Standard Costing & Variance Analysis

Standard Costs and Variance Analysis

STANDARD COSTS AND VARIANCE ANALYSIS

THEORIES:Standard cost system1. A primary purpose of using a standard cost system is

A. To make things easier for managers in the production facility.B. To provide a distinct measure of cost control.C. To minimize the cost per unit of production.D. b and c are correct

2. Which one of the following statements is true concerning standard costs?A. Standard costs are estimates of costs attainable only under the most ideal conditions, but

rarely practicable.B. Standard costs are difficult to use with a process-costing system.C. If properly used, standards can help motivate employees.D. Unfavorable variances, material in amount, should be investigated, but large favorable

variances need not be investigated.

3. Which of the following is a purpose of standard costing?A. Determine “breakeven” production levelB. Control costsC. Eliminate the need for subjective decisions by managementD. Allocate cost with more accuracy

4. When evaluating the operating performance management sometimes uses the difference between expected and actual performance. This refers to:A. Management by Deviation C. Management by ObjectiveB. Management by Control D. Management by Exception

Standard setting5. The best basis upon which cost standards should be set to measure controllable production

inefficiencies isA. Engineering standards based on ideal performanceB. Normal capacityC. Engineering standards based on attainable performanceD. Practical capacity

6. A company employing very tight (high) standards in a standard cost system should expect thatA. No incentive bonus will be paid.B. Most variances will be unfavorable.C. Employees will be strongly motivated to attain the standard.

D. Costs will be controlled better than if lower standards were used.

7. To measure controllable production inefficiencies, which of the following is the best basis for a company to use in establishing the standard hours allowed for the output of one unit of product?A. Average historical performance for the last several yearsB. Engineering estimates based on ideal performanceC. Engineering estimates based on attainable performanceD. The hours per unit that would be required for the present workforce to satisfy expected

demand over the long run

8. Which of the following statements about the selection of standards is true?A. Ideal standards tend to extract higher performance levels since they give employees

something to live up to.B. Currently attainable standards may encourage operating inefficiencies.C. Currently attainable standards discourage employees from achieving their full

performance potential.D. Ideal standards demand maximum efficiency which may leave workers frustrated, thus

causing a decline in performance.

Standard costs vs. budgeted costs9. A difference between standard costs used for cost control and the budgeted costs

representing the same manufacturing effort can exist becauseA. standard costs must be determined after the budget is completedB. standard costs represent what costs should be while budgeted costs represent expected

actual costsC. budgeted costs are historical costs while standard costs are based on engineering studiesD. budgeted costs include some “slack” or “padding” while standard costs do not

Process costing10. When standard costs are used in a process-costing system, how, if at all, are equivalent units

involved or used in the cost report at standard?A. Equivalent units are not used.B. Equivalent units are computed using a “special” approach.C. The actual equivalent units are multiplied by the standard cost per unit.D. The standard equivalent units are multiplied by the actual cost per unit.

Normal costing11. The fixed overhead application rate is a function of a predetermined “normal” activity level. If

standard hours allowed for good output equal this predetermined activity level for a given period, the volume variance will be

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A. ZeroB. FavorableC. UnfavorableD. Either favorable or unfavorable, depending on the budgeted overhead.

Types of standards12. The absolute minimum cost possible under the best conceivable operating conditions is a

description of which type of standard?A. Currently attainable (expected) C. TheoreticalB. Normal D. Practical

13. Standards, which are difficult to achieve due to reasons beyond the individual performing the task, are the result of firm using which of the following methods to establish standards?A. Ideal Standards C. Practical StandardsB. Lax Standards D. Employee Standards

14. Standards that represent levels of operation that can be attained with reasonable effort are called:A. Theoretical standards C. Variable standardsB. Ideal standards D. Normal standards

VariancesGeneric variances15. When performing input/output variance analysis in standard costing, “standard hours allowed”

is a means of measuringA. Standard output at standard hours C. Actual output at standard hoursB. Standard output at actual hours D. Actual output at actual hours

Two way variancesVolume variance16. A company uses a two-way analysis for overhead variances: budget (controllable) and

volume. The volume variance is based on theA. Total overhead application rateB. Volume of total expenses at various activity levelsC. Variable overhead application rateD. Fixed overhead application rate

17. Assuming that the standard fixed overhead rate is based on full capacity, the cost of available but unused productive capacity is indicated by the:A. Factory overhead cost volume varianceB. Direct labor cost efficiency variance

C. Direct labor cost rate varianceD. Factory overhead cost controllable variance

18. In analyzing manufacturing overhead variances, the volume variance is the difference between the:A. Amount shown in the flexible budget and the amount shown in the debit side of the

overhead control accountB. Predetermined overhead application rate and the flexible budget application rate times

actual hours workedC. Budget allowance based on standard hours allowed for actual production for the period

and the amount budgeted to be applied during the periodD. Actual amount spent for overhead items during the period and the overhead amount

applied to production during the period

19. The variance least significant for purposes of controlling costs is the:A. Material usage varianceB. Variable overhead efficiency varianceC. Fixed overhead spending varianceD. Fixed overhead volume variance

20. The variance most useful in evaluating plant utilization is the:A. Variable overhead spending varianceB. Fixed overhead spending variance.C. Variable overhead efficiency varianceD. Fixed overhead volume variance

Four way variances21. The choice of production volume as a denominator for calculating its factory overhead rate

A. Has no effect on the fixed factory overhead rate for applying costs to productionB. Has an effect on the variable factory overhead rate for applying costs to productionC. Has no effect on the fixed factory overhead budget varianceD. Has no effect on the fixed factory overhead production volume variance

22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to product are the same amountA. for both variable and fixed overhead costs.B. only when standard hours allowed is less than normal capacity.C. for variable overhead costs.D. for fixed overhead costs.

Responsibility for variances

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23. Which department is customarily held responsible for an unfavorable materials usage variance?A. Quality control C. PurchasingB. Engineering D. Production

Variance analysis24. Which of the following should be least considered when deciding whether to investigate a

variance?A. Whether the variance is favorable or unfavorableB. Significance of the varianceC. Cost of investigating the varianceD. Trend of the variances over time

Total materials variance25. 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 favorableB. Generally accepted accounting principles require that all variances be analyzed in three

stagesC. All variances must appear in the annual report to equity owners for proper disclosureD. To allow management to evaluate the efficiency of the purchasing and production

functions

Labor variances26. Which of the following unfavorable cost variances would be directly affected by the relative

position of a production process on a learning curve?A. Materials mix C. Labor rateB. Materials price D. Labor efficiency

27. Which of the following is the most probable reason with a company would experience an unfavorable labor rate variance and a favorable labor efficiency variance?A. The mix of workers assigned to the particular job was heavily weighted toward the use of

higherly paid, experienced individuals.B. The mix of workers assigned to the particular job was heavily weighted toward the use of

new, relatively low paid, unskilled workers.C. Because of the productive schedule, workers from other production areas were assigned

to assist in this particular process.D. Defective materials caused more labor to be used in order to produce a standard unit.

