STANDARD COST VARIANCE ANALYSIS

Terminologies in Variance Analysis

1. Standards - Standards are benchmarks or “norms” for measuring performance.
Two types of standards are commonly used.
a. Quantity standards specify how much of an input should be used to make a product
or provide a service.
b. Cost (price) standards specify how much should be paid for each unit of the input.

Budget vs. Standard

- A budget is set for total costs.
- A standard is an ideal cost per unit. Standards are often used when preparing
budgets.

2. Standard Costs
3. Management by Exception
4. Variance
5. Cost variance
6. Favorable vs. Unfavorable variance
7. Material cost variance
8. Materials price variance
9. Materials usage or quantity variance
10. Labor cost variance
11. Labor rate variance
12. Labor efficiency variance
13. Mix variance
14. Yield variance
15. Factory overhead cost variance
16. Controllable variance
17. Volume variance

Purpose of Standard Costs:

1. establishing budgets
2. controlling costs and measuring efficiencies
3. promoting possible cost reduction
4. simplifying costing procedures & expediting cost reports
5. assigning costs to inventories
6. basis for establishing bids & contracts, & selling prices

Variance Analysis Cycle

1. Prepare standard cost performance report
2. Analyze variances
3. Identify questions
4. Receive explanations
5. Take corrective actions
6. Conduct next period’s operations

Setting Standard Costs

- Accountants, engineers, purchasing agents, and production managers combine efforts to
set standards that encourage efficient future production.

Standards
1. ideal standards - require employees to work at 100 percent peak efficiency
2. practical standards - currently attainable with reasonable and efficient effort.

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Formulas

1. Materials Cost Variance:

a. Two way analysis:
Materials Price Variance (AP-SP) X AQ P XXX
Usage/ Quantity Variance (AQ-SQ) X SP XXX
Materials Cost Variance P XXX

b. Three way analysis:

Materials Price Variance (AP-SP) X SQ P XXX
Materials Quantity Variance (AQ-SQ) X SP XXX
Price-Quantity Variance (AP-SP) X (AQ-SQ) XXX
Materials Cost Variance P XXX

2. Labor Cost Variance:

a. Two way analysis:
Labor Rate Variance (AR-SR) X AH P XXX
Labor Efficiency Variance (AH-SH) X SR XXX
Labor Cost Variance P XXX

b. Three way analysis:

Labor Rate Variance (AR-SR) X SH P XXX
Materials Quantity Variance (AH-SH) X SR XXX
Rate-Efficiency Variance (AR-SR) X (AH-SH) XXX
Labor Cost Variance P XXX

3. Factory Overhead Cost Variance:

a. Two way analysis:
Controllable Variance
AFOH PXXX
BASH: Fixed PXXX
Variable (SH X VOHR) XXX XXX PXXX

Volume or Capacity Variance

BASH PXXX
SH X SFOHR XXX XXX
Factory Overhead Cost Variance PXXX

b. Three-way analysis:
Spending Variance
AFOH PXXX
BAAH: Fixed PXXX
Variable (AH X VOHR) XXX XXX PXXX

Efficiency Variance
BAAH PXXX
BASH: Fixed PXXX
Variable (SH X VOHR) XXX XXX XXX

Capacity or Volume Variance

BASH PXXX
SH X SFOHR XXX XXX

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 Factory Overhead Cost Variance PXXX

c. Four-way Analysis:
Variable Spending Variance
Act. Var. PXXX
Var. @ AHrs XXX XXX

Fixed Spending Variance

Act. Fxd. PXXX
Bud. Fxd. XXX XXX

Variable Efficiency Variance

(AH-SH) X Var OHRate XXX

Idle Capacity Variance

(BH-SH) X Fixed OHRate XXX
Factory Overhead Cost Variance PXXX

Nature of Abbreviations:
1. AFOH = Actual Fixed Overhead
2. AH = Actual Hours
3. AP = Actual Price
4. AQ = Actual Quantity
5. AR = Actual Rate
6. BAAH = Budget Allowed on Actual Hours
7. BASH = Budget Allowed on Standard Hours
8. BFOH = Budgeted Fixed Overhead
9. BH = Budgeted Hours
10. NC = Normal Capacity
11. SFOH = Standard Factory Overhead
12. SFOHR = Standard Factory Overhead Rate
13. SH = Standard Hours
14. SP = Standard Price
15. SQ = Standard Quantity
16. SR = Standard Rate
17. VOHR = Variable Overhead Rate

