Standard Costs and Variance Analysis

STANDARD COSTS AND VARIANCE ANALYSIS B. Most variances will be unfavorable.

C. Employees will be strongly motivated to attain the standard.
THEORIES: D. Costs will be controlled better than if lower standards were used.
Standard cost system
1. A primary purpose of using a standard cost system is 7. To measure controllable production inefficiencies, which of the following is the best basis for a
A. To make things easier for managers in the production facility. company to use in establishing the standard hours allowed for the output of one unit of product?
B. To provide a distinct measure of cost control. A. Average historical performance for the last several years
C. To minimize the cost per unit of production. B. Engineering estimates based on ideal performance
D. b and c are correct C. Engineering estimates based on attainable performance
D. The hours per unit that would be required for the present workforce to satisfy expected
2. Which one of the following statements is true concerning standard costs? demand over the long run
A. Standard costs are estimates of costs attainable only under the most ideal conditions, but
rarely practicable. 8. Which of the following statements about the selection of standards is true?
B. Standard costs are difficult to use with a process-costing system. A. Ideal standards tend to extract higher performance levels since they give employees
C. If properly used, standards can help motivate employees. something to live up to.
D. Unfavorable variances, material in amount, should be investigated, but large favorable B. Currently attainable standards may encourage operating inefficiencies.
variances need not be investigated. C. Currently attainable standards discourage employees from achieving their full performance
potential.
3. Which of the following is a purpose of standard costing? D. Ideal standards demand maximum efficiency which may leave workers frustrated, thus
A. Determine “breakeven” production level causing a decline in performance.
B. Control costs
C. Eliminate the need for subjective decisions by management Standard costs vs. budgeted costs
D. Allocate cost with more accuracy 9. A difference between standard costs used for cost control and the budgeted costs representing
the same manufacturing effort can exist because
4. When evaluating the operating performance management sometimes uses the difference A. standard costs must be determined after the budget is completed
between expected and actual performance. This refers to: B. standard costs represent what costs should be while budgeted costs represent expected
A. Management by Deviation C. Management by Objective actual costs
B. Management by Control D. Management by Exception C. budgeted costs are historical costs while standard costs are based on engineering studies
D. budgeted costs include some “slack” or “padding” while standard costs do not
Standard setting
5. The best basis upon which cost standards should be set to measure controllable production Process costing
inefficiencies is 10. When standard costs are used in a process-costing system, how, if at all, are equivalent units
A. Engineering standards based on ideal performance involved or used in the cost report at standard?
B. Normal capacity A. Equivalent units are not used.
C. Engineering standards based on attainable performance B. Equivalent units are computed using a “special” approach.
D. Practical capacity 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.
6. A company employing very tight (high) standards in a standard cost system should expect that
A. No incentive bonus will be paid. Normal costing

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11. 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, 17. Assuming that the standard fixed overhead rate is based on full capacity, the cost of available
the volume variance will be but unused productive capacity is indicated by the:
A. Zero A. Factory overhead cost volume variance
B. Favorable B. Direct labor cost efficiency variance
C. Unfavorable C. Direct labor cost rate variance
D. Either favorable or unfavorable, depending on the budgeted overhead. D. Factory overhead cost controllable variance

Types of standards 18. In analyzing manufacturing overhead variances, the volume variance is the difference between
12. The absolute minimum cost possible under the best conceivable operating conditions is a the:
description of which type of standard? A. Amount shown in the flexible budget and the amount shown in the debit side of the overhead
A. Currently attainable (expected) C. Theoretical control account
B. Normal D. Practical B. Predetermined overhead application rate and the flexible budget application rate times
actual hours worked
13. Standards, which are difficult to achieve due to reasons beyond the individual performing the C. Budget allowance based on standard hours allowed for actual production for the period and
task, are the result of firm using which of the following methods to establish standards? the amount budgeted to be applied during the period
A. Ideal Standards C. Practical Standards D. Actual amount spent for overhead items during the period and the overhead amount applied
B. Lax Standards D. Employee Standards to production during the period

14. Standards that represent levels of operation that can be attained with reasonable effort are 19. The variance least significant for purposes of controlling costs is the:
called: A. Material usage variance
A. Theoretical standards C. Variable standards B. Variable overhead efficiency variance
B. Ideal standards D. Normal standards C. Fixed overhead spending variance
D. Fixed overhead volume variance
Variances
Generic variances 20. The variance most useful in evaluating plant utilization is the:
15. When performing input/output variance analysis in standard costing, “standard hours allowed” A. Variable overhead spending variance
is a means of measuring B. Fixed overhead spending variance.
A. Standard output at standard hours C. Actual output at standard hours C. Variable overhead efficiency variance
B. Standard output at actual hours D. Actual output at actual hours D. Fixed overhead volume variance

Two way variances Four way variances

Volume variance 21. The choice of production volume as a denominator for calculating its factory overhead rate
16. A company uses a two-way analysis for overhead variances: budget (controllable) and volume. A. Has no effect on the fixed factory overhead rate for applying costs to production
The volume variance is based on the B. Has an effect on the variable factory overhead rate for applying costs to production
A. Total overhead application rate C. Has no effect on the fixed factory overhead budget variance
B. Volume of total expenses at various activity levels D. Has no effect on the fixed factory overhead production volume variance
C. Variable overhead application rate
D. Fixed overhead application rate 22. The budgeted overhead costs for standard hours allowed and the overhead costs applied to

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product are the same amount B. The mix of workers assigned to the particular job was heavily weighted toward the use of
A. for both variable and fixed overhead costs. new, relatively low paid, unskilled workers.
B. only when standard hours allowed is less than normal capacity. C. Because of the productive schedule, workers from other production areas were assigned
C. for variable overhead costs. to assist in this particular process.
D. for fixed overhead costs. D. Defective materials caused more labor to be used in order to produce a standard unit.

Responsibility for variances Two-way overhead variance

23. Which department is customarily held responsible for an unfavorable materials usage variance? 28. The budget for a given cost during a given period was P1,600,000. The actual cost for the
A. Quality control C. Purchasing period was P1,440,000. Considering these facts, it can be said that the plant manager has done
B. Engineering D. Production a better than expected job in controlling the cost if:
A. The cost is variable and actual production was 90% of budgeted production
Variance analysis B. The cost is variable and actual production equaled budgeted production
24. Which of the following should be least considered when deciding whether to investigate a C. The cost is variable and actual production was 80% of budgeted production
variance? D. The cost is discretionary fixed cost and actual production equaled budgeted production
A. Whether the variance is favorable or unfavorable
B. Significance of the variance Budget variance
C. Cost of investigating the variance 29. The budget variance for fixed factory overhead for the normal-volume, practical-capacity, and
D. Trend of the variances over time expected-activity levels would be the:
A. Same except for normal volume C. Same except for expected activity
Total materials variance B. Same except for practical capacity D. Same for all three activity levels
25. 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 Volume variance
variance be further evaluated as to price and usage? 30. You have leased a 5,000-gallon storage tank for P5,000 per month. You stored 4,000 gallons of
A. There is no need to further evaluate the total materials variance if it is favorable liquid in the tank during the month. The cost of storage was P1.25 per gallon, rather than P1.00
B. Generally accepted accounting principles require that all variances be analyzed in three per gallon based on 5,000 gallon capacity. Therefore, the cost of storing 4,000 gallons was
stages P1,000 more (P.25 x 4,000) in total than if you had stored 5,000 gallons of liquid in the tank.
C. All variances must appear in the annual report to equity owners for proper disclosure Which variance is being described?
D. To allow management to evaluate the efficiency of the purchasing and production functions A. Variable-overhead efficiency variance
B. Fixed-overhead spending variance
Labor variances C. Variable-overhead spending variance
26. Which of the following unfavorable cost variances would be directly affected by the relative D. Fixed-overhead volume variance
position of a production process on a learning curve?
A. Materials mix C. Labor rate 31. Favorable fixed overhead volume variance occurs if:
B. Materials price D. Labor efficiency A. There is a favorable labor efficiency variance
B. There is a favorable labor rate variance
27. Which of the following is the most probable reason with a company would experience an C. Production is less than planned
unfavorable labor rate variance and a favorable labor efficiency variance? D. Production is greater than planned
A. The mix of workers assigned to the particular job was heavily weighted toward the use of
higherly paid, experienced individuals. 32. The unfavorable volume variance may be due to all but which of the following factors?

