You are on page 1of 25

Standard Costs and Variance Analysis

STANDARD COSTS AND VARIANCE ANALYSIS A. No incentive bonus will be paid.


B. Most variances will be unfavorable.
THEORIES: C. Employees will be strongly motivated to attain the standard.
Standard cost system D. Costs will be controlled better than if lower standards were used.
1. A primary purpose of using a standard cost system is
A. To make things easier for managers in the production facility. 7. To measure controllable production inefficiencies, which of the following is the best basis for a
B. To provide a distinct measure of cost control. company to use in establishing the standard hours allowed for the output of one unit of
C. To minimize the cost per unit of production. product?
D. b and c are correct A. Average historical performance for the last several years
B. Engineering estimates based on ideal performance
2. Which one of the following statements is true concerning standard costs? C. Engineering estimates based on attainable performance
A. Standard costs are estimates of costs attainable only under the most ideal conditions, but D. The hours per unit that would be required for the present workforce to satisfy expected
rarely practicable. demand over the long run
B. Standard costs are difficult to use with a process-costing system.
C. If properly used, standards can help motivate employees. 8. Which of the following statements about the selection of standards is true?
D. Unfavorable variances, material in amount, should be investigated, but large favorable A. Ideal standards tend to extract higher performance levels since they give employees
variances need not be investigated. something to live up to.
B. Currently attainable standards may encourage operating inefficiencies.
3. Which of the following is a purpose of standard costing? C. Currently attainable standards discourage employees from achieving their full
A. Determine “breakeven” production level performance potential.
B. Control costs D. Ideal standards demand maximum efficiency which may leave workers frustrated, thus
C. Eliminate the need for subjective decisions by management causing a decline in performance.
D. Allocate cost with more accuracy
Standard costs vs. budgeted costs
4. When evaluating the operating performance management sometimes uses the difference 9. A difference between standard costs used for cost control and the budgeted costs representing
between expected and actual performance. This refers to: the same manufacturing effort can exist because
A. Management by Deviation C. Management by Objective A. standard costs must be determined after the budget is completed
B. Management by Control D. Management by Exception B. standard costs represent what costs should be while budgeted costs represent expected
actual costs
Standard setting C. budgeted costs are historical costs while standard costs are based on engineering studies
5. The best basis upon which cost standards should be set to measure controllable production D. budgeted costs include some “slack” or “padding” while standard costs do not
inefficiencies is
A. Engineering standards based on ideal performance Process costing
B. Normal capacity 10. When standard costs are used in a process-costing system, how, if at all, are equivalent units
C. Engineering standards based on attainable performance involved or used in the cost report at standard?
D. Practical capacity A. Equivalent units are not used.
B. Equivalent units are computed using a “special” approach.
6. A company employing very tight (high) standards in a standard cost system should expect that C. The actual equivalent units are multiplied by the standard cost per unit.

203
Standard Costs and Variance Analysis

D. The standard equivalent units are multiplied by the actual cost per unit. A. Total overhead application rate
B. Volume of total expenses at various activity levels
Normal costing C. Variable overhead application rate
11. The fixed overhead application rate is a function of a predetermined “normal” activity level. If D. Fixed overhead application rate
standard hours allowed for good output equal this predetermined activity level for a given
period, the volume variance will be 17. Assuming that the standard fixed overhead rate is based on full capacity, the cost of available
A. Zero but unused productive capacity is indicated by the:
B. Favorable A. Factory overhead cost volume variance
C. Unfavorable B. Direct labor cost efficiency variance
D. Either favorable or unfavorable, depending on the budgeted overhead. C. Direct labor cost rate variance
D. Factory overhead cost controllable variance
Types of standards
12. The absolute minimum cost possible under the best conceivable operating conditions is a 18. In analyzing manufacturing overhead variances, the volume variance is the difference between
description of which type of standard? the:
A. Currently attainable (expected) C. Theoretical A. Amount shown in the flexible budget and the amount shown in the debit side of the
B. Normal D. Practical overhead control account
B. Predetermined overhead application rate and the flexible budget application rate times
13. Standards, which are difficult to achieve due to reasons beyond the individual performing the actual hours worked
task, are the result of firm using which of the following methods to establish standards? C. Budget allowance based on standard hours allowed for actual production for the period
A. Ideal Standards C. Practical Standards and the amount budgeted to be applied during the period
B. Lax Standards D. Employee Standards D. Actual amount spent for overhead items during the period and the overhead amount
applied to production during the period
14. Standards that represent levels of operation that can be attained with reasonable effort are
called: 19. The variance least significant for purposes of controlling costs is the:
A. Theoretical standards C. Variable standards A. Material usage variance
B. Ideal standards D. Normal standards B. Variable overhead efficiency variance
C. Fixed overhead spending variance
Variances D. Fixed overhead volume variance
Generic variances
15. When performing input/output variance analysis in standard costing, “standard hours allowed” 20. The variance most useful in evaluating plant utilization is the:
is a means of measuring A. Variable overhead spending variance
A. Standard output at standard hours C. Actual output at standard hours B. Fixed overhead spending variance.
B. Standard output at actual hours D. Actual output at actual hours C. Variable overhead efficiency variance
D. Fixed overhead volume variance
Two way variances
Volume variance Four way variances
16. A company uses a two-way analysis for overhead variances: budget (controllable) and 21. The choice of production volume as a denominator for calculating its factory overhead rate
volume. The volume variance is based on the A. Has no effect on the fixed factory overhead rate for applying costs to production

204
Standard Costs and Variance Analysis

B. Has an effect on the variable factory overhead rate for applying costs to production position of a production process on a learning curve?
C. Has no effect on the fixed factory overhead budget variance A. Materials mix C. Labor rate
D. Has no effect on the fixed factory overhead production volume variance B. Materials price D. Labor efficiency

22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to 27. Which of the following is the most probable reason with a company would experience an
product are the same amount unfavorable labor rate variance and a favorable labor efficiency variance?
A. for both variable and fixed overhead costs. A. The mix of workers assigned to the particular job was heavily weighted toward the use of
B. only when standard hours allowed is less than normal capacity. higherly paid, experienced individuals.
C. for variable overhead costs. B. The mix of workers assigned to the particular job was heavily weighted toward the use of
D. for fixed overhead costs. new, relatively low paid, unskilled workers.
C. Because of the productive schedule, workers from other production areas were assigned
Responsibility for variances to assist in this particular process.
23. Which department is customarily held responsible for an unfavorable materials usage D. Defective materials caused more labor to be used in order to produce a standard unit.
variance?
A. Quality control C. Purchasing Two-way overhead variance
B. Engineering D. Production 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
Variance analysis done a better than expected job in controlling the cost if:
24. Which of the following should be least considered when deciding whether to investigate a A. The cost is variable and actual production was 90% of budgeted production
variance? B. The cost is variable and actual production equaled budgeted production
A. Whether the variance is favorable or unfavorable C. The cost is variable and actual production was 80% of budgeted production
B. Significance of the variance D. The cost is discretionary fixed cost and actual production equaled budgeted production
C. Cost of investigating the variance
D. Trend of the variances over time Budget variance
29. The budget variance for fixed factory overhead for the normal-volume, practical-capacity, and
Total materials variance expected-activity levels would be the:
25. If the total materials variance (actual cost of materials used compared with the standard cost A. Same except for normal volume C. Same except for expected activity
of the standard amount of materials required) for a given operation is favorable, why must this B. Same except for practical capacity D. Same for all three activity levels
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 Volume variance
B. Generally accepted accounting principles require that all variances be analyzed in three 30. You have leased a 5,000-gallon storage tank for P5,000 per month. You stored 4,000 gallons
stages of liquid in the tank during the month. The cost of storage was P1.25 per gallon, rather than
C. All variances must appear in the annual report to equity owners for proper disclosure P1.00 per gallon based on 5,000 gallon capacity. Therefore, the cost of storing 4,000 gallons
D. To allow management to evaluate the efficiency of the purchasing and production was P1,000 more (P.25 x 4,000) in total than if you had stored 5,000 gallons of liquid in the
functions tank. Which variance is being described?
A. Variable-overhead efficiency variance
Labor variances B. Fixed-overhead spending variance
26. Which of the following unfavorable cost variances would be directly affected by the relative C. Variable-overhead spending variance

