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THEORY C. the two systems can show different overhead budget variances.
Basic concepts D. the two systems show different volume variances if standard hours do not equal actual
1. The best characteristics of a standard cost system is hours.
A. all variances from standard should be reviewed
B. standard can pinpoint responsibility and help motivation 7. If a company wishes to establish factory overhead budget system in which estimated costs
C. all significant unfavorable variances should be reviewed can be derived directly from estimates of activity levels, it should prepare a
D. standard cost involves cost control which is cost reduction A. Capital budget. C. Fixed budget.
B. Discretionary budget. D. Flexible budget.
2. Standard costs are used for all of the following except:
A. controlling costs C. income determination 8. Lanta Restaurant compares monthly operating results with a static budget. When actual sales
B. forming a basis for price setting D. measuring efficiencies are less than budget, would Lanta usually report favorable variances on variable food costs
and fixed supervisory salaries.
3. Standard costs are least useful for A. B. C. D.
A. Determining minimum inventory levels C. Measuring production efficiency Variable food costs Yes Yes No No
B. Job order production systems D. Simplifying costing procedures Fixed supervisory salaries Yes No Yes No

4. To which of the following is a standard cost nearly like? 9. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a
A. Budgeted cost. C. Period cost. fixed budget:
B. Estimated cost. D. Product cost. A. includes only fixed costs; while variable budget includes only variable costs
B. cannot be changed after the period begins; while a variable budget can be changed after
5. A difference between standard costs used for cost control and budgeted costs the period begins
A. Can exist because standard costs must be determined after the budget is completed. C. is concerned only with future acquisitions of fixed assets; while a variable budget is
B. Can exist because budgeted costs are historical costs while standard costs are based on concerned with expenses that vary with sales
engineering studies. D. is a plan for a single level of sales (or other measure of activity); while a variable budget
C. Can exist because establishing budgeted costs involves employee participation and consists of several plans, one for each of several levels of sales (or other measure of
standard costs do not. activity)
D. Can exist because standard costs represent what costs should be while budgeted costs
represent expected actual costs. 10. Standard costing will produce the same results as actual or conventional costing when
standard cost variances are distributed to
6. Normal costing and standard costing differ in that A. A balance sheet account C. Cost of goods sold
A. normal costing is less appropriate for multiproduct firms B. An income or expense account D. Cost of goods sold and inventories
B. only normal costing can be used with absorption costing.

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11. Which of the following term is best identified with a system of standard cost? B. used with variable costing while a standard fixed cost is used with absorption costing.
A. Contribution approach. C. Marginal costing. C. based on practical capacity and a standard fixed cost can be based on any level of
B. Management by exception. D. Standard accounting system. activity.
D. based on an input factor like direct labor hours and a standard cost per unit is based on a
Standard setting unit of output.
12. Which one of the following terms best describes the rate of output which qualified workers can
achieve as an average over the working day or shift, without over-exertion, provided they 17. The variable factory overhead rate under the normal volume, practical capacity, and expected
adhere to the specified method of working and are well motivated in their work? activity levels would be the
A. Standard hours C. Standard time A. Same except for expected capacity C. Same except for practical capacity
B. Standard performance D. Standard unit B. Same except for normal volume D. Same for all three activity levels

13. When standard costs are used in a process-costing system, how, if at all, are equivalent units Materials & labor variances
of production (EUP) involved or used in the cost report at standard? 18. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of
A. Equivalent units are not used. flour with a quality rating two grades below that which the company normally purchased. This
B. Equivalent units are computed using a special approach. purchase covered about 90% of the flour requirement for the period. As to the material
C. The standard equivalent units are multiplied by the actual cost per unit. variances, what will be the likely effect?
D. The actual equivalent units are multiplied by the standard cost per unit. A. B. C. D.
Price variance Favorable Favorable Unfavorable No effect
14. The type of standard that is intended to represent challenging yet attainable results is: Usage Favorable Unfavorable Favorable Unfavorable
A. controllable cost standard D. normal standard variance
B. expected actual standard E. theoretical standard
C. flexible budget standard 19. What type of direct material variances for price and usage will arise if the actual number of
pounds of materials used was less than standard pounds allowed but actual cost exceeds
15. A company using very tight standards in a standard cost system should expect that standard cost?
A. No incentive bonus will be paid A. B. C. D.
B. Most variances will be unfavorable
Usage Favorable Favorable Unfavorable Unfavorable
C. Employees will be strongly motivated to attain the standard
Price Favorable Unfavorable Favorable Unfavorable
D. Costs will be controlled better than if lower standards were used

16. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a 20. The journal entry to record the direct materials quantity variance may be recorded
predetermined overhead rate is A. Only when direct materials are purchased
A. likely to be higher than a standard fixed cost per unit. B. When inventory is taken at the end of the year.
C. Only when direct materials are issued to production
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D. Either (A) or (C) 26. In the analysis of standard cost variances, the item which receives the most diverse treatment
in accounting is
21. A manager prepared the following table by which to analyze labor costs for the month: A. Direct labor cost C. Factory overhead cost
Actual Hours at Actual Hours at Standard Hours at B. Direct material cost D. Variable cost.
Actual Rate Standard Rate Standard Rate
$10,000 $9,800 $8,820 27. The total overhead variance is
What variance was $980? A. Based on actual hours worked for the units produced.
A. Labor efficiency variance. C. Labor spending variance. B. The difference between budgeted overhead and applied overhead.
B. Labor rate variance. D. Volume variance. C. The difference between actual overhead costs and applied overhead.
D. The difference between actual overhead costs and budgeted overhead.
22. A credit balance in the labor efficiency variance indicates that:
A. actual hours exceed standard hours 28. When expenses estimated for the capacity attained differ from the actual expenses incurred,
B. standard hours exceed actual hours the resulting balance is termed the
C. actual rate and actual hours exceed standard rate and standard hours A. Activity variance. C. Unfavorable variance.
D. standard rate and standard hours exceed actual rate and actual hours B. Budget variance. D. Volume variance.

23. A debit balance in the labor efficiency variance indicates that 29. If a company uses a predetermined rate for absorption of manufacturing overhead, the volume
A. Actual hours exceed standard hours. C. Standard hours exceed actual hours. variance is
B. Actual rate exceeds standard rate. D. Standard rate exceeds actual rate. A. The under- or over-applied fixed cost element of overhead.
B. The under- or over-applied variable cost element of overhead.
24. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the C. The difference between budgeted cost and actual cost of fixed overhead items.
number of hours allowed, the labor rate variance and labor efficiency variance will be D. The difference between budgeted cost and actual cost of variable overhead items.
A. B. C. D.
30. The production volume variance occurs when using the
Labor Rate Variance Favorable Favorable Unfavorable Unfavorable
A. Absorption costing approach because of production exceeding the sales.
Labor Efficiency Variance Favorable Unfavorable Favorable Unfavorable
B. Variable costing approach because of sales exceeding the production for the period.
C. Variable costing approach because of production exceeding the sales for the period.
25. The variance resulting from obtaining an output different from the one expected on the basis of D. Absorption costing approach because production differs from that used in setting the fixed
input is the: overhead rate used in applying fixed overhead to production.
A. efficiency variance C. usage variance
B. mix variance D. yield variance 31. Henley Company uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of direct labor hours. For the month of January, the fixed
Overhead variances
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manufacturing overhead volume variance was $2,220 favorable. The company uses a fixed A. Engineering. C. Purchasing.
manufacturing overhead rate of $1.85 per direct labor hour. During January, the standard B. Production. D. Sales.
direct labor hours allowed for the month's output:
A. exceeded denominator hours by 1,000. C. fell short of denominator hours by 1,000. 36. Under a standard cost system, the materials efficiency variance are the responsibility of
B. exceeded denominator hours by 1,200. D. fell short of denominator hours by 1,200. A. Production and industrial engineering. C. Purchasing and sales.
B. Purchasing and industrial engineering. D. Sales and industrial engineering.
32. Using the two-variance method for analyzing overhead, which of the following variances
contains both variable and fixed overhead elements? 37. Which of the following people is most likely responsible for an unfavorable variable overhead
A. B. C. D. efficiency variance?
Controllable (Budget) Variance Yes Yes Yes No A. accountant C. purchasing agent
Volume Variance Yes Yes No No B. production supervisor D. supplier
Efficiency Variance Yes No No No
38. Which of the following standard costing variances would be least controllable by a production
33. During 1990, a department’s three-variance factory O/H standard costing system reported supervisor?
unfavorable spending and volume variances. The activity level selected for allocating factory A. Labor efficiency. C. Overhead efficiency.
O/H to the product was based on 80% of practical capacity. If 100% of practical capacity had B. Materials usage. D. Overhead volume.
been selected instead, how would the reported unfavorable spending and volume variances
have been affected? Investigating variances
A. B. C. D. 39. Management scrutinizes variances because
A. It is desirable under conventional knowledge on good management.
Spending Variance Increased Increased Unchanged Unchanged
B. Management needs to determine the benefits foregone by such variances.
Volume Variance Increased Unchanged Increased Unchanged
C. Management desires to detect such variances to be able to plan for promotions.
D. Management recognizes the need to know why variances happen to be able to make
34. A spending variance for variable factory O/H based on direct labor hours is the difference corrective actions and fairly reward good performers.
between actual variable factory O/H and the variable factory O/H that should have been
incurred for the actual hours worked. This variance results from 40. A company reported a significant materials efficiency variance for the month of January. All of
A. Price differences for overhead costs the following are possible explanations for this variance except
B. Quantity differences for overhead costs A. Cutting back preventive maintenance.
C. Price and quantity differences for overhead costs. B. Processing a large number of rush orders.
D. Differences caused by production volume variation C. Inadequately training and supervising the labor force.
D. Producing more units than planned for in the master budget.
Responsibility for variances
35. Which department is typically responsible for a materials price variance?
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41. Which variance is LEAST likely to be affected by hiring workers with less skill than those D. Products being simultaneously manufactured in single runs.
already working?
A. Labor rate variance. C. Material use variance. 46. Overapplied factory overhead results when
B. Material price variance. D. Variable overhead efficiency variance. A. A plant is operated at less than its normal capacity.
B. Factory overhead costs incurred are less than the costs charged to production.
42. Which of the following unfavorable variances is directly affected by the relative position of a C. Factory overhead costs incurred are greater than the costs charged to production.
production process on a learning curve? D. Factory overhead costs incurred are unreasonably large in relation to the number of units
A. Materials mix. C. Labor efficiency. produced.
B. Materials price. D. Labor rate.