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A. Failure to maintain an even flow of work (Salex), boiling the mixture; adding a second compound (Protet), and bottling the resulting
B. Machine breakdowns solution in 20-liter containers. The initial mix, which is 20 liters in volume, consists of 24
C. Unexpected increases in the cost of utilities kilograms of Nyclyn and 19.2 liters of Salex. A 20% reduction in volume occurs during the boiling
D. Failure to obtain enough sales orders 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.
33. How will a favorable volume variance affect net income under each of the following methods?
Absorption Variable The purchase prices of the raw materials used in the manufacture of this new chemical solution
A. Decrease No effect are as follows:
B. Decrease Increase Nyclyn P15.00 per kilogram
C. Increase No effect Salex P21.00 per liter
D. Increase Decrease Protet P28.00 per kilogram
The total standard materials cost of 20 liters of the product is:
34. Favorable volume variances may be harmful when: A. P1,043.20 C. P 834.56
A. Machine repairs cause work stoppages B. P1,304.00 D. P1,234.00
B. Supervisors fail to maintain an even flow of work
C. Production in excess of normal capacity cannot be sold ii. El Andre Co. uses a standard costing system in connection with the manufacture of a line of T-
D. There are insufficient sales orders to keep the factory operating at normal capacity 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
Three-way Overhead variance process. The cost of the direct materials is P150 per yard. The standard direct material cost
35. During 2006, a department’s three-variance overhead standard costing system reported per unit of finished product is
unfavorable spending and volume variances. The activity level selected for allocating overhead A. P 253 C. P 450
to the product was based on 80% of practical capacity. It 100% of practical capacity had been B. P 422 D. P 405
selected instead, how would the reported unfavorable spending and volume variances be
affected? iii. Each finished unit of Product EM contains 60 pounds of raw material. The manufacturing
Spending Variance Volume Variance process must provide for a 20% waste allowance. The raw material can be purchased for P2.50
A. Increased Unchanged a pound under terms of 2/10, n/30. The company takes all cash discounts. The standard direct
B. Increased Increased material cost for each unit of EM is:
C. Unchanged Increased A. P180.00 C. P187.50
D. Unchanged Unchanged B. P183.75 D. P176.40

iv. The Vandana Company has a signature scarf for ladies that is very popular. Certain production
PROBLEMS: and marketing data are indicated below:
Standard setting Cost per yard of cloth P40.00
Raw Materials Allowance for rejected scarf 5% of production
i. Shampoo Company is a chemical manufacturer that supplies industrial users. The company Yards of cloth needed per scarf 0.475 yard
plans to introduce a new chemical solution and needs to develop a standard product cost for Airfreight from supplier P1.00/yard
this new solution. Motor freight to customers P0.90 /scarf
Purchase discounts from supplier 3%
The new chemical solution is made by combining a chemical compound (Nyclyn) and a solution Sales discount to customers 2%

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The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no material requirements for Supercold’s products. Haydee believes that the use of standard costing
market value. Materials are used at the start of production. will allow Supercold to improve cost control and make better pricing decisions.
Calculate the standard cost of cloth per scarf that Vandana Company should use in its cost
sheets. Supercold’s most popular products is strawberry sherbet. The sherbet is produced in 10-gallon
A. P19.85 C. P19.40 batches, and each batch requires six quarts of good strawberries. The fresh strawberries are sorted
B. P20.00 D. P19.90 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
Direct labor minutes is the standard direct labor time for sorting that is required to obtain one quart of acceptable
v. Double M company is a chemical manufacturer that supplies various products to industrial users. berries. The acceptable berries are then blended with the other ingredients; blending requires 12
The company plans to introduce a new chemical solution called Bysap, for which it needs to minutes of direct labor time per batch. After blending, the sherbet is package in quart containers.
develop a standard product cost. The following labor information is available on the production Haydee has gathered the following information from Rizza Alano, Supercold’s cost accountant.
of Bysap.
• The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, Supercold purchases strawberries at a cost of P8.00 per quart. All other ingredients cost a total of
and Protet. P4.50 per gallon.
• The finished product is highly unstable, and one 10-liter batch out of six is rejected at final Direct labor is paid at the rate of P50 per hour.
inspection. Rejected batches have no commercial value and are thrown out. The total cost of material and labor required to package the sherbet is P3.80 per quart.
• 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. Rizza Alano has a friend who owns a berry farm that has been losing money in recent years.
What is the standard labor time to produce one 10-liter batch of Bysap? Because of good crops, there has been an oversupply of strawberries, and prices have dropped to
A. 35 minutes C. 48 minutes P5.00 per quart. Rizza has arranged for Supercold to purchase strawberries form her friend and
B. 40 minutes D. 45 minutes hopes that P8.00 per quart will help her friend’s farm become profitable again.

vi. The following direct labor information pertains to the manufacture of Part J35: vii. The standard materials cost per 10-gallon batch of strawberry sherbet is:
Number of hours required to make a part 2.5 DLH A. P 85.00 C. P101.00
Number of Direct workers 75 B. P 60.00 D. P105.00
Number of total productive hours per week 3000
Weekly wages per worker P1,000 viii. The standard direct labor cost per 10-gallon batch of sherbet is:
Laborers’ fringe benefits treated as direct labor costs 25% of wages A. P50.00 C. P25.00
What is the standard direct labor cost per unit of Part J35? B. P28.75 D. P15.00
A. P62.500 C. P41.670
B. P78.125 D. P84.125 Materials variance
ix. Under a standard cost system, the materials quantity variance was recorded at P1,970
Materials & Labor unfavorable, the materials price variance was recorded at P3,740 favorable, and the Goods in
Questions Nos. 7 and 8 are based on the following: Process was debited for P51,690. Ninety-six thousand units were completed. What was the per
Supercold Company is a small producer of fruit-flavored frozen desserts. For many years, unit price of the actual materials used?
Supercold’s products have had strong regional sales on the basis of brand recognition. However, A. P0.52 each C. P0.54 eac
other companies have begun marketing similar products in the area, and price competition has B. P0.53 each D. P0.51 each
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 x. Blake Company has a standard price of P5.50 per pound for materials. July’s results showed

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an unfavorable material price variance of P44 and a favorable quantity variance of P209. If Standard quantity of direct materials allowed for May production 29,000 lbs
1,066 pounds were used in production, what was the standard quantity allowed for materials? For the month of May, Dulce’s direct materials price variance was:
A. 1,104 C. 1,066 A. P2,800 favorable C. P2,800 unfavorable
B. 1,074 D. 1,100 B. P6,000 unfavorable D. P6,000 favorable

xi. Elite Company uses a standard costing system in the manufacture of its single product. The xvi. Information on Katrina Company’s direct material costs is as follows:
35,000 units of raw material in inventory were purchased for P105,000, and two units of raw Standard unit price P 3.60
material are required to produce one unit of final product. In November, the company produced Actual quantity purchased 1,600
12,000 units of product. The standard allowed for material was P60,000, and there was an Standard quantity allowed for actual production 1,450
unfavorable quantity variance of P2,500. The materials price variance for the units used in Materials purchase price variance – favorable P 240
November was What was the actual purchase price per unit, rounded to the nearest centavos?
A. P 2,500 U C. P12,500 U A. P3.06 C. P3.11
B. P11,000 U D. P 3,500 F B. P3.45 D. P3.75