205
Standard Costs and Variance Analysis

D. Fixed-overhead volume variance

31. Favorable fixed overhead volume variance occurs if: PROBLEMS:


A. There is a favorable labor efficiency variance Standard setting
B. There is a favorable labor rate variance Raw Materials
i
C. Production is less than planned . Shampoo Company is a chemical manufacturer that supplies industrial users. The company
D. Production is greater than planned plans to introduce a new chemical solution and needs to develop a standard product cost for
this new solution.
32. The unfavorable volume variance may be due to all but which of the following factors?
A. Failure to maintain an even flow of work The new chemical solution is made by combining a chemical compound (Nyclyn) and a
B. Machine breakdowns solution (Salex), boiling the mixture; adding a second compound (Protet), and bottling the
C. Unexpected increases in the cost of utilities resulting solution in 20-liter containers. The initial mix, which is 20 liters in volume, consists of
D. Failure to obtain enough sales orders 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;
33. How will a favorable volume variance affect net income under each of the following the addition of Protet does not affect the total liquid volume.
methods?
Absorption Variable The purchase prices of the raw materials used in the manufacture of this new chemical
A. Decrease No effect solution are as follows:
B. Decrease Increase Nyclyn P15.00 per kilogram
C. Increase No effect Salex P21.00 per liter
D. Increase Decrease Protet P28.00 per kilogram
The total standard materials cost of 20 liters of the product is:
34. Favorable volume variances may be harmful when: A. P1,043.20 C. P 834.56
A. Machine repairs cause work stoppages B. P1,304.00 D. P1,234.00
B. Supervisors fail to maintain an even flow of work
C. Production in excess of normal capacity cannot be sold ii
. El Andre Co. uses a standard costing system in connection with the manufacture of a line of T-
D. There are insufficient sales orders to keep the factory operating at normal capacity 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
Three-way Overhead variance process. The cost of the direct materials is P150 per yard. The standard direct material cost
35. During 2006, a department’s three-variance overhead standard costing system reported per unit of finished product is
unfavorable spending and volume variances. The activity level selected for allocating A. P 253 C. P 450
overhead to the product was based on 80% of practical capacity. It 100% of practical capacity
B. P 422 D. P 405
had been selected instead, how would the reported unfavorable spending and volume
variances be affected? iii
Spending Variance Volume Variance . 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
A. Increased Unchanged
B. Increased Increased 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:
C. Unchanged Increased
D. Unchanged Unchanged A. P180.00 C. P187.50

206
Standard Costs and Variance Analysis

B. P183.75 D. P176.40 Laborers’ fringe benefits treated as direct labor costs 25% of wages
What is the standard direct labor cost per unit of Part J35?
iv
. The Vandana Company has a signature scarf for ladies that is very popular. Certain A. P62.500 C. P41.670
production and marketing data are indicated below: B. P78.125 D. P84.125
Cost per yard of cloth P40.00
Allowance for rejected scarf 5% of production Materials & Labor
Yards of cloth needed per scarf 0.475 yard Questions Nos. 7 and 8 are based on the following:
Airfreight from supplier P1.00/yard Supercold Company is a small producer of fruit-flavored frozen desserts. For many years,
Motor freight to customers P0.90 /scarf Supercold’s products have had strong regional sales on the basis of brand recognition. However,
Purchase discounts from supplier 3% other companies have begun marketing similar products in the area, and price competition has
Sales discount to customers 2% become increasingly important. Haydee Mejia, the company’s controller, is planning to implement
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have a standard costing system for Supercold and has gathered considerable information on production
no market value. Materials are used at the start of production. and material requirements for Supercold’s products. Haydee believes that the use of standard
Calculate the standard cost of cloth per scarf that Vandana Company should use in its cost costing will allow Supercold to improve cost control and make better pricing decisions.
sheets.
A. P19.85 C. P19.40 Supercold’s most popular products is strawberry sherbet. The sherbet is produced in 10-gallon
B. P20.00 D. P19.90 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
Direct labor strawberries and normal spoilage, one quart of berries is discarded for every four quarts of
v
. Double M company is a chemical manufacturer that supplies various products to industrial acceptable berries. Three minutes is the standard direct labor time for sorting that is required to
users. The company plans to introduce a new chemical solution called Bysap, for which it obtain one quart of acceptable berries. The acceptable berries are then blended with the other
needs to develop a standard product cost. The following labor information is available on the ingredients; blending requires 12 minutes of direct labor time per batch. After blending, the sherbet
production of Bysap. is package in quart containers. Haydee has gathered the following information from Rizza Alano,
 The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Supercold’s cost accountant.
Salex, and Protet.
 The finished product is highly unstable, and one 10-liter batch out of six is rejected at Supercold purchases strawberries at a cost of P8.00 per quart. All other ingredients cost a total of
final inspection. Rejected batches have no commercial value and are thrown out. P4.50 per gallon.
 It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work Direct labor is paid at the rate of P50 per hour.
on eight-hour a day, including one hour per day for rest breaks and cleanup. The total cost of material and labor required to package the sherbet is P3.80 per quart.
What is the standard labor time to produce one 10-liter batch of Bysap?
A. 35 minutes C. 48 minutes Rizza Alano has a friend who owns a berry farm that has been losing money in recent years.
B. 40 minutes D. 45 minutes 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
vi
. The following direct labor information pertains to the manufacture of Part J35: hopes that P8.00 per quart will help her friend’s farm become profitable again.
Number of hours required to make a part 2.5 DLH
vii
Number of Direct workers 75 . The standard materials cost per 10-gallon batch of strawberry sherbet is:
Number of total productive hours per week 3000 A. P 85.00 C. P101.00
Weekly wages per worker P1,000 B. P 60.00 D. P105.00

207
Standard Costs and Variance Analysis

A. P6,000 unfavorable C. P3,200 unfavorable


viii
. The standard direct labor cost per 10-gallon batch of sherbet is: B. P5,200 unfavorable D. P2,000 unfavorable
A. P50.00 C. P25.00
xiv
B. P28.75 D. P15.00 . The Bohol Company uses standard costing. The following data are available for October:
Actual quantity of direct materials used 23,500 pounds
Materials variance Standard price of direct materials P2 per pound
ix
. Under a standard cost system, the materials quantity variance was recorded at P1,970 Material quantity variance P1,000 U
unfavorable, the materials price variance was recorded at P3,740 favorable, and the Goods in The standard quantity of materials allowed for October production is:
Process was debited for P51,690. Ninety-six thousand units were completed. What was the A. 23,000 lbs C. 24,000 lbs
per unit price of the actual materials used? B. 24,500 lbs D. 25,000 lbs
A. P0.52 each C. P0.54 eac
xv
B. P0.53 each D. P0.51 each . Information on Dulce’s direct material costs for May is as follows:
Actual quantity of direct materials purchased and used 30,000 lbs.
x
. Blake Company has a standard price of P5.50 per pound for materials. July’s results showed Actual cost of direct materials P84,000
an unfavorable material price variance of P44 and a favorable quantity variance of P209. If Unfavorable direct materials usage variance P 3,000
1,066 pounds were used in production, what was the standard quantity allowed for materials? Standard quantity of direct materials allowed for May production 29,000 lbs
A. 1,104 C. 1,066 For the month of May, Dulce’s direct materials price variance was:
B. 1,074 D. 1,100 A. P2,800 favorable C. P2,800 unfavorable
B. P6,000 unfavorable D. P6,000 favorable
xi
. Elite Company uses a standard costing system in the manufacture of its single product. The
xvi
35,000 units of raw material in inventory were purchased for P105,000, and two units of raw . Information on Katrina Company’s direct material costs is as follows:
material are required to produce one unit of final product. In November, the company Standard unit price P 3.60
produced 12,000 units of product. The standard allowed for material was P60,000, and there Actual quantity purchased 1,600
was an unfavorable quantity variance of P2,500. The materials price variance for the units Standard quantity allowed for actual production 1,450
used in November was Materials purchase price variance – favorable P 240
A. P 2,500 U C. P12,500 U What was the actual purchase price per unit, rounded to the nearest centavos?
B. P11,000 U D. P 3,500 F A. P3.06 C. P3.11
B. P3.45 D. P3.75
xii
. Sheridan Company has a standard of 15 parts of component BB costing P1.50 each.
xvii
Sheridan purchased 14,910 units of component BB for P22,145. Sheridan generated a P220 . Palmas Company, which has a standard cost system, had 500 units of raw material X in its
favorable price variance and a P3,735 favorable quantity variance. If there were no changes inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of
in the component inventory, how many units of finished product were produced? P1.00. The following information pertains to raw material X for the month of June:
A. 994 units. C. 1,000 units Actual number of units purchased 1,400
B. 1,090 units. D. 1,160 units Actual number of units used 1,500
Standard number of units allowed for actual production 1,300
xiii
. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent Standard cost per unit P1.00
P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of Actual cost per unit P1.10
finished product. The material quantity variance is: The unfavorable materials purchase price variance for raw material X for June was:

208
Standard Costs and Variance Analysis

A. P 0 C. P140 Scents 60
B. P130 D. P150 Total 20,160
Actual output 18,500
xviii
. During March, Lumban Company’s direct material costs for the manufacture of product T were The material yield variance is:
as follows: A. P 280 unfavorable C. P 280 favorable
Actual unit purchase price P6.50 B. P3,989 unfavorable D. P3,989 favorable
Standard quantity allowed for actual production 2,100
Quantity purchased and used for actual production 2,300 Labor variance
xxi
Standard unit price P6.25 . The flexible budget for the month of May 2007 was for 9,000 units with direct material at P15
Lumban’s material usage variance for March was: per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output
A. P1,250 unfavorable C. P1,250 favorable for the month was 8,500 units with P127,500 in direct material and P77,775 in direct labor
B. P1,300 unfavorable D. P1,300 favorable 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):
xix
. Razonable Company installs shingle roofs on houses. The standard material cost for a Type R A. Favorable material quantity variance of P7,500.
house is P1,250, based on 1,000 units at a cost of P1.25 each. During April, Razonable B. Unfavorable direct labor efficiency variance of P1,275.
installed roofs on 20 Type R houses, using 22,000 units of material cost of P26,400. C. Unfavorable material quantity variance of P7,500.
Razonable’s material price variance for April is: D. Unfavorable direct labor rate variance of P1,275.
A. P1,000 favorable C. P1,100 favorable
xxii
B. P1,400 unfavorable D. P2,500 unfavorable . 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
xx
. Samson Candle Co. manufactures candles in various shapes, sizes, colors, and actual labor hours?
scents. Depending on the orders received, not all candles require the same A. 3,700 C. 3,850
amount of color, dye, or scent materials. Yields also vary, depending upon the B. 4,150 D. 4,000
usage of beeswax or synthetic wax. Standard ingredients for 1,000 pounds of xxiii
. Clean Harry Corp. uses two different types of labor to manufacture its product. The types of
candles are:
labor, Mixing and Finishing, have the following standards:
Input: Standard Mix Standard Cost per Pound
Labor Type Standard Mix Std Hourly Rate Standard Cost
Beeswax 200 lbs. 1.00
Mixing 500 hours P10 P5,000
Synthetic wax 840 lbs. 0.20
Finishing 250 hours P5 P1,250
Colors 7 lbs. 2.00
Yield: 4,000 units
Scents 3 lbs. 6.00
Totals 1,050 lbs. 9.20 During January, the following actual production information was provided:
Standard output 1,000 lbs. Labor Type Actual Mix
Price variances are charged off at the time of purchase. During January, the company was Mixing 4,500 hours
busy manufacturing red candles for Valentine’s Day. Actual production then was: Finishing 3,000 hours
Input: In Pounds Yield: 36,000 units
Beeswax 4,100 What is the labor mix variance?
Synthetic wax 13,800 A. P2,500 F C. P2,500 U
Colors 2,200 B. P5,000 F D. P5,000 F

209
Standard Costs and Variance Analysis

xxix
. Simbad Company’s operations for the month just ended originally set up a 60,000 direct labor
xxiv
. How much labor yield variances should be reported? hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of
A. P6,250 U C. P5,250 F P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and
B. P6,250 F D. P5,250 U 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
xxv
. Hingis had a P750 unfavorable direct labor rate variance and an P800 favorable efficiency resulted in an actual average wage rate of P16.40 per hour. The total number of standard
variance. Hingis paid P7,150 for 800 hours of labor. What was the standard direct labor direct labor hours allowed for the actual units produced is
wage rate? A. P52,500 C. P62,500
A. P8.94 C. P8.00 B. P77,500 D. P70,000
B. P7.94 D. P7.80
Questions 30 and 31 are based on the following information.
xxvi
. Powerless Company’s operations for April disclosed the following data relating to direct labor: Information on Goodeve Company’s direct labor costs are presented below:
Actual cost P10,000 Standard direct labor hours 30,000
Rate variance 1,000 favorable Actual direct labor hours 29,000
Efficiency variance 1,500 unfavorable Direct labor efficiency variance Favorable P 4,000
Standard cost P 9,500 Direct labor rate variance Favorable P 5,800
Actual direct labor hours for April amounted to 2,000. Powerless’ standard direct labor rate per Total payroll P110,200
hour in April was:
xxx
A. P5.50 C. P5.00 . What was Goodeve’s standard direct labor rate?
B. P4.75 D. P4.50 A. P3.54 C. P3.80
B. P4.00 D. P5.80
xxvii
. Lion Company’s direct labor costs for the month of January were as follows:
xxxi
Actual direct labor hours 20,000 . What was Goodeve’s actual direct labor rate?
Standard direct labor hours 21,000 A. P3.60 C. P3.80
Direct labor rate variance – Unfav. P 3,000 B. P4.00 D. P5.80
Total payroll P126,000
xxxii
What was Lion’s direct labor efficiency variance? . The Islander Corporation makes a variety of leather goods. It uses standards costs and a
A. P6,000 favorable C. P6,150 favorable flexible budget to aid planning and control. Budgeted variable overhead at a 45,000-direct
B. P6,300 favorable D. P6,450 favorable labor hour level is P27,000.
During April material purchases were P241,900. Actual direct-labor costs incurred were
xxviii
. Using the information given below, determine the labor efficiency variance: P140,700. The direct-labor usage variance was P5,100 unfavorable. The actual average
Labor price per hour P 20 wage rate was P0.20 lower than the average standard wage rate.
Standard labor price per gallon of output at 20 gal./hr P 1 The company uses a variable overhead rate of 20% of standard direct-labor cost for flexible
Standard labor cost of 8,440 gallons of actual output P8,440 budgeting purposes. Actual variable overhead for the month was P30,750.
Actual total inputs(410 hours at P21/hr) P8,610 What were the standard hours allowed during the month of April?
A. P 410 unfavorable C. P 240 favorable A. 50,250 C. 58,625
B. P 170 unfavorable D. P 410 favorable B. 48,550 D. 37,520