REVIEW QUESTIONS

1. A fixed overhead volume variance based on standard direct labor hours measures
a. deviation from standard direct labor hour capacity
b. deviation from the normal, or denominator, level of direct labor hours
c. Fixed overhead efficiency
d. fixed overhead use
b
2. If overhead is applied on the basis of units of output, the variable overhead efficiency
will
a. zero
b. favorable, if output exceeds the budgeted level
c. unfavorable, if output is less that the budgeted level
d. a function of the direct labor efficiency variance
a
3. In analyzing company operations, the controller of the Jason Corporation found a
P250,000 favorable flexible-budget revenue variance. The variance was calculated by
comparing the actual results with the flexible budget. This variance can be wholly
explained by

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 a. the total flexible budget variance c. the total static budget variance
b. the total sales volume variance d. changes in unit selling prices
d
4. Which of the following is least likely to be involved in establishing costs for evaluation
purposes?
a. budgetary accountants c. sales manager
b. cost accounting manager d. purchasing manager
c
5. Under a standard cost system, labor price variances are usually not attributable to
a. union contracts approved before the budgeting cycle
b. labor rate productions
c. the use of a single average standard rate
d. the assignment of different skill levels of workers than planned
a
6. The production volume variance occurs when using
a. The absorption costing approach because of production exceeding the sales.
b. The absorption costing approach because production differs from that use in setting
the fixed overhead rate used in applying fixed overhead to production.
c. The variable costing approach because of sales exceeding the production for the
period.
d. The variable costing approach because of production exceeding the sales for the
period.
b
7. A favorable materials price variance coupled with an unfavorable materials usage
variance would most likely result from
a. machine efficiency problems
b. product mix production changes
c. the purchase of lower than standard quality materials
d. labor efficiency problems
c
8. Tower Company planned to produce 3,000 units of its single product Titanium, during
November, the standard specifications for one unit of Titanium include six pound of
materials at P0.30 per pound. Actual production in November was 3,100 units of
Titanium. The accountant computed a favorable materials purchase price variance of
P380 and an unfavorable materials quantity variance of P120. Based on these variances,
one could conclude that
a. more materials were purchased than were used
b. more materials were used than were purchased
c. the actual cost of materials was less than the standard cost
d. the actual usage of materials was less than the standard allowed
c
9. An unfavorable labor efficiency variance could be caused by a/an
a. unfavorable variable overhead spending variance
b. unfavorable materials usage variance
c. unfavorable fixed overhead volume variance
d. favorable variable overhead spending variance
b
10. A standard costing system is most often used by a firm in conjunction with
a. management by objectives
b. target (hurdle) rates of return
c. participative management programs
d. flexible budgets
d
11. Price variances and efficiency variances can be key to the performance management
within a company. In evaluating the performance within a company, a materials
efficiency variance can be caused by all of the following except the
a. performance of the workers using the material

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 b. actions of the purchasing department
c. design of the product
d. sales volume of the product
d
12. For a company that produces more than one product, the sales volume variance can be
divided into which two of the following additional variances?
a. sales price variance and flexible budget variance
b. sales mix variance and sales price variance
c. sales efficiency variance and sales price variance
d. sales quantity variance and sales mix variance
d
13. The production volume variance is due to
a. inefficiency or efficient use of direct labor hours
b. efficient or inefficient use of variable overhead
c. difference from the planned level of the base used for overhead allocation and the
actual level achieved
d. excessive application of direct labor hours over the standard amounts for the
output level actually achieved
c
14. The variance that arises solely because the quantity actually sold differs from the
quantity budgeted to be sold is
a. static budget variance c. sales mix variance
b. master budget increment d. sales volume variance
d
15. Variable overhead is applied on the basis of standard direct labor hours. If, for a given
period, the direct labor efficiency variance is unfavorable, the variable overhead
efficiency variance will be
a. favorable
b. unfavorable
c. zero
d. the same amount as the labor efficiency variance
b
16. The variance in an absorption costing system that measures the departure from the
denominator level of activity that was used to set the fixed overhead rate is the
a. spending variance c. sales volume variance
b. efficiency variance d. production volume variance
d
17. The efficiency variance for either labor or material can be subdivided into
a. spending variance and yield variance c. volume variance and price
variance
b. yield variance and price variance d. yield variance and mix variance
d
18. In a standard cost system, the investigation of an unfavorable material usage variance
should begin with the
a. production manager only
b. plant controller only
c. purchasing manager only
d. production manager and/or the purchasing manager
d
19. Which of the following variances is most controllable by the production control
supervisor?
a. material price variance
b. material usage variance
c. variable overhead spending variance
d. fixed overhead budget variance
b

