 F.
d. P750 F.

74. The labor rate variance for January is:

D a. P475 F.
Medium b. P475 U.
Refer To: 10-4 c. P585 F.
d. P585 U.

75. The labor efficiency variance for January is:

D a. P475 F.
Medium b. P350 U.
Refer To: 10-4 c. P130 U.
d. P110 F.

76. The total variance for variable overhead for January is:
D a. P85 F.
Medium b. P40 F.
Refer To: 10-4 c. P100 U.
d. P125 F.

Reference: 10-5
(Appendix) The Dexon Company makes and sells a single product called a Mip and employs a standard costing system. The
following standards have been established for one unit of Mip:

Standard Quantity Standard Cost

or Hours per Mip
Direct materials .. 6 board feet P9.00
Direct labor ...... 0.8 hours P9.60

There were no inventories of any kind on August 1. During August, the following events occurred:

Purchased 15,000 board feet at the total cost of P24,000.

Used 12,000 board feet to produce 2,100 Mips.
Used 1,700 hours of direct labor time at a total cost of P20,060.

117ManagerialAccounting,9/e
77. To record the purchase of direct materials, the general ledger would include what entry to the Materials
B Price Variance Account?
Medium a. P1,500 credit
Refer To: 10-5 b. P1,500 debit
c. P6,000 credit
d. P6,000 debit

78. To record the use of direct materials in production, the general ledger would include what entry to the
D Materials Quantity Variance account?
Medium a. P3,600 debit
Refer To: 10-5 b. P3,600 credit.
c. P900 debit
d. P900 credit

79. To record the incurrence of direct labor cost and its use in production, the general ledger would include what
D entry to the Labor Rate Variance account?
Medium a. P240 credit
Refer To: 10-5 b. P240 debit
c. P340 debit
d. P340 credit

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80. To record the incurrence of direct labor costs and its use in production, the general ledger would include
B what entry to the Labor Efficiency Variance account?
Medium a. P480 credit
Refer To: 10-5 b. P240 debit
c. P1,200 debit
d. P1,200 credit

Reference: 10-6
The Alpha Company produces toys for national distribution. Standards for a particular toy are:

Materials: 12 ounces per unit at 56 per ounce.

Labor: 2 hours per unit at P2.75 per hour.

During the month of December, the company produced 1,000 units. Information for the month follows:

Materials: 14,000 ounces were purchased and used at a total cost of P7,140.
Labor: 2,500 hours worked at a total cost of P8,000.

81. The materials price variance is:

D a. P700 U.
Easy b. P420 U.
Refer To: 10-6 c. P420 F.
d. P700 F.

82. The materials quantity variance is:

A a. P1,120 U.
Easy b. P1,820 F.
Refer To: 10-6 c. P1,820 U.
d. P1,120 F.

83. The labor rate variance is:

C a. P2,500 F.
Easy b. P1,125 F.
Refer To: 10-6 c. P1,125 U.
d. P2,500 U.

84. The labor efficiency variance is:

B a. P1,600 U.
Easy b. P1,375 U.
Refer To: 10-6 c. P1,375 F.
d. P1,600 F.

119ManagerialAccounting,9/e
Reference: 10-7
The following materials standards have been established for a particular product:

Standard quantity per unit of output .. 4.4 pounds

Standard price ........................ P13.20 per pound

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 4,800 pounds

Actual cost of materials purchased .... P62,880
Actual materials used in production ... 4,300 pounds
Actual output ......................... 700 units

85. What is the materials price variance for the month?

A a. P480 F
Easy b. P430 F
Refer To: 10-7 c. P430 U
d. P480 U

86. What is the materials quantity variance for the month?

C a. P6,550 U
Easy b. P15,982 U
Refer To: 10-7 c. P16,104 U
d. P6,600 U

Reference: 10-8
The following materials standards have been established for a particular product:

Standard quantity per unit of output .. 1.9 grams

Standard price ........................ P18.00 per gram

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 5,800 grams

Actual cost of materials purchased .... P108,460
Actual materials used in production ... 5,200 grams
Actual output ......................... 2,700 units