210
Standard Costs and Variance Analysis

xxxiii
. Information on Barber Company’s direct labor costs for the month of January is as follows:
xxxvii
Actual direct labor hours 34,500 . Kent Company sets the following standards for 2007:
Standard direct labor hours 35,000 Direct labor cost (2 DLH @ P4.50) P 9.00
Total direct labor payroll P241,500 Manufacturing overhead (2 DLH @ P7.50) 15.00
Direct labor efficiency variance – favorable P 3,200 Kent Company plans to produce its only product equally each month. The annual budget for
What is Barber’s direct labor rate variance? overhead costs are:
A. P17,250 U C. P21,000 U Fixed overhead P150,000
B. P20,700 U D. P21,000 F Variable overhead 300,000
Normal activity in direct labor hours 60,000
xxxiv
. STA Company uses a standard cost system. The following information pertains to direct labor In March, Kent Company produced 2,450 units with actual direct labor hours used of 5,050.
costs for the month of June: Actual overhead costs for the month amounted to P37,245 (Fixed overhead is as budgeted.)
Standard direct labor rate per hour P 10.00 The amount of overhead volume variance for Kent Company is
Actual direct labor rate per hour P 9.00 A. P250 unfavorable C. P500 unfavorable
Labor rate variance (favorable) P12,000 B. P750 Unfavorable D. P375 Unfavorable
Actual output (units) 2,000
xxxviii
Standard hours allowed for actual production 10,000 hours . Calma Company uses a standard cost system. The following budget, at normal capacity, and
How many actual labor hours were worked during March for STA Company? the actual results are summarized for the month of December:
A. 10,000 C. 8,000 Direct labor hours 24,000
B. 12,000 D. 10,500 Variable factory OH P 48,000
Fixed factory OH P108,000
xxxv
. Information of Hanes’ direct labor costs for the month of May is as follows: Total factory OH per DLH P 6.50
Actual direct labor rate P7.50 Actual data for December were as follows:
Standard direct labor hours allowed 11,000 Direct labor hours worked 22,000
Actual direct labor hours 10,000 Total factory OH P147,000
Direct labor rate variance – favorable P5,500 Standard DLHs allowed for capacity attained 21,000
What was the standard direct labor rate in effect for the month of May? Using the two-way analysis of overhead variance, what is the controllable variance for
A. P6.95 C. P8.00 December?
B. P7.00 D. P8.05 A. P 3,000 Favorable C. P 5,000 Favorable
B. P 9,000 Favorable D. P10,500 Unfavorable
Two-way overhead variance
xxxvi xxxix
. The overhead variances for Big Company were: . Heart Company uses a flexible budget system and prepared the following information
Variable overhead spending variance: P3600 favorable. for the year:
Variable overhead efficiency variance: P6,000 unfavorable. Percent of Capacity 80 Percent 90 Percent
Fixed overhead spending variance: P10,000 favorable. Direct labor hours 24,000 27,000
Fixed overhead volume variance: P24,000 favorable. Variable factory overhead P 54,000 P 60,750
What was the overhead controllable variance? Fixed factory overhead P 81,000 P 81,000
A. P31,600 favorable C. P24,000 favorable Total factory overhead rate per DLH P5.625 P5.25
B. P13,600 favorable D. P 7,600 favorable Heart operated at 80 percent of capacity during the year, but applied factory overhead based

211
Standard Costs and Variance Analysis

on the 90 percent capacity level. Assuming that actual factory overhead was equal to the A. P1,000 favorable C. P1,000 unfavorable
budgeted amount of overhead, how much was the overhead volume variance for the year? B. P6,000 favorable D. P6,000 unfavorable
A. P 9,000 unfavorable C. P 9,000 favorable
xliv
B. P15,750 unfavorable D. P15,750 favorable . 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
xl
. The Fire Company has a standard absorption and flexible budgeting system and uses a two- hours. The standard cost and the actual cost of factory overhead for the production of 5,000
way analysis of overhead variances. Selected data for the June production activity are: units during May were as follows:
Budgeted fixed factory overhead costs P 64,000 Standard: 25,000 hours at P10 P250,000
Actual factory overhead 230,000 Actual: Variable factory overhead 202,500
Variable factory overhead rater per DLH P 5 Fixed factory overhead 60,000
Standard DLH 32,000 What is the amount of the factory overhead volume variance?
Actual DLH 32,000 A. 12,500 favorable C. 12,500 unfavorable
The budget (controllable) variance for June is B. 10,000 unfavorable D. 10,000 favorable
A. P1,000 favorable C. P1,000 unfavorable
B. P6,000 favorable D. P6,000 unfavorable Three-way overhead variance
xlv
. The following data are the actual results for Wow Company for the month of May:
xli
. Sorsogon Company had actual overhead of P14,000 for the year. The company applied Actual output 4,500 units
overhead of P13,400. If the overhead budgeted for the standard hours allowed is P15,600, the Actual variable overhead P360,000
overhead controllable variance is Actual fixed overhead P108,000
A. P 600 Favorable C. P1,600 Favorable Actual machine time 14,000 MH
B. P2,200 Unfavorable D. P1,600 Unfavorable Standard cost and budget information for Wow Company follows:
Standard variable overhead rate P6.00 per MH
xlii
. Compo Co. uses a predetermined factory O/H application rate based on direct labor cost. For Standard quantity of machine hours 3 hours per unit
the year ended December 31, Compo’s budgeted factory O/H was P600,000, based on a Budgeted fixed overhead P777,600 per year
budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of P6 per hour. Budgeted output 4,800 units per month
Actual factory O/H amounted to P620,000, with actual direct labor cost of P325,000. For the The overhead efficiency variance is
year, over-applied factory O/H was A. P3,000 Favorable C. P3,000 Unfavorable
A. P20,000 C. P30,000 B. P5,400 Favorable D. P5,400 Unfavorable
B. P25,000 D. P50,000
xlvi
. The Libiran Company produces its only product, Menthol Chewing Gum. The standard
xliii
. The Terrain Company has a standard absorption and flexible budgeting system and uses a overhead cost for one pack of the product follows:
two-way analysis of overhead variances. Selected data for the June production activity are: Fixed overhead (1.50 hours at P18.00) P27.00
Budgeted fixed factory overhead costs P 64,000 Variable overhead (1.50 hours at P10.00) 15.00
Actual factory overhead 230,000 Total application rate P42.00
Variable factory overhead rater per DLH P 5 Libiran uses expected volume of 20,000 units. During the year, Libiran used 31,500 direct
Standard DLH 32,000 labor hours for the production of 20,000 units. Actual overhead costs were P545,000 fixed and
Actual DLH 32,000 P308,700 variable.
The budget (controllable) variance for the month of June is: The overhead efficiency variance is

212
Standard Costs and Variance Analysis

A. P22,500 Favorable C. P15,000 Favorable Budgeted output 4,800 unit per month
B. P22,500 Unfavorable D. P15,000 Unfavorable The overhead efficiency variance is:
A. P3,000 Favorable C. P3,000 Unfavorable
xlvii
. Abbey Company produces a single product. Abbey employs a standard cost system and uses B. P5,400 Favorable D. P5,400 Unfavorable
a flexible budget to predict overhead costs at various levels of activity. For the most recent
l
year, Abbey used a standard overhead rate equal to P8.50 per direct labor hour. The rate was . The following information is available from the Tyro Company:
computed using normal activity. Budgeted overhead costs are P100,000 for 10,000 direct Actual factory overhead P15,000
labor hours and P160,000 for 20,000 direct labor hours. During the past year, Abbey generate Fixed overhead expenses, actual P 7,200
the following data: Fixed overhead expenses, budgeted P 7,000
Actual production: 1,400 units Actual hours 3,500
Fixed overhead volume variance: P5,000 U Standard hours 3,800
Variable overhead efficiency variance: P3,000 F Variable overhead rate per DLH P 2.50
Actual fixed overhead costs: P42,670 Assuming that Tyro uses a three-way analysis of overhead variances, what is the spending
Actual variable overhead costs: P82,000 variance?
The number of direct labor hours used as normal activity are: A. P 750 F C. P 950 F
A. 16,000 C. 14,000 B. P 750 U D. P1,500 U
B. 15,000 D. 13,500
li
. The Sacto Co.’s standard fixed overhead cost is P3 per direct labor hour based on budgeted
xlviii
. Using the information presented below, calculate the total overhead spending variance. fixed costs of P300,000. The standard allows 2 direct labor hours per unit. During 2006,
Budgeted fixed overhead P10,000 Sacto produced 55,000 units of product, incurred P315,000 of fixed overhead costs, and
Standard variable overhead (2 DLH at P2 per DLH) P4 per unit recorded P106,000 actual hours of direct labor. What are the fixed overhead variances?
Actual fixed overhead P10,300 Spending variance Volume variance
Actual variable overhead P19,500 A. P15,000 U P30,000 F
Budgeted volume (5,000 units x 2 DLH) 10,000 DLH B. P33,000 U P30,000 F
Actual direct labor hours (DLH) 9,500 C. P15,000 U P18,000 F
Units produced 4,500 D. P33,000 U P18,000 F
A. P 500 U C. P1,000 U
lii
B. P 800 U D. P1,300 U . Using the information in the preceding number, the amounts of controllable variances for
variable overhead are:
xlix
. The following data are the actual results for Bustos Company for the month of May: Spending Efficiency
Actual output 4,500 units A. P20,000 Fav P20,000 Unf
Actual variable overhead P360,000 B. P20,000 Unf P20,000 Fav
Actual fixed overhead P108,000 C. P 5,000 Unf P20,000 Unf
Actual machine time 14,000 MH D. P20,000 Fav P 5,000 Unf
Standard cost and budget information for Bustos Company follows:
Standard variable overhead rate P6.00 per MH Four-way overhead variance
liii
Standard quantity of machine hours 3 hours per unit . Safin Corporation’s master budget calls for the production of 5,000 units of product monthly.
Budgeted fixed overhead P777,600 per year The annual master budget includes indirect labor of P144,000 annually. Safin considers