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20. You used predetermined overhead rates and the resulting variances when compared
with the results using actual rates were substantial. Production data indicated that
volumes were lower than plan by a large difference. This situation can be due to
a. Overhead being substantially composed of fixed cost
b. Overhead being substantially composed of variable cost
c. Overhead costs being recorded as planned
d. Products being simultaneously manufactured in single runs
a
21. For the doughnuts of MC Donut Co., the Purchasing Manager decided to buy 65,000
bags of flour with a quality rating two grades below that which the company normally
purchased. This purchase covered about 90% of the flour requirement for the period.
As to the material variances, what will be the likely effect?
a. Unfavorable price variance, favorable usage variance
b. Favorable price variance, unfavorable usage variance
c. No effect on price variance, unfavorable usage variance
d. Favorable price variance, favorable usage variance
b
22. In gross profit analysis, if the cost price variance is zero, such variance indicates that
a. Manufacturing management was unable to keep production costs at budgeted costs
b. Manufacturing management was able to control production cost below budgeted
costs
c. Manufacturing management was able to control production costs at budgeted costs
d. Manufacturing management was able to control production costs at budgeted
costs but purchasing was unable to keep at budgeted purchase price
c
23. Management scrutinizes variances because
a. Management desires to detect such variances to be able to plan for promotions
b. Management needs to determine the benefits forgone 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
24. What standard cost variance represents the difference between actual factory overhead
incurred and budgeted factory overhead based on actual hours worked?
a. Volume variance c. Efficiency variance
b. Spending variance d. Quantity variance
b
25. Under the three variance method for analyzing factory overhead, which of the following
is used in the computation of the spending variance?
Budget allow. Budget Allow.
based based
on actual hours on standard
hours
a. Yes No
b. Yes Yes
c. No Yes
d. No No
a
26. Under the three variance method for analyzing factory overhead, the difference between
the actual factory overhead and the budget allowance based on actual hours is the
a. Efficiency variance c. Volume variance
b. Spending variance d. Idle capacity variance
b
27. Under the three variance method for analyzing factory overhead, the difference between
the actual factory overhead and the factory overhead applied to production is the
a. Net overhead variance c. Efficiency variance
b. Controllable variance d. Spending variance

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a
28. Under the three variance method for analyzing factory overhead, which of the following
is used in the computation of the spending variance?
Budget allow. Factory overhead
based applied
on std. hours to production
a. Yes Yes
b. Yes No
c. No Yes
d. No No
d
29. Under the two variance methods for analyzing factory overhead, the difference between
the actual factory overhead and the budget allowance based on standard hour allowed is
the
a. Net overhead variance
b. Efficiency variance
c. Volume variance
d. Controllable variance
d
30. Information on Kenny Corporation’s direct material cost is as follows:
Standard unit price P3.60
Actual 1,600
Standard quantity allowed for actual production 1,450
Materials purchase price variance-favorable P240
What was the actual purchase price per unit, rounded to the nearest centavo?
a. P3.06 b. P3.11 c. P3.45 d.
P3.75

31. Durable Company install shingle roofs on houses. The standard material cost for a Type
R house is P1,250,000, based on 1,000 units at a cost of P12.50 each. During April,
Durable installed roofs on 20 Type R houses, using 22,000 units of material at a cost of
P12.00 per unit, and a total cost of P264,000. Durable’s material price variance for April
is
a. P10,000 f b. P11,000 f c. P14,000 u d. P25,000 u

32. Boots Company manufactures desks with vinyl tops. The standard material cost for the
vinyl used for Model S desk is P27.00, based twelve square feet of vinyl at a cost of
P2.25 per square foot. A production run for 1,000 desks in March resulted in usage of
12,600 square feet of vinyl at a cost of P2.00 per square foot, a total cost of P25,200.
The usage variance resulting from the above production run was
a. P1,200 u b. P1,350 u c. P1,800 f d. P3,150 f

33. Information on Barb Company's direct labor costs for the month of January is as follows:
Actual direct labor hours 34,500
Standard direct labor hours 35,000
Total direct labor payroll P 241,500
Direct labor efficiency variance - favorable P 3,200
What is Barb's direct labor rate variance?
a. P 17,250 u b. P20,700 u c. P21,000 u d. P21,000 f

34. Thorp Co.'s records for April disclosed the following data relating to direct labor:
Actual cost P10,000
Rate variance 1,000 favorable
Efficiency variance 1 ,500 unfavorable
Standard cost P 9,500
Actual direct labor hours for April amounted to 2,000. Thorp's direct labor rate per hour
in April was

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 a. P5.50 b. P5.00 c. P4.75 d.
P4.50

35. Tiger Company's direct labor costs for the month of January were as follows:
Actual direct labor hours 20,000
Standard direct labor hours 21,000
Direct labor rate variance - unfavorable P 3,000
Total payroll P126,000
What was Tiger's direct labor efficiency variance?
a. P6,000 f b. P6,150 f c. P6,300 f d. P6,450 f

36. Information on West Company's direct labor costs is as follows:

Standard direct labor hours 10,000
Standard direct labor rate P3.75
Actual direct labor rate P3.50
Direct labor usage variance - unfavorable P4,200
What were the actual hours worked rounded to the nearest hour?
a. 10,714 b. 11,120 c. 11,200 d.
11,914

37. Tube Co. uses a standard cost system. The following information pertains to direct labor
for Product B for the month of October.
Standard hours allowed for actual production 2,000
Actual rate paid per hour P 8.40
Standard rate per hour P 8.00
Labor efficiency variance-unfavorable P1,600
What were the actual hours worked?
a. 1,800 c. 2,190
b. 1,810 d. 2,200

38. Information on Town Company's direct labor costs for May is as follows:
Standard direct labor rate P 6.00
Actual direct labor rate P 5.80
Standard direct labor hours 20,000
Actual direct labor hours 21,000
Direct labor rate variance - favorable P4,200
What is Town's total direct labor payroll for May?
a. P116,000 c. P120,000
b. P 117,600 d. P121,800

39. Salve Corp.'s direct labor costs for the month of March is as follows:
Standard direct labor hours 42,000
Actual direct labor hours 40,000
Direct labor rate variance - favorable P8,400
Standard direct labor rate per hour P6.30
What was Salve's total direct labor payroll for the month of March?
a. P243,600 c. P260,000
b. P244,000 d. P260,400

40. Goodman Company's direct labor costs are presented below:

Standard direct labor hours 30,000
Actual direct labor hours 29,000
Direct labor usage variance - favorable P4,000
Direct labor rate variance – favorable P5,800
Total payroll P 110,200
1) What was Goodman's standard direct labor rate?
a. P3.54 c. P4.00

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 b. P3.80 d. P5.80

2) What was Goodman's actual direct labor rate?

a. P3.60 c. P4.00
b. P3.80 d.P5.80

41. The following information is available from the Tyrone Company:

Actual factory overhead P15,000
Fixed overhead expenses - actual P 7,200
Fixed overhead expenses – budgeted P 7,000
Actual hours 3,500
Standard hours 3,800
Standard variable rate P2.50 / hr.
Assuming that Tyrone uses a 3-way analysis of overhead variances, what is the spending
variance?
a. P750 favorable c. P950 favorable
b. P750 unfavorable d. P1,500 unfavorable

42. Wind Inc. uses a standard cost system. Overhead cost information for Product XO for the
month of October is as follows:
Total actual overhead incurred P 12,600
Fixed overhead budgeted P 3,300
Total standard overhead rate per DLH P 4
Variable overhead rate per DLH P 3
Standard hours allowed for actual production 3,500
What is the overall or net overhead variance?
a. P1,200 favorable c. P1,400 favorable
b. P2,200 unfavorable d. P1,400 unfavorable

43. Information of Over Company's overhead costs is as follows:

Standard applied overhead P80,000
Budgeted O/H based on standard DLH allowed 84,000
Budgeted O/H based on actual DLH 83,000
Actual overhead 86,000
What is the total overhead variance?
a. P2.000 unfavorable c. P4,000 favorable
b. P3,000 favorable d.P6,000 unfavorable

44. Juan Company uses a flexible budget system and prepared the following information for
the year.
Percent of Capacity 80% 90%
Direct labor hours 24,000 27,000
Variable factory overhead P 48,000 P 54,000
Fixed factory overhead P108,000 P 108,000
Total factory overhead rate per DLH P6.50 P6.00
Juan operated at 80% of capacity during the year, but applied factory overhead based on
the 90% capacity level. Assuming that actual factory overhead was equal to the
budgeted amount of overhead variance during the year, compute for the under/over
applied overhead?
a. P6,000 over absorbed c. P12,000 over absorbed
b. P6,000 under absorbed d. P12,000 under absorbed

45. Dark Company had total under applied overhead of P15,000. Additional data:
Variable:
Applied based on standard DLH allowed P42,000
Budget based on standard DLH 38,000
Fixed:

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 Applied based on standard DLH allowed P30,000
Budget based on standard DLH 27,000
What is the actual total overhead?
a. P50,000 c. P80,000
b. P57,000 d. P87,000

46. Compute the variable overhead efficiency variance using the following data:
Standard labor hours per good unit produced 2
Good units produced 1,000
Actual labor hours used 2,100
Standard variable overhead per standard labor hours P 3
Actual variable overhead P6,500
a. 200 favorable c. 300 favorable
b. 200 unfavorable d. 300 unfavorable

47. Using the information presented below, calculate the total overhead spending variance:
Budgeted fixed overhead P10,000
Standard variable overhead (2DLH @ P2 per DLH) P4 per unit
Actual fixed overhead P10,300
Actual variable overhead P19,500
Budgeted Volume (5,000 units x 2 DLH) 10,000 DLH
Actual direct labor hours (DLH) 9,500
Units produced 4,500
a. P500 unfavorable c. P1,000 unfavorable
b. P800 unfavorable d. P1,300 unfavorable

48. Union Company uses a standard cost accounting system. The following overhead costs
and production data are available for August:
Standard fixed overhead rate per DLH P 1
Standard variable overhead rate per DLH P 4
Budgeted monthly DLH 40,000
Actual DLH worked 39,500
Standard DLH allowed for actual production 39,000
Overall overhead variance - favorable P2,000
The applied factory overhead for August should be
a. P195,000 c. P197,500
b. P197,000 d. P199,500

49. Nil Company uses a predetermined factory overhead application rate based on direct
labor cost. For the year ended December 31. Nil's budgeted factory overhead was
P600,000, based on a budgeted volume of 50,000 direct labor hours at a standard direct
labor rate of P6 per hour. Actual factory overhead amounted to P620,000, with actual
direct labor cost of P325,000. For the year, over applied factory overhead was
a. P20,000 c. P30,000
b. P25,000 d. P50,000

50. Information on Rip Company's overhead costs for the January production activity is as
follows:
Budgeted fixed overhead P 75,000
Standard fixed overhead rate per DLH P 3
Standard variable overhead rate per DLH P 6
Standard DLH allowed for actual production 24,000
Actual total overhead incurred P220,000
Rip has a standard absorption and flexible budgeting system, and uses the two-variance
method (two-way analysis) for overhead variances. The volume (denominator) variance
for January is
a. P3,000 unfavorable c. P4,000 unfavorable

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 b. P3,000 favorable d. P4,000 favorable