xii. Sheridan Company has a standard of 15 parts of component BB costing P1.50 each. Sheridan xvii. Palmas Company, which has a standard cost system, had 500 units of raw material X in its
purchased 14,910 units of component BB for P22,145. Sheridan generated a P220 favorable inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of P1.00.
price variance and a P3,735 favorable quantity variance. If there were no changes in the The following information pertains to raw material X for the month of June:
component inventory, how many units of finished product were produced? Actual number of units purchased 1,400
A. 994 units. C. 1,000 units Actual number of units used 1,500
B. 1,090 units. D. 1,160 units Standard number of units allowed for actual production 1,300
Standard cost per unit P1.00
xiii. The standard usage for raw materials is 5 pounds at P40.00 per pound. Cave Company spent Actual cost per unit P1.10
P131,200 in purchasing 3,200 pounds. Cave used 3,150 pounds to produce 600 units of The unfavorable materials purchase price variance for raw material X for June was:
finished product. The material quantity variance is: A. P 0 C. P140
A. P6,000 unfavorable C. P3,200 unfavorable B. P130 D. P150
B. P5,200 unfavorable D. P2,000 unfavorable
xviii. During March, Lumban Company’s direct material costs for the manufacture of product T were
xiv. The Bohol Company uses standard costing. The following data are available for October: as follows:
Actual quantity of direct materials used 23,500 pounds Actual unit purchase price P6.50
Standard price of direct materials P2 per pound Standard quantity allowed for actual production 2,100
Material quantity variance P1,000 U Quantity purchased and used for actual production 2,300
The standard quantity of materials allowed for October production is: Standard unit price P6.25
A. 23,000 lbs C. 24,000 lbs Lumban’s material usage variance for March was:
B. 24,500 lbs D. 25,000 lbs A. P1,250 unfavorable C. P1,250 favorable
B. P1,300 unfavorable D. P1,300 favorable
xv. Information on Dulce’s direct material costs for May is as follows:
Actual quantity of direct materials purchased and used 30,000 lbs. xix. Razonable Company installs shingle roofs on houses. The standard material cost for a Type R
Actual cost of direct materials P84,000 house is P1,250, based on 1,000 units at a cost of P1.25 each. During April, Razonable installed
Unfavorable direct materials usage variance P 3,000 roofs on 20 Type R houses, using 22,000 units of material cost of P26,400. Razonable’s material

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price variance for April is: xxii. The standard hourly rate was P4.10. Standard hours for the level of production are 4,000. The
A. P1,000 favorable C. P1,100 favorable actual rate was P4.27. The labor rate variance was P654.50, unfavorable. What were the actual
B. P1,400 unfavorable D. P2,500 unfavorable labor hours?
A. 3,700 C. 3,850
xx. Samson Candle Co. manufactures candles in various shapes, sizes, colors, and scents. B. 4,150 D. 4,000
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. xxiii. Clean Harry Corp. uses two different types of labor to manufacture its product. The types of
Standard ingredients for 1,000 pounds of candles are: labor, Mixing and Finishing, have the following standards:
Input: Standard Mix Standard Cost per Pound Labor Type Standard Mix Std Hourly Rate Standard Cost
Beeswax 200 lbs. 1.00 Mixing 500 hours P10 P5,000
Synthetic wax 840 lbs. 0.20 Finishing 250 hours P5 P1,250
Colors 7 lbs. 2.00 Yield: 4,000 units
Scents 3 lbs. 6.00 During January, the following actual production information was provided:
Totals 1,050 lbs. 9.20 Labor Type Actual Mix
Standard output 1,000 lbs. Mixing 4,500 hours
Price variances are charged off at the time of purchase. During January, the company was busy Finishing 3,000 hours
manufacturing red candles for Valentine’s Day. Actual production then was: Yield: 36,000 units
Input: In Pounds What is the labor mix variance?
Beeswax 4,100 A. P2,500 F C. P2,500 U
Synthetic wax 13,800 B. P5,000 F D. P5,000 F
Colors 2,200
Scents 60 xxiv. How much labor yield variances should be reported?
Total 20,160 A. P6,250 U C. P5,250 F
Actual output 18,500 B. P6,250 F D. P5,250 U
The material yield variance is:
A. P 280 unfavorable C. P 280 favorable xxv. Hingis had a P750 unfavorable direct labor rate variance and an P800 favorable efficiency
B. P3,989 unfavorable D. P3,989 favorable variance. Hingis paid P7,150 for 800 hours of labor. What was the standard direct labor wage
rate?
Labor variance A. P8.94 C. P8.00
xxi. The flexible budget for the month of May 2007 was for 9,000 units with direct material at P15 B. P7.94 D. P7.80
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 xxvi. Powerless Company’s operations for April disclosed the following data relating to direct
expense. Direct labor hours of 6,375 were actually worked during the month. Variance analysis labor:
of the performance for the month of May would show a(n): Actual cost P10,000
A. Favorable material quantity variance of P7,500. Rate variance 1,000 favorable
B. Unfavorable direct labor efficiency variance of P1,275. Efficiency variance 1,500 unfavorable
C. Unfavorable material quantity variance of P7,500. Standard cost P 9,500
D. Unfavorable direct labor rate variance of P1,275. Actual direct labor hours for April amounted to 2,000. Powerless’ standard direct labor rate per
hour in April was:
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A. P5.50 C. P5.00 A. P3.54 C. P3.80

B. P4.75 D. P4.50 B. P4.00 D. P5.80

xxvii. Lion Company’s direct labor costs for the month of January were as follows: xxxi. What was Goodeve’s actual direct labor rate?
Actual direct labor hours 20,000 A. P3.60 C. P3.80
Standard direct labor hours 21,000 B. P4.00 D. P5.80
Direct labor rate variance – Unfav. P 3,000
Total payroll P126,000 xxxii. The Islander Corporation makes a variety of leather goods. It uses standards costs and a
What was Lion’s direct labor efficiency variance? flexible budget to aid planning and control. Budgeted variable overhead at a 45,000-direct labor
A. P6,000 favorable C. P6,150 favorable hour level is P27,000.
B. P6,300 favorable D. P6,450 favorable 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
xxviii. Using the information given below, determine the labor efficiency variance: rate was P0.20 lower than the average standard wage rate.
Labor price per hour P 20 The company uses a variable overhead rate of 20% of standard direct-labor cost for flexible
Standard labor price per gallon of output at 20 gal./hr P 1 budgeting purposes. Actual variable overhead for the month was P30,750.
Standard labor cost of 8,440 gallons of actual output P8,440 What were the standard hours allowed during the month of April?
Actual total inputs(410 hours at P21/hr) P8,610 A. 50,250 C. 58,625
A. P 410 unfavorable C. P 240 favorable B. 48,550 D. 37,520
B. P 170 unfavorable D. P 410 favorable
xxxiii. Information on Barber Company’s direct labor costs for the month of January is as follows:
xxix. Simbad Company’s operations for the month just ended originally set up a 60,000 direct Actual direct labor hours 34,500
labor hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of Standard direct labor hours 35,000
P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and Total direct labor payroll P241,500
that the unfavorable variable overhead variance was P40,000. Labor trouble caused an Direct labor efficiency variance – favorable P 3,200
unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates What is Barber’s direct labor rate variance?
resulted in an actual average wage rate of P16.40 per hour. The total number of standard direct A. P17,250 U C. P21,000 U
labor hours allowed for the actual units produced is B. P20,700 U D. P21,000 F
A. P52,500 C. P62,500
B. P77,500 D. P70,000 xxxiv. STA Company uses a standard cost system. The following information pertains to direct
labor costs for the month of June:
Questions 30 and 31 are based on the following information. Standard direct labor rate per hour P 10.00
Information on Goodeve Company’s direct labor costs are presented below: Actual direct labor rate per hour P 9.00
Standard direct labor hours 30,000 Labor rate variance (favorable) P12,000
Actual direct labor hours 29,000 Actual output (units) 2,000
Direct labor efficiency variance Favorable P 4,000 Standard hours allowed for actual production 10,000 hours
Direct labor rate variance Favorable P 5,800 How many actual labor hours were worked during March for STA Company?
Total payroll P110,200 A. 10,000 C. 8,000
B. 12,000 D. 10,500
xxx. What was Goodeve’s standard direct labor rate?