Two-way overhead variance

28. The budget for a given cost during a given period was P1,600,000. The actual cost for the period was P1,440,000. Considering these facts, it can be said that the plant manager has done a better than expected job in controlling the cost if:A. The cost is variable and actual production was 90% of budgeted productionB. The cost is variable and actual production equaled budgeted productionC. The cost is variable and actual production was 80% of budgeted productionD. The cost is discretionary fixed cost and actual production equaled budgeted production

Budget variance29. The budget variance for fixed factory overhead for the normal-volume, practical-capacity, and

expected-activity levels would be the:A. Same except for normal volume C. Same except for expected activityB. Same except for practical capacity D. Same for all three activity levels

Volume variance30. You have leased a 5,000-gallon storage tank for P5,000 per month. You stored 4,000 gallons

of liquid in the tank during the month. The cost of storage was P1.25 per gallon, rather than P1.00 per gallon based on 5,000 gallon capacity. Therefore, the cost of storing 4,000 gallons was P1,000 more (P.25 x 4,000) in total than if you had stored 5,000 gallons of liquid in the tank. Which variance is being described?A. Variable-overhead efficiency varianceB. Fixed-overhead spending varianceC. Variable-overhead spending varianceD. Fixed-overhead volume variance

31. Favorable fixed overhead volume variance occurs if:A. There is a favorable labor efficiency varianceB. There is a favorable labor rate varianceC. Production is less than plannedD. Production is greater than planned

32. The unfavorable volume variance may be due to all but which of the following factors? A. Failure to maintain an even flow of workB. Machine breakdownsC. Unexpected increases in the cost of utilitiesD. Failure to obtain enough sales orders

33. How will a favorable volume variance affect net income under each of the following methods?

Absorption VariableA. Decrease No effect

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B. Decrease IncreaseC. Increase No effectD. Increase Decrease

34. Favorable volume variances may be harmful when:A. Machine repairs cause work stoppagesB. Supervisors fail to maintain an even flow of workC. Production in excess of normal capacity cannot be soldD. There are insufficient sales orders to keep the factory operating at normal capacity

Three-way Overhead variance35. During 2006, a department’s three-variance overhead standard costing system reported

unfavorable spending and volume variances. The activity level selected for allocating overhead to the product was based on 80% of practical capacity. It 100% of practical capacity had been selected instead, how would the reported unfavorable spending and volume variances be affected?

Spending Variance Volume VarianceA. Increased UnchangedB. Increased IncreasedC. Unchanged IncreasedD. Unchanged Unchanged

PROBLEMS:Standard settingRaw Materialsi. Shampoo Company is a chemical manufacturer that supplies industrial users. The company

plans to introduce a new chemical solution and needs to develop a standard product cost for this new solution.

The new chemical solution is made by combining a chemical compound (Nyclyn) and a solution (Salex), boiling the mixture; adding a second compound (Protet), and bottling the resulting solution in 20-liter containers. The initial mix, which is 20 liters in volume, consists of 24 kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction in volume occurs during the boiling process. The solution is then cooled slightly before 10 kilograms of Protet are added; the addition of Protet does not affect the total liquid volume.

The purchase prices of the raw materials used in the manufacture of this new chemical solution are as follows:

Nyclyn P15.00 per kilogramSalex P21.00 per liter

Protet P28.00 per kilogramThe total standard materials cost of 20 liters of the product is:A. P1,043.20 C. P 834.56B. P1,304.00 D. P1,234.00

ii. El Andre Co. uses a standard costing system in connection with the manufacture of a line of T-shirts. Each unit of finished product contains 2.25 yards of direct material. However, a 25 percent direct material spoilage calculated on input quantities occurs during the manufacturing process. The cost of the direct materials is P150 per yard. The standard direct material cost per unit of finished product isA. P 253 C. P 450B. P 422 D. P 405

iii. Each finished unit of Product EM contains 60 pounds of raw material. The manufacturing process must provide for a 20% waste allowance. The raw material can be purchased for P2.50 a pound under terms of 2/10, n/30. The company takes all cash discounts. The standard direct material cost for each unit of EM is:A. P180.00 C. P187.50B. P183.75 D. P176.40

iv. The Vandana Company has a signature scarf for ladies that is very popular. Certain production and marketing data are indicated below:

Cost per yard of cloth P40.00Allowance for rejected scarf 5% of productionYards of cloth needed per scarf 0.475 yardAirfreight from supplier P1.00/yardMotor freight to customers P0.90 /scarfPurchase discounts from supplier 3%Sales discount to customers 2%

The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no market value. Materials are used at the start of production.Calculate the standard cost of cloth per scarf that Vandana Company should use in its cost sheets. A. P19.85 C. P19.40B. P20.00 D. P19.90

Direct laborv. Double M company is a chemical manufacturer that supplies various products to industrial

users. The company plans to introduce a new chemical solution called Bysap, for which it needs to develop a standard product cost. The following labor information is available on the production of Bysap.

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The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, and Protet.

The finished product is highly unstable, and one 10-liter batch out of six is rejected at final inspection. Rejected batches have no commercial value and are thrown out.

It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work on eight-hour a day, including one hour per day for rest breaks and cleanup.

What is the standard labor time to produce one 10-liter batch of Bysap?A. 35 minutes C. 48 minutesB. 40 minutes D. 45 minutes

vi. The following direct labor information pertains to the manufacture of Part J35:Number of hours required to make a part 2.5 DLHNumber of Direct workers 75Number of total productive hours per week 3000Weekly wages per worker P1,000Laborers’ fringe benefits treated as direct labor costs 25% of wages

What is the standard direct labor cost per unit of Part J35?A. P62.500 C. P41.670B. P78.125 D. P84.125

Materials & LaborQuestions Nos. 7 and 8 are based on the following:Supercold Company is a small producer of fruit-flavored frozen desserts. For many years, Supercold’s products have had strong regional sales on the basis of brand recognition. However, other companies have begun marketing similar products in the area, and price competition has become increasingly important. Haydee Mejia, the company’s controller, is planning to implement a standard costing system for Supercold and has gathered considerable information on production and material requirements for Supercold’s products. Haydee believes that the use of standard costing will allow Supercold to improve cost control and make better pricing decisions.

Supercold’s most popular products is strawberry sherbet. The sherbet is produced in 10-gallon batches, and each batch requires six quarts of good strawberries. The fresh strawberries are sorted by hand before entering the production process. Because of imperfections in the strawberries and normal spoilage, one quart of berries is discarded for every four quarts of acceptable berries. Three minutes is the standard direct labor time for sorting that is required to obtain one quart of acceptable berries. The acceptable berries are then blended with the other ingredients; blending requires 12 minutes of direct labor time per batch. After blending, the sherbet is package in quart containers. Haydee has gathered the following information from Rizza Alano, Supercold’s cost accountant.

Supercold purchases strawberries at a cost of P8.00 per quart. All other ingredients cost a total of

P4.50 per gallon.Direct labor is paid at the rate of P50 per hour.The total cost of material and labor required to package the sherbet is P3.80 per quart.

Rizza Alano has a friend who owns a berry farm that has been losing money in recent years. Because of good crops, there has been an oversupply of strawberries, and prices have dropped to P5.00 per quart. Rizza has arranged for Supercold to purchase strawberries form her friend and hopes that P8.00 per quart will help her friend’s farm become profitable again.

vii. The standard materials cost per 10-gallon batch of strawberry sherbet is:A. P 85.00 C. P101.00B. P 60.00 D. P105.00

viii. The standard direct labor cost per 10-gallon batch of sherbet is:A. P50.00 C. P25.00B. P28.75 D. P15.00

Materials varianceix. Under a standard cost system, the materials quantity variance was recorded at P1,970

unfavorable, the materials price variance was recorded at P3,740 favorable, and the Goods in Process was debited for P51,690. Ninety-six thousand units were completed. What was the per unit price of the actual materials used?A. P0.52 each C. P0.54 eacB. P0.53 each D. P0.51 each

x. Blake Company has a standard price of P5.50 per pound for materials. July’s results showed an unfavorable material price variance of P44 and a favorable quantity variance of P209. If 1,066 pounds were used in production, what was the standard quantity allowed for materials?A. 1,104 C. 1,066B. 1,074 D. 1,100

xi. Elite Company uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for P105,000, and two units of raw material are required to produce one unit of final product. In November, the company produced 12,000 units of product. The standard allowed for material was P60,000, and there

x . Answer: AActual quantity used 1,066Add favorable quantity (209/5.5) 38Standard quantity allowed 1,104

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was an unfavorable quantity variance of P2,500. The materials price variance for the units used in November was A. P 2,500 U C. P12,500 U B. P11,000 U D. P 3,500 F

xii. Sheridan Company has a standard of 15 parts of component BB costing P1.50 each. Sheridan purchased 14,910 units of component BB for P22,145. Sheridan generated a P220 favorable price variance and a P3,735 favorable quantity variance. If there were no changes in the component inventory, how many units of finished product were produced?A. 994 units. C. 1,000 unitsB. 1,090 units. D. 1,160 units

xiii. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of finished product. The material quantity variance is:A. P6,000 unfavorable C. P3,200 unfavorableB. P5,200 unfavorable D. P2,000 unfavorable

xiv. The Bohol Company uses standard costing. The following data are available for October:Actual quantity of direct materials used 23,500 poundsStandard price of direct materials P2 per poundMaterial quantity variance P1,000 U

The standard quantity of materials allowed for October production is:A. 23,000 lbs C. 24,000 lbsB. 24,500 lbs D. 25,000 lbs

xv. Information on Dulce’s direct material costs for May is as follows:Actual quantity of direct materials purchased and used 30,000 lbs.Actual cost of direct materials P84,000Unfavorable direct materials usage variance P 3,000Standard quantity of direct materials allowed for May production 29,000 lbs

For the month of May, Dulce’s direct materials price variance was:A. P2,800 favorable C. P2,800 unfavorableB. P6,000 unfavorable D. P6,000 favorable

xvi. Information on Katrina Company’s direct material costs is as follows:Standard unit price P 3.60Actual quantity purchased 1,600Standard quantity allowed for actual production 1,450Materials purchase price variance – favorable P 240

What was the actual purchase price per unit, rounded to the nearest centavos?