87. What is the materials price variance for the month?

A a. P4,060 U
Easy b. P3,640 F
Refer To: 10-8 c. P3,640 U
d. P4,060 F

ManagerialAccounting,9/e 120
88. What is the materials quantity variance for the month?
A a. P1,260 U
Easy b. P1,309 U
Refer To: 10-8 c. P11,220 U
d. P10,800 U

Reference: 10-9
The following materials standards have been established for a particular product:

Standard quantity per unit of output .. 6.8 meters

Standard price ........................ P17.10 per meter

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 9,000 meters

Actual cost of materials purchased .... P156,600
Actual materials used in production ... 8,500 meters
Actual output ......................... 1,200 units

89. What is the materials price variance for the month?

D a. P2,700 F
Easy b. P2,550 U
Refer To: 10-9 c. P2,550 F
d. P2,700 U
90. What is the materials quantity variance for the month?
A a. P5,814 U
Easy b. P8,700 U
Refer To: c. P5,916 U
10-9 d. P8,550 U

Reference: 10-10
The following labor standards have been established for a particular product:

Standard labor hours per unit of output .. 7.5 hours

Standard labor rate ...................... P15.25 per hour

The following data pertain to operations concerning the product for the last month:

Actual hours worked ...................... 9,600 hours

Actual total labor cost .................. P144,480
Actual output ............................ 1,200 units

121ManagerialAccounting,9/e
91. What is the labor rate variance for the month?
A a. P1,920 F
Easy b. P240 U
Refer To: 10-10 c. P1,920 U
d. P240 F
92. What is the labor efficiency variance for the month?
D a. P7,230 U
Easy b. P9,030 U
Refer To: 10-10 c. P7,230 F
d. P9,150 U

Reference: 10-11
The Clark Company makes a single product and uses standard costing. Some data concerning this product for the month of May
follow:

Labor rate variance:.................................. P 7,000 F

Labor efficiency variance:............................ P12,000 F
Variable overhead efficiency variance:................ P 4,000 F
Number of units produced:............................. 10,000
Standard labor rate per direct labor hour:............ P12
Standard variable overhead rate per direct labor hour: P 4
Actual labor hours used:.............................. 14,000
Actual variable manufacturing overhead costs:......... P58,290

93. The variable overhead spending variance for May was:

B a. P2,290 F.
Medium b. P2,290 U.
Refer To: 10-11 c. P1,710 F.
d. P1,710 U.
94. The actual direct labor rate for May in Pesos per hour was:
D a. P12.50.
Hard b. P12.00.
Refer To: 10-11 c. P11.75.
d. P11.50.
95. The total standard cost for direct labor for May was:
B a. P168,000.
Hard b. P180,000.
Refer To: 10-11 c. P120,000.
d. P161,000.
96. The total standard cost for variable overhead for May was:
C a. P56,000.
Hard b. P40,000.
Refer To: 10-11 c. P60,000.
d. P50,000.
97. The standard hours allowed to make one unit of finished product are:
C a. 1.0.
Hard b. 1.2.
Refer To: 10-11 c. 1.5.
d. 2.0.

Reference: 10-12
The following standards for variable manufacturing overhead have been established for a company that makes only one product:

Standard hours per unit of output ...... 1.6 hours

Standard variable overhead rate ........ P11.55 per hour

The following data pertain to operations for the last month:

Actual hours ........................... 4,900 hours

Actual total variable overhead cost .... P58,310
Actual output .......................... 3,000 units

ManagerialAccounting,9/e 122
98. What is the variable overhead spending variance for the month?
C a. P2,870 U
Hard b. P2,870 F
Refer To: 10-11 c. P1,715 U
d. P1,715 F
99. What is the variable overhead efficiency variance for the month?
C a. P1,680 F
Easy b. P1,190 U
Refer To: 10-12 c. P1,155 U
d. P1,190 F

Reference: 10-13
The Upton Company employs a standard costing system in which variable overhead is assigned to production on the basis of
direct labor hours. Data for the month of February include the following:

Variable manufacturing overhead cost incurred: P48,700

Total variable overhead variance: P300 F
Standard hours allowed for actual production: 7,000
Actual direct labor hours worked: 6,840

100. The standard variable overhead rate per direct labor hour is:
C a. P6.91.
Hard b. P6.95.
Refer To: 10-13 c. P7.00.
d. P7.12.

123ManagerialAccounting,9/e
101. The variable overhead spending variance is:
B a. P820 F.
Hard b. P820 U.
Refer To: 10-13 c. P740 F.
d. P740 U.
102. The variable overhead efficiency variance is:
C a. P430 U.
Hard b. P740 F.
Refer To: 10-13 c. P1,120 F.
d. P950 U.

Reference: 10-14
Ricric Corporation has provided the following data for one of its products:

Process time ........ 3 days

Queue time .......... 4 days
Inspection time ..... 0.7 days
Move time ........... 0.3 days
Wait time ........... 9 days

103. The throughput time for this operation would be:

A a. 8 days.
Easy b. 3 days.
Refer To: 10-14 c. 17 days.
d. 7.7 days.
104. The delivery cycle time for this operation would be:
B a. 8 days.
Easy b. 17 days.
Refer To: 10-14 c. 9.3 days.
d. 7.7 days.
105. The manufacturing cycle efficiency for this operation would be closest to:
A a. 0.375.
Medium b. 0.45.
Refer To: 10-14 c. 0.18.
d. 0.33.

ManagerialAccounting,9/e 124
Essay

106. (Appendix) Albert Manufacturing Company manufactures a single product. The standard cost of one unit of
Hard this product is:

Direct materials: 6 feet at P1.50 ........... P 9.00

Direct labor: 1 hour at P6.75 ............... 6.75
Variable overhead: 1 hour at P4.50 .......... 4.50
Total standard variable cost per unit ....... P20.25

During the month of October, 6,000 units were produced. Selected cost data relating to the month's
production follow:

Material purchased: 60,000 feet at P1.43 .... P85,800

Material used in production: 38,000 feet ... -
Direct labor: ?__ hours at P ?__ per hr .. P41,925
Variable overhead cost incurred ............. P30,713
Variable overhead efficiency variance ....... P 2,250

There was no beginning inventory of raw materials. The variable overhead rate is based on direct labor-
hours.

Required:

a. For direct materials, compute the price and quantity variances for the month, and prepare journal
entries to record activity for the month.
b. For direct labor, compute the rate and efficiency variances for the month, and prepare a journal
entry to record labor activity for the month.
c. For variable overhead, compute the spending variance for the month, and prove the efficiency
variance given above.

125ManagerialAccounting,9/e
 Answer:

a. Materials Price Variance:

Actual Quantity of Inputs, at Actual Price:
60,000 feet @ P1.43 per foot ............ P85,800
Actual Quantity of Inputs, at Standard Price:
60,000 feet @ P1.50 ..................... 90,000
Materials Price Variance .................. P 4,200 F

Materials Quantity Variance:

Actual Quantity of Inputs, at Standard Price:
38,000 feet @ P1.50 per foot ............ P57,000
Standard Quantity of Inputs, at Standard Price:
6,000 units @ 6 feet per unit x P1.50 per ft 54,000
Materials Quantity Variance ............... P 3,000 U

Journal entries:
Raw Materials (60,000 feet @ P1.50) ....... 90,000
Materials Price Variance
(60,000 feet @ P.07 F) ................ 4,200
Accounts Payable (60,000 feet @ P1.43) .. 85,800

Work in Process (36,000 feet @ P1.50) ..... 54,000

Materials Quantity Variance
(2,000 feet U @ P1.50) ................ 3,000
Raw Materials (38,000 feet @ P1.50) ..... 57,000

b. The actual hours worked during the period can be computed through the variable overhead
efficiency variance, as follows:

SR(AH - SH) = Variable Overhead Efficiency Variance

P4.50(AH - (6,000 units @ 1 hr. per unit)= P2,250 U
P4.50AH - P27,000 = P2,250 U
P4.50AH = P29,250
AH = 6,500 hours

Labor Rate Variance:

Actual Hours of Input, at the Actual Rate:
6,500 hours @ P6.45 .................... P49,056
Actual Hours of Input, at the Standard Rate:
6,500 hours @ P6.75 per hour ........... 43,875
Labor Rate Variance ...................... P 1,950 F

Labor Efficiency Variance:

Actual Hours of Input, at the Standard Rate:
6,500 hours @ P6.75 per hour ........... P43,875
Standard Hours of Input, at the Standard Rate:
6,000 @ 1 hour per unit @ P6.75 per hour 40,500
Labor Efficiency Variance ................ P 3,375 U

Journal entry:
Work in Process (6,00 hours @ P6.75) ..... 40,500
Labor Efficiency Variance (500 hrs. U @ P6.75) 3,696
Labor Rate Variance (6,500 hrs. @ P0.30 F) 6,480
Wages Payable (6,500 hrs. @ P6.45) ..... 41,925

ManagerialAccounting,9/e 126
 c. Variable Overhead Spending Variance:
Actual Hours of Input, at the Actual Rate P30,713
Actual Hours of Input, at the Standard Rate:
6,500 hours @ P4.50 per hour ........... 29,250
Variable Overhead Spending Variance ...... P 1,463 U

Variable Overhead Efficiency Variance:

Actual Hours of Input, at the Standard Rate:
6,500 hours @ P4.50 per hour ........... P 29,250
Standard Hours of Input, at the Standard Rate:
6,000 hours @ P4.50 per hour ........... 27,000
Labor Efficiency Variance ................ P 2,250 U

107. (Appendix) Vernon Mills, Inc. is a large producer of men's and women's clothing. The company uses
Hard standard costs for all of its products. The standard costs and actual costs per unit of product for a recent
period are given below for one of the company's product lines:

Standard Actual
Cost Cost
Standard: 4.0 yards at P5.40 per yard ...... P21.60
Actual: 4.4 yards at P5.05 per yard ......... P22.22
Direct labor:
Standard: 1.6 hours at P6.75 per hour ....... P10.80
Actual: 1.4 hours at P7.30 per hour ......... P10.22
Variable overhead:
Standard: 1.6 hours at P2.70 per hour ....... P 4.32
Actual: 1.4 hours at P3.25 per hour ......... P 4.55
Total cost per unit ....................... P36.72 P36.99

127ManagerialAccounting,9/e
 During this period, the company produced 4,800 units of this product. A comparison of standard and actual
costs for the period on a total cost basis is given below:

Actual costs: 4,800 units at P36.99 ...... P177,552

Standard costs: 4,800 units at P36.72 .... 176,256
Difference in cost--unfavorable .......... P 1,296

There was no inventory of materials on hand at the beginning of the period. During the period, 21,120 yards
of materials were purchased, all of which were used in production.

Required:

a. For direct materials, compute the price and quantity variances for the period and prepare journal
entries to record all activity relating to direct materials for the period.
b. For direct labor, compute the rate and efficiency variances and prepare a journal entry to record
the incurrence of direct labor cost for the period.
c. For variable overhead, compute the spending and efficiency variances.

Answer:

a. Materials Price Variance:

Actual Quantity of Inputs, at Actual Price:
4,800 units, 4.4 yards per unit, P5.05 per yard = P106,656
Actual Quantity of Inputs, at Standard Price:
4,800 units, 4.4 yards per unit, P5.40 per yard = 114,048
Materials Price Variance ...................... P 7,392 F

Materials Quantity Variance:

Actual Quantity of Inputs, at Standard Price:
4,800 units, 4.4 yards per unit, P5.40 per yard = P114,048
Standard Quantity of Inputs, at Standard Price:
4,800 units, 4.0 yards per unit, P5.40 per yard = 103,680
Materials Quantity Variance ................... P 10,368 U

Journal entries:
Raw Materials (21,120 yards @ P5.40) .......... 114,048
Materials Price Variance
(21,120 yards @ P0.35 F) .................. 7,392
Accounts Payable (21,120 yards @ P5.05) ..... 106,656

Work in Process (19,200 yards @ P5.40) ........ 103,680

Materials Quantity Variance (1,920 yards @ P5.40) 10,368
Raw Materials (21,120 yards @ P5.40) ........ 114,048

ManagerialAccounting,9/e 128
 b. Labor Rate Variance:
Actual Hours of Input, at the Actual Rate:
4,800 units, 1.4 hours, P7.30 per hour ...... P49,056
Actual Hours of Input, at the Standard Rate:
4,800 units, 1.4 hours, P6.75 per hour ...... 45,360
Labor Rate Variance ........................... P 3,696 U

Labor Efficiency Variance:

Actual Hours of Input, at the Standard Rate:
4,800 units, 1.4 hours, P6.75 per hour ...... P45,360
Standard Hours of Input, at the Standard Rate:
4,800 units, 1.6 hours, P6.75 per hour ...... 51,840
Labor Efficiency Variance ..................... P 6,480 F

Journal entry:
Work in Process (7,600 hours @ P6.75) ......... 51,840
Labor Rate Variance (6,720 @ P0.55 U) ......... 3,696
Labor Efficiency Variance (960 hrs. F @ P6.75) 6,480
Wages Payable (6,720 hrs. @ P7.30) .......... 49,056

c. Variable Overhead Spending Variance:

Actual Hours of Input, at the Actual Rate:
4,800 units, 1.4 hours, P3.25 per hour ...... P 21,840
Actual Hours of Input, at the Standard Rate:
4,800 units, 1.4 hours, P2.70 per hour ...... 18,144
Variable Overhead Spending Variance ........... P 3,696 U

Variable Overhead Efficiency Variance:

Actual Hours of Input, at the Standard Rate:
4,800 units, 1.4 hours, P2.70 per hour ...... P 18,144
Standard Hours of Input, at the Standard Rate:
4,800 units, 1.6 hours, P2.70 per hour ...... 20,736
Labor Efficiency Variance ..................... P 2,592 F

108. Lido Companys standard and actual costs per unit for the most recent period, during which 400 units were
Medium actually produced, are given below:

Standard Actual
Materials:
Standard: 2 ft. at P1.50 per ft. ........ P 3.00
Actual: 2.1 ft. at P1.60 per ft. ........ P 3.36
Direct labor:
Standard: 1.5 hrs. at P6.00 per hr. ..... 9.00
Actual: 1.4 hrs. at P6.50 per hr. ....... 9.10
Variable overhead:
Standard: 1.5 hrs. at P3.40 per hr. ..... 5.10
Actual: 1.4 hrs. at P3.10 per hr. ....... 4.34
Total unit cost ............................ P17.10 P16.80

Required:

From the foregoing information, compute the following variances. Show whether the variance is favorable
(F) or unfavorable (U):
a. Material price variance
b. Material quantity variance
c. Direct labor rate variance
d. Direct labor efficiency variance
e. Variable overhead spending variance
f. Variable overhead efficiency variance

129ManagerialAccounting,9/e
 Answer:
a. Material price variance = AQ(AP-SP)
= (2.1x400)x(P1.60-P1.50)
= P84 U

b. Material quantity variance = SP(AQ-SQ)

= P1.50(2.1x400 - 2.0x400)
= P60 U

c. Direct labor rate variance = AH(AR-SR)

= (1.4x400)x(P6.50-P6.00)
= P280 U

d. Direct labor efficiency variance = SR(AH-SH)

= P6.00(1.4x400 - 1.5x400)
= P240 F

e. Variable overhead spending variance = AH(AR-SR)

= (1.4x400)x(P3.10-P3.40)
= P168 F

f. Variable overhead efficiency variance = SR(AH-SH)

= P3.40
(1.4x400 - 1.5x400)
= P136 F

109. (Appendix) The Lahn Company produces and sells a single product. Standards have been established for the
Medium product as follows:

Direct materials ... 5 lbs. @ P3.50/lb. = P17.50/unit

Direct labor ....... 3 hrs. @ P5.50/hr. = P16.50/unit

Actual cost and usage figures for the past month follow:

Units produced ................. 750

Direct materials used .......... 4,000 lbs.
Direct materials purchased ..... P14,400 (4,500 lbs.)
Direct labor cost .............. P11,200 (2,000 hrs.)

ManagerialAccounting,9/e 130
 Required:

Prepare journal entries to record:

a. The purchase of raw materials.
b. The usage of raw materials in production.
c. The incurrence of direct labor cost.