43. Which one of the following would not explain an adverse direct labor efficiency variance? PROBLEMS
A. A reduction in direct labor training Flexible budget
B. Poor scheduling of direct labor hours 1. Premised on past experience, Mayo Corp. adopted the following budgeted formula for
C. Unusually lengthy machine breakdowns estimating shipping expenses. The company’s shipments average 12 kilos per shipment.
D. Setting standard efficiency at a level that is too low Shipping costs = P8,000 + (0.25 x kgs. shipped)
Planned Actual
44. Which of the following is the most probable reason a company would experience an Sales order 800 780
unfavorable labor rate variance and a favorable efficiency variance? Shipments 800 820
A. Defective materials caused more labor to be used to product a standard unit. Units shipped 8,000 9,000
B. Because of the production schedule, workers from other production areas were assigned Sales 240,000 288,000
to assist in this particular process. Total kilograms shipped 9,600 12,300
C. The mix of workers assigned to the particular job was heavily weighted toward the use of The actual shipping costs for the month amounted to P10,500. The appropriate monthly
higher-paid, experienced individuals. flexible budget allowance for shipping costs for purposes of performance evaluation would be
D. The mix of workers assigned to the particular job was heavily weighted toward the use of A. P10,250 C. P10,400
new, relatively low-paid unskilled workers. B. P10,340 D. P11,075
45. You used predetermined overhead rates and the resulting variances when compared with the Standard setting
results using the actual rates were substantial. Production data indicated that volumes were 2. Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and
lower than the plan by a large difference. This situation can be due to marketing data are indicated below:
A. Overhead costs being recorded as planned. Cost per yard of cloth P36.00
B. Overhead being substantially composed of fixed costs. Allowance for rejected scarf 5% of production
C. Overhead being substantially composed of variable costs. Yards of cloth needed per scarf 0.475 yard
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Airfreight from supplier P0.60/yard was an unfavorable quantity variance of $2,500. The materials price variance for the units
Motor freight to customers P0.90 /scarf used in November was
Purchase discounts from supplier 3% A. $2,500 U C. $11,000 U
Sales discount to customers 2% B. $3,500 F D. $12,500 U
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have
no market value. Materials are used at the start of production. 6. The Porter Company has a standard cost system. In July the company purchased and used
Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in its cost 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance
sheets. was $1,875 Unfavorable; and the standard quantity of materials allowed for July production
A. P16.87 C. P17.76 was 21,750 pounds. The materials price variance for July was:
B. P17.30 D. P18.21 A. $2,725 F. C. $3,250 F.
B. $2,725 U. D. $3,250 U.
3. The following direct labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours 7. Cox Company's direct material costs for the month of January were as follows:
Number of direct workers 50 Actual quantity purchased 18,000 kilograms
Number of productive hours per week, per worker 40 Actual unit purchase price $ 3.60 per kilogram
Weekly wages per worker $500 Materials price variance – unfavorable (based on purchases) $ 3,600
Workers’ benefits treated as direct labor costs 20% of wages Standard quantity allowed for actual production 16,000 kilograms
What is the standard direct labor cost per unit of product Glu? Actual quantity used 15,000 kilograms
A. $12. C. $24. For January there was a favorable direct material quantity variance of
B. $15. D. $30. A. $3,360. C. $3,400.
B. $3,375. D. $3,800.
4. PALOS Manufacturing Co. has an expected production level of 175,000 product units for 19x7.
Fixed factory overhead is P450,000 and the company applies factory overhead on the basis of 8. ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May,
expected production level at the rate of P5.20 per unit. The variable overhead cost per unit is 19x7 are summarize below:
A. P2.57 C. P2.93 Standard unit price P90.00
B. P2.63 D. P3.02 Actual units purchased 40,000
Standard units allowed for actual production 36,250
Materials variances Materials price variance- favorable P6,000
5. ChemKing uses a standard costing system in the manufacture of its single product. The What was the actual purchase price per unit?
35,000 units of raw material in inventory were purchased for $105,000, and two units of raw A. P75.00 C. P88.50
material are required to produce one unit of final product. In November, the company B. P85.89 D. P89.85
produced 12,000 units of product. The standard allowed for material was $60,000, and there