A. P3.06 C. P3.11B. P3.45 D. P3.75

xvii. Palmas Company, which has a standard cost system, had 500 units of raw material X in its inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of P1.00. The following information pertains to raw material X for the month of June:

Actual number of units purchased 1,400Actual number of units used 1,500Standard number of units allowed for actual production 1,300Standard cost per unit P1.00Actual cost per unit P1.10

The unfavorable materials purchase price variance for raw material X for June was:A. P 0 C. P140B. P130 D. P150

xviii. During March, Lumban Company’s direct material costs for the manufacture of product T were as follows:

Actual unit purchase price P6.50Standard quantity allowed for actual production 2,100Quantity purchased and used for actual production 2,300Standard unit price P6.25

Lumban’s material usage variance for March was:A. P1,250 unfavorable C. P1,250 favorableB. P1,300 unfavorable D. P1,300 favorable

xix. Razonable Company installs shingle roofs on houses. The standard material cost for a Type R house is P1,250, based on 1,000 units at a cost of P1.25 each. During April, Razonable installed roofs on 20 Type R houses, using 22,000 units of material cost of P26,400. Razonable’s material price variance for April is:A. P1,000 favorable C. P1,100 favorableB. P1,400 unfavorable D. P2,500 unfavorable

xx. Samson Candle Co. manufactures candles in various shapes, sizes, colors, and scents. Depending on the orders received, not all candles require the same amount of color, dye, or scent materials. Yields also vary, depending upon the usage of beeswax or synthetic wax. Standard ingredients for 1,000 pounds of candles are:

Input: Standard Mix Standard Cost per PoundBeeswax 200 lbs. 1.00Synthetic wax 840 lbs. 0.20

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Colors 7 lbs. 2.00Scents 3 lbs. 6.00Totals 1,050 lbs. 9.20Standard output 1,000 lbs.

Price variances are charged off at the time of purchase. During January, the company was busy manufacturing red candles for Valentine’s Day. Actual production then was:

Input: In PoundsBeeswax 4,100Synthetic wax 13,800Colors 2,200Scents 60Total 20,160Actual output 18,500

The material yield variance is:A. P 280 unfavorable C. P 280 favorableB. P3,989 unfavorable D. P3,989 favorable

Labor variancexxi. The flexible budget for the month of May 2007 was for 9,000 units with direct material at P15

per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output for the month was 8,500 units with P127,500 in direct material and P77,775 in direct labor expense. Direct labor hours of 6,375 were actually worked during the month. Variance analysis of the performance for the month of May would show a(n):A. Favorable material quantity variance of P7,500.B. Unfavorable direct labor efficiency variance of P1,275.C. Unfavorable material quantity variance of P7,500.D. Unfavorable direct labor rate variance of P1,275.

xxii. The standard hourly rate was P4.10. Standard hours for the level of production are 4,000. The actual rate was P4.27. The labor rate variance was P654.50, unfavorable. What were the actual labor hours?A. 3,700 C. 3,850B. 4,150 D. 4,000

xxiii . Clean Harry Corp. uses two different types of labor to manufacture its product. The types of labor, Mixing and Finishing, have the following standards:

Labor Type Standard Mix Std Hourly Rate Standard CostMixing 500 hours P10 P5,000Finishing 250 hours P 5 P1,250Yield: 4,000 units

During January, the following actual production information was provided: Labor Type Actual MixMixing 4,500 hoursFinishing 3,000 hoursYield: 36,000 units

What is the labor mix variance?A. P2,500 F C. P2,500 UB. P5,000 F D. P5,000 F

xxiv. How much labor yield variances should be reported?A. P6,250 U C. P5,250 FB. P6,250 F D. P5,250 U

xxv. Hingis had a P750 unfavorable direct labor rate variance and an P800 favorable efficiency variance. Hingis paid P7,150 for 800 hours of labor. What was the standard direct labor wage rate?A. P8.94 C. P8.00B. P7.94 D. P7.80

xxvi. Powerless Company’s operations for April disclosed the following data relating to direct labor:Actual cost P10,000Rate variance 1,000 favorableEfficiency variance 1,500 unfavorableStandard cost P 9,500

Actual direct labor hours for April amounted to 2,000. Powerless’ standard direct labor rate per hour in April was:A. P5.50 C. P5.00

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B. P4.75 D. P4.50

xxvii. Lion Company’s direct labor costs for the month of January were as follows:Actual direct labor hours 20,000Standard direct labor hours 21,000Direct labor rate variance – Unfav. P 3,000Total payroll P126,000

What was Lion’s direct labor efficiency variance?A. P6,000 favorable C. P6,150 favorableB. P6,300 favorable D. P6,450 favorable

xxviii. Using the information given below, determine the labor efficiency variance:Labor price per hour P 20Standard labor price per gallon of output at 20 gal./hr P 1Standard labor cost of 8,440 gallons of actual output P8,440Actual total inputs(410 hours at P21/hr) P8,610

A. P 410 unfavorable C. P 240 favorableB. P 170 unfavorable D. P 410 favorable

xxix. Simbad Company’s operations for the month just ended originally set up a 60,000 direct labor hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and that the unfavorable variable overhead variance was P40,000. Labor trouble caused an unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates resulted in an actual average wage rate of P16.40 per hour. The total number of standard direct labor hours allowed for the actual units produced is A. P52,500 C. P62,500B. P77,500 D. P70,000

Questions 30 and 31 are based on the following information.Information on Goodeve Company’s direct labor costs are presented below:

Standard direct labor hours 30,000Actual direct labor hours 29,000Direct labor efficiency variance Favorable P 4,000 Direct labor rate variance Favorable P 5,800Total payroll P110,200

xxx. What was Goodeve’s standard direct labor rate?A. P3.54 C. P3.80B. P4.00 D. P5.80

xxxi. What was Goodeve’s actual direct labor rate?A. P3.60 C. P3.80B. P4.00 D. P5.80

xxxii. The Islander Corporation makes a variety of leather goods. It uses standards costs and a flexible budget to aid planning and control. Budgeted variable overhead at a 45,000-direct labor hour level is P27,000.During April material purchases were P241,900. Actual direct-labor costs incurred were P140,700. The direct-labor usage variance was P5,100 unfavorable. The actual average wage rate was P0.20 lower than the average standard wage rate.The company uses a variable overhead rate of 20% of standard direct-labor cost for flexible budgeting purposes. Actual variable overhead for the month was P30,750.What were the standard hours allowed during the month of April?A. 50,250 C. 58,625B. 48,550 D. 37,520

xxxiii. Information on Barber Company’s direct labor costs for the month of January is as follows:Actual direct labor hours 34,500Standard direct labor hours 35,000Total direct labor payroll P241,500Direct labor efficiency variance – favorable P 3,200

What is Barber’s direct labor rate variance?A. P17,250 U C. P21,000 UB. P20,700 U D. P21,000 F

xxxiv. STA Company uses a standard cost system. The following information pertains to direct labor costs for the month of June:

Standard direct labor rate per hour P 10.00Actual direct labor rate per hour P 9.00Labor rate variance (favorable) P12,000 Actual output (units) 2,000Standard hours allowed for actual production 10,000 hours

How many actual labor hours were worked during March for STA Company?A. 10,000 C. 8,000B. 12,000 D. 10,500

xxxv. Information of Hanes’ direct labor costs for the month of May is as follows:Actual direct labor rate P7.50Standard direct labor hours allowed 11,000Actual direct labor hours 10,000Direct labor rate variance – favorable P5,500

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What was the standard direct labor rate in effect for the month of May?A. P6.95 C. P8.00B. P7.00 D. P8.05

Two-way overhead variancexxxvi. The overhead variances for Big Company were:

Variable overhead spending variance: P3600 favorable.Variable overhead efficiency variance: P6,000 unfavorable.Fixed overhead spending variance: P10,000 favorable.Fixed overhead volume variance: P24,000 favorable.