213
Standard Costs and Variance Analysis

indirect labor to be a variable cost. During the month of April, 4,500 units of product were
lviii
produced, and indirect labor costs of P10,100 were incurred. A performance report utilizing . Calvin Klein Company has a standard fixed cost of P6 per unit. At an actual production of
flexible budgeting would report a budget variance for indirect labor of: 8,000 units a favorable volume variance of P12,000 resulted. What were total budgeted fixed
A. P1,900 Unfavorable. C. P1,900 Favorable. costs?
B. P 700 Unfavorable. D. P 700 Favorable. A. P36,000. C. P48,000.
B. P60,000. D. P75,000.
liv
. Wala Company applies overhead on a direct labor hour basis. Each unit of product requires 5
lix
direct labor hours. Overhead is applied on a 30 percent variable and 70 percent fixed basis; . Puma Company had an 25,000 unfavorable volume variance, a P18,000 unfavorable variable
the overhead application rate is P16 per hour. Standards are based on a normal monthly overhead spending variance, and P2,000 total under applied overhead. The fixed overhead
capacity of 5,000 direct labor hours. budget variance is
During September 2006, Wala produced 1,010 units of product and incurred 4,900 direct labor A. P41,000 favorable C. P45,000 favorable
hours. Actual overhead cost for the month was P80,000. B. P41,000 Unfavorable D. P45,000 Unfavorable
What is total annual budgeted fixed overhead cost?
lx
A. P 56,000 C. P672,000 . Arlene had an P18,000 unfavorable volume variance, a P25,000 unfavorable variable
B. P 56,560 D. P678,720 overhead spending variance, and P2,000 total under applied overhead. The fixed overhead
budget variance is:
lv
. Budgeted variable overhead for the level of production achieved is 40,000 machine-hours at a A. P41,000 favorable C. P45,000 favorable
budgeted cost of P62,000. Actual variable overhead at the level of production achieved was B. P41,000 Unfavorable D. P45,000 Unfavorable
38,000 hours at an actual cost of P62,400. What is the total variable overhead variance?
lxi
A. P400 favorable C. P3,100 unfavorable . Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were
B. P400 unfavorable D. P3,100 favorable 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
lvi
. The Pinatubo Company makes and sells a single product and uses standard costing. During must be:
January, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units A. P516,000 C. P512,000
of product. The standard cost card for one unit of product includes the following: B. P504,000 D. P496,000
Variable factory overhead: 3.0 DLHs @ P4.00 per DLH
lxii
Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH . CTV Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 units
For January, the company incurred P22,000 of actual fixed overhead costs and recorded a a favorable volume variance of P12,000 resulted. What were total budgeted fixed costs?
P875 favorable volume variance. A. P36,000 C. P48,000
The budgeted fixed overhead cost for January is: B. P60,000 D. P75,000
A. P31,500 C. P30,625
lxiii
B. P32,375 D. P33,250 . Richard Company employs a standard absorption system for product costing. The standard
cost of its product is as follows:
lvii
. The variable-overhead spending variance is P1,080, unfavorable. Variable overhead budgeted Raw materials P14.50
at 40,000 machine hours is P50,000. Actual machine hours were 36,000. What was the actual Direct labor (2 DLH x P8) 16.00
variable-overhead rate per machine hour? Manufacturing overhead (2 DLH x P11) 22.00
A. P1.28 C. P1.39 Total standard cost P52.50
B. P1.25 D. P1.52 The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor

214
Standard Costs and Variance Analysis

hours. Richard planned to produce 25,000 units each month during the year. The budgeted A. 100 direct labor hours inefficient C. 100 direct labor hours efficient
annual manufacturing overhead is: B. 440 direct labor hours inefficient D. 440 direct labor hours efficient
Variable P 3,600,000
lxvi
Fixed 3,000,000 . The fixed overhead efficiency variance is:
P 6,600,000 A. P 3,000 favorable C. P 3,000 unfavorable
During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in B. P10,000 unfavorable D. Never a meaningful variance
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 Questions 67 and 68 are based on a monthly normal volume of 50,000 units (100,000 direct
P572,000. labor hours). Raff Co.’s standard cost system contains the following overhead costs:
The fixed manufacturing overhead volume variance for November is: Variable P6 per unit
A. P10,000 favorable C. P10,000 unfavorable Fixed P8 per unit
B. P3,000 unfavorable D. P22,000 favorable
The following information pertains to the month of March:
lxiv
. Using the information for Richard Company in the preceding number, the total variance related Units actually produced 38,000
to efficiency of the manufacturing operation for November is: Actual direct labor hours worked 80,000
A. P 9,000 unfavorable C. P12,000 unfavorable Actual overhead incurred:
B. P21,000 unfavorable D. P11,000 unfavorable Variable P250,000
Fixed 384,000
Question Nos. 65 and 66 are based on the following:
lxvii
Tiny Bubbles Company had the following activity relating to its fixed and variable overhead for the . For March, the unfavorable variable overhead spending variance was:
month of July. A. P6,000 C. P12,000
Actual costs B. P10,000 D. P22,000
Fixed overhead P120,000
lxviii
Variable overhead 80,000 . For March, the fixed overhead volume variance was:
A. P96,000U C. P80,000U
Flexible budget B. P96,000F D. P80,000F
(Standard input allowed for actual output achieved x the budgeted rate)
lxix
Variable overhead P 90,000 . Edney Company employs standard absorption system for product costing. The standard cost
of its product is as follows:
Applied Raw materials P14.50
(Standard input allowed for actual output achieved x the budgeted rate) Direct labor (2 DLH x P8) 16.00
Fixed overhead P125,000 Manufacturing overhead (2 DLH x P11) 22.00
Variable overhead spending variance 1,200 F The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor
Production volume variance 5,000 U hours. Edney planned to produce 25,000 units each month during the year. The budgeted
annual manufacturing overhead is
lxv
. If the budgeted rate for applying variable manufacturing overhead was P20 per direct labor Variable P3,600,000
hour, how efficient or inefficient was Tiny Bubbles in terms of using direct labor hours as an Fixed 3,000,000
activity base? During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in

215
Standard Costs and Variance Analysis

November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000 A. P1,600 Favorable C. P1,600 Unfavorable
fixed and P315,000 variable. The total manufacturing overhead applied during November was B. P 800 Favorable D. P800 Unfavorable
P572,000.
The variable manufacturing overhead variances for November are: Questions 75 through 78 are based on Darf Company, which applies overhead on the basis of
Spending Efficiency direct labor hours. Two direct labor hours are required for each product unit. Planned production
A. P9,000 unfavorable P3,000 unfavorable for the period was set at 9,000 units. Manufacturing overhead is budgeted at P135,000 for the
B. P6,000 favorable P9,000 unfavorable period, of which 20% of this cost is fixed. The 17,200 hours worked during the period resulted in
C. P4,000 unfavorable P1,000 favorable production of 8,500 units. Variable manufacturing overhead cost incurred was P108,500 and fixed
D. P9,000 favorable P12,000 unfavorable manufacturing overhead cost was P28,000. Darf Company uses a four variance method for
analyzing manufacturing overhead.
lxx
. The fixed manufacturing overhead variances for November are:
lxxv
Spending Volume . The variable overhead spending variance for the period is
A. P10,000 favorable P10,000 favorable A. P5,300 unfavorable C. P6,300 unfavorable
B. P10,000 unfavorable P10,000 favorable B. P1,200 unfavorable D. P6,500 unfavorable
C. P 6,000 favorable P 3,000 unfavorable
lxxvi
D. P 4,000 unfavorable P22,000 favorable . The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 unfavorable C. P1,200 unfavorable
The following information will be used to answer Question Nos. 71 through 74: B. P1,500 unfavorable D. P6,500 unfavorable
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: lxxvii
. The fixed overhead budget (spending) variance for the period is
Budgeted Actual A. P6,300 unfavorable C. P2,500 unfavorable
Units produced 40,000 38,000 B. P1,500 unfavorable D. P1,000 unfavorable
Variable manufacturing OH P 4/DLH P16,400
lxxviii
Fixed manufacturing overhead P20/DLH P88,000 . The fixed overhead volume (denominator) variance for the period is
Direct labor hours 6 min/unit 4,200 hr A. P 750 unfavorable C. P2,500 unfavorable
lxxi
. What is the fixed overhead spending variance? B. P1,500 unfavorable D. P1,000 unfavorable
A. P4,000 Favorable C. P8,000 Unfavorable
B. P8,000 Favorable D. P4,000 Unfavorable Comprehensive
lxxix
. Big Marat, Inc. began operations on January 3. Standard costs were established in early
lxxii
. What is the volume variance? January assuming a normal production volume of 160,000 units. However, Big Marat
A. P4,000 Favorable C. P8,000 Favorable produced only 140,000 units of product and sold 100,000 units at a selling price of P180 per
B. P4,000 Unfavorable D. P8,000 Unfavorable 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
lxxiii
. How much was the variable overhead spending variance? 50% were selling. Big Marat had no raw materials or work-in-process inventories at December
A. P 400 Favorable C. P400 Unfavorable 31. Actual input prices and quantities per unit of product were equal to standard.
B. P1,200 Favorable. D. P1,200 Unfavorable Using absorption costing, Big Marat’s income statement would show:
A. B. C. D.
lxxiv
. How much overhead efficiency variance resulted for the month of May? Cost of Goods Sold at Standard Cost P8,200,000 P7,200,000 P6,500,000 P7,000,000

216
Standard Costs and Variance Analysis

Overhead Volume Variance P800,000 U P800,000 F P700,000 U P700,000 F 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
Questions No. 80 through 85 are based on the following information: for the variances before the meeting begins. Without backup data it will be impossible to lead
You have recently graduated from a university and have accepted a position with Villar Company, the discussion or answer any questions.
the manufacturer of a popular consumer product. During your first week on the job, the vice
lxxx
president has been favorably impressed with your work. She has been so impressed, in fact, that . How many pounds of direct materials were purchased and used in the production of 22,500
yesterday she called you into her office and asked you to attend the executive committee meeting units?
this morning for the purpose of leading a discussion on the variances reported for last period. A. 138,000 lbs. C. 135,000 lbs.
Anxious to favorably impress the executive committee, you took the variances and supporting data B. 132,000 lbs. D. 137,300 lbs.
home last night to study.
lxxxi
. What was the actual cost per pound of material?
On your way to work this morning, the papers were laying on the seat of your new, red convertible. A. P3.00 C. P2.95
As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew B. P3.05 D. P3.10
them over the edge of the bridge and into the stream below. You managed to retrieve only one
lxxxii
page, which contains the following information: . How many actual direct labor hours were worked during the period?
A. 18,000 C. 19,400
Standard Cost Summary B. 16,600 D. 18,970
Direct materials, 6 pounds at P3 P18.00
lxxxiii
Direct labor, 0.8 hours at P5 4.00 . How much actual variable manufacturing overhead cost was incurred during the period?
Variable overhead, 0.8 hours at P3 2.40 A. P55,300 C. P56,900
Fixed overhead, 0.8 hours at P7 5.60 B. P58,200 D. P59,500
P30.00
lxxxiv
. What is the total fixed manufacturing overhead cost in the company’s flexible budget?
Total VAR IAN C E S R E P O R TE D A. P112,500 C. P139,500
Standard Price or Spending or Quantity or Volume B. P140,000 D. P125,500
Cost Rate Budget Efficiency
lxxxv
Direct materials P405,000 P6,900 F P9,000 U . What were the denominator hours for last period?
Direct labor 90,000 4,850 U 7,000 U A. 18,000 hours C. 20,000 hours
Variable overhead 54,000 P1,300 F ?@ B. 22,000 hours D. 25,000 hours
Fixed overhead 126,000 500 F P14,000U
Applied to Work in process during the period Productivity measures
@ Figure obliterated. Manufacturing cycle efficiency
lxxxvi
. Fireout Company manufactures fire hydrants in Bulacan. The following information pertains to
You recall that manufacturing overhead cost is applied to production on the basis of direct operations during the month of May:
labor-hours and that all of the materials purchased during the period were used in production. Processing hours (average per batch) 8.0
Since the company uses JIT to control work flows, work in process inventories are insignificant Inspection hours (average per batch) 1.5
and can be ignored. Waiting hours (average per batch) 1.5
Move time (average per batch) 1.5

217
Standard Costs and Variance Analysis

Units per batch 20 units must be


The manufacturing cycle efficiency (MCE) is: A. P516,000 C. P512,000
A. 72.7% C. 64.0% B. P488,000 D. P496,000
B. 36.0% D. 76.0%

Throughput time
lxxxvii
. 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

Delivery cycle time


lxxxviii
.Alabang Corporation is a highly automated manufacturing firm. The vice president of finance
has decided that traditional standards are inappropriate for performance measures in an
automated environment. Labor is insignificant in terms of the total cost of production and
tends to be fixed, material quality is considered more important than minimizing material cost,
and customer satisfaction is the number one priority. As a result, production and delivery
performance measures have been chosen to evaluate performance. The following information
is considered typical of the time involved to complete and ship orders.
Waiting Time:
From order being placed to start of production 8.0 days
From start of production to completion 7.0 days
Inspection time 1.5 days
Processing time 3.0 days
Move time 2.5 days
The Delivery Cycle Time is:
A. 22 days C. 14 days
B. 11 days D. 7 days
lxxxix
. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were
budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed
overhead spending variance was P16,000 unfavorable, fixed manufacturing overhead applied