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xxxv. Information of Hanes’ direct labor costs for the month of May is as follows: Actual data for December were as follows:
Actual direct labor rate P7.50 Direct labor hours worked 22,000
Standard direct labor hours allowed 11,000 Total factory OH P147,000
Actual direct labor hours 10,000 Standard DLHs allowed for capacity attained 21,000
Direct labor rate variance – favorable P5,500 Using the two-way analysis of overhead variance, what is the controllable variance for
What was the standard direct labor rate in effect for the month of May? December?
A. P6.95 C. P8.00 A. P 3,000 Favorable C. P 5,000 Favorable
B. P7.00 D. P8.05 B. P 9,000 Favorable D. P10,500 Unfavorable

Two-way overhead variance xxxix. Heart Company uses a flexible budget system and prepared the following information for
xxxvi. The overhead variances for Big Company were: the year:
Variable overhead spending variance: P3600 favorable. Percent of Capacity 80 Percent 90 Percent
Variable overhead efficiency variance: P6,000 unfavorable. Direct labor hours 24,000 27,000
Fixed overhead spending variance: P10,000 favorable. Variable factory overhead P 54,000 P 60,750
Fixed overhead volume variance: P24,000 favorable. Fixed factory overhead P 81,000 P 81,000
What was the overhead controllable variance? Total factory overhead rate per DLH P5.625 P5.25
A. P31,600 favorable C. P24,000 favorable Heart operated at 80 percent of capacity during the year, but applied factory overhead based on
B. P13,600 favorable D. P 7,600 favorable 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?
xxxvii. Kent Company sets the following standards for 2007: A. P 9,000 unfavorable C. P 9,000 favorable
Direct labor cost (2 DLH @ P4.50) P 9.00 B. P15,750 unfavorable D. P15,750 favorable
Manufacturing overhead (2 DLH @ P7.50) 15.00
Kent Company plans to produce its only product equally each month. The annual budget for xl. The Fire Company has a standard absorption and flexible budgeting system and uses a two-
overhead costs are: way analysis of overhead variances. Selected data for the June production activity are:
Fixed overhead P150,000 Budgeted fixed factory overhead costs P 64,000
Variable overhead 300,000 Actual factory overhead 230,000
Normal activity in direct labor hours 60,000 Variable factory overhead rater per DLH P 5
In March, Kent Company produced 2,450 units with actual direct labor hours used of 5,050. Standard DLH 32,000
Actual overhead costs for the month amounted to P37,245 (Fixed overhead is as budgeted.) Actual DLH 32,000
The amount of overhead volume variance for Kent Company is The budget (controllable) variance for June is
A. P250 unfavorable C. P500 unfavorable A. P1,000 favorable C. P1,000 unfavorable
B. P750 Unfavorable D. P375 Unfavorable B. P6,000 favorable D. P6,000 unfavorable
xxxviii. Calma Company uses a standard cost system. The following budget, at normal capacity, xli. Sorsogon Company had actual overhead of P14,000 for the year. The company applied
and the actual results are summarized for the month of December: overhead of P13,400. If the overhead budgeted for the standard hours allowed is P15,600, the
Direct labor hours 24,000 overhead controllable variance is
Variable factory OH P 48,000 A. P 600 Favorable C. P1,600 Favorable
Fixed factory OH P108,000 B. P2,200 Unfavorable D. P1,600 Unfavorable
Total factory OH per DLH P 6.50

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xlii. Compo Co. uses a predetermined factory O/H application rate based on direct labor cost. For Budgeted fixed overhead P777,600 per year
the year ended December 31, Compo’s budgeted factory O/H was P600,000, based on a Budgeted output 4,800 units per month
budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of P6 per hour. The overhead efficiency variance is
Actual factory O/H amounted to P620,000, with actual direct labor cost of P325,000. For the A. P3,000 Favorable C. P3,000 Unfavorable
year, over-applied factory O/H was B. P5,400 Favorable D. P5,400 Unfavorable
A. P20,000 C. P30,000
B. P25,000 D. P50,000 xlvi. The Libiran Company produces its only product, Menthol Chewing Gum. The standard
overhead cost for one pack of the product follows:
xliii. The Terrain Company has a standard absorption and flexible budgeting system and uses a two- Fixed overhead (1.50 hours at P18.00) P27.00
way analysis of overhead variances. Selected data for the June production activity are: Variable overhead (1.50 hours at P10.00) 15.00
Budgeted fixed factory overhead costs P 64,000 Total application rate P42.00
Actual factory overhead 230,000 Libiran uses expected volume of 20,000 units. During the year, Libiran used 31,500 direct labor
Variable factory overhead rater per DLH P 5 hours for the production of 20,000 units. Actual overhead costs were P545,000 fixed and
Standard DLH 32,000 P308,700 variable.
Actual DLH 32,000 The overhead efficiency variance is
The budget (controllable) variance for the month of June is: A. P22,500 Favorable C. P15,000 Favorable
A. P1,000 favorable C. P1,000 unfavorable B. P22,500 Unfavorable D. P15,000 Unfavorable
B. P6,000 favorable D. P6,000 unfavorable
xlvii. Abbey Company produces a single product. Abbey employs a standard cost system and uses
xliv. The standard factory overhead rate is P10 per direct labor hour (P8 for variable factory overhead a flexible budget to predict overhead costs at various levels of activity. For the most recent year,
and P2 for fixed factory overhead) based on 100% capacity of 30,000 direct labor hours. The Abbey used a standard overhead rate equal to P8.50 per direct labor hour. The rate was
standard cost and the actual cost of factory overhead for the production of 5,000 units during computed using normal activity. Budgeted overhead costs are P100,000 for 10,000 direct labor
May were as follows: hours and P160,000 for 20,000 direct labor hours. During the past year, Abbey generate the
Standard: 25,000 hours at P10 P250,000 following data:
Actual: Variable factory overhead 202,500 Actual production: 1,400 units
Fixed factory overhead 60,000 Fixed overhead volume variance: P5,000 U
What is the amount of the factory overhead volume variance? Variable overhead efficiency variance: P3,000 F
A. 12,500 favorable C. 12,500 unfavorable Actual fixed overhead costs: P42,670
B. 10,000 unfavorable D. 10,000 favorable Actual variable overhead costs: P82,000
The number of direct labor hours used as normal activity are:
Three-way overhead variance A. 16,000 C. 14,000
xlv. The following data are the actual results for Wow Company for the month of May: B. 15,000 D. 13,500
Actual output 4,500 units
Actual variable overhead P360,000 xlviii. Using the information presented below, calculate the total overhead spending variance.
Actual fixed overhead P108,000 Budgeted fixed overhead P10,000
Actual machine time 14,000 MH Standard variable overhead (2 DLH at P2 per DLH) P4 per unit
Standard cost and budget information for Wow Company follows: Actual fixed overhead P10,300
Standard variable overhead rate P6.00 per MH Actual variable overhead P19,500
Standard quantity of machine hours 3 hours per unit Budgeted volume (5,000 units x 2 DLH) 10,000 DLH

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Actual direct labor hours (DLH) 9,500 D. P33,000 U P18,000 F

Units produced 4,500
A. P 500 U C. P1,000 U lii. Using the information in the preceding number, the amounts of controllable variances for
B. P 800 U D. P1,300 U variable overhead are:
Spending Efficiency
xlix. The following data are the actual results for Bustos Company for the month of May: A. P20,000 Fav P20,000 Unf
Actual output 4,500 units B. P20,000 Unf P20,000 Fav
Actual variable overhead P360,000 C. P 5,000 Unf P20,000 Unf
Actual fixed overhead P108,000 D. P20,000 Fav P 5,000 Unf
Actual machine time 14,000 MH
Standard cost and budget information for Bustos Company follows: Four-way overhead variance
Standard variable overhead rate P6.00 per MH liii. Safin Corporation’s master budget calls for the production of 5,000 units of product monthly.
Standard quantity of machine hours 3 hours per unit The annual master budget includes indirect labor of P144,000 annually. Safin considers indirect
Budgeted fixed overhead P777,600 per year labor to be a variable cost. During the month of April, 4,500 units of product were produced,
Budgeted output 4,800 unit per month and indirect labor costs of P10,100 were incurred. A performance report utilizing flexible
The overhead efficiency variance is: budgeting would report a budget variance for indirect labor of:
A. P3,000 Favorable C. P3,000 Unfavorable A. P1,900 Unfavorable. C. P1,900 Favorable.
B. P5,400 Favorable D. P5,400 Unfavorable B. P 700 Unfavorable. D. P 700 Favorable.