What was the overhead controllable variance?A. P31,600 favorable C. P24,000 favorableB. P13,600 favorable D. P 7,600 favorable

xxxvii. Kent Company sets the following standards for 2007:Direct labor cost (2 DLH @ P4.50) P 9.00Manufacturing overhead (2 DLH @ P7.50) 15.00

Kent Company plans to produce its only product equally each month. The annual budget for overhead costs are:

Fixed overhead P150,000Variable overhead 300,000Normal activity in direct labor hours 60,000

In March, Kent Company produced 2,450 units with actual direct labor hours used of 5,050. Actual overhead costs for the month amounted to P37,245 (Fixed overhead is as budgeted.)The amount of overhead volume variance for Kent Company isA. P250 unfavorable C. P500 unfavorableB. P750 Unfavorable D. P375 Unfavorable

xxxviii. Calma Company uses a standard cost system. The following budget, at normal capacity, and the actual results are summarized for the month of December:

Direct labor hours 24,000Variable factory OH P 48,000Fixed factory OH P108,000Total factory OH per DLH P 6.50

Actual data for December were as follows:Direct labor hours worked 22,000Total factory OH P147,000Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variance, what is the controllable variance for December?A. P 3,000 Favorable C. P 5,000 Favorable

B. P 9,000 Favorable D. P10,500 Unfavorable

xxxix. Heart Company uses a flexible budget system and prepared the following information for the year:

Percent of Capacity 80 Percent 90 PercentDirect labor hours 24,000 27,000Variable factory overhead P 54,000 P 60,750Fixed factory overhead P 81,000 P 81,000Total factory overhead rate per DLH P5.625 P5.25

Heart operated at 80 percent of capacity during the year, but applied factory overhead based on the 90 percent capacity level. Assuming that actual factory overhead was equal to the budgeted amount of overhead, how much was the overhead volume variance for the year?A. P 9,000 unfavorable C. P 9,000 favorableB. P15,750 unfavorable D. P15,750 favorable

xl. The Fire Company has a standard absorption and flexible budgeting system and uses a two-way analysis of overhead variances. Selected data for the June production activity are:

Budgeted fixed factory overhead costs P 64,000Actual factory overhead 230,000Variable factory overhead rater per DLH P 5Standard DLH 32,000Actual DLH 32,000

The budget (controllable) variance for June isA. P1,000 favorable C. P1,000 unfavorableB. P6,000 favorable D. P6,000 unfavorable

xli. Sorsogon Company had actual overhead of P14,000 for the year. The company applied overhead of P13,400. If the overhead budgeted for the standard hours allowed is P15,600, the overhead controllable variance isA. P 600 Favorable C. P1,600 FavorableB. P2,200 Unfavorable D. P1,600 Unfavorable

xlii. Compo Co. uses a predetermined factory O/H application rate based on direct labor cost. For the year ended December 31, Compo’s budgeted factory O/H 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 O/H amounted to P620,000, with actual direct labor cost of P325,000. For the year, over-applied factory O/H was A. P20,000 C. P30,000B. P25,000 D. P50,000

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xliii. The Terrain Company has a standard absorption and flexible budgeting system and uses a two-way analysis of overhead variances. Selected data for the June production activity are:

Budgeted fixed factory overhead costs P 64,000Actual factory overhead 230,000Variable factory overhead rater per DLH P 5Standard DLH 32,000Actual DLH 32,000

The budget (controllable) variance for the month of June is:A. P1,000 favorable C. P1,000 unfavorableB. P6,000 favorable D. P6,000 unfavorable

xliv. The standard factory overhead rate is P10 per direct labor hour (P8 for variable factory overhead and P2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The standard cost and the actual cost of factory overhead for the production of 5,000 units during May were as follows:

Standard: 25,000 hours at P10 P250,000Actual: Variable factory overhead 202,500

Fixed factory overhead 60,000What is the amount of the factory overhead volume variance?A. 12,500 favorable C. 12,500 unfavorableB. 10,000 unfavorable D. 10,000 favorable

Three-way overhead variancexlv. The following data are the actual results for Wow Company for the month of May:

Actual output 4,500 unitsActual variable overhead P360,000Actual fixed overhead P108,000Actual machine time 14,000 MH

Standard cost and budget information for Wow Company follows:Standard variable overhead rate P6.00 per MHStandard quantity of machine hours 3 hours per unitBudgeted fixed overhead P777,600 per yearBudgeted output 4,800 units per month

The overhead efficiency variance is A. P3,000 Favorable C. P3,000 UnfavorableB. P5,400 Favorable D. P5,400 Unfavorable

xlvi. The Libiran Company produces its only product, Menthol Chewing Gum. The standard overhead cost for one pack of the product follows:

Fixed overhead (1.50 hours at P18.00) P27.00Variable overhead (1.50 hours at P10.00) 15.00

Total application rate P42.00Libiran uses expected volume of 20,000 units. During the year, Libiran used 31,500 direct labor hours for the production of 20,000 units. Actual overhead costs were P545,000 fixed and P308,700 variable. The overhead efficiency variance isA. P22,500 Favorable C. P15,000 FavorableB. P22,500 Unfavorable D. P15,000 Unfavorable

xlvii. Abbey Company produces a single product. Abbey employs a standard cost system and uses a flexible budget to predict overhead costs at various levels of activity. For the most recent year, Abbey used a standard overhead rate equal to P8.50 per direct labor hour. The rate was computed using normal activity. Budgeted overhead costs are P100,000 for 10,000 direct labor hours and P160,000 for 20,000 direct labor hours. During the past year, Abbey generate the following data:

Actual production: 1,400 unitsFixed overhead volume variance: P5,000 UVariable overhead efficiency variance: P3,000 FActual fixed overhead costs: P42,670Actual variable overhead costs: P82,000

The number of direct labor hours used as normal activity are:A. 16,000 C. 14,000B. 15,000 D. 13,500

xlviii. Using the information presented below, calculate the total overhead spending variance.Budgeted fixed overhead P10,000Standard variable overhead (2 DLH at P2 per DLH) P4 per unitActual fixed overhead P10,300Actual variable overhead P19,500Budgeted volume (5,000 units x 2 DLH) 10,000 DLHActual direct labor hours (DLH) 9,500Units produced 4,500

A. P 500 U C. P1,000 UB. P 800 U D. P1,300 U

xlix. The following data are the actual results for Bustos Company for the month of May:Actual output 4,500 unitsActual variable overhead P360,000Actual fixed overhead P108,000Actual machine time 14,000 MH

Standard cost and budget information for Bustos Company follows:Standard variable overhead rate P6.00 per MH

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Standard quantity of machine hours 3 hours per unitBudgeted fixed overhead P777,600 per yearBudgeted output 4,800 unit per month

The overhead efficiency variance is: A. P3,000 Favorable C. P3,000 UnfavorableB. P5,400 Favorable D. P5,400 Unfavorable

l. The following information is available from the Tyro Company:Actual factory overhead P15,000Fixed overhead expenses, actual P 7,200Fixed overhead expenses, budgeted P 7,000Actual hours 3,500Standard hours 3,800Variable overhead rate per DLH P 2.50

Assuming that Tyro uses a three-way analysis of overhead variances, what is the spending variance?A. P 750 F C. P 950 FB. P 750 U D. P1,500 U

li. The Sacto Co.’s standard fixed overhead cost is P3 per direct labor hour based on budgeted fixed costs of P300,000. The standard allows 2 direct labor hours per unit. During 2006, Sacto produced 55,000 units of product, incurred P315,000 of fixed overhead costs, and recorded P106,000 actual hours of direct labor. What are the fixed overhead variances? Spending variance Volume varianceA. P15,000 U P30,000 FB. P33,000 U P30,000 FC. P15,000 U P18,000 FD. P33,000 U P18,000 F

lii. Using the information in the preceding number, the amounts of controllable variances for variable overhead are:

Spending EfficiencyA. P20,000 Fav P20,000 UnfB. P20,000 Unf P20,000 FavC. P 5,000 Unf P20,000 UnfD. P20,000 Fav P 5,000 Unf

Four-way overhead varianceliii. Safin Corporation’s master budget calls for the production of 5,000 units of product monthly.

