Chapter 8: Standard Cost Accounting - Materials, Labor, and Factory Overhead

CHAPTER 8: STANDARD COST ACCOUNTING--
MATERIALS, LABOR, and FACTORY OVERHEAD
Student: ___________________________________________________________________________
1. The purpose of standard costing is to:

A. Determine optimal production level for a given period.
B. Eliminate the need for subjective decisions by management.
C. Control costs and promote efficiency.
D. Allocate cost with more accuracy.
2. Which of the following terms best identifies the function of standard costs where any deviation from
standards can be quickly detected and responsibility pinpointed so appropriate action may be taken?
A. Management by exception
B. Contribution approach
C. Marginal costing
D. Standardized accounting system
3. Characteristics of ideal standards include all of the following except:

A. They generally give rise to unfavorable variances.
B. They may cause personnel to become discouraged.
C. They take into account normal waste and spoilage.
D. They provide a maximum objective for which to strive to improve efficiency.
4. A manufacturer generally wants to set a standard that:

A. Can be achieved only under the most efficient operating conditions.
B. Is high enough to provide motivation and promote efficiency, but is still attainable.
C. Makes no allowance for normal was or spoilage.
D. None of these is correct.
5. Factors to be considered in setting materials standards include all of the following except:
A. Trend of prices of raw materials.
B. Historical costs.
C. Time necessary to perform tasks.
D. New production processes or market developments.
6. Factors to be considered in setting labor standards include all of the following except:
A. Impact of negotiations with labor unions.
B. The learning effect.
C. Results of engineers’ time studies.
D. The purchasing manager’s estimate of suppliers’ prices.
7. RHO Company began its operations on January 1 and produces a single product that sells for $10.25 per
unit. Standard capacity is 80,000 units per year. The 80,000 units were produced and 70,000 units were sold
during the year.
Manufacturing costs and selling and administrative expenses follow:
Fixed Costs Variable Costs

Raw materials -- $2.50 per unit produced
Direct labor -- 1.50 per unit produced
Factory overhead $120,000 1.00 per unit produced
Selling and administrative 80,000 .50 per unit sold
What is the standard cost of manufacturing a unit of product?

A. $6.00
B. $6.50
C. $5.00
D. $5.50
8. When computing variances from standard costs, the difference between actual and standard price multiplied
by actual quantity yields:
A. Combined price--quantity variance.
B. Price variance.
C. Volume variance.
D. Mix variance.
9. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per
Style-R table is $7.20 based on 8 square feet of vinyl at a cost of $.90 per square foot. A production run of
1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of $.85 per square foot, a total
cost of $7,055. If the materials price variance was recorded when the material was issued to production, that
variance was:
A. $145 favorable.
B. $415 unfavorable.
C. $145 unfavorable.
D. $415 favorable.
10. The materials quantity variance, in a standard cost system, is the:
A. Difference between the actual and standard quantities.
B. Difference between the actual and standard quantities multiplied by the actual unit price.
C. Difference between the actual quantity used and the actual quantity purchased multiplied by the standard unit
price.
D. Difference between the actual and standard quantities multiplied by the standard unit price.
11. What type of direct material variances for price and quantity will arise if the actual number of pounds of
materials used exceeds standard pounds allowed but actual cost was less than standard cost?
Quantity Price
A. Favorable Favorable
B. Unfavorable Favorable
C. Favorable Unfavorable
D. Unfavorable Unfavorable
cost of $7,055. The materials quantity variance resulting from the above production run was:
A. $255 favorable.
D. $270 favorable.
13. Thomas Company uses a standard cost system and recognizes the materials purchase price variance at the
time materials are purchased. Information for raw materials for Product RBI for the month of October follows:
Standard unit price $1.75

Actual purchase price per unit $1.65
Actual quantity purchased 4,000 units
Actual quantity used 3,900 units
Standard quantity allowed for actual production 3,800 units
What is the materials quantity variance?

A. $175 unfavorable
B. $165 unfavorable
C. $175 favorable
D. $165 favorable
14. Ben's Climbing Gear, Inc. has direct material costs as follows:
Actual units of direct materials used 20,000

Standard price per unit of direct materials $2.50
Materials quantity variance--favorable $5,000
What was Ben's standard quantity of material allowed?

A. 18,000
B. 24,000
C. 20,000
D. 22,000
15. The actual hourly rate paid above or below the standard hourly rate, multiplied by the actual number of
hours worked is the:
A. Labor rate variance.
B. Labor efficiency variance.
C. Labor usage variance.
D. Labor direct variance.
16. Information relating to direct labor for the Newstead Company follow:
Actual direct labor hours 5,600

Standard direct labor hours 5,400
Total direct labor per payroll $53,200
Standard labor rate per hour $9.00
The labor rate variance is:

A. $2,800 unfavorable
B. $2,700 unfavorable
C. $4,600 unfavorable
D. $1,800 unfavorable
17. Lee Company's direct labor costs for the month of February follow:

Direct labor rate variance--unfavorable $ 4,000
Total payroll $152,000
What was Lee's standard direct labor rate?

A. $9.50
B. $9.75
C. $9.40
D. $9.25
18. When performing input-output variance analysis in standard costing, "standard hours allowed" is a means of
measuring:
A. Standard output at standard hours.
B. Actual output at standard hours.
C. Standard output at actual hours.
D. Actual output at actual hours.
19. An unfavorable labor efficiency variance is the:

A. Number of actual hours worked in excess of the standard hours allowed multiplied by the standard labor rate.
B. Number of actual hours worked in excess of the standard hours allowed multiplied by the actual labor rate.
C. The number of actual hours worked below the standard hours allowed multiplied by the standard labor rate.
D. Number of actual hours multiplied by the difference in the actual and standard labor rates.
20. Information relating to direct labor for Brussels, Inc. follow:

The labor efficiency variance is:

21. Alyssa Corporation uses a standard cost system. Direct labor information for Product CER for the month of
October is as follows:
Standard rate $8.00 per hour

Actual rate paid $8.30 per hour
Standard hours allowed for actual production 1,400 hours
Labor efficiency variance $ 800 unfavorable
What are actual hours worked?

A. 1,330
B. 1,400
C. 1,500
D. 1,300
22. Earl Company's direct labor costs for the month of January follow:

What was Earl's direct labor efficiency variance?

A. $6,500 favorable
C. $1,800 favorable
D. $6,400 favorable
23. The direct labor costs for Boundary Company follow:

Direct labor efficiency variance--favorable $ 12,000
Direct labor rate variance--favorable $ 1,650
What was Boundary's standard direct labor rate?

A. $ 11.95
B. $ 11.49
C. $ 11.60
D. $ 12.00

What is the materials purchase price variance?

A. $390 favorable
B. $390 unfavorable
C. $400 favorable
D. $400 unfavorable
25. The following information pertains to Genie Company:
Standard materials allowed $12,000

Unfavorable materials price variance 2,000
Favorable materials usage variance 1,000
Actual payroll $20,000

Unfavorable labor rate variance 1,500
Unfavorable labor efficiency variance 500
What is the entry to record the direct materials cost and variances, assuming that the price variance is recorded when the materials are put into
production?
A. Materials 12,000
Materials price variance 2,000
Accounts payable 13,000
B. Work in process 12,000
Materials quantity variance 1,000
Materials 11,000
C. Work in process 11,000
Materials 13,000
D. Work in process 12,000
Materials 13,000
26. The following information pertains to William Company:


Unfavorable labor rate variance 500
Unfavorable labor efficiency variance 2,500
What is the entry to record the direct labor cost and variances?
A. Payroll 30,000
Labor rate variance 500
Labor efficiency variance 2,500
Accrued payroll 33,000
Payroll 30,000
Payroll 30,000
Labor variances 3,000
Payroll 30,000
27. Information relating to direct labor for the McGill Company follow:

The entry to record the direct labor cost is:

A. Work in process 53,200
Labor rate variance 2,800
Payroll 48,600
Payroll 53,200
Payroll 53,200
Payroll 53,200
28. PHI Company began its operations on January 1 and produces a single product that sells for $35.00 per
unit. 5,000 units were produced and 4,000 units were sold during the year.
Standard costs per unit follow:
Standard cost
Raw materials $12.50
Direct labor 6.50
Factory overhead 4.00
What is entry to record the finished goods?

A. Finished goods 115,000
Work in process 115,000
B. Finished goods 92,000
Finished goods 115,000
D. Cost of goods sold 92,000
29. If a company follows a practice of isolating variances at the earliest point in time, what would be the
appropriate time to isolate and recognize a direct material price variance?
A. When material is purchased
B. When material is used in production
C. When purchase order is originated
D. When material is issued
30. In a standard cost system,when the materials price variance is recorded at the time the material is
purchased, the materials purchase price variance is obtained by multiplying the:
A. Actual price by the difference between actual quantity purchased and standard quantity used.
B. Actual quantity purchased by the difference between actual price and standard price.
C. Standard price by the difference between standard quantity purchased and standard quantity used.
D. Standard quantity purchased by the difference between actual price and standard price.

What is the entry to record the purchase of materials?

A. Materials 6,600
Material purchase price variance 400
B. Materials 7,000
C. Materials 6,600
D. Materials 6,600
32. Andrews Corporation purchased 3,000 gallons of raw materials for $9,200. The standard price is $3.00 per
gallon. If Andrews records the price variance at the earliest possible time, the entry to record the purchase of
the material is:
A. Materials 9,200
Material purchase price variance 200 Accounts payable 9,000
B. Materials 9,000
C. Materials 9,000
D. Materials 9,200
33. James Corporation uses a standard cost system and recognizes the materials purchase price variance at the
time materials are purchased. Information for raw materials for the month of December follows:

What is the entry to record material usage?