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9. JKL Company has a standard of 15 parts of component X costing P1.50 each. JKL purchased A. $44,496 U C. $49,440 F
14,910 units of component X for P22,145. JKL generated a P220 favorable price variance and B. $49,440 U D. $50,400 F
a P3,735 favorable quantity variance. If there were no changes in the component inventory,
how many units of finished product were produced? 13. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done. During
A. 994 units. C. 1,090 units. last month’s labor strike, certain recorded were lost. The actual input of direct labor hours was
B. 1,000 units D. 1,160 units 1,000, and the resulting direct labor budget variance was a favorable P3,400. The standard
direct labor rate was P28.00 per hour, but an unexpected labor shortage necessitated the
Questions 10 and 11 are based on the following information. hiring of higher-paid workers for some jobs and had resulted in a rate variance of P800. The
Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for Material D and P12.25 per unit actual direct labor rate was
for Material E. In June, Valenzuela bought 17,500 units of Material D and 8,750 units of Material E. A. P27.20 per hour C. P30.25 per hour
All Material D, except 1,400 units were bought at the standard unit cost. The 1,400 units had a unit B. P28.80 per hour D. P31.40 per hour
cost of P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875 units at a unit
cost of P14. 14. ACE Company’s operations for the month just ended originally set up a 60,000 direct labor
In accordance with the standard two units of Material D and one unit of Material E should be used hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of
to make each unit of Product F. In January, 7,000 units of Product F were made and 15,050 units P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and
of Material D were used and 7,175 units of Material E were used. 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
10. The total materials price variance is resulted in an actual average wage rate of P16.40 per hour. The total number of standard
A. P2,791.25 F C. P13,781.25 F direct labor hours allowed for the actual units produced is
B. P2,791,25 U D. P13,781.25 U A. 52,500 C. 62,500
B. 60,000 D. 70,000
11. The total materials quantity variance is
A. P7,656.25 F C. P13,781.25 F 15. To improve productivity, ST. MICHAEL Corp. instituted a bonus plan where employees are
B. P7,656.25 U D. P13,781.25 U paid 75% of the time saved when production performance exceeds the standard level of
production. The company computes the bonus on the basis of four-week periods. The
Labor variances standard production is set at 3 units per hour. Each employee works 37 hours per week, and
12. Pane Company's direct labor costs for April are as follows: the wage rate is P24 per hour. Below are data for one 4-week period:
Standard direct labor hours 42,000 Weekly Production (Units)
Actual direct labor hours 41,200 Employee 1st 2nd 3rd 4th Total
Total direct labor payroll $247,200 ALAN 107 100 110 108 425
Direct labor efficiency variance – favorable $3,840 JOEL 104 110 115 115 444
What is Pane's direct labor rate variance? ROMY 108 112 112 133 465

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TONY 123 120 119 124 486 produced this year?