51. Alden Company has a standard absorption and flexible budgeting system and uses
two-way analysis of overhead variances. Selected data for the February production
activity are:
Budgeted fixed factory overhead costs P 64,000
Actual factory overhead incurred P230,000
Variable factory overhead rate per DLH P 5
Standard DLH 32,000
Actual DLH 32,000
The budget (controllable) variance for February is
a. P1,000 favorable c. P6,000 unfavorable
b. P1,000 unfavorable d. P6,000 favorable

52. Battier Corp.'s master budget calls for the production of 5,000 units of product monthly.
The master budget includes indirect labor of P144,000 annually; Battier considers
indirect labor to be a variable cost. During the month of April, 4,500 units of product
were produced and indirect labor costs of P10,100 were incurred. A performance report
utilizing flexible budgeting would report a budget variance for indirect labor of
a. P1,900U c. P1,900F
b. P700F d. P700U

53. Universal Company uses a standard cost system and prepared the following budget at
normal capacity for the month of January:
Direct labor hours 24,000
Variable factory overhead P 48,000
Fixed factory overhead P 108,000
Total factory overhead per DLH P 6.50

Actual data for January were as follows:

Direct labor hours worked 22,000
Total factory overhead P147,000
Standard DLH allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the budget (controllable)
variance for January?
a. P3,000 favorable c. P9,000 favorable
b. P5,000 favorable d. P10,500 unfavorable

54. Mars Company uses a two-way analysis of overhead variance. Selected data for the April
production activity are as follows:
Actual variable overhead incurred P196,000
Variable factory overhead rate per DLH P 6
Standard DLH allowed 33,000
Actual DLH 32,000
Assuming that budgeted fixed overhead costs are equal to actual fixed costs, the budget
(controllable) variance for April is
a. P2,000 favorable c. P4,000 favorable
b. P4,000 unfavorable d. P6,000 favorable

Questions 55 to 58 are based on the following information:

Dwarf Company, which applies overhead on the basis of direct labor hours. Two direct
labor hours are required for each product unit. Planned production for the period was
set at 9,000 units. Manufacturing overhead is budgeted at P 135,000 for the period, of
which 20% of this cost is fixed. The 17,200 hours worked during the period resulted in
production of 8,500 units. Variable manufacturing overhead cost incurred was P108,500

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 and fixed manufacturing overhead cost was P28,000. Dwarf Company uses a
four-variance method for analyzing manufacturing overhead.

55. The variable overhead spending variance for the period is

a. P5,300 unfavorable c. P1,200 unfavorable
b. P6,300 unfavorable d. P6,500 unfavorable

56. The variable overhead efficiency (quantity) variance for the period is
a. P5,300 unfavorable c. P1,500 unfavorable
b. P1,200 unfavorable d.P6,500 unfavorable

57. The fixed overhead budget (spending) variance for the period is
a. P6,300 unfavorable c.P1,500 unfavorable
b. P2,500 unfavorable d. P1,000 unfavorable

58. The fixed overhead volume (denominator) variance for the period is
a. P750 unfavorable c. P1,500 unfavorable
b. P2,500 unfavorable d. P1,000 unfavorable

59. The following information pertains to overhead for the month of April:
Budgeted fixed overhead per month P 13,500
Actual direct labor hours 4,460
Standard hours 4,200
Normal hours 4,500
What is the overhead volume variance?
a. P 120 U. b. P700 U c. P900 U d. P900 F

60. TY Company uses a standard cost system. The following information pertains to factory
overhead for the month of October:
Actual variable overhead P36,270
Standard variable overhead rate P4.00/DLH
Actual production 3,980 units
Standard production time 2DLH/ unit
The actual fixed overhead is the same as the budgeted fixed overhead. What is the
controllable variance?
a. P 4,340 U. b. P4,340 F c. P4,430 F d. P4,430 U

61. The standard direct material cost to produce a unit of LM is 4 meters of material at
P2.50 per meter. During May, 4,200 meters of material costing P10,080 were purchased
and used to produce 1,000 units of LM. What was the materials price variance for May?
a. P400 f b. P420 f c. P80 u d. P480
u

62. YC Company manufactures one product with a standard direct manufacturing labor cost
of 4 hours at P12 per hour. During October, 1,000 units were produced using 4,100
hours at P12.20 per hour. The unfavorable direct labor efficiency variance was
a. P1,220 b. P1,200 c. P820 d. P400

63. JKL Company has a total budgeted fixed costs of P75,000. Actual production of 19,500
units resulted in a P3,000 favorable volume variance. What normal capacity was used to
determine the fixed overhead rate?
a. 18,750 c. 17,590
b. 20,313 d. 16,500

64. MNO Company applies overhead at P5 per direct labor hour. In March, MNO incurred
overhead of P120,000. Under applied overhead was P5,000. How many direct labor
hours did MNO work?