Materials quantity variance 330
Materials 6,600
Materials 5,940
Materials 6,650
Materials 6,270
34. Standard costing will produce the same income before extraordinary items as actual costing when standard
cost variances are assigned to:
A. Work in process and finished goods inventories.
B. An income or expense account.
C. Cost of goods sold and inventories.
D. Cost of goods sold.
35. What is the normal year-end treatment of immaterial variances recognized in a cost accounting system
utilizing standards?
A. Reclassified to deferred charges until all related production is sold
B. Closed to cost of goods sold in the period in which they arose
C. Allocated among cost of goods manufactured and ending work in process inventory
D. Capitalized as a cost of ending finished goods inventory
36. How should an efficiency variance that is material in amount be treated at the end of an accounting period?
A. Reported as a deferred charge or credit
B. Allocated among work in process inventory, finished goods inventory, and cost of goods sold
C. Charged or credited to cost of goods manufactured
D. Allocated among cost of goods manufactured, finished goods inventory, and cost of goods sold
37. To effectively use variances to improve operations, management should take the following steps except:
A. Taking appropriate action to follow up on variances.
B. Breaking down the total variance by usage and price.
C. Adding variances together to determine the impact on financial statements.
D. Analyzing cause and effect of both favorable and unfavorable variances.
38. If the total materials variance (actual cost of materials used compared with the standard cost of the standard
amount of materials required) for a given operation is favorable, why must this 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.
B. Generally accepted accounting principles require that all variances be analyzed in three stages.
C. All variances must appear in the annual report to equity owners for proper disclosure.
D. It is done so that management can evaluate the efficiency of the purchasing and production functions.
39. Taking appropriate action on variances includes all of the following except:
A. Ignoring the cause of favorable variances.
B. Revising the standard because it was set incorrectly.
C. Improving the manufacturing process.
D. Looking for new suppliers.
40. Which of the following is not likely to have caused a materials price variance?
A. The vendor from whom we always bought component XYZ closed and we found a new one.
B. One of the workers inadvertently cut several pieces of steel to the wrong length.
C. We started using a higher grade of lumber in our process.
D. Higher oil prices have increased the costs of shipping the ingredients to us.
41. Bobby’s Burger Place monitors its variances on an hourly basis. It is not uncommon for Bobby to send
workers home early when which of the following variances indicates that he has over-scheduled the shift?
A. Unfavorable labor efficiency variance.
B. Favorable labor rate variance.
C. Unfavorable materials quantity variance.
D. Favorable labor efficiency variance.
42. Which of the following is not likely to cause a labor efficiency variance?
A. We produced more units than were budgeted.
B. There was a flu outbreak and workers had to cover unfamiliar positions.
C. We purchased materials that were poor in quality.
D. One of the supervisors discovered a way to streamline a process.
43. One possible explanation for a company that experiences a favorable labor efficiency variance, but an
unfavorable labor rate variance could be:
A. The company paid the workers overtime.
B. The company hired more experienced workers.
C. The company purchased materials that were hard to work with.
D. The workers “goofed around” and wasted time.
44. Under normal circumstances, a purchasing manager who buys poor quality materials because they were
cheaper could potentially be responsible for causing all of the following variances except a(n):
A. Favorable purchase price variance.
B. Unfavorable materials quantity variance.
C. Unfavorable purchase price variance.
D. Unfavorable labor efficiency variance.
45. All of the following are features of a standard cost system except:
A. Standards change as conditions change.
B. Variances may be determined more often than monthly to allow for more timely action.
C. Standards are based on estimates.
D. The company determines the actual cost of manufacturing a unit.
A. Standards should not be adjusted.
B. Standards provide incentives for workers to keep costs in line.
C. Comparisons between actual and standard are more effective than comparisons between actual costs of the
current period and those of the prior period.
D. A standard cost system focuses management attention on materials prices and usages.
47. Underapplied factory overhead would result if:
A. Factory overhead costs incurred were greater than standard costs charged to production.
B. The plant was operated at less than normal capacity.
C. Factory overhead costs incurred were less than standard costs charged to production.
D. Factory overhead costs incurred were unreasonably large in relation to units produced.
48. The Davis Corporation budgeted factory overhead at $250,000 for the period for the Assembly Department
based on a budgeted volume of 100,000 direct labor hours. At the end of the period, the factory overhead
control account for the Assembly Department had a balance of $252,000. The actual (and allowed) direct labor
hours were 104,000.
What was the over- or underapplied factory overhead for the period?
A. $10,000 underapplied
B. $10,000 overapplied
C. $8,000 underapplied
D. $8,000 overapplied
49. Donellan Company has a standard and flexible budgeting system and uses a two-variance analysis of factory
overhead. Selected data for the February production activity follows:
Budgeted fixed factory overhead costs $ 70,000

Actual factory overhead incurred $250,000
Variable factory overhead rate per direct labor hour $ 7
The flexible-budget variance for February is:

A. $5,000 favorable.
B. $5,000 unfavorable.
C. $2,000 favorable.
D. $2,000 unfavorable.
50. The data below relate to the month of April for Monroe, Inc., which uses a standard cost system and a two-
variance analysis of factory overhead:
Actual hours used 16,500

Standard hours allowed for good output 16,250
Actual total overhead $53,200
Budgeted fixed costs $12,000
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor hour $ 3.25
Variable overhead rate per standard direct labor hour $ 2.50
What was Monroe's flexible-budget variance for April?
A. $1,100 favorable
C. $575 favorable
D. $575 unfavorable
51. Kale Corporation's budgeted fixed factory overhead costs are $25,000 per month plus a variable factory
overhead rate of $8.00 per direct labor hour. The standard direct labor hours allowed for November production
were 10,000. An analysis of the factory overhead indicates that in November Kale had a favorable flexible-
budget variance of $1,500 and an unfavorable production-volume variance of $500. Kale uses a two-variance
analysis of overhead variances.
The actual factory overhead incurred in October is:

A. $105,500.
B. $104,500.
C. $106,500.
D. $103,500.
52. A company uses a two-variance analysis for overhead variances, flexible-budget and production-volume.
The production-volume variance is the difference between the factory overhead applied at standard and:
A. Total factory overhead per the flexible budget.
B. Actual factory overhead incurred.
C. Total factory overhead per the master budget.
D. Fixed overhead incurred.
53. The fixed overhead application rate is a function of a predetermined "normal" activity level. If standard
hours allowed for good output equal this "normal" activity level for a given period, the production-volume
variance will be:
A. Zero.
B. Favorable.
C. Unfavorable.
D. Either favorable or unfavorable depending on the budgeted overhead.
54. Baker Company has a standard and flexible budgeting system and uses a two-variance analysis of factory
overhead. Selected data for the June production activity follows:
Budgeted total factory overhead costs (for normal production of 10,000 units) $80,000
Actual factory overhead incurred in the production of 9,500 units $78,000
Variable factory overhead rate per unit, 2 hours @ $2.50 $ 5
The production-volume variance for June is:
A. $1,500favorable.
Actual direct labor hours used 16,500

Standard direct labor hours allowed 16,250
Actual total factory overhead $53,200
Budgeted fixed factory overhead $12,000
Total overhead application rate per standard direct labor hour $3.25
Variable overhead application rate per standard direct labor hour $2.50
What was Monroe's production-volume variance for April?

A. $187.50 favorable
B. $187.50 unfavorable
C. $437.50 favorable
D. $437.50 unfavorable
56. If a company uses a two-variance analysis for overhead variances and uses a predetermined rate for
absorbing manufacturing overhead, the production-volume variance is the:
A. Underapplied or overapplied variable cost element of overhead.
B. Underapplied or overapplied fixed cost element of overhead.
C. Difference in budgeted costs and actual costs of fixed overhead items.
D. Difference in budgeted costs and actual costs of variable overhead items.
57. Elgin Company's budgeted fixed factory overhead costs are $50,000 per month plus a variable factory
overhead rate of $4.00 per direct labor hour. The standard direct labor hours allowed for October production
were 20,000. An analysis of the factory overhead indicates that in October, Elgin had an unfavorable flexible-
budget variance of $1,500 and a favorable production-volume variance of $500. Elgin uses a two-variance
The applied factory overhead in October is:

A. $129,500.
B. $128,000.
C. $130,000.
D. $130,500.
58. Information on Shonda Company's factory overhead costs follows:
Actual variable factory overhead $95,000

Actual fixed factory overhead $28,000
Standard hours allowed for actual production 30,000
Standard variable overhead rate per direct labor hour $3.25
Standard fixed overhead rate per direct labor hour $1.00
What is the net factory overhead variance?

B. $4,500 favorable
D. $2,500 favorable
59. In a two-variance system for analyzing factory overhead, a favorable production-volume variance could be
caused by:
A. The top salesman leaving the company.
B. Receiving more orders than anticipated.
C. A machine breakdown.
D. A work slow-down by workers.
60. In a four-variance method analyzing factory overhead, the variable factory overhead efficiency variance
measures:
A. The effect of differences in the actual variable factory overhead rate and the standard variable factory
overhead rate.
B. The difference in the actual hours incurred and standard hours allowed for a given level of production.
C. The difference between actual and applied variable factory overhead.
D. The difference between actual variable factory overhead and budgeted variable factory overhead.
61. In a four-variance method analyzing factory overhead, the variable factory overhead spending variance
measures:
A. The effect of differences in the actual variable factory overhead and the standard variable factory overhead
rate multiplied by the actual hours.
62. In a four-variance method analyzing factory overhead, the fixed factory overhead spending variance
measures:
A. The difference between the actual fixed factory overhead and budgeted fixed factory overhead.
B. The difference between actual fixed factory overhead and the amount of fixed factory overhead applied to
production.
C. The difference between budgeted fixed factory overhead and the amount of fixed factory overhead applied to
production.
D. The difference between the actual hours and standard hours allowed multiplied by the standard fixed factory
overhead rate.
63. In a four-variance method analyzing factory overhead, the fixed factory overhead production-volume
variance measures:
production.
production.
overhead rate.
64. The following information pertains to the Braun Company for March:
Standard direct labor hours per unit .5 hours

Budgeted production level 20,000 units
Actual units produced 22,000 units
Standard variable rate per direct labor hour $2.00
Standard fixed rate per direct labor hour $3.00
Actual direct labor hours worked 10,500 hours
Actual direct labor costs $150,000
Actual fixed factory overhead 31,800
Actual variable factory overhead 22,200
Using the four-variance method of factory overhead variance analysis, what is the variable overhead spending variance?
B. $200 unfavorable
C. $1,000 favorable
D. $200 favorable