Answer:
a. Raw materials inventory ................. 15,750*
Materials price variance .............. 1,350**
Accounts payable ...................... 14,400

* P3.50 per lb. x 4,500 lbs. = P15,750

** AQ(AP - SP) = 4,500((P14,400/4,500 lbs) - P3.50) = P1,350 F

b. Work in process ......................... 13,125*

Materials quantity variance ............. 875**
Raw materials inventory ............... 14,000***

* P3.50 per lb. x 5 lbs per unit x 750 units = P13,125

** SP(AQ - SQ) = P3.50(4,000 - (5 x 750)) = P875 U
*** P3.50 x 4,000 = P14,000

c. Work in process ......................... 12,375*

Labor rate variance ..................... 200**
Labor efficiency variance ............. 1,375***
Accrued wages payable ................. 11,200

* P5.50 per hr. x 3 hrs per unit x 750 units = P12,375

** AH(AR - SR) = 2,000((P11,200/2,000) - P5.50) = P200 U
*** SR(AH - SH) = P5.50(2,000 - (3 x 750)) = P1,375 F

110. The following materials standards have been established for a particular product:
Easy
Standard quantity per unit of output .. 9.2 grams
Standard price ........................ P14.70 per gram

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 5,500 grams

Actual cost of materials purchased .... P76,450
Actual materials used in production ... 5,100 grams
Actual output ......................... 540 units

Required:

a. What is the materials price variance for the month?

b. What is the materials quantity variance for the month?

131ManagerialAccounting,9/e
 Answer:
Solution:
Materials price variance = (AQ x AP) - (AQ x SP)
= P76,450 (5,500 x P14.70)
= P4,400 F

SQ = Standard quantity per unit x Actual output

= 9.2 x 540
= 4,968

Materials quantity variance = SP(AQ - SQ)

= P14.70 (5,100 4,968)
= P1,940 U

111. The following materials standards have been established for a particular product:
Easy
Standard quantity per unit of output .. 9.4 pounds
Standard price ........................ P16.90 per pound

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 7,300 pounds

Actual cost of materials purchased .... P116,435
Actual materials used in production ... 7,100 pounds
Actual output ......................... 740 units

Required:

a. What is the materials price variance for the month?

b. What is the materials quantity variance for the month?

Answer:
Materials price variance = (AQ x AP) - (AQ x SP)
= P116,435 (7,300 x P16.90)
= P6,935 F

SQ = Standard quantity per unit x Actual output

= 9.4 x 740
= 6,956

Materials quantity variance = SP(AQ - SQ)

= P16.90(7,100 6,956)
= P2,434 U

112. The following materials standards have been established for a particular product:
Easy
Standard quantity per unit of output .. 3.6 feet
Standard price ........................ P10.20 per feet

The following data pertain to operations concerning the product for the last month:

Actual materials purchased ............ 7,100 feet

Actual cost of materials purchased .... P68,515
Actual materials used in production ... 6,600 feet
Actual output ......................... 1,780 units

ManagerialAccounting,9/e 132
 Required:

a. What is the materials price variance for the month?

b. What is the materials quantity variance for the month?

Answer:
Materials price variance = (AQ x AP) - (AQ x SP)
= P68,515 (7,100 x P10.20)
= P3,905 F

SQ = Standard quantity per unit x Actual output

= 3.6 x 1,780
= 6,408

Materials quantity variance = SP(AQ - SQ)

= P10.20(6,600 6,408)
= P1,958 U

113. Dodge Company produces a single product. The company has set the following standards for materials and
Hard labor:

Direct Materials Direct Labor

Standard quantity or hours per unit ? pounds 3 hours
Standard price or rate ............ ? per pound P15 per hour
Standard cost per unit ............ ? P45

During the past month, the company purchased 7,000 pounds of direct materials at a cost of P26,250. All of
this material was used in the production of 1,300 units of product. Direct labor cost totaled P55,125 for the
month. The following variances have been computed:

Materials price variance ....... P1,750 F

Total materials variance ....... P250 U
Labor efficiency variance ...... P6,000 F

Required:

a. For direct materials, compute the standard price per pound, the standard quantity allowed for
materials in total for the month's production, and the standard quantity per unit of product.
b. For direct labor, compute the actual direct labor cost per hour for the month and the labor rate variance.

Answer:

a. The actual cost of material per pound for the month was:
P26,500 7,000 pounds = P3.75 per pound.
AQ (AP - SP) = Materials Price Variance
7,000 pounds (P3.75 - SP) = P1,750 F
P26,250 - 7,000 SP = P1,750 F
7,000 SP = P28,000
SP = P4.00

SP (AQ - SQ) = Materials Quantity Variance

P4.00(7,000 lbs. - SQ) = P2,000 U
P28,000 - P4.00 SQ = P2,000 U
P4.00 SQ = P26,000
SQ = 6,500 lbs.