The annual master budget includes indirect labor of P144,000 annually. Safin 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. P1,900 Unfavorable. C. P1,900 Favorable.B. P 700 Unfavorable. D. P 700 Favorable.

liv. Wala Company applies overhead on a direct labor hour basis. Each unit of product requires 5 direct labor hours. Overhead is applied on a 30 percent variable and 70 percent fixed basis; the overhead application rate is P16 per hour. Standards are based on a normal monthly capacity of 5,000 direct labor hours. During September 2006, Wala produced 1,010 units of product and incurred 4,900 direct labor hours. Actual overhead cost for the month was P80,000.What is total annual budgeted fixed overhead cost?A. P 56,000 C. P672,000B. P 56,560 D. P678,720

i . Answer: DNyclyn (24 ÷ 0.80 x P15) P 450.00Salex (19.20 ÷ 0.80 x P21) 504.00Protet (10 x P28) 280.00 Total P1,234.00

ii . Answer: CRequired inputs to be placed in process per unit of product: 2.25 ÷0.75 3.0 yardsStandard Material cost per unit of product: 3.0 x P150 P450

iii . Answer: BRequired inputs of raw materials (in pounds) (60 ÷ 0.80) 75.00Standard price per pound (2.5 x 0.98) x 2.45Standard materials cost per unit 183.75

iv . Answer: DNet price per yard:Purchase price 40.00Freight 1.00Purchase discount 0.03 x 40 ( 1.20)Standard cost per yard 39.80Standard quantity per scarf 0.475/0.95 0.50Standard cost per scarf: 0.50 x 39.80 19.90

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lv. Budgeted variable overhead for the level of production achieved is 40,000 machine-hours at a budgeted cost of P62,000. Actual variable overhead at the level of production achieved was 38,000 hours at an actual cost of P62,400. What is the total variable overhead variance?A. P400 favorable C. P3,100 unfavorableB. P400 unfavorable D. P3,100 favorable

lvi. The Pinatubo Company makes and sells a single product and uses standard costing. During January, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units of product. The standard cost card for one unit of product includes the following:Variable factory overhead: 3.0 DLHs @ P4.00 per DLHFixed factory overhead: 3.0 DLHs @ P3.50 per DLHFor January, the company incurred P22,000 of actual fixed overhead costs and recorded a P875 favorable volume variance.The budgeted fixed overhead cost for January is:A. P31,500 C. P30,625B. P32,375 D. P33,250

lvii. The variable-overhead spending variance is P1,080, unfavorable. Variable overhead budgeted at 40,000 machine hours is P50,000. Actual machine hours were 36,000. What was the actual variable-overhead rate per machine hour?A. P1.28 C. P1.39B. P1.25 D. P1.52

lviii. Calvin Klein Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 units a favorable volume variance of P12,000 resulted. What were total budgeted fixed costs?A. P36,000. C. P48,000.B. P60,000. D. P75,000.

lix. Puma Company had an 25,000 unfavorable volume variance, a P18,000 unfavorable variable overhead spending variance, and P2,000 total under applied overhead. The fixed overhead budget variance isA. P41,000 favorable C. P45,000 favorableB. P41,000 Unfavorable D. P45,000 Unfavorable

lx. Arlene had an P18,000 unfavorable volume variance, a P25,000 unfavorable variable overhead spending variance, and P2,000 total under applied overhead. The fixed overhead budget variance is:A. P41,000 favorable C. P45,000 favorableB. P41,000 Unfavorable D. P45,000 Unfavorable

lxi. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed overhead spending variance was P16,000 unfavorable, fixed manufacturing overhead applied must be:A. P516,000 C. P512,000B. P504,000 D. P496,000

lxii. CTV Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 units a favorable volume variance of P12,000 resulted. What were total budgeted fixed costs?A. P36,000 C. P48,000B. P60,000 D. P75,000

lxiii. Richard Company employs a standard absorption system for product costing. The standard cost of its product is as follows:

Raw materials P14.50Direct labor (2 DLH x P8) 16.00Manufacturing overhead (2 DLH x P11) 22.00Total standard cost P52.50

The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Richard planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is:

Variable P 3,600,000Fixed 3,000,000 P 6,600,000

During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000 fixed and P315,000 variable. The total manufacturing overhead applied during November was P572,000.The fixed manufacturing overhead volume variance for November is:A. P10,000 favorable C. P10,000 unfavorableB. P3,000 unfavorable D. P22,000 favorable

lxiv. Using the information for Richard Company in the preceding number, the total variance related to efficiency of the manufacturing operation for November is:A. P 9,000 unfavorable C. P12,000 unfavorableB. P21,000 unfavorable D. P11,000 unfavorable

Question Nos. 65 and 66 are based on the following:Tiny Bubbles Company had the following activity relating to its fixed and variable overhead for the month of July.

Actual costs

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Fixed overhead P120,000Variable overhead 80,000

Flexible budget(Standard input allowed for actual output achieved x the budgeted rate)Variable overhead P 90,000

Applied(Standard input allowed for actual output achieved x the budgeted rate)Fixed overhead P125,000Variable overhead spending variance 1,200 FProduction volume variance 5,000 U

lxv. If the budgeted rate for applying variable manufacturing overhead was P20 per direct labor hour, how efficient or inefficient was Tiny Bubbles in terms of using direct labor hours as an activity base?A. 100 direct labor hours inefficient C. 100 direct labor hours efficientB. 440 direct labor hours inefficient D. 440 direct labor hours efficient

lxvi. The fixed overhead efficiency variance is:A. P 3,000 favorable C. P 3,000 unfavorableB. P10,000 unfavorable D. Never a meaningful variance

Questions 67 and 68 are based on a monthly normal volume of 50,000 units (100,000 direct labor hours). Raff Co.’s standard cost system contains the following overhead costs:

Variable P6 per unitFixed P8 per unit

The following information pertains to the month of March:Units actually produced 38,000Actual direct labor hours worked 80,000Actual overhead incurred:

Variable P250,000Fixed 384,000

lxvii. For March, the unfavorable variable overhead spending variance was:A. P6,000 C. P12,000B. P10,000 D. P22,000

lxviii. For March, the fixed overhead volume variance was:A. P96,000U C. P80,000U

B. P96,000F D. P80,000F

lxix. Edney Company employs standard absorption system for product costing. The standard cost of its product is as follows:

Raw materials P14.50Direct labor (2 DLH x P8) 16.00Manufacturing overhead (2 DLH x P11) 22.00

The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Edney planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is

Variable P3,600,000Fixed 3,000,000

During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000 fixed and P315,000 variable. The total manufacturing overhead applied during November was P572,000. The variable manufacturing overhead variances for November are:

Spending EfficiencyA. P9,000 unfavorable P3,000 unfavorableB. P6,000 favorable P9,000 unfavorableC. P4,000 unfavorable P1,000 favorableD. P9,000 favorable P12,000 unfavorable

lxx. The fixed manufacturing overhead variances for November are: Spending VolumeA. P10,000 favorable P10,000 favorableB. P10,000 unfavorable P10,000 favorableC. P 6,000 favorable P 3,000 unfavorable D. P 4,000 unfavorable P22,000 favorable