Using the four-variance method of factory overhead variance analysis, what is the variable overhead efficiency variance?
B. $200 unfavorable
C. $1,000 favorable
D. $200 favorable

Using the four-variance method of factory overhead variance analysis, what is the fixed overhead spending variance?
A. $1,200 favorable
C. $3,000 favorable

Using the four-variance method of factory overhead variance analysis, what is the fixed overhead production-volume variance?
A. $1,200 favorable
C. $3,000 favorable
68. Which of the following correctly demonstrates the comparison of the four-variance method of factory
overhead analysis to the two-variance method of factory overhead analysis?
A. The sum of the fixed and variable spending variances in the four-variance method is equal to the flexible-
budget variance in the two-variance method.
B. The sum of the fixed and variable spending and variable efficiency variances in the four-variance method is
equal to the flexible-budget variance in the two-variance method.
C. The sum of the fixed and variable spending, variable efficiency and production-volume variances in the four-
variance method is equal to the flexible-budget variance in the two-variance method.
D. The fixed spending variance in the four-variance method is equal to the flexible-budget variance in the two-
variance method.
A. The sum of the fixed and variable spending and variable efficiency variances in the four-variance method is
equal to the production-volume variance in the two-variance method.
B. The sum of the fixed production-volume and variable efficiency variances in the four-variance method is
C. The fixed production-volume variance in the four-variance method is equal to the production-volume
variance in the two-variance method.
D. The sum of the fixed spending and fixed production-volume variances in the four-variance method is equal
to the production-volume variance in the two-variance method.
70. In the three-variance method of factory overhead analysis, what standard cost variance represents the
difference between actual factory overhead incurred and budgeted factory overhead based on actual hours
worked?
A. Production-volume variance
B. Efficiency variance
C. Spending variance
D. Quantity variance
71. In a three-variance method of factory overhead analysis, the variance that measures the difference between
the factory overhead applied and the actual hours worked multiplied by the standard rate is the:
A. Production-volume variance.
B. Quantity variance.
C. Spending variance.
D. Efficiency variance.
72. In a three-variance method of factory overhead analysis, the variance that indicates that the volume of
production was more or less than budgeted is the:
A. Quantity variance.
B. Production-volume variance.
73. The following information is available from the Arugula Company:
Actual factory overhead $16,800

Actual fixed overhead expenses $ 9,200
Budgeted fixed overhead expenses $ 9,500
Actual hours 3,600
Budgeted hours 3,800
Standard hours allowed 3,500
Standard variable overhead rate per direct labor hour $ 2.25
Assuming that Arugula uses a three-variance analysis of overhead variances, what is the spending variance?
A. $800 favorable
B. $800 unfavorable
C. $500 favorable
D. $500 unfavorable

Actual hours 3,600
Assuming that Arugula uses a three-variance analysis of overhead variances, what is the production-volume variance?
A. $800 favorable
B. $800 unfavorable
C. $500 favorable
D. $500 unfavorable

Actual hours 3,600
Assuming that Arugula uses a three-variance analysis of overhead variances, what is the efficiency variance?
A. $500 unfavorable
B. $475 unfavorable
C. $975 unfavorable
D. $175 unfavorable
76. Hernandez Corporation uses a standard cost system and has established the following standards for one unit
of product:
Standard Standard Standard

Quantity Price Cost
Direct materials 10 pounds $2.60 per pound $26.00
Direct labor .25 hour $10.00 per hour 2.50
$28.50
During October, the company purchased 240,000 pounds of material at a total cost of $588,000. The total factory wages for October were $49,400.
During October, 21,000 units of product were manufactured using 211,000 pounds of material and 5,200 direct labor hours. Material quantity and
price variances are recorded when materials are used.
a. Compute the material quantity and labor efficiency variances.

b. Compute the material price and labor rate variances.
Show whether each of the above variances was either favorable or unfavorable.
77. Fill in the missing figures below:
Units produced 7,900

Standard hours per unit 5 hours
Standard hours allowed (a)
Standard rate per hour $12.00
Actual hours worked 39,900
Actual labor cost (b)
Labor rate variance $5,985 favorable
Labor efficiency variance (c)
78. Perez Company adopted a standard cost system several years ago. The standard costs for the prime costs of
its single product follow:
Material: 10 kilograms @ $4.50 per kilogram $45.00

Labor: 6 hours @ $8.50 per hour $51.00
The following operating data were taken from the records for November:
(1) Units completed: 5,800 units

(2) Budgeted output: 6,000 units
(3) Materials purchased: 60,000 kilograms
(4) Total actual labor costs: $306,600
(5) Actual hours of labor: 36,500 hours
(6) Materials quantity variance: $2,250 unfavorable
(7) Materials price variance: $1,800 favorable
Compute the following:
a. Labor rate variance

b. Labor efficiency variance
c. Actual kilograms of material used in the production process
d. Actual cost paid per kilogram of material
79. The normal capacity of the Malloy Company is 20,000 direct labor hours and 10,000 units per month. A
finished unit requires 15 pounds of materials at an estimated cost of $1.00 per pound. The estimated cost of
labor is $12.00 per hour. It is estimated that overhead for a month will be $15,000.
During the month of June, 19,000 direct labor hours were worked at an average rate of $11.50 an hour. The
number of units produced was 9,000, using all 132,000 pounds of material that were purchased at a cost of
$1.05 per pound.
a. Prepare a standard cost summary showing the standard unit cost.

b. Calculate the material and labor variances.
c. Prepare entries in general journal form to charge materials and labor to work in process. Indicate whether the variances are
favorable or unfavorable.
80. The following information pertains to Skandalis Company's production of one unit of its manufactured
product during the month of June:
Standard quantity of materials 10 lbs.

Standard cost per lb. $.85
Standard direct labor hours .5
Standard wage rate per hour $12.00
Materials purchased 200,000 lbs.
Cost of materials purchased $.82 per lb.
Materials consumed for manufacture of 10,000 units 112,000 lbs.
Actual direct labor hours required for 10,000 units 4,600
Actual direct labor cost per hour $12.25
(a) The materials price variance is recognized when materials are purchased. Compute materials price and quantity variances and labor rate and
efficiency variances.
(b) Prepare the journal entries to record:
(1) the purchase of the materials,
(2) putting materials into production, and
(3) direct labor costs.
81. Rhodes Corporation manufactures a product with the following standard costs:
Direct materials (20 yards @ $1.85 per yard) $ 37.00

Direct labor (4 hours @ $12.00 per hour) 48.00
Variable factory overhead (4 hours @ $5.40 per hour) 21.60
Fixed factory overhead (4 hours @ $3.60 per hour) 14.40
Total standard cost per unit of output $121.00
Standards are based on normal monthly production involving 2,000 direct labor hours (500 units of output).
The following information pertains to the month of July:
Direct materials purchased (16,000 yards @ $1.80 per yard) $28,800

Direct materials used (9,400 yards)
Direct labor (1,880 hours @ $12.20 per hour) 22,936
Actual factory overhead 16,850
Actual production in July: 460 units
a. Compute the following variances for the month of July, indicating whether each variance is favorable or unfavorable:
(1) Materials purchase price variance

(2) Materials quantity variance
(3) Labor rate variance
(4) Labor efficiency variance
b. Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.
82. McLelland Fabricators has two departments, Machining and Assembly. When good are completed in the
Machining Department, they are transferred to the Assembly Department, and when completely assembled, they
are transferred to the finished goods warehouse. There was no beginning or ending inventory in either
department in February.
Other information for February is as follows:
Machining Assembly Total

Actual costs:
Direct materials used in production $54,000 $78,000 $132,000
Direct labor used in production 82,000 37,000 119,000
Factory overhead N/A N/A 105,000
Standard costs:
Direct materials for actual production 51,000 77,000 128,000
Direct labor for actual production 84,000 34,000 118,000
Factory overhead applied 81,000 24,000 105,000
Variances:
Materials price variance 7,000 U 2,000 F 5,000 U
Materials quantity variance 4,000 F 3,000 U 1,000 F
Labor rate variance 1,500 F 1,800 U 300 U
Labor efficiency variance 500 F 1,200 U 700 U
Prepare the journal entries for:

1) The issuance of direct materials to production and the recording of the materials variances.
2) The use of direct labor in production and the recording of the labor variances.
3) The entries to record actual and applied factory overhead (use “Various Credits” if necessary.)
4) The entries to transfer the production cost from the Machining Department to the Assembly Department and from the Assembly Department to
finished goods.
83. On July 1, Ossege Company began to manufacture a new product. The company uses a standard cost
system to account for manufacturing costs. The standard costs per unit for the new product are as follows:
Raw materials 10 gallons @ $2.00 per gallon $20

Direct labor .5 hours @ $16 per hour 8
Factory overhead $8 per direct labor hour ($8 x .5) 4
$32
In addition, the following data came from Ossege’s books for the month of July:
Actual number of units produced 5,200

Actual number of units sold 4,500
Debit Credit
Sales $225,000
Purchases (55,000 gallons) $109,000
Labor efficiency variance 800
Factory overhead net variance 1,200
There were no beginning or ending balances in Materials.
Compute each of the following items for Ossege for the month of July:
1) Standard quantity of raw materials allowed for actual production.
2) Actual quantity of raw materials used.
3) Standard direct labor hours allowed.
4) Actual direct labor hours worked.
5) Actual direct labor rate.
6) Actual total overhead.


a. Compute the budgeted fixed overhead.
b. Assuming Rhodes uses the two-variance method of analyzing factory overhead, computer the following variances for the month of July,
indicating whether each variance is favorable or unfavorable:
(1) Factory overhead flexible-budget variance

(2) Factory overhead production-volume variance
85. Glandorf Controls produces furnaces at several plants. The business is seasonal and cyclical in nature. The
accountant for the Marion plant uses flexible budgeting to help the plant management control operations. Data
for Marion follows:
Budget data for the year:

Normal monthly capacity of the plant in direct labor hours 30,000 hours
Materials costs (40 lbs. @ $2.00) $80.00/unit
Labor costs (5 hours @ $15.00) $75.00/unit
Overhead estimate at normal monthly capacity:

Variable:
Indirect labor $ 68,000
Indirect materials 6,000
Repairs 7,000
Total variable $ 81,000
Fixed:
Depreciation $ 50,000
Supervision 40,000
Total fixed $ 90,000
Total fixed and variable $ 171,000
Actual data for January:

Costs incurred
Materials (250,000 lbs.) $ 537,000
Direct labor 484,000
Indirect labor 72,000
Repairs 8,800
Depreciation 50,000
Supervision 43,000
Total $1,201,000
a. Compute the fixed and variable factory overhead application rates per unit of production.
b. Assuming Glandorf uses the two-variance method of analyzing factory overhead, compute the two overhead variances.
c. Prepare a flexible budget performance report for January comparing actual and budgeted costs of all cost elements for the
actual activity for the month.
d. Prove the factory overhead budget variance from the above report.
86. The Jurcevich Corporation manufactures and sells a single product. A standard cost system is used by the
company. The standard factory overhead cost for a unit of product is as follows:
Variable overhead (1.5 hours @ $3 per hour) 4.50

Fixed overhead (1.5 hours @ $1 per hour) 1.50
Total standard cost per unit $6.00
The overhead cost per unit was calculated for the year based on a 60,000 unit volume as follows:
Variable factory overhead cost:

Indirect labor (30,000 hours @ $8) $240,000
Factory supplies (60,000 gallons of oil @ $.80 per gallon) 48,000
Allocated variable service costs from other departments 12,000
Total variable costs $300,000
Fixed overhead costs:
Supervision $ 28,000
Depreciation 50,000
Other fixed costs 12,000
Total fixed overhead costs $ 90,000
Total annual factory overhead budget for 60,000 units $390,000
The charges to the manufacturing department for April are given below for the 5,200 units produced:
Indirect labor (2,400 hrs. @ $8.15 per hr.) $19,560

Factory supplies (6,000 gallons @ $.55) 3,300
Allocated variable service department costs 3,200
Supervision 2,490
Depreciation 3,750
Total $33,300
(a) Assuming Jurcevich uses the two-variance method of analyzing factory overhead, calculate the following variances from standard cost:
(1) Flexible-budget variance
(2) Production-volume variance
(b) Prepare the journal entry to apply factory overhead to work in process and record the variances.
87. Palek Company has adopted the following standards:
Input Total
Direct materials 3 lbs. @ $3.60 per $10.80
lb.
Direct labor 5 hrs. @ $12.00 per 60.00
hr.
Factory overhead:
Variable $4.00 per direct 20.00
labor hour
Fixed $5.00 per direct 25.00 45.00
labor hour
Standard cost per unit $115.50
Palek's January budget was based on normal volume of 40,000 standard labor hours. During January, Palek produced 7,900 units with records
indicating the following data:
Direct materials purchased 25,000 lbs. @ $3.65

Direct materials used 23,400 lbs.
Direct labor 39,900 hrs. @ $11.85
Factory overhead $375,000
Fixed factory overhead $210,000
Assuming Palek uses the four-variance method of analyzing factory overhead, compute the following variances for the month of January and indicate
whether each is favorable or unfavorable:
a. Variable overhead spending variance

b. Variable overhead efficiency variance
c. Fixed overhead spending variance
d. Fixed overhead production-volume variance
88. Paul Manufacturers has adopted the following standards:
Input Total
hr.
Factory overhead:
labor hour
labor hour
Paul's January budget was based on normal volume of 100,000 standard labor hours. During January, Paul produced 26,000 units with records
Direct labor hours 106,000

Assuming Paul uses the three-variance method of analyzing factory overhead, compute the following variances for the month of January and indicate
a. Factory overhead spending variance

b. Factory overhead production-volume variance
c. Factory overhead efficiency variance
CHAPTER 8: STANDARD COST ACCOUNTING--
MATERIALS, LABOR, and FACTORY OVERHEAD Key
1. The purpose of standard costing is to:

A. Determine optimal production level for a given period.
B. Eliminate the need for subjective decisions by management.
C. Control costs and promote efficiency.
D. Allocate cost with more accuracy.
2. Which of the following terms best identifies the function of standard costs where any deviation from
standards can be quickly detected and responsibility pinpointed so appropriate action may be taken?
A. Management by exception
B. Contribution approach
C. Marginal costing
D. Standardized accounting system
3. Characteristics of ideal standards include all of the following except:

A. They generally give rise to unfavorable variances.
B. They may cause personnel to become discouraged.
C. They take into account normal waste and spoilage.
D. They provide a maximum objective for which to strive to improve efficiency.
4. A manufacturer generally wants to set a standard that:

A. Can be achieved only under the most efficient operating conditions.
B. Is high enough to provide motivation and promote efficiency, but is still attainable.
C. Makes no allowance for normal was or spoilage.
D. None of these is correct.
5. Factors to be considered in setting materials standards include all of the following except:
A. Trend of prices of raw materials.
B. Historical costs.
C. Time necessary to perform tasks.
D. New production processes or market developments.
6. Factors to be considered in setting labor standards include all of the following except:
A. Impact of negotiations with labor unions.
B. The learning effect.
C. Results of engineers’ time studies.
D. The purchasing manager’s estimate of suppliers’ prices.
7. RHO Company began its operations on January 1 and produces a single product that sells for $10.25 per
unit. Standard capacity is 80,000 units per year. The 80,000 units were produced and 70,000 units were sold
during the year.
Manufacturing costs and selling and administrative expenses follow:
Fixed Costs Variable Costs

Raw materials -- $2.50 per unit produced
Direct labor -- 1.50 per unit produced
Factory overhead $120,000 1.00 per unit produced
Selling and administrative 80,000 .50 per unit sold
What is the standard cost of manufacturing a unit of product?

A. $6.00
B. $6.50
C. $5.00
D. $5.50
8. When computing variances from standard costs, the difference between actual and standard price multiplied
by actual quantity yields:
A. Combined price--quantity variance.
B. Price variance.
C. Volume variance.
D. Mix variance.
cost of $7,055. If the materials price variance was recorded when the material was issued to production, that
variance was:
A. $145 favorable.
D. $415 favorable.
10. The materials quantity variance, in a standard cost system, is the:
A. Difference between the actual and standard quantities.
B. Difference between the actual and standard quantities multiplied by the actual unit price.
C. Difference between the actual quantity used and the actual quantity purchased multiplied by the standard unit
price.
D. Difference between the actual and standard quantities multiplied by the standard unit price.
11. What type of direct material variances for price and quantity will arise if the actual number of pounds of
materials used exceeds standard pounds allowed but actual cost was less than standard cost?
Quantity Price
A. Favorable Favorable
B. Unfavorable Favorable
C. Favorable Unfavorable
D. Unfavorable Unfavorable
cost of $7,055. The materials quantity variance resulting from the above production run was:
A. $255 favorable.
D. $270 favorable.

What is the materials quantity variance?

A. $175 unfavorable
B. $165 unfavorable
C. $175 favorable
D. $165 favorable
14. Ben's Climbing Gear, Inc. has direct material costs as follows:
Actual units of direct materials used 20,000

Standard price per unit of direct materials $2.50
Materials quantity variance--favorable $5,000
What was Ben's standard quantity of material allowed?

A. 18,000
B. 24,000
C. 20,000
D. 22,000
15. The actual hourly rate paid above or below the standard hourly rate, multiplied by the actual number of
hours worked is the:
A. Labor rate variance.
B. Labor efficiency variance.
C. Labor usage variance.
D. Labor direct variance.
16. Information relating to direct labor for the Newstead Company follow:

The labor rate variance is:

17. Lee Company's direct labor costs for the month of February follow:

What was Lee's standard direct labor rate?

A. $9.50
B. $9.75
C. $9.40
D. $9.25
18. When performing input-output variance analysis in standard costing, "standard hours allowed" is a means of
measuring:
A. Standard output at standard hours.
B. Actual output at standard hours.
C. Standard output at actual hours.
D. Actual output at actual hours.
19. An unfavorable labor efficiency variance is the:

A. Number of actual hours worked in excess of the standard hours allowed multiplied by the standard labor rate.
B. Number of actual hours worked in excess of the standard hours allowed multiplied by the actual labor rate.
C. The number of actual hours worked below the standard hours allowed multiplied by the standard labor rate.
D. Number of actual hours multiplied by the difference in the actual and standard labor rates.
20. Information relating to direct labor for Brussels, Inc. follow:

The labor efficiency variance is:

21. Alyssa Corporation uses a standard cost system. Direct labor information for Product CER for the month of
October is as follows:
Standard rate $8.00 per hour

Actual rate paid $8.30 per hour
Standard hours allowed for actual production 1,400 hours
Labor efficiency variance $ 800 unfavorable
What are actual hours worked?

A. 1,330
B. 1,400
C. 1,500
D. 1,300
22. Earl Company's direct labor costs for the month of January follow:

What was Earl's direct labor efficiency variance?

A. $6,500 favorable
C. $1,800 favorable
D. $6,400 favorable
23. The direct labor costs for Boundary Company follow:

Direct labor efficiency variance--favorable $ 12,000
Direct labor rate variance--favorable $ 1,650
What was Boundary's standard direct labor rate?

A. $ 11.95
B. $ 11.49
C. $ 11.60
D. $ 12.00

What is the materials purchase price variance?