A. 9,500. C. 10,000.
The employee who had the inconsistent performance (sometimes performing below standard) B. 9,875. D. 10,250.
but got a bonus is
A. Alan = P36 bonus. C. Romy = P126 bonus. 18. Daly had a $18,000 favorable volume variance, a $15,000 unfavorable variable overhead
B. Joel = P54 bonus. D. Tony = P252 bonus. spending variance, and $12,000 total over-applied overhead. The fixed overhead budget
variance was
Overhead variances A. $9,000 F. C. $16,000 U.
16. The following were among Gage Co.’s 2000 costs: B. $16,000 F. D. 49,000 U.
Normal spoilage $ 5,000
Freight out 10,000 19. Universal Company uses a standard cost system and prepared the following budget at normal
Excess of actual manufacturing costs over standard costs 20,000 capacity for the month of January:
Standard manufacturing costs 100,000 Direct labor hours 24,000
Actual prime manufacturing costs 80,000 Variable factory O/H $48,000
Gage’s 2000 actual manufacturing overhead was Fixed factory O/H $108,000
A. $40,000 C. $55,000 Total factory O/H per DLH $6.50
B. $45,000 D. $120,000
Actual data for January were as follows:
17. At the beginning of the year, Smith Inc. budgeted the following: Direct labor hours worked 22,000
Units 10,000 Total factory O/H $147,000
Sales $100,000 Standard DLH allowed for capacity attained 21,000
Minus: Using the two-way analysis of O/H variances, what is the budget (controllable) variance for
Total variable expenses 60,000 January?
Total fixed expenses 20,000 A. $3,000 F. C. $10,500 U.
Net income $ 20,000 B. $9,000 F. D. $13,500 U.

Factory overhead: 20. JKL Co. has total budgeted fixed costs of P75,000. Actual production of 19,500 units resulted
Variable $ 30,000 in a $3,000 favorable volume variance. What normal capacity was used to determine the fixed
Fixed 10,000 overhead rate?
There were no beginning inventories. At the end of the year, no work was in process, total A. 16,500 C. 18,750
factory overhead incurred was $39,500, and underapplied factory overhead was $1,500. B. 17,590 D. 20,313
Factory overhead was applied on the basis of budgeted unit production. How many units were

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21. TYD, Inc. reported the following data for 1996: Fixed overhead 108,000 108,000 108,000
Actual hours 120,000 Total overhead $150,000 $156,000 $162,000
Denominator hours 150,000 During the year, the company operated at exactly 80% of capacity, but applied manufacturing
Standard hours allowed for output 140,000 overhead to products based on the 90% level. The company's fixed overhead volume variance
Fixed predetermined overhead rate P6 per hour for the year was:
Variable predetermined overhead rate P4 per hour A. $6,000 F. C. $12,000 F.
TYD’s 1996 volume variance was B. $6,000 U. D. $12,000 U
A. P60,000 favorable.
B. No volume variance. Problems 24 and 25 are based on the following information.
C. P60,000 under-applied. The MABINI CANDY FACTORY has the following budgeted factory overhead costs:
D. P60,000 which is neither favorable nor under-applied. Budgeted fixed monthly factory overhead costs P85,000
Variable factory overhead P4.00 per direct labor hour
22. Peters Company uses a flexible budget system and prepared the following information for the For the month of January, the standard direct labor hours allowed were 25,000. An analysis of the
year factory overhead shows that in January, the factory had an unfavorable budget (controllable)
Percentage of total capacity variance of P3,500 and a favorable volume variance of P1,200. The factory uses a two-way
80% 90% analysis of factory overhead variances.
Direct labor hours 24,000 27,000
Variable factory O/H $48,000 $54,000 24. The actual factory overhead incurred in January was
Fixed factory O/H $108,000 $108,000 A. P103,500 C. P186,200
Total factory O/H rate per DLH $6.50 $6.00 B. P181,500 D. P188,500
Peters operated at 80% capacity during the year but applied factory overhead based on the
90% capacity level. Assuming that actual factory O/H was equal to the budgeted amount for 25. The applied factory overhead in January was
the attained capacity, what is the amount of O/H variance for the year? A. P103,500 C. P186,200
A. $6,000 over-absorbed. C. $6,000 under-absorbed. B. P183,800 D. P188,500
B. $12,000 over-absorbed. D. $12,000 under-absorbed.
Questions 26 thru 28 are based on the following information.
23. Patridge Company uses a standard cost system in which it applies manufacturing overhead to The Murray Company makes and sells a single product. The company recorded the following
units of product on the basis of direct labor hours. The information below is taken from the activity and cost data for May:
company's flexible budget for manufacturing overhead: Number of units completed 45,000 units
Percent of capacity 70% 80% 90% Standard direct labor-hours allowed per unit of product 1.5 DLHS
Direct labor hours 21,000 24,000 27,000 Budgeted direct labor-hours (denominator activity) 72,000 DLHS
Variable overhead $ 42,000 $ 48,000 $ 54,000 Actual fixed overhead costs incurred $66,000
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Volume variance $4,275 U Actual factory O/H $15,000

