D 6.

Management scrutinizes variance because

a. Management desires to detect such variances to be able to plan for promotions.
b. Management needs to determine the benefits for gone by such variances.
c. It is desirable under conventional knowledge on good management.
d. Management recognizes the need to know why variances happen to be able to make
corrective actions and fairly reward good performers.
D 7. Which of the following factors should not be considered when deciding whether to
investigate a variance?
a. Magnitude of the variance and the costs of investigation.
b. Trend of the variance over time.
c. Likelihood that an investigation will eliminate future occurrences of the variance.
d. Whether the variance is favorable or unfavorable.

A 8. A difference between standard costs used for cost control and the budgeted costs of the
same manufacturing effort
a. Can exist because standard costs represent what costs should be whereas budgeted
costs are expected actual costs.
b. Can exist because budgeted costs are historical costs, whereas standard costs are
based on engineering studies.
c. Can exist because budgeted costs include some slack, whereas standard costs do not.
d. Cannot exist because the amounts should be the same.

C 9. The best basis upon which standard cost should be set to measure controllable
production inefficiencies is

a. Engineering standards based on attainable performance.

b. Normal Capacity.
c. Engineering standards based on attainable performance.
d. Practical capacity.

D 10. Which one of the following statements about ideal standards is incorrect?

a. Ideal standards are also called theoretical or maximum-efficiency standards.

b. Ideal standards do not make provisions for workers with different degrees of
experience and skill levels
c. Ideal standards make no allowance for waste spoilage and machine breakdowns.
d. Ideal standard can be used for cash budgeting or product costing.
Problem 20. Equivalent production, manufacturing costs variances.
Withers Company uses a standard process costing system in its one production departments.
Material A is added at the beginning of the process, and Material D is added when the units are
90% complete. Inspection takes place at the end of the process, and all spoilage is expected to be
abnormal. The standard cost of abnormal spoilage is charged to a current period expense
account. Normal capacity is 7,800 direct labor hours per month.
The standard cost per unit is as follows:

Material A: 4 gallons at P1.20 P4.80

Material B: 2 square feet at P0.70 1.40
Direct labor: 1 hour at P11.50 11.50
Variable factory overhead: 1 hour at P1.80 1.80
Fixed factory overhead: 1 hour at P5.00 5.00
Total P24.50
Additional data for January are as follows:
(a) Beginning work in process inventory, 3,000 units (33-1/3% converted)
(b) Started in process during the month, 11,000 units
(c) Finished during the month, 8,000 units
(d) Ending work in prices inventory, 5,000 units (40% converted)
(e) Actual costs incurred are as follows:
Material A used: 50,000 gallons at P1.00
Material B used: 18,000 sq. ft. at 0.75
Direct labor: 10,200 hours at P12.00
Factory overhead: P60,100
Required:
1. Compute the January equivalent production for Material A. Material B, and for
conversion costs.
2. Compute the materials price usage and quantity variances for each kind of material, the
labor rate and efficiency variances and the factory overhead controllable and volume
variances. Indicated whether the variances are favorable or unfavorable.

Solutions: