STANDARD COSTING

EXERCISES

PROBLEM 1

P&G company produces many products for household use. Company sells products to
storekeepers as well as to customers. Detergent-DX is one of the products of P&G. It is a cleaning
product that is produced, packed in large boxes and then sold to customers and storekeepers.

P&G uses a traditional standard costing system to control costs and has established the following
materials, labor and overhead standards to produce one box of Detergent-DX:

• Direct materials; 1.5 pounds @ $12 per pound: $18.00

• Direct labor; 0.6 hours $24 per hour: $14.40
• Variable manufacturing overhead; 0.6 hours @ $5.00: $3.00

During August 2022, company produced and sold 3,000 boxes of Detergent-DX. 8,000 pounds of
direct materials were purchased @ $11.50 per pound. Out of these 8,000 pounds, 6,000 pounds
were used during August. There was no inventory at the beginning of August. 1600 direct labor
hours were recorded during the month at a cost of $40,000. The variable manufacturing overhead
costs during August totaled $7,200.

Required:

1. Compute materials price variance and materials quantity variance. (Assume that the
materials price variance is computed at the time of purchase.)
2. Compute direct labor rate variance and direct labor efficiency variance.
3. Compute variable overhead spending variance and variable overhead efficiency
variance.
PROBLEM 2

The Exide company is a single product company and uses a standard costing system to control
its various production costs. The standard and actual costs data for the most recent month to
produce one unit of product is given below:

During the most recent month, 4,800 units of product were produced. The comparison of standard
and actual cost on the basis of total cost is given below:

During the month, the company purchased 21,120 kilograms of materials from its vendors. There
was no inventory of materials in stock at the start and at the end of month.

Required:

1. (a) Compute direct materials price and quantity variances.

(b) Make journal entries to record direct materials related activities during the month.
2. (a) Compute direct labor rate and efficiency variances.
(b) Make journal entry to record direct labor direct labor cost during the month.
3. Compute variable manufacturing overhead spending and efficiency variances.
4. The total cost variance of $576 is only 0.25% of $235,008 standard cost which means
the company’s costs are well under control. Do you agree? Explain.
 5. What are possible causes of variances that you have computed in part 1, 2 and 3.

PROBLEM 3

Exenco Global is a large company that produces a lot of products. One of the product is a paint
that is stored in containers. The variable standard cost per container is given below:

Quantity / Per liter / Per Standard

Hours hour cost
Direct materials 6 liters $2 $12
Direct labor 1 hour $9 $9
Variable manufacturing
1 hour $6 $6
overhead
——–
$24
——–

The direct materials to produce this product is available in liquid form. During May, 60,000 liters
of direct materials were purchased and 38,000 liters were sent to production department. The
production for the month of May was 6,000 containers.

The following costs were incurred during May.

Actual cost of materials purchased $114,000

Actual direct labor cost $55,900
Actual variable manufacturing overhead cost $40,950
Variable manufacturing overhead efficiency
$3,000 Unfavorable
variance

Required:

1. Compute actual direct labor hours worked during the month of May.
2. Compute variable manufacturing overhead spending variance.
3. Prepare journal entries to record materials and labor related activities during May.

PROBLEM 4

Sapna company produces a single product known as product X. The company has set the
following direct materials and direct labor standards for product X:
During the month of August, the company produced 1,400 units of product X. A total of 6,000
pounds of direct materials was purchased at a total cost of $33,000. The total direct labor cost for
the month was $57,000. All materials purchased during the month was used in production. There
was no direct materials inventory on hand at the start and at the end of August.

Someone from the company’s management has computed the following three variances:

• Total materials variance: $600 favorable

• Direct materials quantity variance: $2,400 unfavorable
• Direct labor efficiency variance: $9,000 favorable

Required:

1. Compute the standard price per pound of materials.

2. Compute the standard quantity of materials allowed for actual production.
3. Compute the standard quantity of direct materials allowed for one unit of product X.
4. Compute the actual direct labor cost per hour for month of August.
5. Compute the direct labor rate variance. Also indicate whether it is favorable or
unfavorable.

PROBLEM 5

Fine Electronics, Inc., manufactures a number of electronic products. The following variable
cost standards have been set for product K.

During the month of May, 900 direct labor hours were actually worked and 500 units of product
K were manufactured. The actual cost per unit manufactured during May was $0.28 higher than
the standard cost.

The following costs and variances information relates to the month of May:
Required: Compute the followings:

1. Total standard cost of materials used for actual production during May.
2. Standard quantity of materials per unit of product K.
3. Materials price variance for May.
4. Standard direct labor rate per hour.
5. Direct labor rate and efficiency variance.
6. Variable overhead spending and efficiency variance.