l. The following information is available from the Tyro Company: liv. Wala Company applies overhead on a direct labor hour basis. Each unit of product requires 5
Actual factory overhead P15,000 direct labor hours. Overhead is applied on a 30 percent variable and 70 percent fixed basis; the
Fixed overhead expenses, actual P 7,200 overhead application rate is P16 per hour. Standards are based on a normal monthly capacity
Fixed overhead expenses, budgeted P 7,000 of 5,000 direct labor hours.
Actual hours 3,500 During September 2006, Wala produced 1,010 units of product and incurred 4,900 direct labor
Standard hours 3,800 hours. Actual overhead cost for the month was P80,000.
Variable overhead rate per DLH P 2.50 What is total annual budgeted fixed overhead cost?
Assuming that Tyro uses a three-way analysis of overhead variances, what is the spending A. P 56,000 C. P672,000
variance? B. P 56,560 D. P678,720
A. P 750 F C. P 950 F
B. P 750 U D. P1,500 U 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
li. The Sacto Co.’s standard fixed overhead cost is P3 per direct labor hour based on budgeted 38,000 hours at an actual cost of P62,400. What is the total variable overhead variance?
fixed costs of P300,000. The standard allows 2 direct labor hours per unit. During 2006, Sacto A. P400 favorable C. P3,100 unfavorable
produced 55,000 units of product, incurred P315,000 of fixed overhead costs, and recorded B. P400 unfavorable D. P3,100 favorable
P106,000 actual hours of direct labor. What are the fixed overhead variances?
Spending variance Volume variance lvi. The Pinatubo Company makes and sells a single product and uses standard costing. During
A. P15,000 U P30,000 F January, the company actually used 8,700 direct labor-hours (DLHs) and produced 3,000 units
B. P33,000 U P30,000 F of product. The standard cost card for one unit of product includes the following:
C. P15,000 U P18,000 F Variable factory overhead: 3.0 DLHs @ P4.00 per DLH

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Fixed factory overhead: 3.0 DLHs @ P3.50 per DLH B. P60,000 D. P75,000
For January, the company incurred P22,000 of actual fixed overhead costs and recorded a P875
favorable volume variance. lxiii. Richard Company employs a standard absorption system for product costing. The standard
The budgeted fixed overhead cost for January is: cost of its product is as follows:
A. P31,500 C. P30,625 Raw materials P14.50
B. P32,375 D. P33,250 Direct labor (2 DLH x P8) 16.00
Manufacturing overhead (2 DLH x P11) 22.00
lvii. The variable-overhead spending variance is P1,080, unfavorable. Variable overhead budgeted Total standard cost P52.50
at 40,000 machine hours is P50,000. Actual machine hours were 36,000. What was the actual The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor
variable-overhead rate per machine hour? hours. Richard planned to produce 25,000 units each month during the year. The budgeted
A. P1.28 C. P1.39 annual manufacturing overhead is:
B. P1.25 D. P1.52 Variable P 3,600,000
Fixed 3,000,000
lviii. Calvin Klein Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 P 6,600,000
units a favorable volume variance of P12,000 resulted. What were total budgeted fixed costs? During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in
A. P36,000. C. P48,000. November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000
B. P60,000. D. P75,000. fixed and P315,000 variable. The total manufacturing overhead applied during November was
P572,000.
lix. Puma Company had an 25,000 unfavorable volume variance, a P18,000 unfavorable variable The fixed manufacturing overhead volume variance for November is:
overhead spending variance, and P2,000 total under applied overhead. The fixed overhead A. P10,000 favorable C. P10,000 unfavorable
budget variance is B. P3,000 unfavorable D. P22,000 favorable
A. P41,000 favorable C. P45,000 favorable
B. P41,000 Unfavorable D. P45,000 Unfavorable lxiv. Using the information for Richard Company in the preceding number, the total variance related
to efficiency of the manufacturing operation for November is:
lx. Arlene had an P18,000 unfavorable volume variance, a P25,000 unfavorable variable overhead A. P 9,000 unfavorable C. P12,000 unfavorable
spending variance, and P2,000 total under applied overhead. The fixed overhead budget B. P21,000 unfavorable D. P11,000 unfavorable
variance is:
A. P41,000 favorable C. P45,000 favorable Question Nos. 65 and 66 are based on the following:
B. P41,000 Unfavorable D. P45,000 Unfavorable Tiny Bubbles Company had the following activity relating to its fixed and variable overhead for the
month of July.
lxi. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were Actual costs
budgeted. If the fixed overhead volume variance was P12,000 favorable and the fixed overhead Fixed overhead P120,000
spending variance was P16,000 unfavorable, fixed manufacturing overhead applied must be: Variable overhead 80,000
A. P516,000 C. P512,000
B. P504,000 D. P496,000 Flexible budget
(Standard input allowed for actual output achieved x the budgeted rate)
lxii. CTV Company has a standard fixed cost of P6 per unit. At an actual production of 8,000 units Variable overhead P 90,000
a favorable volume variance of P12,000 resulted. What were total budgeted fixed costs?
A. P36,000 C. P48,000 Applied

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(Standard input allowed for actual output achieved x the budgeted rate) Manufacturing overhead (2 DLH x P11) 22.00
Fixed overhead P125,000 The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor
Variable overhead spending variance 1,200 F hours. Edney planned to produce 25,000 units each month during the year. The budgeted
Production volume variance 5,000 U annual manufacturing overhead is
Variable P3,600,000
lxv. If the budgeted rate for applying variable manufacturing overhead was P20 per direct labor hour, Fixed 3,000,000
how efficient or inefficient was Tiny Bubbles in terms of using direct labor hours as an activity During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in
base? November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000
A. 100 direct labor hours inefficient C. 100 direct labor hours efficient fixed and P315,000 variable. The total manufacturing overhead applied during November was
B. 440 direct labor hours inefficient D. 440 direct labor hours efficient P572,000.
The variable manufacturing overhead variances for November are:
lxvi. The fixed overhead efficiency variance is: Spending Efficiency
A. P 3,000 favorable C. P 3,000 unfavorable A. P9,000 unfavorable P3,000 unfavorable
B. P10,000 unfavorable D. Never a meaningful variance B. P6,000 favorable P9,000 unfavorable
C. P4,000 unfavorable P1,000 favorable
Questions 67 and 68 are based on a monthly normal volume of 50,000 units (100,000 direct labor D. P9,000 favorable P12,000 unfavorable
hours). Raff Co.’s standard cost system contains the following overhead costs:
Variable P6 per unit lxx. The fixed manufacturing overhead variances for November are:
Fixed P8 per unit Spending Volume
A. P10,000 favorable P10,000 favorable
The following information pertains to the month of March: B. P10,000 unfavorable P10,000 favorable
Units actually produced 38,000 C. P 6,000 favorable P 3,000 unfavorable
Actual direct labor hours worked 80,000 D. P 4,000 unfavorable P22,000 favorable
Actual overhead incurred:
Variable P250,000 The following information will be used to answer Question Nos. 71 through 74:
Fixed 384,000 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:
lxvii. For March, the unfavorable variable overhead spending variance was: Budgeted Actual
A. P6,000 C. P12,000 Units produced 40,000 38,000
B. P10,000 D. P22,000 Variable manufacturing OH P 4/DLH P16,400
Fixed manufacturing overhead P20/DLH P88,000
lxviii. For March, the fixed overhead volume variance was: Direct labor hours 6 min/unit 4,200 hr
A. P96,000U C. P80,000U lxxi. What is the fixed overhead spending variance?
B. P96,000F D. P80,000F A. P4,000 Favorable C. P8,000 Unfavorable
B. P8,000 Favorable D. P4,000 Unfavorable
lxix. Edney Company employs standard absorption system for product costing. The standard cost
of its product is as follows: lxxii. What is the volume variance?
Raw materials P14.50 A. P4,000 Favorable C. P8,000 Favorable
Direct labor (2 DLH x P8) 16.00 B. P4,000 Unfavorable D. P8,000 Unfavorable