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 a. 25,000 c. 24,000
b. 22,000 d. 23,000

65. Given for the variable factory overhead of GHI Products Inc.: P39,500 actual input at
budgeted rate; P41,500 flexible budget based on standard input allowed for actual
output; P2,500 favorable flexible budget variance. Compute the spending variance:
a. P500 unfavorable c. P500 favorable
b. P2,000 favorable d. P2,000 unfavorable

66. Information on ABC Company’s direct labor costs for the month of August is as follows:
Actual rate P7.50
Standard hours 11,00
0
Actual hours 10,00
0
Direct labor price variance- P5,00
unfavorable 0
What was the standard rate for August?
a. P8.05 c. P7.00
b. P6.95 d. P8.00

67. ABC Company uses the equation P300,000 + P1.75 per direct labor hour budget
manufacturing overhead. ABC has budgeted 125,000 direct labor hours for the year.
Actual results were 110,000 direct labor hours, P297,000 fixed overhead, and P194,500
variable overhead. What is the fixed overhead volume variance for the year?
a. P35,000 unfavorable c. P2,000 favorable
b. P36,000 unfavorable d. P3,000 favorable

68. The following data are presented:

Budgeted Actual
Production in units 50,000 55,000
Manufacturing overhead P750,000 P800,000
Sales in units no data 47,000
No beginning inventories
The under-applied or over-applied overhead is:
a. P25,000 under-applied
b. P25,000 over-applied
c. P75,000 under-applied
d. P75,000 over-applied

69. The following were among GC Company’s costs:

Normal spoilage P 5,000
Freight out 10,000
Excess of actual manufacturing costs over standard costs 20,000
Standard manufacturing cost 100,000
Actual prime manufacturing costs 80,000
GC’s actual manufacturing overhead was
a. P40,000 b. P45,000 c. P55,000 d. P120,000

70. The following information pertains to RC Company’s manufacturing operations:

Standard direct manufacturing labor hours per unit 2
Actual direct manufacturing labor hours 10,500
Number of units produced 5,000
Standard variable overhead per standard direct labor hour P 3
Actual variable overhead P28,000
RC’s unfavorable variable overhead efficiency variance was
a. P0 b. P1,500 c. P2,000 d. P3,500

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PROBLEM SOLVING
1. The following data pertain to the first week of operations during the month of February:
Materials: Actual purchases 1,500 units at P3.80 per unit
Actual usage 1,350 units
Standard usage 1,020 units at P4.00 per unit

Direct labor: Actual hours 310 hours at P12.10 per hour

Standard hours 340 hours at P12.00 per hour

Required: Compute the Materials and Labor variances.

2. Pia manufactures a cleaning solvent. The company employs both skilled and unskilled
workers. Skilled workers class C is paid P12 per hour, while unskilled workers class D
are paid P7 per hour. To produce one 55-gallon drum of solvent requires 4 hours of
skilled labor and 2 hours of unskilled labor. The solvent requires 2 different materials:
A and B. The standard and actual material information is given below:

Standard:
Material A: 30.25 gallon @ P1.25 per gallon
Material B: 24.75 gallon @ P2.00 per gallon

Actual:
Material A:10,716 gallons purchased and used @P1.50 per gal.
Material B: 17,484 gallons purchased and used @P1.90 per gal.
Skilled labor hours: 1,950 @ P11.90 per hour
Unskilled labor hours: 1,300 @ P7.15 per hour

During the current month Pia manufactured five hundred 55- gallon drums.

1) What is the total materials price variance?

2) What is the total materials mix variance?
3) What is the total materials yield variance?
4) What is the labor rate variance?
5) What is the labor mix variance?
6) What is the labor yield variance?

3. The standard costs per unit of material K-2 is P13.50 per pound. During the month,
4,500 pounds of K-2 were purchased at a total cost of P60,300. In addition, 4,000 pounds
of K-2 were used during the month; however, the standard quantity allowed for actual
production is 3,800 pounds.

Required: Compute the materials variances.

4. Drifters Company had budgeted 50,000 units of output using 50,000 units of raw
materials at a total material cost of P100,000. Actual output was 50,000 units of
product requiring 45,000 units of raw materials at a cost of P2.10 per unit.

Required: Compute the materials variances.

5. Information on Bridge Company's direct material costs is as follows:

Actual units of direct materials used 20,000
Actual direct materials cost P40,000
Standard price per unit of direct materials P 2.10
Direct materials efficiency variance - favorable P 3,000

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 What was Bridge's direct material price variance and total materials variance?

6. During the month, 1,200 units of Chad were produced. Actual direct labor required 650
direct labor hours at an actual total cost of P6,435. According to the standard cost card
for Chad, one-half hour of labor should be required per unit of Chad produced, at a
standard cost of P10 per labor hour.

Required: Compute the labor variances.

7. The normal capacity of Department C is 6,000 direct labor hours per month. At normal
capacity, the standard factory overhead rate is P22 per direct labor hour, based on
P96,000 of budgeted fixed expenses per month and a variable expense rate of P6 per
direct labor hour. During February, the department operated at 5,600 direct labor hours,
with actual factory overhead of P130,000 (P86,250 fixed). The number of standard
direct labor hours allowed for the production actually attained is 5,700.

Required: Determine the factory overhead variance

8. Clean Co. has developed the following standard factory overhead costs for each K2 unit
assembled in Department F, based on a monthly capacity of 80,000 direct labor hours:

Variable overhead 2 hours @ P6 per hour P 12

Fixed overhead 2 hours @ P3 per hour 6
Department F factory overhead per unit of K2 P 18

During the month of February, 38,000 units of K2 were actually produced. Actual direct
labor hours totaled 77,500, and actual factory overhead totaled P700,000 (P238,500
fixed).

Required: Determine the factory overhead variance

9. The following information relates to a given department of HUM Company for the fourth
quarter of the year:
Actual total overhead (Fixed plus variable) P178,500
Budget formula P110,000 plus P0.50 per hour
Total factory overhead application rate P1.50 per hour
Spending variance unfavorable P8,000
Volume variance favorable P5,000
The total overhead variance is divided into 3 variances: Spending, Efficiency, and
Volume.
1) What were the actual hours worked during the quarter?
2) What were the standard hours allowed for good output during the quarter?

Key Answers on Multiple Choice Questions:

1. B 11. D 21. B 31. B 41. A 51. C 61. B
2. A 12. D 22. C 32. B 42. C 52. B 62. B
3. D 13. C 23. D 33. B 43. D 53. A 63. A
4. C 14. D 24. B 34. B 44. D 54. A 64. D
5. A 15. B 25. A 35. B 45. D 55. A 65. C
6. B 16. D 26. B 36. B 46. D 56. B 66. C
7. C 17. D 27. A 37. D 47. B 57. D 67. B
8. C 18. D 28. D 38. D 48. A 58. C 68. B
9. B 19. B 29. D 39. A 49. C 59. D 69. A
10. D 20. A 30. C 40. C, B 50. A 60. D 70. B

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Answers on Problem Solving:
1. MPV - 270 UF MQV -1,320 F LRV - 31 UF LEV - 360 F
2. 1) 931 U 4) O
2) 3,596 U 5) 1,083 F
3) 1,111 U 6) 2,853 U
3. MPPV – 450 F MPV – 400 F MQV – 2,700 UF
4. MPV – 4,500 UF MQV – 10,000 F
5. MPV – 2,000 F TMPV – 5,000 F
6. LRV – 65 F LEV – 500 UF
7. 4,600 UF
8. Var spending 3,500 F
Fxd Spending 1,500 F
Efficiency 9,000 UF
Volume 1,200 UF
Total 16,000 UF
9. 1) 121,000 2) 115,000

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