A. $390 favorable
B. $390 unfavorable
C. $400 favorable
D. $400 unfavorable
25. The following information pertains to Genie Company:


Unfavorable labor rate variance 1,500
Unfavorable labor efficiency variance 500
What is the entry to record the direct materials cost and variances, assuming that the price variance is recorded when the materials are put into
production?
A. Materials 12,000
Materials 11,000
Materials 13,000
Materials 13,000
26. The following information pertains to William Company:


Unfavorable labor rate variance 500
Unfavorable labor efficiency variance 2,500
What is the entry to record the direct labor cost and variances?
A. Payroll 30,000
Accrued payroll 33,000
Payroll 30,000
Payroll 30,000
Labor variances 3,000
Payroll 30,000
27. Information relating to direct labor for the McGill Company follow:

The entry to record the direct labor cost is:

Payroll 48,600
Payroll 53,200
Payroll 53,200
Payroll 53,200
28. PHI Company began its operations on January 1 and produces a single product that sells for $35.00 per
unit. 5,000 units were produced and 4,000 units were sold during the year.
Standard costs per unit follow:
Standard cost
Raw materials $12.50
Direct labor 6.50
Factory overhead 4.00
What is entry to record the finished goods?

A. Finished goods 115,000
B. Finished goods 92,000
D. Cost of goods sold 92,000
29. If a company follows a practice of isolating variances at the earliest point in time, what would be the
appropriate time to isolate and recognize a direct material price variance?
A. When material is purchased
B. When material is used in production
C. When purchase order is originated
D. When material is issued
30. In a standard cost system,when the materials price variance is recorded at the time the material is
purchased, the materials purchase price variance is obtained by multiplying the:
A. Actual price by the difference between actual quantity purchased and standard quantity used.
B. Actual quantity purchased by the difference between actual price and standard price.
C. Standard price by the difference between standard quantity purchased and standard quantity used.
D. Standard quantity purchased by the difference between actual price and standard price.

What is the entry to record the purchase of materials?

A. Materials 6,600
B. Materials 7,000
C. Materials 6,600
D. Materials 6,600
32. Andrews Corporation purchased 3,000 gallons of raw materials for $9,200. The standard price is $3.00 per
gallon. If Andrews records the price variance at the earliest possible time, the entry to record the purchase of
the material is:
A. Materials 9,200
Material purchase price variance 200 Accounts payable 9,000
B. Materials 9,000
C. Materials 9,000
D. Materials 9,200
33. James Corporation uses a standard cost system and recognizes the materials purchase price variance at the
time materials are purchased. Information for raw materials for the month of December follows:

What is the entry to record material usage?

Materials 6,600
Materials 5,940
Materials 6,650
Materials 6,270
34. Standard costing will produce the same income before extraordinary items as actual costing when standard
cost variances are assigned to:
A. Work in process and finished goods inventories.
B. An income or expense account.
C. Cost of goods sold and inventories.
D. Cost of goods sold.
35. What is the normal year-end treatment of immaterial variances recognized in a cost accounting system
utilizing standards?
A. Reclassified to deferred charges until all related production is sold
B. Closed to cost of goods sold in the period in which they arose
C. Allocated among cost of goods manufactured and ending work in process inventory
D. Capitalized as a cost of ending finished goods inventory
36. How should an efficiency variance that is material in amount be treated at the end of an accounting period?
A. Reported as a deferred charge or credit
B. Allocated among work in process inventory, finished goods inventory, and cost of goods sold
C. Charged or credited to cost of goods manufactured
D. Allocated among cost of goods manufactured, finished goods inventory, and cost of goods sold
37. To effectively use variances to improve operations, management should take the following steps except:
A. Taking appropriate action to follow up on variances.
B. Breaking down the total variance by usage and price.
C. Adding variances together to determine the impact on financial statements.
D. Analyzing cause and effect of both favorable and unfavorable variances.
38. If the total materials variance (actual cost of materials used compared with the standard cost of the standard
amount of materials required) for a given operation is favorable, why must this 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.
B. Generally accepted accounting principles require that all variances be analyzed in three stages.
C. All variances must appear in the annual report to equity owners for proper disclosure.
D. It is done so that management can evaluate the efficiency of the purchasing and production functions.
39. Taking appropriate action on variances includes all of the following except:
A. Ignoring the cause of favorable variances.
B. Revising the standard because it was set incorrectly.
C. Improving the manufacturing process.
D. Looking for new suppliers.
40. Which of the following is not likely to have caused a materials price variance?
A. The vendor from whom we always bought component XYZ closed and we found a new one.
B. One of the workers inadvertently cut several pieces of steel to the wrong length.
C. We started using a higher grade of lumber in our process.
D. Higher oil prices have increased the costs of shipping the ingredients to us.
41. Bobby’s Burger Place monitors its variances on an hourly basis. It is not uncommon for Bobby to send
workers home early when which of the following variances indicates that he has over-scheduled the shift?
A. Unfavorable labor efficiency variance.
B. Favorable labor rate variance.
C. Unfavorable materials quantity variance.
D. Favorable labor efficiency variance.
42. Which of the following is not likely to cause a labor efficiency variance?
A. We produced more units than were budgeted.
B. There was a flu outbreak and workers had to cover unfamiliar positions.
C. We purchased materials that were poor in quality.
D. One of the supervisors discovered a way to streamline a process.
43. One possible explanation for a company that experiences a favorable labor efficiency variance, but an
unfavorable labor rate variance could be:
A. The company paid the workers overtime.
B. The company hired more experienced workers.
C. The company purchased materials that were hard to work with.
D. The workers “goofed around” and wasted time.
44. Under normal circumstances, a purchasing manager who buys poor quality materials because they were
cheaper could potentially be responsible for causing all of the following variances except a(n):
A. Favorable purchase price variance.
B. Unfavorable materials quantity variance.
C. Unfavorable purchase price variance.
D. Unfavorable labor efficiency variance.
A. Standards change as conditions change.
B. Variances may be determined more often than monthly to allow for more timely action.
C. Standards are based on estimates.
D. The company determines the actual cost of manufacturing a unit.
A. Standards should not be adjusted.
B. Standards provide incentives for workers to keep costs in line.
C. Comparisons between actual and standard are more effective than comparisons between actual costs of the
current period and those of the prior period.
D. A standard cost system focuses management attention on materials prices and usages.
47. Underapplied factory overhead would result if:
A. Factory overhead costs incurred were greater than standard costs charged to production.
B. The plant was operated at less than normal capacity.
C. Factory overhead costs incurred were less than standard costs charged to production.
D. Factory overhead costs incurred were unreasonably large in relation to units produced.
48. The Davis Corporation budgeted factory overhead at $250,000 for the period for the Assembly Department
based on a budgeted volume of 100,000 direct labor hours. At the end of the period, the factory overhead
control account for the Assembly Department had a balance of $252,000. The actual (and allowed) direct labor
hours were 104,000.
What was the over- or underapplied factory overhead for the period?
A. $10,000 underapplied
B. $10,000 overapplied
C. $8,000 underapplied
D. $8,000 overapplied
49. Donellan Company has a standard and flexible budgeting system and uses a two-variance analysis of factory
overhead. Selected data for the February production activity follows:
Budgeted fixed factory overhead costs $ 70,000

Variable factory overhead rate per direct labor hour $ 7
The flexible-budget variance for February is:

A. $5,000 favorable.
Actual hours used 16,500

Standard hours allowed for good output 16,250
Actual total overhead $53,200
Budgeted fixed costs $12,000
Total overhead application rate per standard direct labor hour $ 3.25
Variable overhead rate per standard direct labor hour $ 2.50
What was Monroe's flexible-budget variance for April?
A. $1,100 favorable
C. $575 favorable
D. $575 unfavorable
51. Kale Corporation's budgeted fixed factory overhead costs are $25,000 per month plus a variable factory
overhead rate of $8.00 per direct labor hour. The standard direct labor hours allowed for November production
were 10,000. An analysis of the factory overhead indicates that in November Kale had a favorable flexible-
budget variance of $1,500 and an unfavorable production-volume variance of $500. Kale uses a two-variance
The actual factory overhead incurred in October is:

A. $105,500.
B. $104,500.
C. $106,500.
D. $103,500.
52. A company uses a two-variance analysis for overhead variances, flexible-budget and production-volume.
The production-volume variance is the difference between the factory overhead applied at standard and:
A. Total factory overhead per the flexible budget.
B. Actual factory overhead incurred.
C. Total factory overhead per the master budget.
D. Fixed overhead incurred.
53. The fixed overhead application rate is a function of a predetermined "normal" activity level. If standard
hours allowed for good output equal this "normal" activity level for a given period, the production-volume
variance will be:
A. Zero.
B. Favorable.
C. Unfavorable.
D. Either favorable or unfavorable depending on the budgeted overhead.
54. Baker Company has a standard and flexible budgeting system and uses a two-variance analysis of factory
overhead. Selected data for the June production activity follows:
Budgeted total factory overhead costs (for normal production of 10,000 units) $80,000
Actual factory overhead incurred in the production of 9,500 units $78,000
Variable factory overhead rate per unit, 2 hours @ $2.50 $ 5
The production-volume variance for June is:
A. $1,500favorable.
Actual direct labor hours used 16,500

Standard direct labor hours allowed 16,250
Budgeted fixed factory overhead $12,000
Total overhead application rate per standard direct labor hour $3.25
Variable overhead application rate per standard direct labor hour $2.50
What was Monroe's production-volume variance for April?

A. $187.50 favorable
B. $187.50 unfavorable
C. $437.50 favorable
D. $437.50 unfavorable
56. If a company uses a two-variance analysis for overhead variances and uses a predetermined rate for
absorbing manufacturing overhead, the production-volume variance is the:
A. Underapplied or overapplied variable cost element of overhead.
B. Underapplied or overapplied fixed cost element of overhead.
C. Difference in budgeted costs and actual costs of fixed overhead items.
D. Difference in budgeted costs and actual costs of variable overhead items.
57. Elgin Company's budgeted fixed factory overhead costs are $50,000 per month plus a variable factory
overhead rate of $4.00 per direct labor hour. The standard direct labor hours allowed for October production
were 20,000. An analysis of the factory overhead indicates that in October, Elgin had an unfavorable flexible-
budget variance of $1,500 and a favorable production-volume variance of $500. Elgin uses a two-variance
The applied factory overhead in October is:

A. $129,500.
B. $128,000.
C. $130,000.
D. $130,500.
58. Information on Shonda Company's factory overhead costs follows:
Actual variable factory overhead $95,000

Actual fixed factory overhead $28,000
Standard hours allowed for actual production 30,000
Standard variable overhead rate per direct labor hour $3.25
Standard fixed overhead rate per direct labor hour $1.00
What is the net factory overhead variance?

B. $4,500 favorable
D. $2,500 favorable
59. In a two-variance system for analyzing factory overhead, a favorable production-volume variance could be
caused by:
A. The top salesman leaving the company.
B. Receiving more orders than anticipated.
C. A machine breakdown.
D. A work slow-down by workers.
60. In a four-variance method analyzing factory overhead, the variable factory overhead efficiency variance
measures:
A. The effect of differences in the actual variable factory overhead rate and the standard variable factory
overhead rate.
61. In a four-variance method analyzing factory overhead, the variable factory overhead spending variance
measures:
A. The effect of differences in the actual variable factory overhead and the standard variable factory overhead
rate multiplied by the actual hours.
62. In a four-variance method analyzing factory overhead, the fixed factory overhead spending variance
measures:
production.
production.
overhead rate.
63. In a four-variance method analyzing factory overhead, the fixed factory overhead production-volume
variance measures:
production.
production.
overhead rate.

Using the four-variance method of factory overhead variance analysis, what is the variable overhead spending variance?
B. $200 unfavorable
C. $1,000 favorable
D. $200 favorable

Using the four-variance method of factory overhead variance analysis, what is the variable overhead efficiency variance?
B. $200 unfavorable
C. $1,000 favorable
D. $200 favorable

Using the four-variance method of factory overhead variance analysis, what is the fixed overhead spending variance?
A. $1,200 favorable
C. $3,000 favorable

Using the four-variance method of factory overhead variance analysis, what is the fixed overhead production-volume variance?
A. $1,200 favorable
C. $3,000 favorable
A. The sum of the fixed and variable spending variances in the four-variance method is equal to the flexible-
budget variance in the two-variance method.
B. The sum of the fixed and variable spending and variable efficiency variances in the four-variance method is
equal to the flexible-budget variance in the two-variance method.
C. The sum of the fixed and variable spending, variable efficiency and production-volume variances in the four-
variance method is equal to the flexible-budget variance in the two-variance method.
D. The fixed spending variance in the four-variance method is equal to the flexible-budget variance in the two-
variance method.
A. The sum of the fixed and variable spending and variable efficiency variances in the four-variance method is
B. The sum of the fixed production-volume and variable efficiency variances in the four-variance method is
C. The fixed production-volume variance in the four-variance method is equal to the production-volume
variance in the two-variance method.
D. The sum of the fixed spending and fixed production-volume variances in the four-variance method is equal
to the production-volume variance in the two-variance method.
70. In the three-variance method of factory overhead analysis, what standard cost variance represents the
difference between actual factory overhead incurred and budgeted factory overhead based on actual hours
worked?
A. Production-volume variance
B. Efficiency variance
C. Spending variance
D. Quantity variance
71. In a three-variance method of factory overhead analysis, the variance that measures the difference between
the factory overhead applied and the actual hours worked multiplied by the standard rate is the:
A. Production-volume variance.
B. Quantity variance.
72. In a three-variance method of factory overhead analysis, the variance that indicates that the volume of
production was more or less than budgeted is the:
A. Quantity variance.
B. Production-volume variance.

Actual hours 3,600
Assuming that Arugula uses a three-variance analysis of overhead variances, what is the spending variance?
A. $800 favorable
B. $800 unfavorable
C. $500 favorable
D. $500 unfavorable

Actual hours 3,600
Assuming that Arugula uses a three-variance analysis of overhead variances, what is the production-volume variance?
A. $800 favorable
B. $800 unfavorable
C. $500 favorable
D. $500 unfavorable

Actual hours 3,600
Assuming that Arugula uses a three-variance analysis of overhead variances, what is the efficiency variance?
A. $500 unfavorable
B. $475 unfavorable
C. $975 unfavorable
D. $175 unfavorable
76. Hernandez Corporation uses a standard cost system and has established the following standards for one unit
of product:
Standard Standard Standard

Quantity Price Cost
Direct materials 10 pounds $2.60 per pound $26.00
Direct labor .25 hour $10.00 per hour 2.50
$28.50
During October, the company purchased 240,000 pounds of material at a total cost of $588,000. The total factory wages for October were $49,400.
During October, 21,000 units of product were manufactured using 211,000 pounds of material and 5,200 direct labor hours. Material quantity and
price variances are recorded when materials are used.
a. Compute the material quantity and labor efficiency variances.

b. Compute the material price and labor rate variances.
Show whether each of the above variances was either favorable or unfavorable.
(a) Standard Actual

Quantity Quantity Standard
or Hours or Hours Difference Cost Variance
Materials
Quantity 210,000* 211,000 1,000 lbs. $2.60 lb. $2,600
Variance lbs. lbs. (unfav.) (unfav.)
Labor
Efficiency 5,250** 5,200 50 hrs. $10.00 hr. $500
Variance hrs. hrs. (fav.) (fav.)
* Actual production x standard allowed (21,000 x 10 lbs = 210,000)
** Actual production x standard allowed (21,000 x .25 hrs = 5,250)
(b) Actual
Standard Actual Quantity
Cost Cost Difference or Hours Variance
Materials
Price $2.60/lb. $2.45/lb.* $.15(fav.) 211,000 $31,650
Variance lbs. (fav.)
Labor
Rate $10.00/hr. $9.50/hr.** $.50(fav.) 5,200 $2,600
Variance hrs. (fav.)
* Actual total cost / actual pounds purchased ($588,000 / 240,000 = $2.45)

** Actual total cost / actual hours ($49,400 / 5,200 = $9.50)
77. Fill in the missing figures below:

Standard hours per unit 5 hours
Standard hours allowed (a)
Standard rate per hour $12.00
Actual hours worked 39,900
Actual labor cost (b)
Labor rate variance $5,985 favorable
Labor efficiency variance (c)
(a) Standard hours allowed = units produced x standard hours per unit
Standard hours allowed = 7,900 x 5 = 39,500
(b) Labor rate variance = Actual payroll - (Actual hours worked x standard rate)
$5,985 F = Actual payroll - (39,900 x $12.00)
$5,985 F = Actual payroll - $478,800
Actual payroll = $472,815 (favorable variance is deducted from standard)
(c) Labor efficiency variance = (Actual hours - standard hours allowed) x Standard rate
Labor efficiency variance = (39,900 - 39,500) x $12 = $4,800 U (actual in excess of standard)
78. Perez Company adopted a standard cost system several years ago. The standard costs for the prime costs of
its single product follow:
Material: 10 kilograms @ $4.50 per kilogram $45.00

Labor: 6 hours @ $8.50 per hour $51.00
The following operating data were taken from the records for November:
(1) Units completed: 5,800 units

(2) Budgeted output: 6,000 units
(3) Materials purchased: 60,000 kilograms
(4) Total actual labor costs: $306,600
(5) Actual hours of labor: 36,500 hours
(6) Materials quantity variance: $2,250 unfavorable
(7) Materials price variance: $1,800 favorable
Compute the following:
a. Labor rate variance

b. Labor efficiency variance
c. Actual kilograms of material used in the production process
d. Actual cost paid per kilogram of material
(a) Actual
Labor
Rate $8.50/hr. $8.40/hr.* $.10 36,500 $3,650
Variance (fav.) hrs. (fav.)
* $306,600 labor cost / 36,500 hours worked = $8.40 per hour
(b) Standard Actual

Labor
Efficiency 34,800 36,500 1,700 hrs. $8.50/hr. $14,450
Variance hrs.** hrs. (unfav.) (unfav.)
** 5,800 units produced x 6 hrs allowed = 34,800
(c) Standard Actual

Materials
Quantity 58,000 unknown 500 kg.# $4.50/kg. $2,250
Variance kg.*** kg. (unfav.) (unfav.)
*** 5,800 units x 10 kg. per unit

# working back: $2,250 / $4.50 = 500 kg.
The actual kg. would be 58,500 (58,000 + 500) The unfavorable variance is added to standard.
(d) Actual
Materials
Price $4.50/ kg. Unknown $.03## 60,000 $1,800
Variance (fav.) kg. (fav.)
## $1,800/ 60,000 = .03
Working back: 4.50 - .03 = 4.47 (Favorable variance is subtracted from standard)
79. The normal capacity of the Malloy Company is 20,000 direct labor hours and 10,000 units per month. A
finished unit requires 15 pounds of materials at an estimated cost of $1.00 per pound. The estimated cost of
labor is $12.00 per hour. It is estimated that overhead for a month will be $15,000.
During the month of June, 19,000 direct labor hours were worked at an average rate of $11.50 an hour. The
number of units produced was 9,000, using all 132,000 pounds of material that were purchased at a cost of
$1.05 per pound.
a. Prepare a standard cost summary showing the standard unit cost.

b. Calculate the material and labor variances.
c. Prepare entries in general journal form to charge materials and labor to work in process. Indicate whether the variances are
favorable or unfavorable.
Standard Cost Summary
(a) Materials (15 lbs. @ $1.00 per lb.) $15.00

Labor (2 hrs. @ $12.00 per hr.) 24.00
Factory overhead ($15,000 / 10,000 units) 1.50
(b) Standard Actual

Materials
Quantity 135,000* 132,000 3,000 lbs. $1.00 lb. $3,000
Variance lbs. lbs. (fav.) (fav.)
Labor
Efficiency 18,000** 19,000 1,000 hrs. $12.00 hr. $12,000
Variance hrs. hrs. (unfav.) (unfav.)
* Actual production x standard allowed (9,000 x 15 lbs. = 135,000)

** Actual production x standard allowed (9,000 x 2 hrs*** = 18,000)
*** Normal hours / normal units (20,000 / 10,000 = 2)
Actual
Materials
Price $1.00/lb. $1.05/lb. $.05(unfav.) 132,000 $6,600
Variance lbs. (unfav.)
Labor
Rate $12.00/hr. $11.50/hr. $.50(fav.) 19,000 $9,500
Variance hrs. (fav.)
(c) Work in Process (9,000 ´ $15) 135,000
Materials Price Variance--unfavorable 6,600
Materials Quantity Variance-- favorable 3,000
Materials (132,000 ´ $1.05) 138,600
Work in Process 216,000

Labor Efficiency Variance--unfavorable 12,000
Labor Rate Variance--favorable 9,500
Payroll 218,500
Note to instructor - requirement (c) may be optional. If it is not assigned, this problem would be moderate in difficulty.
80. The following information pertains to Skandalis Company's production of one unit of its manufactured
product during the month of June:
Standard quantity of materials 10 lbs.

Standard cost per lb. $.85
Standard direct labor hours .5
Standard wage rate per hour $12.00
Materials purchased 200,000 lbs.
Cost of materials purchased $.82 per lb.
Materials consumed for manufacture of 10,000 units 112,000 lbs.
Actual direct labor hours required for 10,000 units 4,600
Actual direct labor cost per hour $12.25
(a) The materials price variance is recognized when materials are purchased. Compute materials price and quantity variances and labor rate and
efficiency variances.
(b) Prepare the journal entries to record:
(1) the purchase of the materials,
(2) putting materials into production, and
(3) direct labor costs.
Standard Actual
Materials
Quantity 100,000* 112,000 12,000 lbs. $.85/lb. $10,200
Variance lbs. lbs. (unfav.) (unfav.)
Labor
Efficiency 5,000** 4,600 400 hrs. $12.00/hr. $4,800
Variance hrs. hrs. (fav.) (fav.)
*Actual production x lbs. allowed per unit (10,000 x 10 = 100,000)
** Actual production x hrs. allowed per unit (10,000 x .5 = 5,000)
Actual
Materials
Purchase $.85/lb. $.82/lb. $.03(fav.) 200,000 $6,000
Price lbs. (fav.)
Variance
Labor
Rate $12.00/hr. $12.25/hr. $.25(unfav.) 4,600 $1,150
Variance hrs. (unfav.)
b.
Materials (200,000 x .85) 170,000
Materials purchase price variance - favorable 6,000
Accounts payable (200,000 x .82) 164,000
Work in process (100,000 x .85) 85,000

Materials quantity variance - unfavorable 10,200
Materials (112,000 x .85) 95,200
Work in process (5,000 x 12.00) 60,000

Labor rate variance - unfavorable 1,150
Labor efficiency variance - favorable 4,800
Payroll (4,600 x 12.25) 56,350
Note to instructor - requirement (b) may be optional. If (b) is not assigned, this problem would be moderate in difficulty.


a. Compute the following variances for the month of July, indicating whether each variance is favorable or unfavorable:
(1) Materials purchase price variance

(2) Materials quantity variance
(3) Labor rate variance
(4) Labor efficiency variance
b. Give potential reasons for each of the variances. Be sure to consider inter-relationships among variances.
(a)
Materials purchase price variance = (Actual unit price - standard unit price) x actual quantity of materials
purchased
Materials purchase price variance = ($1.80 - $1.85) x 16,000 = $800 favorable
(actual price less than standard price)
Materials quantity variance = (Actual quantity of materials used - standard quantity of materials allowed) x
standard unit price
Materials quantity variance = (9,400 - 9,200*) x $1.85 = $370 unfavorable
(actual quantity exceeds standard quantity)
* 460 units x 20 yards per unit = 9,200
Labor rate variance = (Actual rate per hour - standard rate per hour) x Actual hours worked
Labor rate variance = ($12.20 - $12.00) x 1,880 = $376 unfavorable
(actual rate exceeds standard rate)
Labor efficiency variance = (Actual hours worked - standard hours allowed) x standard rate
Labor efficiency variance = (1,880 - 1,840**) x $12.00 = $480 unfavorable
(actual hours exceed standard hours allowed)
** 460 units x 4 hours per unit = 1,840
(b) The favorable purchase price variance may have occurred because the purchasing manager purchased
materials at a lower price that were of lesser quality. The workers encountered production problems as a result
of the lesser quality materials which resulted in using more materials and taking more time than anticipated.
The supervisor also had to assign more experienced workers to this production, which resulted in a higher
average wage rate.
Note to instructor: If requirement (b) is not assigned, this problem would be moderate in difficulty.
82. McLelland Fabricators has two departments, Machining and Assembly. When good are completed in the
Machining Department, they are transferred to the Assembly Department, and when completely assembled, they
are transferred to the finished goods warehouse. There was no beginning or ending inventory in either
department in February.
Other information for February is as follows:
Machining Assembly Total

Actual costs:
Direct materials used in production $54,000 $78,000 $132,000
Direct labor used in production 82,000 37,000 119,000
Factory overhead N/A N/A 105,000
Standard costs:
Direct materials for actual production 51,000 77,000 128,000
Direct labor for actual production 84,000 34,000 118,000
Factory overhead applied 81,000 24,000 105,000
Variances:
Materials price variance 7,000 U 2,000 F 5,000 U
Materials quantity variance 4,000 F 3,000 U 1,000 F
Labor rate variance 1,500 F 1,800 U 300 U
Labor efficiency variance 500 F 1,200 U 700 U
Prepare the journal entries for:
1) The issuance of direct materials to production and the recording of the materials variances.
2) The use of direct labor in production and the recording of the labor variances.
3) The entries to record actual and applied factory overhead (use “Various Credits” if necessary.)
4) The entries to transfer the production cost from the Machining Department to the Assembly Department and from the Assembly Department to
finished goods.
1)
Work in Process - Machining 51,000

Materials Price Variance - Machining 7,000
Materials Quantity Variance - Machining 4,000
Materials 54,000
Work in Process - Assembly 77,000

Materials Quantity Variance - Assembly 3,000
Materials Price Variance - Assembly 2,000
Materials 78,000
2)
Labor Rate Variance - Machining 1,500
Labor Efficiency Variance - Machining 500
Payroll 82,000

Labor Rate Variance - Assembly 1,800
Labor Efficiency Variance - Assembly 1,200
Payroll 37,000
3)
Factory Overhead 105,000
Various Credits 105,000

Factory Overhead 105,000
4)
(51,000 + 84,000 + 81,000)
Finished Goods 351,000

(216,000 + 77,000 + 34,000 + 24,000)
83. On July 1, Ossege Company began to manufacture a new product. The company uses a standard cost
system to account for manufacturing costs. The standard costs per unit for the new product are as follows:
Raw materials 10 gallons @ $2.00 per gallon $20

Direct labor .5 hours @ $16 per hour 8
Factory overhead $8 per direct labor hour ($8 x .5) 4
$32
In addition, the following data came from Ossege’s books for the month of July:
Actual number of units produced 5,200

Actual number of units sold 4,500
Debit Credit
Sales $225,000
Purchases (55,000 gallons) $109,000
Labor efficiency variance 800
Factory overhead net variance 1,200
There were no beginning or ending balances in Materials.
Compute each of the following items for Ossege for the month of July:
1) Standard quantity of raw materials allowed for actual production.
2) Actual quantity of raw materials used.
3) Standard direct labor hours allowed.
4) Actual direct labor hours worked.
5) Actual direct labor rate.
6) Actual total overhead.
1) Standard quantity of raw material allowed for actual production:
Units produced 5,200 units

x Standard quantity per unit 10 gal./unit
Standard quantity of materials allowed 52,000 gallons
2) Actual quantity of raw materials used:

Standard quantity of raw materials allowed 52,000 gallons
x Standard price per gallon $ 2 per gal.
$104,000
Add unfavorable material quantity variance 4,000
Actual quantity at standard price $108,000
Divided by the standard price per gallon $ 2
Actual quantity of raw materials used 54,000 gallons
3) Standard direct labor hours allowed:

Units produced 5,200 units
x Standard hours per unit .5 hr./unit
Standard direct labor hours allowed 2,600 hours
4) Actual direct labor hours worked:

x Standard rate per hour $ 16 per hr.
$41,600
Add unfavorable labor efficiency variance 800
Actual hours at standard rate $42,400
Divided by the standard rate per hour $ 16
5) Actual direct labor rate:
Actual hours as standard rate $42,400
Add unfavorable labor rate variance 2,650
$45,050
Divided by actual hours worked 2,650 hours
Actual rate per hour $ 17
6) Actual total overhead:

x Standard factory overhead rate per hour $ 8 per hr.
$20,800
Add unfavorable net overhead variance 1,200
Actual overhead incurred $22,000


a. Compute the budgeted fixed overhead.
b. Assuming Rhodes uses the two-variance method of analyzing factory overhead, computer the following variances for the month of July,
indicating whether each variance is favorable or unfavorable:
(1) Factory overhead flexible-budget variance

(2) Factory overhead production-volume variance
(a) Computation of budgeted fixed factory overhead:

Fixed factory overhead rate per direct
labor hour x $3.60
Total fixed factory overhead $ 7,200
(b)
(1) Flexible-budget variance:
Budgeted factory overhead at standard hours for actual level of production:
Fixed $7,200
Variable (460 units ´ 4 hours ´ $5.40) 9,936 17,136
Flexible-budget variance (favorable) $ 286
(Actual factory overhead incurred was less than that budgeted)
(2) Production-volume variance:
Budgeted factory overhead at actual level of production
$17,136
Overhead applied to production

($5.40 + $3.60) x (460 x 4 hours) 16,560
Production-volume variance (unfavorable) $ 576
(budgeted overhead was in excess of applied overhead)
85. Glandorf Controls produces furnaces at several plants. The business is seasonal and cyclical in nature. The
accountant for the Marion plant uses flexible budgeting to help the plant management control operations. Data
for Marion follows:
Budget data for the year:

Normal monthly capacity of the plant in direct labor hours 30,000 hours
Materials costs (40 lbs. @ $2.00) $80.00/unit
Labor costs (5 hours @ $15.00) $75.00/unit
Overhead estimate at normal monthly capacity:

Variable:
Indirect labor $ 68,000
Repairs 7,000
Total variable $ 81,000
Fixed:
Depreciation $ 50,000
Supervision 40,000
Total fixed $ 90,000
Total fixed and variable $ 171,000
Actual data for January:

Costs incurred
Materials (250,000 lbs.) $ 537,000
Direct labor 484,000
Indirect labor 72,000
Repairs 8,800
Depreciation 50,000
Supervision 43,000
Total $1,201,000
a. Compute the fixed and variable factory overhead application rates per unit of production.
b. Assuming Glandorf uses the two-variance method of analyzing factory overhead, compute the two overhead variances.
c. Prepare a flexible budget performance report for January comparing actual and budgeted costs of all cost elements for the
actual activity for the month.
d. Prove the factory overhead budget variance from the above report.
(a)
Total variable cost
$81,000 / 6,000* units $13.50 variable factory overhead application rate
Total fixed cost
$90,000 / 6,000 units 15.00 fixed factory overhead application rate
Total factory overhead application rate $28.50
* Normal capacity of 30,000 hours / 5 hours per unit = 6,000 units.
(b)
Actual Factory Applied

Factory Overhead Overhea Factory Overhead
d for
Actual
Prod.
Level
Fixed: $ 90,000 6,300 units @ $28.50
Var.:
6,300
@ 85,050
$13.50 =
$175,050 $179,550
$180,000
Controllable Volum
Var. e Var.
$4,950 $4,50
(unfav) 0
(fav)
(c)
Budget Under
(3,900 Actual (Over)
Cost Element units) Costs Budget
Materials:
(6,300 units ´ $80) $ 504,000 $ 537,000 $ (33,000)
Labor:
(6,300 units ´ $75) 472,500 484,000 (11,500)
Factory overhead:
Indirect labor (d)
($68,000 ´ 105%*) 71,400 72,000 (600) \
Indirect materials \
($6,000 ´ 105%) 6,300 6,200 (100) \ $4,950
Repairs > flexible-
($7,000 ´ 105%) 7,350 8,800 (1,450) / budget
Depreciation 50,000 50,000 -- / variance
Supervision 40,000 40,000 (3,000) / (unfav.)
$1,151,550 $1,201,000 $ (4,950)
* $6,300 units / 6,000 units = 105% of normal activity.
Note to instructor: Requirements c and d review chapter 7 concepts. If these requirements are not assigned, the problem difficulty is
moderate.
86. The Jurcevich Corporation manufactures and sells a single product. A standard cost system is used by the
company. The standard factory overhead cost for a unit of product is as follows:
Variable overhead (1.5 hours @ $3 per hour) 4.50

Fixed overhead (1.5 hours @ $1 per hour) 1.50
Total standard cost per unit $6.00
The overhead cost per unit was calculated for the year based on a 60,000 unit volume as follows:
Variable factory overhead cost:

Indirect labor (30,000 hours @ $8) $240,000
Factory supplies (60,000 gallons of oil @ $.80 per gallon) 48,000
Allocated variable service costs from other departments 12,000
Total variable costs $300,000
Fixed overhead costs:
Supervision $ 28,000
Depreciation 50,000
Total fixed overhead costs $ 90,000
Total annual factory overhead budget for 60,000 units $390,000
The charges to the manufacturing department for April are given below for the 5,200 units produced:
Indirect labor (2,400 hrs. @ $8.15 per hr.) $19,560

Factory supplies (6,000 gallons @ $.55) 3,300
Allocated variable service department costs 3,200
Supervision 2,490
Depreciation 3,750
Total $33,300
(a) Assuming Jurcevich uses the two-variance method of analyzing factory overhead, calculate the following variances from standard cost:
(1) Flexible-budget variance
(2) Production-volume variance
(b) Prepare the journal entry to apply factory overhead to work in process and record the variances.
(a)
(1) Flexible-budget variance:

Budget based on standard hours allowed:
Variable cost:
5,200 units produced ´ 1.5 hours per unit =
7,800 hrs. ´ $3 per hr. $23,400
Fixed cost: $90,000 / 12 months 7,500
Total budget 30,900
Unfavorable flexible-budget variance $ 2,400
(2) Production-volume variance:

Budget (see above) $30,900
Standard hours allowed ´ standard rate:
(5,200 units ´ 1.5 hours = 7,800 hours ´ $4.00) 31,200
Favorable production-volume variance $ 300
(b)
Work in process (7,800 hours x $4.00) 31,200
Factory overhead flexible-budget variance 2,400
Factory overhead production-volume variance 300
Factory overhead 33,300
87. Palek Company has adopted the following standards:
Input Total
Direct materials 3 lbs. @ $3.60 per $10.80
lb.
hr.
Factory overhead:
labor hour
labor hour
Palek's January budget was based on normal volume of 40,000 standard labor hours. During January, Palek produced 7,900 units with records
Direct materials purchased 25,000 lbs. @ $3.65

Direct materials used 23,400 lbs.
Direct labor 39,900 hrs. @ $11.85
Assuming Palek uses the four-variance method of analyzing factory overhead, compute the following variances for the month of January and indicate
a. Variable overhead spending variance

b. Variable overhead efficiency variance
c. Fixed overhead spending variance
d. Fixed overhead production-volume variance
Variable overhead spending variance = Actual variable overhead - (actual hours x standard variable rate per
hour)
Variable overhead spending variance = $165,000* - (39,900 x $4)
Variable overhead spending variance = $165,000 - $159,600 = $5,400 unfavorable
(actual in excess of standard)
*$375,000 - $210,000 = $165,000
Variable overhead efficiency variance = (Actual hours -standard hours allowed) x standard variable rate per
hour)
Variable overhead efficiency variance = (39,900 - 39,500**) x $4 = $1,600 unfavorable
(actual hours in excess of standard hours)
** 7,900 units x 5 hours per unit = 39,500
Fixed overhead spending variance = Actual fixed overhead - Budgeted fixed overhead
Fixed overhead spending variance = $210,000 - $200,000*** = $10,000 unfavorable
(actual exceeded budget)
*** 40,000 normal hours x $5.00 per hour = $200,000
Fixed overhead production-volume variance = Budgeted fixed overhead - (standard hours allowed x fixed rate
per hour)
Fixed overhead production-volume variance = $200,000 - (39,500 x $5)
Fixed overhead production-volume variance = $200,000 - $197,500 = $2,500 unfavorable
(standard hours allowed were less than normal hours)
88. Paul Manufacturers has adopted the following standards:
Input Total
hr.
Factory overhead:
labor hour
labor hour
Paul's January budget was based on normal volume of 100,000 standard labor hours. During January, Paul produced 26,000 units with records

Assuming Paul uses the three-variance method of analyzing factory overhead, compute the following variances for the month of January and indicate
a. Factory overhead spending variance

b. Factory overhead production-volume variance
c. Factory overhead efficiency variance
(a) Factory overhead spending variance:
Budgeted total factory overhead for actual hours worked
(106,000 ´ $2.00) + (100,000 ´ $3.00) 512,000
Factory overhead spending variance $ 5,000 unfavorable
(b) Factory overhead production-volume variance:

Budgeted total factory overhead for actual hours worked $512,000
Actual hours worked at standard rate (106,000 ´ $5) 530,000
Factory overhead production-volume variance $ 18,000 favorable
(c) Factory overhead efficiency variance:

Actual hours worked at standard rate $530,000
Applied total factory overhead (standard hours allowed at standard rate (26,000 ´ 4
hrs. ´ $5.00) 520,000
Factory overhead efficiency variance $ 10,000 unfavorable

Chapter 8: Standard Cost Accounting - Materials, Labor, and Factory Overhead

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Chapter 8: Standard Cost Accounting - Materials, Labor, and Factory Overhead

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CHAPTER 8: STANDARD COST ACCOUNTING--

MATERIALS, LABOR, and FACTORY OVERHEAD

1. The purpose of standard costing is to:

3. Characteristics of ideal standards include all of the following except:

4. A manufacturer generally wants to set a standard that:

Manufacturing costs and selling and administrative expenses follow:

Fixed Costs Variable Costs

What is the standard cost of manufacturing a unit of product?

Standard unit price $1.75

What is the materials quantity variance?

Actual units of direct materials used 20,000

What was Ben's standard quantity of material allowed?

Actual direct labor hours 5,600

The labor rate variance is:

Actual direct labor hours 16,000

What was Lee's standard direct labor rate?

19. An unfavorable labor efficiency variance is the:

20. Information relating to direct labor for Brussels, Inc. follow:

Actual direct labor hours 8,200

The labor efficiency variance is:

Standard rate $8.00 per hour

What are actual hours worked?

Actual direct labor hours 18,000

What was Earl's direct labor efficiency variance?

23. The direct labor costs for Boundary Company follow:

Standard direct labor hours 34,000

What was Boundary's standard direct labor rate?

Standard unit price $1.75

What is the materials purchase price variance?

Standard materials allowed $12,000

Actual payroll $20,000

26. The following information pertains to William Company:

Standard materials allowed $25,000

Actual payroll $30,000

Actual direct labor hours 5,600

The entry to record the direct labor cost is:

Standard costs per unit follow:

What is entry to record the finished goods?

Standard unit price $1.75

What is the entry to record the purchase of materials?

Standard unit price $3.30

What is the entry to record material usage?

Budgeted fixed factory overhead costs $ 70,000

The flexible-budget variance for February is:

Actual hours used 16,500

The actual factory overhead incurred in October is:

Actual direct labor hours used 16,500

What was Monroe's production-volume variance for April?

The applied factory overhead in October is:

Actual variable factory overhead $95,000

What is the net factory overhead variance?

Standard direct labor hours per unit .5 hours

Standard direct labor hours per unit .5 hours

Standard direct labor hours per unit .5 hours

Standard direct labor hours per unit .5 hours

73. The following information is available from the Arugula Company:

Actual factory overhead $16,800

74. The following information is available from the Arugula Company:

Actual factory overhead $16,800

Actual factory overhead $16,800

Standard Standard Standard

a. Compute the material quantity and labor efficiency variances.

Units produced 7,900