6,500 lbs. 1,300 units = 5 lbs. per unit.

133ManagerialAccounting,9/e
 b. SR (AH - SH) = Labor Efficiency Variance
P15 (AH - ((1,300 units x 3 hours)) = P6,000 F
P15 AH - P58,500 = P6,000 F
P15 AH = P52,500
AH = 3,500 hours
Therefore, P55,125 total actual labor cost 3,500 hours =
P15.75 per hour.

AH (AR - SR) = Labor Rate Variance

3,500 hours (P15.75 - P15.00) = P2,625 U.

114. The supervisor of the cost department has just conferred with you concerning the variance analysis of direct
Hard labor for the month just ended. As she talked, you wrote feverishly, but you weren't able to record all the
information she gave you before she dashed off muttering something about "another brush fire to put out."
Your efforts are shown below:

4,800 hours x P7.20 ____ hours x P____ ____ hours x P____

_________________ __________________ __________________

| | |
| | |
| | |
| | Efficiency variance |
| | P2,250 U |
| | |
_____________________________________________________________
Total variance, P810 U
_____________________________________________________________

Required:

a. To redeem yourself, complete the form above, adding numbers and labels. (The usual notations, AH,
SH, AR, SR, etc., may be used where appropriate.)
b. If you know that 18 minutes of labor is standard per unit of production, how many units were
produced?

Answer:
a.
AH X AR AH X SR SH X SR
4,800 hours X P7.20 4,800 hours X P7.50 4,500 hours X P7.50
P34,560 P36,000 P33,750

Rate variance, Efficiency variance,

P1,440 F P2,250 U

Total variance, P810 U

Computations -- in this order:

Rate variance = Total variance - Efficiency variance

= P810U - P2,250U
= P810 - P2,250
= -P1,440
= P1,440F

AH X AR = 4,800 x P7.20 = P34,560

AH X SR = AH X AR - Rate variance
= P34,560 - P1,440F
= P34,560 - (-P1,440)
= P36,000

ManagerialAccounting,9/e 134
 SR = (AH X SR) AH
= P36,000 4,800
= P7.50

SH X SR = AH X SR - Efficiency variance
= P36,000 - P2,250U
= P36,000 - P2,250
= P33,750

SH = (SH X SR) SR
= P33,750 P7.50
= 4,500

b.
Standard hours allowed for units produced .......... 4,500
Divide by fraction of hour allowed per unit ........ 18/60
Actual units ....................................... 15,000

115. The following labor standards have been established for a particular product:
Easy
Standard labor hours per unit of output .. 2.8 hours
Standard labor rate ...................... P11.50 per hour

The following data pertain to operations concerning the product for the last month:

Actual hours worked ...................... 6,900 hours

Actual total labor cost .................. P80,385
Actual output ............................ 2,300 units

Required:

a. What is the labor rate variance for the month?

b. What is the labor efficiency variance for the month?

Answer:
Labor rate variance = (AH x AR) - (AH x SR)
= P80,385 (6,900 x P11.50)
= P1,035 U

SH = Standard hours per unit x Actual output

= 2.8 x 2,300
= 6,440

Labor efficiency variance = SR(AH - SH)

= P11.50(6,900 6,440)
= P5,290 U

116. The following standards for variable manufacturing overhead have been established for a company that
Easy makes only one product:

Standard hours per unit of output ...... 6.9 hours

Standard variable overhead rate ........ P15.80 per hour

The following data pertain to operations for the last month:

Actual hours ........................... 6,100 hours

Actual total variable overhead cost .... P97,600
Actual output .......................... 800 units

135ManagerialAccounting,9/e
 Required:

a. What is the variable overhead spending variance for the month?

b. What is the variable overhead efficiency variance for the month?

Answer:
Variable overhead spending variance = (AH x AR) - (AH x SR)
= P97,600 (6,100 x P15.80)
= P1,220 U

SH = Standard hours per unit x Actual output

= 6.9 x 800
= 5,520

Variable overhead efficiency variance = SR(AH - SH)

= P15.80(6,100 5,520)
= P9,164 U

ManagerialAccounting,9/e 136