The following information will be used to answer Question Nos. 71 through 74:Garch, Inc. analyzes manufacturing overhead in the production of its only one product, CD. The following set of information applies to the month of May, 2006:

Budgeted ActualUnits produced 40,000 38,000Variable manufacturing OH P 4/DLH P16,400Fixed manufacturing overhead P20/DLH P88,000Direct labor hours 6 min/unit 4,200 hr

lxxi. What is the fixed overhead spending variance?A. P4,000 Favorable C. P8,000 UnfavorableB. P8,000 Favorable D. P4,000 Unfavorable

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lxxii. What is the volume variance?A. P4,000 Favorable C. P8,000 FavorableB. P4,000 Unfavorable D. P8,000 Unfavorable

lxxiii. How much was the variable overhead spending variance?A. P 400 Favorable C. P400 UnfavorableB. P1,200 Favorable. D. P1,200 Unfavorable

lxxiv. How much overhead efficiency variance resulted for the month of May?A. P1,600 Favorable C. P1,600 UnfavorableB. P 800 Favorable D. P800 Unfavorable

Questions 75 through 78 are based on Darf 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 P135,000 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 and fixed manufacturing overhead cost was P28,000. Darf Company uses a four variance method for analyzing manufacturing overhead.

lxxv. The variable overhead spending variance for the period isA. P5,300 unfavorable C. P6,300 unfavorableB. P1,200 unfavorable D. P6,500 unfavorable

lxxvi. The variable overhead efficiency variance (quantity) variance for the period isA. P5,300 unfavorable C. P1,200 unfavorableB. P1,500 unfavorable D. P6,500 unfavorable

lxxvii. The fixed overhead budget (spending) variance for the period isA. P6,300 unfavorable C. P2,500 unfavorableB. P1,500 unfavorable D. P1,000 unfavorable

lxxviii. The fixed overhead volume (denominator) variance for the period is

A. P 750 unfavorable C. P2,500 unfavorableB. P1,500 unfavorable D. P1,000 unfavorable

Comprehensivelxxix. Big Marat, Inc. began operations on January 3. Standard costs were established in early

January assuming a normal production volume of 160,000 units. However, Big Marat produced only 140,000 units of product and sold 100,000 units at a selling price of P180 per unit during the year. Variable costs totaled P7,000,000, of which 60% were manufacturing and 40% were selling. Fixed costs totaled P11,200,000, of which 50% were manufacturing and 50% were selling. Big Marat had no raw materials or work-in-process inventories at December 31. Actual input prices and quantities per unit of product were equal to standard.Using absorption costing, Big Marat’s income statement would show:

A. B. C. D.Cost of Goods Sold at Standard Cost P8,200,000 P7,200,000 P6,500,000 P7,000,000Overhead Volume Variance P800,000 U P800,000 F P700,000 U P700,000 F

Questions No. 80 through 85 are based on the following information:You have recently graduated from a university and have accepted a position with Villar Company, the manufacturer of a popular consumer product. During your first week on the job, the vice president has been favorably impressed with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to attend the executive committee meeting this morning for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably impress the executive committee, you took the variances and supporting data home last night to study.

On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the bridge and into the stream below. You managed to retrieve only one page, which contains the following information:

Standard Cost SummaryDirect materials, 6 pounds at P3 P18.00Direct labor, 0.8 hours at P5 4.00Variable overhead, 0.8 hours at P3 2.40

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Fixed overhead, 0.8 hours at P7 5.60P30.00

Total Standard

Cost

V A R I A N C E S R E P O R T E DPrice or

RateSpending or

BudgetQuantity or Efficiency

Volume

Direct materials P405,000 P6,900 F P9,000 UDirect labor 90,000 4,850 U 7,000 UVariable overhead 54,000 P1,300 F ?@

vi . Answer: BWeekly wages per worker 1,000Fringe benefits (1,000 x 0.25) 250 Total weekly direct labor cost per worker 1,250Labor cost per hour (1,250 ÷ 40 hrs) 31.25Labor cost per unit (31.25 x 2.50 hrs) P78.125

vii . Answer: DRequired number of quarts of berries (6 ÷ 0.80) 7.50Cost of berries (7.50 @ P8.00) 60Cost of other ingredients (10 x 4.50) 45Standard materials cost per batch 105

viii . Answer: CMinutes required by sorting good berries 6 quarts @ 3 min. 18Minutes required by mixing 12

Total number of minutes 30Standard labor cost per batch (0.50 @ P50) P25

ix . Answer: AUnit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance - Credit to Materials Price Variance)/Number of Units CompletedTotal debits to work in process account P51,690Debit to materials quantity variance 1,970Credit to materials price variance ( 3,740)Actual materials cost P49,920Per unit cost: P49,920/96,000 P0.52

Fixed overhead 126,000 500 F P14,000UApplied to Work in process during the period@ Figure obliterated.

You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that all of the materials purchased during the period were used in production. Since the company uses JIT to control work flows, work in process inventories are insignificant and can be ignored.

It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that to avoid looking like a bungling fool you must somehow generate the necessary “backup” data for the variances before the meeting begins. Without backup data it will be impossible to lead the discussion or answer any questions.

lxxx. How many pounds of direct materials were purchased and used in the production of 22,500 units?A. 138,000 lbs. C. 135,000 lbs. B. 132,000 lbs. D. 137,300 lbs.

lxxxi. What was the actual cost per pound of material?A. P3.00 C. P2.95B. P3.05 D. P3.10

lxxxii. How many actual direct labor hours were worked during the period?A. 18,000 C. 19,400B. 16,600 D. 18,970

lxxxiii. How much actual variable manufacturing overhead cost was incurred during the period?A. P55,300 C. P56,900B. P58,200 D. P59,500

lxxxiv. What is the total fixed manufacturing overhead cost in the company’s flexible budget?A. P112,500 C. P139,500B. P140,000 D. P125,500

lxxxv. What were the denominator hours for last period?A. 18,000 hours C. 20,000 hoursB. 22,000 hours D. 25,000 hours

Productivity measuresManufacturing cycle efficiency

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lxxxvi. Fireout Company manufactures fire hydrants in Bulacan. The following information pertains to operations during the month of May:

Processing hours (average per batch) 8.0Inspection hours (average per batch) 1.5Waiting hours (average per batch) 1.5Move time (average per batch) 1.5 Units per batch 20 units

The manufacturing cycle efficiency (MCE) is:A. 72.7% C. 64.0%B. 36.0% D. 76.0%

Throughput timelxxxvii. Choco Company manufactures fire hydrants in Bulacan. The following information pertains to

operations during the month of May:Processing time (average per batch) 8.0 hoursInspection time (average per batch) 1.5 hoursWaiting time (average per batch) 1.5 hoursMove time (average per batch) 1.5 hoursUnits per batch 20 units

The throughput time is:A. 12.5 hours C. 4.5 hoursB. 8.0 hours D. 9.5 hours

Delivery cycle timelxxxviii.Alabang Corporation is a highly automated manufacturing firm. The vice president of finance

has decided that traditional standards are inappropriate for performance measures in an automated environment. Labor is insignificant in terms of the total cost of production and tends to be fixed, material quality is considered more important than minimizing material cost, and customer satisfaction is the number one priority. As a result, production and delivery performance measures have been chosen to evaluate performance. The following information is considered typical of the time involved to complete and ship orders.