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selling. Big Marat had no raw materials or work-in-process inventories at December 31. Actual
lxxiii. How much was the variable overhead spending variance? input prices and quantities per unit of product were equal to standard.
A. P 400 Favorable C. P400 Unfavorable Using absorption costing, Big Marat’s income statement would show:
B. P1,200 Favorable. D. P1,200 Unfavorable A. B. C. D.
Cost of Goods Sold at Standard P8,200,000 P7,200,000 P6,500,000 P7,000,000
lxxiv. How much overhead efficiency variance resulted for the month of May? Cost
A. P1,600 Favorable C. P1,600 Unfavorable Overhead Volume Variance P800,000 U P800,000 F P700,000 U P700,000 F
B. P 800 Favorable D. P800 Unfavorable
Questions No. 80 through 85 are based on the following information:
Questions 75 through 78 are based on Darf Company, which applies overhead on the basis of You have recently graduated from a university and have accepted a position with Villar Company,
direct labor hours. Two direct labor hours are required for each product unit. Planned production the manufacturer of a popular consumer product. During your first week on the job, the vice president
for the period was set at 9,000 units. Manufacturing overhead is budgeted at P135,000 for the period, has been favorably impressed with your work. She has been so impressed, in fact, that yesterday
of which 20% of this cost is fixed. The 17,200 hours worked during the period resulted in production she called you into her office and asked you to attend the executive committee meeting this morning
of 8,500 units. Variable manufacturing overhead cost incurred was P108,500 and fixed for the purpose of leading a discussion on the variances reported for last period. Anxious to favorably
manufacturing overhead cost was P28,000. Darf Company uses a four variance method for impress the executive committee, you took the variances and supporting data home last night to
analyzing manufacturing overhead. study.
lxxv. The variable overhead spending variance for the period is On your way to work this morning, the papers were laying on the seat of your new, red convertible.
A. P5,300 unfavorable C. P6,300 unfavorable As you were crossing a bridge on the highway, a sudden gust of wind caught the papers and blew
B. P1,200 unfavorable D. P6,500 unfavorable them over the edge of the bridge and into the stream below. You managed to retrieve only one
page, which contains the following information:
lxxvi. The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 unfavorable C. P1,200 unfavorable Standard Cost Summary
B. P1,500 unfavorable D. P6,500 unfavorable Direct materials, 6 pounds at P3 P18.00
Direct labor, 0.8 hours at P5 4.00
lxxvii. The fixed overhead budget (spending) variance for the period is Variable overhead, 0.8 hours at P3 2.40
A. P6,300 unfavorable C. P2,500 unfavorable Fixed overhead, 0.8 hours at P7 5.60
B. P1,500 unfavorable D. P1,000 unfavorable P30.00
lxxviii. The fixed overhead volume (denominator) variance for the period is Total VARIANCES REPORTED
A. P 750 unfavorable C. P2,500 unfavorable Standard Price or Spending or Quantity or Volume
B. P1,500 unfavorable D. P1,000 unfavorable Cost Rate Budget Efficiency
Direct materials P405,000 P6,900 F P9,000 U
Comprehensive Direct labor 90,000 4,850 U 7,000 U
lxxix. Big Marat, Inc. began operations on January 3. Standard costs were established in early Variable overhead 54,000 P1,300 F ?@
January assuming a normal production volume of 160,000 units. However, Big Marat produced Fixed overhead 126,000 500 F P14,000U
only 140,000 units of product and sold 100,000 units at a selling price of P180 per unit during Applied to Work in process during the period
the year. Variable costs totaled P7,000,000, of which 60% were manufacturing and 40% were @ Figure obliterated.
selling. Fixed costs totaled P11,200,000, of which 50% were manufacturing and 50% were

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You recall that manufacturing overhead cost is applied to production on the basis of direct labor- Processing hours (average per batch) 8.0
hours and that all of the materials purchased during the period were used in production. Since Inspection hours (average per batch) 1.5
the company uses JIT to control work flows, work in process inventories are insignificant and Waiting hours (average per batch) 1.5
can be ignored. Move time (average per batch) 1.5
Units per batch 20 units
It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that to The manufacturing cycle efficiency (MCE) is:
avoid looking like a bungling fool you must somehow generate the necessary “backup” data for A. 72.7% C. 64.0%
the variances before the meeting begins. Without backup data it will be impossible to lead the B. 36.0% D. 76.0%
discussion or answer any questions.
Throughput time
lxxx. How many pounds of direct materials were purchased and used in the production of 22,500 lxxxvii. Choco Company manufactures fire hydrants in Bulacan. The following information pertains
units? to operations during the month of May:
A. 138,000 lbs. C. 135,000 lbs. Processing time (average per batch) 8.0 hours
B. 132,000 lbs. D. 137,300 lbs. Inspection time (average per batch) 1.5 hours
Waiting time (average per batch) 1.5 hours
lxxxi. What was the actual cost per pound of material? Move time (average per batch) 1.5 hours
A. P3.00 C. P2.95 Units per batch 20 units
B. P3.05 D. P3.10 The throughput time is:
A. 12.5 hours C. 4.5 hours
lxxxii. How many actual direct labor hours were worked during the period? B. 8.0 hours D. 9.5 hours
A. 18,000 C. 19,400
B. 16,600 D. 18,970 Delivery cycle time
lxxxviii. Alabang Corporation is a highly automated manufacturing firm. The vice president of
lxxxiii. How much actual variable manufacturing overhead cost was incurred during the period? finance has decided that traditional standards are inappropriate for performance measures in
A. P55,300 C. P56,900 an automated environment. Labor is insignificant in terms of the total cost of production and
B. P58,200 D. P59,500 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
lxxxiv. What is the total fixed manufacturing overhead cost in the company’s flexible budget? performance measures have been chosen to evaluate performance. The following information
A. P112,500 C. P139,500 is considered typical of the time involved to complete and ship orders.
B. P140,000 D. P125,500 Waiting Time:
From order being placed to start of production 8.0 days
lxxxv. What were the denominator hours for last period? From start of production to completion 7.0 days
A. 18,000 hours C. 20,000 hours Inspection time 1.5 days
B. 22,000 hours D. 25,000 hours Processing time 3.0 days
Move time 2.5 days
Productivity measures The Delivery Cycle Time is:
Manufacturing cycle efficiency A. 22 days C. 14 days
lxxxvi. Fireout Company manufactures fire hydrants in Bulacan. The following information pertains B. 11 days D. 7 days
to operations during the month of May:

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

i. Answer: D vi. Answer: B

Nyclyn (24 ÷ 0.80 x P15) P 450.00 Weekly wages per worker 1,000
Salex (19.20 ÷ 0.80 x P21) 504.00 Fringe benefits (1,000 x 0.25) 250
Protet (10 x P28) 280.00 Total weekly direct labor cost per worker 1,250
Total P1,234.00 Labor cost per hour (1,250 ÷ 40 hrs) 31.25
Labor cost per unit (31.25 x 2.50 hrs) P78.125
ii. Answer: C
Required inputs to be placed in process per unit of product: 2.25 ÷0.75 3.0 yards vii. Answer: D
Standard Material cost per unit of product: 3.0 x P150 P450 Required number of quarts of berries (6 ÷ 0.80) 7.50
Cost of berries (7.50 @ P8.00) 60
iii. Answer: B Cost of other ingredients (10 x 4.50) 45
Required inputs of raw materials (in pounds) (60 ÷ 0.80) 75.00 Standard materials cost per batch 105
Standard price per pound (2.5 x 0.98) x 2.45
Standard materials cost per unit 183.75 viii. Answer: C
Minutes required by sorting good berries 6 quarts @ 3 min. 18
iv. Answer: D Minutes required by mixing 12
Net price per yard: Total number of minutes 30
Purchase price 40.00 Standard labor cost per batch (0.50 @ P50) P25
Freight 1.00
Purchase discount 0.03 x 40 ( 1.20) ix. Answer: A
Standard cost per yard 39.80 Unit cost of materials: (Debit to Goods in Process + Debit to Materials Quantity Variance -
Standard quantity per scarf 0.475/0.95 0.50 Credit to Materials Price Variance)/Number of Units Completed
Standard cost per scarf: 0.50 x 39.80 19.90 Total debits to work in process account P51,690
Debit to materials quantity variance 1,970
v. Answer: C Credit to materials price variance ( 3,740)
Total Minutes per worker (8 hours x 60) 480 Actual materials cost P49,920
Rest Time 60 Per unit cost: P49,920/96,000 P0.52
Productive minutes 420
Output per day per worker (420 ÷ 35) in 10-liter batch 12 x. Answer: A
Production hour – good units 35 min Actual quantity used 1,066
Rest minutes (60 ÷ 12) 5 min Add favorable quantity (209/5.5) 38
Minutes used for rejects (35 + 5) ÷ 5 good units 8 min Standard quantity allowed 1,104
Total standard minutes per 10-good liter batch 48 Min
xi. Answer: C