218
i

. Answer: D
Nyclyn (24 ÷ 0.80 x P15) P 450.00
Salex (19.20 ÷ 0.80 x P21) 504.00
Protet (10 x P28) 280.00
Total P1,234.00
ii
. Answer: C
Required inputs to be placed in process per unit of product: 2.25 ÷0.75 3.0 yards
Standard Material cost per unit of product: 3.0 x P150 P450
iii
. Answer: B
Required inputs of raw materials (in pounds) (60 ÷ 0.80) 75.00
Standard price per pound (2.5 x 0.98) x 2.45
Standard materials cost per unit 183.75
iv
. Answer: D
Net price per yard:
Purchase price 40.00
Freight 1.00
Purchase discount 0.03 x 40 ( 1.20)
Standard cost per yard 39.80
Standard quantity per scarf 0.475/0.95 0.50
Standard cost per scarf: 0.50 x 39.80 19.90
v
. Answer: C
Total Minutes per worker (8 hours x 60) 480
Rest Time 60
Productive minutes 420
Output per day per worker (420 ÷ 35) in 10-liter batch 12
Production hour – good units 35 min
Rest minutes (60 ÷ 12) 5 min
Minutes used for rejects (35 + 5) ÷ 5 good units 8 min
Total standard minutes per 10-good liter batch 48 Min
vi
. Answer: B
Weekly wages per worker 1,000
Fringe benefits (1,000 x 0.25) 250
Total weekly direct labor cost per worker 1,250
Labor cost per hour (1,250 ÷ 40 hrs) 31.25
Labor cost per unit (31.25 x 2.50 hrs) P78.125
vii
. Answer: D
Required number of quarts of berries (6 ÷ 0.80) 7.50
Cost of berries (7.50 @ P8.00) 60
Cost of other ingredients (10 x 4.50) 45
Standard materials cost per batch 105
viii
. Answer: C
Minutes required by sorting good berries 6 quarts @ 3 min. 18
Minutes required by mixing 12
Total number of minutes 30
Standard labor cost per batch (0.50 @ P50) P25
ix
. Answer: A
Unit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance - Credit to Materials Price
Variance)/Number of Units Completed
Total debits to work in process account P51,690
Debit to materials quantity variance 1,970
Credit to materials price variance ( 3,740)
Actual materials cost P49,920
Per unit cost: P49,920/96,000 P0.52
x
. Answer: A
Actual quantity used 1,066
Add favorable quantity (209/5.5) 38
Standard quantity allowed 1,104
xi
. Answer: C
Actual materials price 105,000/35,000 3.00
Standard Quantity 12,000 x 2 24,000
Standard price 60,000/24,000 2.50
Actual Quantity used: 24,000 + (2,500/2.5) 25,000
Price variance based on usage: 25,000 x (3 – 2.50) 12,500
xii
. Answer: D
Actual Quantity used 14,910
Favorable Quantity 3,735/1.5 2,490
Standard Quantity allowed 17,400
Production in units 17,400/15 1,160
xiii
. Answer: A
AQ @ SP (3,150 x 40) P126,000
SQ @ SP (600 x 5 x 40) 120,000
Unfavorable Quantity Variance P 6,000
xiv
. Answer: A
Actual quantity used (pounds) 23,500
Less: Excess pounds used (1,000 ÷ 2) 500
Standard Quantity Allowed 23,000
Alternative Solution using the formula for Usage Variance:
MUV = (AQ –SQ)SP
1,000 = (23,500 – SQ)2
1,000 ÷ 2 = 23,500 – SQ
500 = 23,500 – SQ
SQ = 23,000
xv
. Answer: D
Actual Purchase Costs – (AQ x SP)
= 84,000 – (30,000 x 3) 6,000 Favorable
Standard Price = Usage Variance ÷ (AQ – SQ)
3,000 ÷ (30,000 – 29,000) = P3
xvi
. Answer: B
The actual purchase price per unit can be conveniently solved by using the purchase price variance - MPV = AQ(AP-
SP)
-240 = 1,600 (AP – 3.60)
-240 ÷ 1,600 = AP – 3.60
0.15 = AP – 3.60
AP = 3.45
xvii
. Answer: C
MPV = 1,400(1.10 – 1.00)
= 140
xviii
. Answer: A
MUV = (AQ – SQ)SP
= (2,300 – 2,100) 6.25
= 1,250 Unfavorable
xix
. Answer: C
Actual materials cost 26,400
AQ @ SP (22,000 x 1.25) 27,500
Favorable Price Variance ( 1,100)
xx
. Answer: A
Standard materials cost per batch (200 x 1) + (840 x 0.20) + (7 x 2) + (3 x 6) P400
Expected yield in batch (20,160 ÷ 1,050) 19.20
Actual yield 18.50
Unfavorable yield in batch 0.70
Unfavorable yield variance (0.70 x 400) P 280
xxi
. Answer: D
Materials
Actual cost 127,500
Budgeted cost (8,500 @ 15) 127,500
Materials cost variance 0
Labor
AH @ SR (6,375 @ 12) 76,500
SH @ SR (8,500 @ 0.75 @ 12) 76,500
Labor Efficiency Variance 0
Actual Payroll 77,775
AH @ SR (6,375 @ 12) 76,500
Labor Rate Variance 1,275
xxii
. 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
xxiii
. Answer: A
LaborAHStd. Mix at AHDiffSRLabor Mix VarianceM4,5005,000(500)P10P (5,000)F3,0002,50050052,5007,5007,500-P
(2,500)Fav
xxiv
. Answer: A
Labor Yield Variance:
Expected Yield 40,000
Actual Yield 36,000
Difference 4,000
Multiply by Standard labor cost per unit P1.5625*
Yield Variance P6,250U
*Standard cost ÷ Standard Yield = P6,250 ÷ 4,000 = P1.5625
xxv
. Answer: C
Direct labor cost at standard rate 7,150 – 750 6,400
Standard rate 6,400/800 8.00
xxvi
. Answer: A
Actual cost 10,000
Favorable Rate Variance 1,000
Actual hours @ standard rate 11,000
Standard Rate: 11,000 ÷ 2,000 5.50
Expected yield (400,000 units / 750 hrs) 7,500 = 40,000
xxvii
. Answer: C
LEV: (20,000 – 21,000)6.15 = (6,150)F
Standard Rate:
3,000 = 126,000 – 20,000SR
123,000 = 20,000SR
SR = 6.15
xxviii
. Answer: C
LEV: (410 x 20) – 8,440 = (240)F
xxix
. Answer: C
Actual hours 1,148,000/16.40 70,000
Less Unfavorable hours 120,000/16 7,500
Standard hours allowed 62,500
Standard rate: 960,000/60,000 16.00
xxx
. Answer: B
SR = LEV ÷ (AH – SH)
= -4,000 ÷ (29,000 – 30,000)
= P4.00
xxxi
. Answer: C
AR = SR – (LRV ÷ AH)
AR = P4.00 – (5,800 ÷ 29,000)
= P3.80
xxxii
. Answer: B
Variable OH rate/hr - P27,000 ÷ 45,000 P 0.60
Direct labor rate/hr = P0.60 ÷ 0.20 P 3.00
Variable OH is applied at 20% of direct labor cost
Actual hours P140,700 ÷ (P3 – P0.20) 50,250
Unfavorable hours P5,100 ÷ P3 1,700
SH allowed 48,550
xxxiii
. Answer: B
Actual direct labor costs P241,500
Actual hrs at std labor rate (34,500 x P6.4) 220,800
Unfavorable labor rate variance P 20,700
Standard labor rate:
-3,200 = (34,500 – 35,000) SR
3,200 = 500SR
SR = 6.40
xxxiv
. Answer: B
Actual hours = Labor rate variance ÷(AR-SR)
P12,000 ÷ (P10 – P9) 12,000 hours
xxxv
. Answer: D
LRV = AH(AR – SR)
-5,500 = 10,000(7.50 – SR)
-5,500 ÷ 10,000 = 7.5 – SR
-0.55 = 7.50 – SR
SR = 8.05
xxxvi
. Answer: D
The controllable variance is the sum of the spending variances plus the efficiency variance.
Variable overhead spending variance P( 3,600)
Fixed overhead spending variance P(10,000)
Variable overhead efficiency variance P 6,000
Total controllable variance P 7,600
The volume variance is not considered a controllable variance.
xxxvii
. Answer: A
Monthly budgeted fixed overhead (150,000/12) 12,500
Applied fixed overhead (2,450 x 2 x 2.5) 12,250
Unfavorable volume variance 250
xxxviii
. Answer: A
Variable OH per DLH 48,000/24,000 2.00
Actual overhead 147,000
Budgeted OH at standard hours:
Variable 21,000 x 2 42,000
Fixed 108,000 150,000
Favorable controllable/budget variance ( 3,000)
xxxix
. Answer: A
Budgeted fixed overhead 81,000
Applied fixed overhead based on 80% achieved (24,000 x 3) 72,000
Unfavorable volume variance 9,000
Fixed overhead rate based on 27,000 hours: (81,000 ÷ 27,000) 3.00
xl
. Answer: D
Actual overhead 230,000
Less Budgeted OH at standard hours
Variable 32,000 x 5 160,000
Fixed 64,000 (224,000)
Unfavorable budget variance 6,000
xli
. Answer: C
Actual overhead 14,000
Budget at SH 15,600
Favorable controllable variance ( 1,600)
xlii
. Answer: C
OH application rate based on DL cost 600,000/(50,000 x 6) 200%
Applied overhead 325,000 x 2 650,000