The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour. Fixed O/H expenses, actual $7,200
Fixed O/H expenses, budgeted $7,000
26. The amount of fixed overhead contained in the company's overhead flexible budget for May Actual hours 3,500
was: Standard hours 3,800
A. $64,125. C. $68,400. Variable O/H rate per DLH $2.50
B. $67,500. D. $70,275. Assuming that Tyro uses a three-way analysis of O/H variances, what is the spending
variance?
27. The amount of fixed manufacturing overhead cost applied to work in process during May was: A. $200 U C. $750 U.
A. $42,750. C. $62,700. B. $750 F. D. $950 F
B. $61,725. D. $64,125.
32. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with
28. The fixed overhead budget variance for May was: machine-hours. The performance report for July showed that actual maintenance costs totaled
A. $2,400 F. C. $6,000 F. $9,800 and that the associated spending variance was $200 unfavorable. If 8,000 machine-
B. $2,400 U. D. $6,000 U. hours were actually worked during July, the budgeted maintenance cost per machine-hour
was:
29. Web Company uses a standard cost system in which manufacturing overhead is applied to A. $1.20. C. $1.25.
units of product on the basis of machine hours. During February, the company used a B. $1.225. D. $1.275.
denominator activity of 80,000 machine hours in computing its predetermined overhead rate.
However, only 75,000 standard machine hours were allowed for the month's actual production. Questions 33 & 34 are based on the following information.
If the fixed overhead volume variance for February was $6,400 unfavorable, then the total Raff Co. has a standard cost system in which manufacturing overhead is applied to units of product
budgeted fixed overhead cost for the month was: on the basis of direct labor hours (DLHs). The following standards are based on 100,000 direct
A. $96,000. C. $100,000. labor hours:
B. $98,600. D. $102,400. Variable overhead 2 DLHs @ $3 per DLH = $6 per unit
Fixed overhead 2 DLHs @ $4 per DLH = $8 per unit
30. Given for the variable factory overhead of GHI Products, Inc.: P39,500 actual input at The following information pertains operations during March:
budgeted rate, P41,500 flexible budget based on standard input allowed for actual output, Units actually produced 38,000
P2,500 favorable flexible budget variance. Compute the spending variance. Actual direct labor hours worked 80,000
A. P500 favorable. C. P2,000 favorable. Actual manufacturing overhead incurred:
B. P500 unfavorable. D. P2,000 unfavorable. Variable overhead $250,000
Fixed overhead $384,000
31. The following information is available from the Tyro Company:

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33. For March, the variable overhead spending variance was: A. P450,000 C. P750,000
A. $6,000 F. C. $12,000 U. B. P500,000 D. P1,200,000
B. $10,000 U. D. $22,000 F.
Normal costing
34. For March, the fixed overhead volume variance was: 38. Nil Co. uses a predetermined factory O/H application rate based on direct labor cost. For the
A. $80,000 F. C. $96,000 F. year ended December 31, Nil’s budgeted factory O/H was $600,000, based on a budgeted
B. $80,000 U. D. $96,000 U. volume of 50,000 direct labor hours, at a standard direct labor rate of $6 per hour. Actual
factory O/H amounted to $620,000, with actual direct labor cost of $325,000. For the year,
Total variance over-applied factory O/H was
35. KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as follows: Direct A. $20,000 C. $30,000
materials, P495,000; direct labor, 6,000 hours at P30 per hour; variable overhead, P24 per B. $25,000 D. $50,000
direct labor hour. By the end of the month, all the required materials have been used at
P491,900; labor was 80% complete at 4,650 hours at P30 per hour; and, the variable 39. MNO Company applies overhead at P5 per direct labor hour. In March 2001, MNO incurred
overhead amounted to P113,700. The total variance for the project as at the end of the month overhead of P120,000. Under applied overhead was P5,000. How many direct labor hours
was did MNO work?
A. P7,500 U C. P9,000 F A. 25,000 C. 24,000
B. P8,400 U D. P9,100 F B. 22,000 D. 23,000

36. A defense contractor for a government space project has incurred $2,500,000 in actual design 40. Margolos, Inc. ends the month with a volume variance of $6,360 unfavorable. If budgeted
costs to date for a guidance system whose total budgeted design cost is $3,000,000. If the fixed factory O/H was $480,000, O/H was applied on the basis of 32,000 budgeted machine
design phase of the project is 60% complete, what is the amount of the contractor's current hours, and budgeted variable factory O/H was $170,000, what were the actual machine hours
overrun or savings on this design work? (AH) for the month?
A. $300,000 savings. C. $500,000 savings. A. 31,576 C. 32,000
B. $500,000 overrun. D. $700,000 overrun. B. 31,687 D. 32,424

37. SUPER Co. at normal capacity, operates at 600,000 labor hours with standard labor rate of 41. ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget
P20 per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Four manufacturing overhead. ABC has budgeted 125,000 direct labor hours for the year. Actual
units should be completed in an hour. results were 110,000 direct labor hours, P297,000 fixed overhead, and P194,500 variable
Last year, 1,350,000 units were produced using 300,000 labor hours. All labor hours were overhead. What is the fixed overhead volume variance for the year?
paid at the standard rate, and actual overhead cost consisted of P3,738,000 for variable items A. P2,000 F C. P35,000 U.
and P3,000,000 fixed items. B. P3,000 F D. P36,000 U.
The total labor and overhead costs saved, by producing at more than standard, amounted to

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 11 of 12

MANAGEMENT ADVISORY SERVICES HILARIO TAN

Comprehensive 5. D 30. D 5. D 30. A

Questions 42 and 43 are based on the following information. 6. D 31. B 6. C 31. B
Based on normal capacity operations, Sta. Ana Company employs 25 workers in its Refining 7. D 32. C 7. C 32. A
Department, working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal 8. B 33. C 8. D 33. B
capacity, production in the department is 5,000 units per month. Indirect materials average P0.25 9. D 34. C 9. D 34. D
per direct labor hour; indirect labor cost is 12½% of direct labor cost; and other overhead are P0.15 10. D 35. C 10. B 35. D
per direct labor hour. 11. B 36. A 11. B 36. D
The flexible budget at the normal capacity activity level follows: 12. B 37. B 12. B 37. D
Direct materials P 4,000 13. D 38. D 13. B 38. C
Direct labor 24,000 14. D 39. D 14. C 39. D
Fixed factory overhead 1,200 15. B 40. D 15. C 40. A
Indirect materials 1,000 16. D 41. B 16. A 41. D
Indirect labor 3,000 17. D 42. C 17. A 42. D
Other overhead 600 18. B 43. D 18. A 43. C
Total P 33,800 19. B 44. C 19. A
Cost per unit P 6.76 20. C 45. B 20. C
21. A 46. B 21. C
42. The cost per unit at 60% capacity is 22. B 22. D
A. P6.00 C. P6.82 23. A 23. D
B. P6.50 D. P6.92
24. D 24. D
25. D 25. C
43. The total production cost for one month at 80% capacity is
A. P20,760 C. P27,280
B. P21,500 D. P30,160

ANSWER KEY
Theory Problem
1. B 26. C 1. D 26. C
2. C 27. C 2. C 27. D
3. A 28. B 3. D 28. A
4. A 29. A 4. B 29. D
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 12 of 12