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0.15 = AP – 3.60
Actual materials price 105,000/35,000 3.00 AP = 3.45
Standard Quantity 12,000 x 2 24,000
Standard price 60,000/24,000 2.50 xvii. Answer: C
Actual Quantity used: 24,000 + (2,500/2.5) 25,000 MPV = 1,400(1.10 – 1.00)
Price variance based on usage: 25,000 x (3 – 2.50) 12,500 = 140

xii. Answer: D xviii. Answer: A

Actual Quantity used 14,910 MUV = (AQ – SQ)SP
Favorable Quantity 3,735/1.5 2,490 = (2,300 – 2,100) 6.25
Standard Quantity allowed 17,400 = 1,250 Unfavorable
Production in units 17,400/15 1,160
xix. Answer: C
xiii. Answer: A Actual materials cost 26,400
AQ @ SP (3,150 x 40) P126,000 AQ @ SP (22,000 x 1.25) 27,500
SQ @ SP (600 x 5 x 40) 120,000 Favorable Price Variance ( 1,100)
Unfavorable Quantity Variance P 6,000
xx. Answer: A
xiv. Answer: A Standard materials cost per batch (200 x 1) + (840 x 0.20) + (7 x 2) + (3 x 6) P400
Actual quantity used (pounds) 23,500 Expected yield in batch (20,160 ÷ 1,050) 19.20
Less: Excess pounds used (1,000 ÷ 2) 500 Actual yield 18.50
Standard Quantity Allowed 23,000 Unfavorable yield in batch 0.70
Alternative Solution using the formula for Usage Variance: Unfavorable yield variance (0.70 x 400) P 280
MUV = (AQ –SQ)SP
1,000 = (23,500 – SQ)2 xxi. Answer: D
1,000 ÷ 2 = 23,500 – SQ Materials
500 = 23,500 – SQ Actual cost 127,500
SQ = 23,000 Budgeted cost (8,500 @ 15) 127,500
Materials cost variance 0
xv. Answer: D Labor
Actual Purchase Costs – (AQ x SP) AH @ SR (6,375 @ 12) 76,500
= 84,000 – (30,000 x 3) 6,000 Favorable SH @ SR (8,500 @ 0.75 @ 12) 76,500
Standard Price = Usage Variance ÷ (AQ – SQ) Labor Efficiency Variance 0
3,000 ÷ (30,000 – 29,000) = P3 Actual Payroll 77,775
AH @ SR (6,375 @ 12) 76,500
xvi. Answer: B Labor Rate Variance 1,275
The actual purchase price per unit can be conveniently solved by using the purchase price
variance - MPV = AQ(AP-SP) xxii. Answer: C
-240 = 1,600 (AP – 3.60) (AR - SR) x AH = rate variance
-240 ÷ 1,600 = AP – 3.60
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LEV: (410 x 20) – 8,440 = (240)F

Therefore, the total variance (P654.50) when divided by the hourly difference (P4.27 - P4.10)
will equal the actual hours. xxix. Answer: C
Actual hours (P654.50/P.17) = 3,850. Actual hours 1,148,000/16.40 70,000
Proof: (P4.27 - P4.10) x 3,850 = P654.50 Less Unfavorable hours 120,000/16 7,500
Standard hours allowed 62,500
xxiii. Answer: A Standard rate: 960,000/60,000 16.00
Labor AH Std. Mix at AH Diff SR Labor Mix Variance
M 4,500 5,000 (500) P10 P (5,000) xxx. Answer: B
F 3,000 2,500 500 5 2,500 SR = LEV ÷ (AH – SH)
7,500 7,500 - P (2,500)Fav = -4,000 ÷ (29,000 – 30,000)
= P4.00
xxiv. Answer: A
xxxi. Answer: C
Labor Yield Variance:
AR = SR – (LRV ÷ AH)
Expected Yield 40,000
AR = P4.00 – (5,800 ÷ 29,000)
Actual Yield 36,000
= P3.80
Difference 4,000
Multiply by Standard labor cost per unit P1.5625*
xxxii. Answer: B
Yield Variance P6,250U
Variable OH rate/hr - P27,000 ÷ 45,000 P 0.60
*Standard cost ÷ Standard Yield = P6,250 ÷ 4,000 = P1.5625
Direct labor rate/hr = P0.60 ÷ 0.20 P 3.00
xxv. Answer: C Variable OH is applied at 20% of direct labor cost
Actual hours P140,700 ÷ (P3 – P0.20) 50,250
Direct labor cost at standard rate 7,150 – 750 6,400
Unfavorable hours P5,100 ÷ P3 1,700
Standard rate 6,400/800 8.00
SH allowed 48,550
xxvi. Answer: A
Actual cost 10,000 xxxiii. Answer: B
Favorable Rate Variance 1,000 Actual direct labor costs P241,500
Actual hours @ standard rate 11,000 Actual hrs at std labor rate (34,500 x P6.4) 220,800
Standard Rate: 11,000 ÷ 2,000 5.50 Unfavorable labor rate variance P 20,700
Expected yield (400,000 units / 750 hrs) 7,500 = 40,000 Standard labor rate:
-3,200 = (34,500 – 35,000) SR
xxvii. Answer: C 3,200 = 500SR
LEV: (20,000 – 21,000)6.15 = (6,150)F SR = 6.40
Standard Rate:
3,000 = 126,000 – 20,000SR xxxiv. Answer: B
123,000 = 20,000SR Actual hours = Labor rate variance ÷(AR-SR)
SR = 6.15 P12,000 ÷ (P10 – P9) 12,000 hours

xxviii. Answer: C
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Unfavorable budget variance 6,000

xxxv. Answer: D
LRV = AH(AR – SR) xli. Answer: C
-5,500 = 10,000(7.50 – SR) Actual overhead 14,000
-5,500 ÷ 10,000 = 7.5 – SR Budget at SH 15,600
-0.55 = 7.50 – SR Favorable controllable variance ( 1,600)
SR = 8.05
xlii. Answer: C
xxxvi. Answer: D OH application rate based on DL cost 600,000/(50,000 x 6) 200%
The controllable variance is the sum of the spending variances plus the efficiency variance. Applied overhead 325,000 x 2 650,000
Variable overhead spending variance P( 3,600) Actual overhead 620,000
Fixed overhead spending variance P(10,000) Overapplied Overhead 30,000
Variable overhead efficiency variance P 6,000
Total controllable variance P 7,600 xliii. Answer: D
The volume variance is not considered a controllable variance. Actual overhead 230,000
Budget at standard hours:
xxxvii. Answer: A Fixed OH 64,000
Monthly budgeted fixed overhead (150,000/12) 12,500 Variable OH (32,000 x 5) 160,000 224,000
Applied fixed overhead (2,450 x 2 x 2.5) 12,250 Unfavorable controllable variance 6,000
Unfavorable volume variance 250
xliv. Answer: B
xxxviii. Answer: A Budgeted fixed overhead (30,000 x 2) 60,000
Variable OH per DLH 48,000/24,000 2.00 Applied FOH (25,000 x 2) 50,000
Actual overhead 147,000 Unfavorable volume variance 10,000
Budgeted OH at standard hours:
Variable 21,000 x 2 42,000 xlv. Answer: C
Fixed 108,000 150,000 Efficiency variance = (AH – SH) x SVOHR (14,000 – 13,500) 6 = 3,000 UNF
Favorable controllable/budget variance ( 3,000) Standard hours: 4,500 x 3 13,500

xxxix. Answer: A xlvi. Answer: D

Budgeted fixed overhead 81,000 Efficiency Variance = (31,500 – 30,000) 10 15,000 Unfavorable
Applied fixed overhead based on 80% achieved (24,000 x 3) 72,000 Standard hours: 20,000 units x 1.5 hours
Unfavorable volume variance 9,000
Fixed overhead rate based on 27,000 hours: (81,000 ÷ 27,000) 3.00 xlvii. Answer: A
Fixed overhead rate per hour 8.50 – 6.00 2.50
xl. Answer: D Denominator hours (previous number) 40,000/2.5 16,000
Actual overhead 230,000
Less Budgeted OH at standard hours xlviii. Answer: B
Variable 32,000 x 5 160,000 Actual OH (10,300 + 19,500) P29,800
Fixed 64,000 (224,000)
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Unfavorable variable OH variance 400