Waiting Time:From order being placed to start of production 8.0 daysFrom start of production to completion 7.0 daysInspection time 1.5 daysProcessing time 3.0 daysMove time 2.5 days

The Delivery Cycle Time is:A. 22 days C. 14 daysB. 11 days D. 7 days

lxxxix. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed overhead spending variance was P16,000 unfavorable, fixed manufacturing overhead applied must beA. P516,000 C. P512,000B. P488,000 D. P496,000

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v . Answer: CTotal Minutes per worker (8 hours x 60) 480Rest Time 60Productive minutes 420Output per day per worker (420 ÷ 35) in 10-liter batch 12 Production hour – good units 35 minRest minutes (60 ÷ 12) 5 minMinutes used for rejects (35 + 5) ÷ 5 good units 8 minTotal standard minutes per 10-good liter batch 48 Min

xi . Answer: CActual materials price 105,000/35,000 3.00Standard Quantity 12,000 x 2 24,000Standard price 60,000/24,000 2.50Actual Quantity used: 24,000 + (2,500/2.5) 25,000Price variance based on usage: 25,000 x (3 – 2.50) 12,500

xii . Answer: DActual Quantity used 14,910Favorable Quantity 3,735/1.5 2,490Standard Quantity allowed 17,400Production in units 17,400/15 1,160

xiii . Answer: AAQ @ SP (3,150 x 40) P126,000SQ @ SP (600 x 5 x 40) 120,000Unfavorable Quantity Variance P 6,000

xiv . Answer: AActual quantity used (pounds) 23,500Less: Excess pounds used (1,000 ÷ 2) 500

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Standard Quantity Allowed 23,000Alternative Solution using the formula for Usage Variance:MUV = (AQ –SQ)SP

1,000 = (23,500 – SQ)21,000 ÷ 2 = 23,500 – SQ 500 = 23,500 – SQ

xv . Answer: DActual Purchase Costs – (AQ x SP)= 84,000 – (30,000 x 3) 6,000 FavorableStandard Price = Usage Variance ÷ (AQ – SQ) 3,000 ÷ (30,000 – 29,000) = P3

xvi . Answer: BThe actual purchase price per unit can be conveniently solved by using the purchase price variance - MPV = AQ(AP-SP)

-240 = 1,600 (AP – 3.60) -240 ÷ 1,600 = AP – 3.60 0.15 = AP – 3.60AP = 3.45

xvii . Answer: CMPV = 1,400(1.10 – 1.00) = 140

xviii . Answer: AMUV = (AQ – SQ)SP = (2,300 – 2,100) 6.25 = 1,250 Unfavorable

xix . Answer: CActual materials cost 26,400AQ @ SP (22,000 x 1.25) 27,500Favorable Price Variance ( 1,100)

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SQ = 23,000xx . Answer: A

Standard materials cost per batch (200 x 1) + (840 x 0.20) + (7 x 2) + (3 x 6) P400Expected yield in batch (20,160 ÷ 1,050) 19.20Actual yield 18.50 Unfavorable yield in batch 0.70Unfavorable yield variance (0.70 x 400) P 280

xxi . Answer: DMaterialsActual cost 127,500Budgeted cost (8,500 @ 15) 127,500Materials cost variance 0 LaborAH @ SR (6,375 @ 12) 76,500SH @ SR (8,500 @ 0.75 @ 12) 76,500 Labor Efficiency Variance 0Actual Payroll 77,775AH @ SR (6,375 @ 12) 76,500Labor Rate Variance 1,275

xxii . Answer: C(AR - SR) x AH = rate variance

Therefore, the total variance (P654.50) when divided by the hourly difference (P4.27 - P4.10) will equal the actual hours. Actual hours (P654.50/P.17) = 3,850. Proof: (P4.27 - P4.10) x 3,850 = P654.50

xxiii . Answer: ALaborAHStd. Mix at AHDiffSRLabor Mix VarianceM4,5005,000(500)P10P (5,000)F3,0002,50050052,5007,5007,500-P (2,500)Fav

xxiv . Answer: ALabor Yield Variance: Expected Yield 40,000

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Actual Yield 36,000 xxvi . Answer: A

Actual cost 10,000Favorable Rate Variance 1,000Actual hours @ standard rate 11,000Standard Rate: 11,000 ÷ 2,000 5.50Expected yield (400,000 units / 750 hrs) 7,500 = 40,000

xxvii . Answer: CLEV: (20,000 – 21,000)6.15 = (6,150)FStandard Rate: 3,000 = 126,000 – 20,000SR123,000 = 20,000SR SR = 6.15

xxviii . Answer: CLEV: (410 x 20) – 8,440 = (240)F

xxix . Answer: CActual hours 1,148,000/16.40 70,000Less Unfavorable hours 120,000/16 7,500Standard hours allowed 62,500Standard rate: 960,000/60,000 16.00

xxx . Answer: BSR = LEV ÷ (AH – SH) = -4,000 ÷ (29,000 – 30,000) = P4.00

xxxi . Answer: CAR = SR – (LRV ÷ AH)

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Difference 4,000xxxii . Answer: B

Variable OH rate/hr - P27,000 ÷ 45,000 P 0.60Direct labor rate/hr = P0.60 ÷ 0.20 P 3.00Variable OH is applied at 20% of direct labor costActual hours P140,700 ÷ (P3 – P0.20) 50,250Unfavorable hours P5,100 ÷ P3 1,700 SH allowed 48,550

xxxiii . Answer: BActual direct labor costs P241,500Actual hrs at std labor rate (34,500 x P6.4) 220,800Unfavorable labor rate variance P 20,700

Standard labor rate:-3,200 = (34,500 – 35,000) SR 3,200 = 500SR SR = 6.40

xxxiv . Answer: BActual hours = Labor rate variance ÷(AR-SR) P12,000 ÷ (P10 – P9) 12,000 hours

xxxv . Answer: DLRV = AH(AR – SR)-5,500 = 10,000(7.50 – SR)-5,500 ÷ 10,000 = 7.5 – SR -0.55 = 7.50 – SR SR = 8.05

xxxvi . Answer: DThe controllable variance is the sum of the spending variances plus the efficiency variance.

Variable overhead spending variance P( 3,600)

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Multiply by Standard labor cost per unit P1.5625*xxxvii. Answer: A

Monthly budgeted fixed overhead (150,000/12) 12,500Applied fixed overhead (2,450 x 2 x 2.5) 12,250Unfavorable volume variance 250

xxxviii. Answer: AVariable OH per DLH 48,000/24,000 2.00Actual overhead 147,000Budgeted OH at standard hours: Variable 21,000 x 2 42,000 Fixed 108,000 150,000Favorable controllable/budget variance ( 3,000)

xxxix . Answer: ABudgeted fixed overhead 81,000Applied fixed overhead based on 80% achieved (24,000 x 3) 72,000Unfavorable volume variance 9,000Fixed overhead rate based on 27,000 hours: (81,000 ÷ 27,000) 3.00

xl . Answer: DActual overhead 230,000Less Budgeted OH at standard hours Variable 32,000 x 5 160,000 Fixed 64,000 (224,000)Unfavorable budget variance 6,000

xli . Answer: CActual overhead 14,000Budget at SH 15,600Favorable controllable variance ( 1,600)

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Yield Variance P6,250Uxlii . Answer: C

OH application rate based on DL cost 600,000/(50,000 x 6) 200%Applied overhead 325,000 x 2 650,000Actual overhead 620,000Overapplied Overhead 30,000

xliii . Answer: DActual overhead 230,000Budget at standard hours: Fixed OH 64,000 Variable OH (32,000 x 5) 160,000 224,000Unfavorable controllable variance 6,000

xliv . Answer: BBudgeted fixed overhead (30,000 x 2) 60,000Applied FOH (25,000 x 2) 50,000Unfavorable volume variance 10,000

xlv . Answer: CEfficiency variance = (AH – SH) x SVOHR (14,000 – 13,500) 6 = 3,000 UNFStandard hours: 4,500 x 3 13,500

xlvi . Answer: DEfficiency Variance = (31,500 – 30,000) 10 15,000 Unfavorable Standard hours: 20,000 units x 1.5 hours

xlvii . Answer: AFixed overhead rate per hour 8.50 – 6.00 2.50Denominator hours (previous number) 40,000/2.5 16,000