Actual overhead 620,000
Overapplied Overhead 30,000
xliii
. Answer: D
Actual overhead 230,000
Budget at standard hours:
Fixed OH 64,000
Variable OH (32,000 x 5) 160,000 224,000
Unfavorable controllable variance 6,000
xliv
. Answer: B
Budgeted fixed overhead (30,000 x 2) 60,000
Applied FOH (25,000 x 2) 50,000
Unfavorable volume variance 10,000
xlv
. Answer: C
Efficiency variance = (AH – SH) x SVOHR (14,000 – 13,500) 6 = 3,000 UNF
Standard hours: 4,500 x 3 13,500
xlvi
. Answer: D
Efficiency Variance = (31,500 – 30,000) 10 15,000 Unfavorable
Standard hours: 20,000 units x 1.5 hours
xlvii
. Answer: A
Fixed overhead rate per hour 8.50 – 6.00 2.50
Denominator hours (previous number) 40,000/2.5 16,000
xlviii
. Answer: B
Actual OH (10,300 + 19,500) P29,800
Less: Budgeted OH at actual hours (P2 x 9,500 hrs) + P10,000 29,000
Unfavorable spending variance P 800
xlix
. Answer: C
EV = (AH – SH) SVOHR (14,000 – 13,500) 6 3,000U
SH (4,500 x 3) 13,500
l
. Answer: A
Actual OH P15,000
Budgeted OH at actual hours (3,500 x P2.50) + P7,000 15,750
Favorable spending variance P( 750)
li
. Answer: A
Fixed OH spending variance:
Actual Fixed OH - Budgeted Fixed OH (P315,000 – P300,000) P15,000 U
Fixed OH volume variance:
(Budgeted Units – Actual Units) x SFOH rate (50,000 – 55,000) x P6 P(30,000)F
Budgeted production: P300,000 ÷ P3 ÷ 2 hours
lii
. Answer: A
Actual variable overhead 520,000
AH @ SVOHR (270,000 x 2) 540,000
Variable Oh spending variance, Favorable ( 20,000)
AH @ SVOHR 540,000
SH @ SVOH (260,000 x 2) 520,000
Unfavorable VOH efficiency variance 20,000
liii
. Answer: D
Actual P10,100
Budget (4,500 x 2.40) 10,800
Favorable Budget variance P( 700)
liv
. Answer: C
Fixed overhead per hour: 16 x 0.7 11.20
Annual fixed OH budget 5,000 x 12 x 11.20 672,000
lv
. Answer: B
Actual variable overhead 62,400
Variable OH applied 62,000
Unfavorable variable OH variance 400
lvi
. Answer: C
Applied fixed overhead (3,000 x 3 x 3.50) 31,500
Less: Favorable volume variance 875
Budgeted fixed overhead 30,625
lvii
. Answer: A
Standard rate: 50,000/40,000 1.25
Excess rate 1,080/3,600 0.03
Actual rate 1.28
lviii
. Answer: A
Applied fixed overhead 48,000
Less favorable volume variance 12,000
Budgeted fixed overhead 36,000
lix
. Answer: A
Unfavorable volume variance 25,000
Unfavorable VOH spending variance 18,000
Total 43,000
Net Unfavorable variance 2,000
Favorable fixed OH budget variance 41,000
lx
. Answer: A
Net OH variance, Unfavorable 2,000
Less: Unfavorable volume variance ( 18,000)
Unfavorable spending variance ( 25,000)
Favorable FOH budget variance 41,000
lxi
. Answer: C
Budgeted fixed OH 500,000
Add: Favorable volume variance 12,000
Applied fixed overhead 512,000
lxii
. Answer: A
Applied FOH (8,000 x 6) 48,000
Less: Favorable volume variance 12,000
Budgeted FOH 36,000
lxiii
. Answer: A
Budgeted fixed OH (3,000,000 ÷ 12 months) 250,000
Applied fixed OH (26,000 @ 2 x 5) 260,000
Favorable volume variance ( 10,000)F
Fixed OH rate per hour (3,000,000 ÷ 600,000) 5.00
lxiv
. Answer: B
Labor Efficiency: (53,500 – 52,000) 8 12,000
Variable OH Efficiency (53,500 – 52,000) 6 9,000
Total efficiency variance 21,000
lxv
. Answer: D
Total variable overhead variance (80,000 – 90,000) 10,000 favorable
Variable overhead spending variance 1,200 favorable
Variable overhead efficiency variance 8,800 favorable
8,800 ÷ 20 440 Favorable
lxvi
. Answer: D
Fixed overhead volume variance is a more meaningful variance in evaluating the use of the capacity.
lxvii
. Answer: B
Actual variable OH P250,000
Budgeted VOH at actual hours (80,000 x P3) 240,000
Unfavorable VOH spending variance P 10,000
lxviii
. Answer: A
(38,000 units – 50,000 units) x P8 P96,000
lxix
. Answer: B
Spending [P315,000 – (53,500 x P6)] P(6,000)
Efficiency [(53,500 – 52,000) x P6] P 9,000
lxx
. Answer: B
Spending [P260,000 – (P3M ÷ 12)] P10,000U
Volume [(26,000 – 25,000) x P10] P10,000F
lxxi
. Answer: C
Actual fixed overhead P88,000
Budget fixed overhead (4,000 hrs @ P20) 80,000
Unfavorable fixed OH Spending variance P 8,000
Budgeted (denominator) hours (40,000 units x 6 ÷ 60) 4,000
lxxii
. Answer: B
Budget fixed overhead P80,000
Applied fixed overhead (38,000 x 0.10 x P20) 76,000
Unfavorable volume variance P 4,000
lxxiii
. Answer: A
Actual variable overhead P 16,400
Budget at actual hours (4,200 x P4) 16,800
Favorable variable OH spending variance P ( 400)
lxxiv
. 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
lxxv
. Answer: A
Actual variable overhead 108,500
Budgeted VOH at actual hours (17,200 x 6) 103,200
Variable overhead spending variance, UNF 5,300
VOH rate per hour (135,000 x 0.80) ÷ 18,000 hours P6.00
lxxvi
. Answer: C
The computation of variable overhead efficiency variance involves the comparison of the actual hours and standard
hours allowed by actual production.
(17,200 – 17,000) x P6 1,200 UNF
Standard hours allowed: 8,500 x 2 17,000
lxxvii
. Answer: D
The amount of fixed overhead budget (spending) variance is calculated by subtracting from the actual fixed overhead
the amount of budgeted fixed overhead.
Actual fixed overhead 28,000
Budgeted fixed overhead (135,000 x 0.2) 27,000
Unfavorable fixed overhead budget variance 1,000
lxxviii
. Answer: B
The amount of volume variance (denominator or over/underapplied fixed overhead variance) is calculated by comparing
the budgeted fixed overhead and fixed overhead applied to production.
Budgeted fixed overhead (135,000 x 0.2) 27,000
Applied fixed overhead (8,500 x 3) 25,500
Underapplied (unfavorable) volume variance 1,500
Alternative calculation: (9,000 – 8,500) x 3 1,500
Fixed overhead per unit (27,000 ÷ 9,000) 3
lxxix
. Answer: C
Std unit cost:
Variable (7,000,000 x 0.60) ÷ 140,000 P30
Fixed OH (11,200,000 x 0.50) ÷ 160,000 35
Std unit cost P65
CGS – Std (100,000 x 65) 6,500,000
OH Volume Variance: (160,000 – 140,000) x 35 P 700,000 UNF
lxxx
. Answer: A
SQ allowed (22,500 x 6) 135,000
Unfavorable usage variance 3,000
Actual quantity of materials 138,000
lxxxi
. Answer: C
Actual quantity purchased and used at standard price (138,000 x 3) 414,000
Favorable price variance 6,900
Actual Quantity @ Actual Price 407,100
Actual Price (407,100 ÷ 138,000) P2.95
lxxxii
. Answer: C
SH @ SR 90,000
Efficiency Variance 7,000
AH @ SR 97,000
Actual hours (97,000 ÷ 5) 19,400
lxxxiii
. Answer: D
AH @ SR (19,400 x 3) 58,200
Spending variance 1,300
Actual Variable Overhead 59,500
lxxxiv
. Answer: B
Applied Fixed OH 126,000
Underapplied fixed overhead 14,000
Budgeted fixed overhead 140,000
lxxxv
. Answer: C
Denominator or Budgeted Hours: (140,000 ÷ 7) = 20,000
lxxxvi
. Answer: C
MCE = Value Added Hours ÷ Throughput Time
Processing hours 8.00
Inspection hours 1.50
Waiting time 1.50
Move time 1.50
Throughput time 12.50
MCE (8.00 ÷ 12.50) 64%
lxxxvii
. Answer: A
lxxxviii
. Answer: A
Delivery cycle time:
Total waiting time 15.00
Inspection time 1.50
Processing time 3.00
Move time 2.50
Delivery Cycle Time 22.00
lxxxix
. Answer: C
A favorable volume variance arises when the applied fixed overhead is higher than the budgeted fixed overhead.
Budgeted fixed overhead 500,000
Favorable volume variance (overapplied) 12,000
Applied fixed overhead 512,000