FLEXIBLE & STANDARD COSTING

Tutorial Exercises

QUESTION 1
Kurtina Ltd manufactures curtains. A certain window requires the following:

Direct materials standard 10 square yards at $5 per yard

Direct manufacturing labor standard 5 hours at $10

During the second quarter, the company made 1,500 curtains and used 14,000
square yards of fabric costing $68,600. Direct labor totaled 7,600 hours for $79,800.

Required:
a. Compute the direct materials price and efficiency variances for the quarter.
b. Compute the direct manufacturing labor price and efficiency variances for the
quarter.

Price Variance = (Standard rate – Actual rate) x Actual quantity

= ($5 - $68,600/14,000) x 14,000 = $1,400 F

Efficiency Variance = (Actual quantity – Standard quantity) x Standard rate

= (14,000 – 15,000) x $5 = $5,000 F

Direct labour rate variance = (Actual rate per direct labor hour – Standard rate per
DLH) x Actual quantity of DLH’s used

= ($10,5 -$10) x 7,600 = $3,800

Direct labour Efficiency Variance = (Actual quantity of DLH’s used – Standard

quantity DLH’s allowed for actual output) x Standard rate per DLH

= (7,600 – 7,500) x $10 = $1,000

QUESTION 2
White Castle Electronics has the following standards and flexible budget data:
Standard variable overhead rate $3.00 per direct labour
hour
Standard quantity of direct labour 2 hours per unit of
output
Budgeted fixed overhead $50,000
Budgeted output 25,000 units

Actual results for April are given below:

Actual output 20,000 units
Actual variable overhead $320,000
Actual fixed overhead $97,000
Actual direct labour 25,000 hours
Required
Use the variance formulas to calculate the following variances, and indicate whether
each is favourable or unfavourable.
1. Variable overhead spending variance.
2. Variable overhead efficiency variance.
3. Fixed overhead budget variance.
4. Fixed overhead volume variance.
Variable overhead spending variance = (Actual Variable OH rate – Standard variable
OH rate) x actual direct labor hour

= 25,000 x (

Variable OH efficiency variance = (Actual DLH – budgeted DLH) x SVOR

= (25,000 – 50,000) x
Fixed overhead budget variance = (Actual – budgeted) fixed overhead
= ($97,000 - $50,000) = $47,000 UF

Fixed overhead volume variance = (Budgeted – applied) fixed overhead

= $47,000
QUESTION 3: DISCUSSION
1. Describe the advantages of standard costing?
2. Describe the limitations of standard costing?
3. Think of a company and discuss how standard costing can be used in that
company.