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xlviii . Answer: Bl . Answer: AActual OH P15,000Budgeted OH at actual hours (3,500 x P2.50) + P7,000 15,750Favorable spending variance P( 750)

li . Answer: AFixed OH spending variance:Actual Fixed OH - Budgeted Fixed OH (P315,000 – P300,000) P15,000 UFixed OH volume variance:(Budgeted Units – Actual Units) x SFOH rate (50,000 – 55,000) x P6 P(30,000)FBudgeted production: P300,000 ÷ P3 ÷ 2 hours

lii . Answer: AActual variable overhead 520,000AH @ SVOHR (270,000 x 2) 540,000Variable Oh spending variance, Favorable ( 20,000)AH @ SVOHR 540,000SH @ SVOH (260,000 x 2) 520,000Unfavorable VOH efficiency variance 20,000

liii . Answer: DActual P10,100Budget (4,500 x 2.40) 10,800Favorable Budget variance P( 700)

liv . Answer: CFixed overhead per hour: 16 x 0.7 11.20Annual fixed OH budget 5,000 x 12 x 11.20 672,000

lv . Answer: BActual variable overhead 62,400

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Actual OH (10,300 + 19,500) P29,800lvi . Answer: C

Applied fixed overhead (3,000 x 3 x 3.50) 31,500Less: Favorable volume variance 875Budgeted fixed overhead 30,625

lvii . Answer: AStandard rate: 50,000/40,000 1.25Excess rate 1,080/3,600 0.03Actual rate 1.28

lviii . Answer: AApplied fixed overhead 48,000Less favorable volume variance 12,000Budgeted fixed overhead 36,000

lix . Answer: AUnfavorable volume variance 25,000Unfavorable VOH spending variance 18,000Total 43,000Net Unfavorable variance 2,000Favorable fixed OH budget variance 41,000

lx . Answer: ANet OH variance, Unfavorable 2,000Less: Unfavorable volume variance ( 18,000) Unfavorable spending variance ( 25,000)Favorable FOH budget variance 41,000

lxi . Answer: CBudgeted fixed OH 500,000

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Add: Favorable volume variance 12,000lxii . Answer: A

Applied FOH (8,000 x 6) 48,000Less: Favorable volume variance 12,000Budgeted FOH 36,000

lxiii . Answer: ABudgeted fixed OH (3,000,000 ÷ 12 months) 250,000Applied fixed OH (26,000 @ 2 x 5) 260,000Favorable volume variance ( 10,000)FFixed OH rate per hour (3,000,000 ÷ 600,000) 5.00

lxiv . Answer: BLabor Efficiency: (53,500 – 52,000) 8 12,000Variable OH Efficiency (53,500 – 52,000) 6 9,000 Total efficiency variance 21,000

lxv . Answer: DTotal variable overhead variance (80,000 – 90,000) 10,000 favorableVariable overhead spending variance 1,200 favorableVariable overhead efficiency variance 8,800 favorable8,800 ÷ 20 440 Favorable

lxvi . Answer: DFixed overhead volume variance is a more meaningful variance in evaluating the use of the capacity.

lxvii . Answer: BActual variable OH P250,000Budgeted VOH at actual hours (80,000 x P3) 240,000Unfavorable VOH spending variance P 10,000

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Applied fixed overhead 512,000lxix . Answer: B

Spending [P315,000 – (53,500 x P6)] P(6,000)Efficiency [(53,500 – 52,000) x P6] P 9,000

lxx . Answer: BSpending [P260,000 – (P3M ÷ 12)] P10,000UVolume [(26,000 – 25,000) x P10] P10,000F

lxxi . Answer: CActual fixed overhead P88,000Budget fixed overhead (4,000 hrs @ P20) 80,000Unfavorable fixed OH Spending variance P 8,000Budgeted (denominator) hours (40,000 units x 6 ÷ 60) 4,000

lxxii . Answer: BBudget fixed overhead P80,000Applied fixed overhead (38,000 x 0.10 x P20) 76,000Unfavorable volume variance P 4,000

lxxiii . Answer: AActual variable overhead P 16,400Budget at actual hours (4,200 x P4) 16,800Favorable variable OH spending variance P ( 400)

lxxiv . Answer: CUnfavorable Efficiency Variance: (AH – SH) SVOHR(4,200 – 3,800) x P4 = 1,600 UNFSH allowed (38,000 units x 1 ÷ 10) = 3,800 hours

lxxv . Answer: A

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Less: Budgeted OH at actual hours (P2 x 9,500 hrs) + P10,000 29,000lxxvi . Answer: C

The computation of variable overhead efficiency variance involves the comparison of the actual hours and standard hours allowed by actual production.(17,200 – 17,000) x P6 1,200 UNFStandard hours allowed: 8,500 x 2 17,000

lxxvii . Answer: DThe amount of fixed overhead budget (spending) variance is calculated by subtracting from the actual fixed overhead the amount of budgeted fixed overhead.

Actual fixed overhead 28,000Budgeted fixed overhead (135,000 x 0.2) 27,000Unfavorable fixed overhead budget variance 1,000

lxxviii . Answer: BThe amount of volume variance (denominator or over/underapplied fixed overhead variance) is calculated by comparing the budgeted fixed overhead and fixed overhead applied to production.

Budgeted fixed overhead (135,000 x 0.2) 27,000Applied fixed overhead (8,500 x 3) 25,500Underapplied (unfavorable) volume variance 1,500Alternative calculation: (9,000 – 8,500) x 3 1,500Fixed overhead per unit (27,000 ÷ 9,000) 3

lxxix . Answer: CStd unit cost:Variable (7,000,000 x 0.60) ÷ 140,000 P30Fixed OH (11,200,000 x 0.50) ÷ 160,000 35Std unit cost P65CGS – Std (100,000 x 65) 6,500,000OH Volume Variance: (160,000 – 140,000) x 35 P 700,000 UNF

lxxx . Answer: ASQ allowed (22,500 x 6) 135,000Unfavorable usage variance 3,000Actual quantity of materials 138,000

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Unfavorable spending variance P 800

*Standard cost ÷ Standard Yield = P6,250 ÷ 4,000 = P1.5625

xxv . Answer: CDirect labor cost at standard rate 7,150 – 750 6,400Standard rate 6,400/800 8.00

AR = P4.00 – (5,800 ÷ 29,000)lxxxi . Answer: C

Actual quantity purchased and used at standard price (138,000 x 3) 414,000Favorable price variance 6,900Actual Quantity @ Actual Price 407,100Actual Price (407,100 ÷ 138,000) P2.95

lxxxii . Answer: CSH @ SR 90,000Efficiency Variance 7,000AH @ SR 97,000Actual hours (97,000 ÷ 5) 19,400

lxxxiii. Answer: DAH @ SR (19,400 x 3) 58,200Spending variance 1,300Actual Variable Overhead 59,500

lxxxiv. Answer: BApplied Fixed OH 126,000Underapplied fixed overhead 14,000Budgeted fixed overhead 140,000

lxxxv . Answer: CDenominator or Budgeted Hours: (140,000 ÷ 7) = 20,000

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= P3.80

Fixed overhead spending variance P(10,000)Variable overhead efficiency variance P 6,000 Total controllable variance P 7,600

The volume variance is not considered a controllable variance.

xlix . Answer: CEV = (AH – SH) SVOHR (14,000 – 13,500) 6 3,000USH (4,500 x 3) 13,500

lxxxvi. Answer: CMCE = Value Added Hours ÷ Throughput TimeProcessing hours 8.00Inspection hours 1.50Waiting time 1.50Move time 1.50Throughput time 12.50MCE (8.00 ÷ 12.50) 64%

lxxxvii. Answer: A

lxxxviii. Answer: ADelivery cycle time:Total waiting time 15.00 Inspection time 1.50Processing time 3.00Move time 2.50Delivery Cycle Time 22.00

lxxxix. Answer: CA favorable volume variance arises when the applied fixed overhead is higher than the budgeted fixed overhead.

Budgeted fixed overhead 500,000Favorable volume variance (overapplied) 12,000Applied fixed overhead 512,000

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Variable OH applied 62,000Unfavorable variable OH variance 400

lxviii . Answer: A(38,000 units – 50,000 units) x P8 P96,000

Actual variable overhead 108,500Budgeted VOH at actual hours (17,200 x 6) 103,200Variable overhead spending variance, UNF 5,300VOH rate per hour (135,000 x 0.80) ÷ 18,000 hours P6.00

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Standard Costing & Variance Analysis