Less: Budgeted OH at actual hours (P2 x 9,500 hrs) + P10,000 29,000
Unfavorable spending variance P 800 lvi. Answer: C
Applied fixed overhead (3,000 x 3 x 3.50) 31,500
xlix. Answer: C Less: Favorable volume variance 875
EV = (AH – SH) SVOHR (14,000 – 13,500) 6 3,000U Budgeted fixed overhead 30,625
SH (4,500 x 3) 13,500
lvii. Answer: A
l. Answer: A Standard rate: 50,000/40,000 1.25
Actual OH P15,000 Excess rate 1,080/3,600 0.03
Budgeted OH at actual hours (3,500 x P2.50) + P7,000 15,750 Actual rate 1.28
Favorable spending variance P( 750)
lviii. Answer: A
li. Answer: A Applied fixed overhead 48,000
Fixed OH spending variance: Less favorable volume variance 12,000
Actual Fixed OH - Budgeted Fixed OH (P315,000 – P300,000) P15,000 U Budgeted fixed overhead 36,000
Fixed OH volume variance:
(Budgeted Units – Actual Units) x SFOH rate (50,000 – 55,000) x P6 P(30,000)F lix. Answer: A
Budgeted production: P300,000 ÷ P3 ÷ 2 hours Unfavorable volume variance 25,000
Unfavorable VOH spending variance 18,000
lii. Answer: A Total 43,000
Actual variable overhead 520,000 Net Unfavorable variance 2,000
AH @ SVOHR (270,000 x 2) 540,000 Favorable fixed OH budget variance 41,000
Variable Oh spending variance, Favorable ( 20,000)
AH @ SVOHR 540,000 lx. Answer: A
SH @ SVOH (260,000 x 2) 520,000 Net OH variance, Unfavorable 2,000
Unfavorable VOH efficiency variance 20,000 Less: Unfavorable volume variance ( 18,000)
Unfavorable spending variance ( 25,000)
liii. Answer: D Favorable FOH budget variance 41,000
Actual P10,100
Budget (4,500 x 2.40) 10,800 lxi. Answer: C
Favorable Budget variance P( 700) Budgeted fixed OH 500,000
Add: Favorable volume variance 12,000
liv. Answer: C Applied fixed overhead 512,000
Fixed overhead per hour: 16 x 0.7 11.20
Annual fixed OH budget 5,000 x 12 x 11.20 672,000 lxii. Answer: A
Applied FOH (8,000 x 6) 48,000
lv. Answer: B Less: Favorable volume variance 12,000
Actual variable overhead 62,400 Budgeted FOH 36,000
Variable OH applied 62,000
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Actual fixed overhead P88,000

Budget fixed overhead (4,000 hrs @ P20) 80,000
lxiii. Answer: A Unfavorable fixed OH Spending variance P 8,000
Budgeted fixed OH (3,000,000 ÷ 12 months) 250,000 Budgeted (denominator) hours (40,000 units x 6 ÷ 60) 4,000
Applied fixed OH (26,000 @ 2 x 5) 260,000
Favorable volume variance ( 10,000)F lxxii. Answer: B
Fixed OH rate per hour (3,000,000 ÷ 600,000) 5.00 Budget fixed overhead P80,000
Applied fixed overhead (38,000 x 0.10 x P20) 76,000
lxiv. Answer: B Unfavorable volume variance P 4,000
Labor Efficiency: (53,500 – 52,000) 8 12,000
Variable OH Efficiency (53,500 – 52,000) 6 9,000 lxxiii. Answer: A
Total efficiency variance 21,000 Actual variable overhead P 16,400
Budget at actual hours (4,200 x P4) 16,800
lxv. Answer: D Favorable variable OH spending variance P ( 400)
Total variable overhead variance (80,000 – 90,000) 10,000 favorable
Variable overhead spending variance 1,200 favorable lxxiv. Answer: C
Variable overhead efficiency variance 8,800 favorable Unfavorable Efficiency Variance: (AH – SH) SVOHR
8,800 ÷ 20 440 Favorable (4,200 – 3,800) x P4 = 1,600 UNF
SH allowed (38,000 units x 1 ÷ 10) = 3,800 hours
lxvi. Answer: D
Fixed overhead volume variance is a more meaningful variance in evaluating the use of the lxxv. Answer: A
capacity. Actual variable overhead 108,500
Budgeted VOH at actual hours (17,200 x 6) 103,200
lxvii. Answer: B Variable overhead spending variance, UNF 5,300
Actual variable OH P250,000 VOH rate per hour (135,000 x 0.80) ÷ 18,000 hours P6.00
Budgeted VOH at actual hours (80,000 x P3) 240,000
Unfavorable VOH spending variance P 10,000 lxxvi. Answer: C
The computation of variable overhead efficiency variance involves the comparison of the actual
lxviii. Answer: A hours and standard hours allowed by actual production.
(38,000 units – 50,000 units) x P8 P96,000 (17,200 – 17,000) x P6 1,200 UNF
Standard hours allowed: 8,500 x 2 17,000
lxix. Answer: B
Spending [P315,000 – (53,500 x P6)] P(6,000) lxxvii. Answer: D
Efficiency [(53,500 – 52,000) x P6] P 9,000 The amount of fixed overhead budget (spending) variance is calculated by subtracting from the
actual fixed overhead the amount of budgeted fixed overhead.
lxx. Answer: B Actual fixed overhead 28,000
Spending [P260,000 – (P3M ÷ 12)] P10,000U Budgeted fixed overhead (135,000 x 0.2) 27,000
Volume [(26,000 – 25,000) x P10] P10,000F Unfavorable fixed overhead budget variance 1,000

lxxi. Answer: C
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Actual Variable Overhead 59,500

lxxviii. Answer: B
The amount of volume variance (denominator or over/underapplied fixed overhead variance) is lxxxiv. Answer: B
calculated by comparing the budgeted fixed overhead and fixed overhead applied to production. Applied Fixed OH 126,000
Budgeted fixed overhead (135,000 x 0.2) 27,000 Underapplied fixed overhead 14,000
Applied fixed overhead (8,500 x 3) 25,500 Budgeted fixed overhead 140,000
Underapplied (unfavorable) volume variance 1,500
Alternative calculation: (9,000 – 8,500) x 3 1,500 lxxxv. Answer: C
Fixed overhead per unit (27,000 ÷ 9,000) 3 Denominator or Budgeted Hours: (140,000 ÷ 7) = 20,000

lxxix. Answer: C lxxxvi. Answer: C

Std unit cost: MCE = Value Added Hours ÷ Throughput Time
Variable (7,000,000 x 0.60) ÷ 140,000 P30 Processing hours 8.00
Fixed OH (11,200,000 x 0.50) ÷ 160,000 35 Inspection hours 1.50
Std unit cost P65 Waiting time 1.50
CGS – Std (100,000 x 65) 6,500,000 Move time 1.50
OH Volume Variance: (160,000 – 140,000) x 35 P 700,000 UNF Throughput time 12.50
MCE (8.00 ÷ 12.50) 64%
lxxx. Answer: A
SQ allowed (22,500 x 6) 135,000 lxxxvii. Answer: A
Unfavorable usage variance 3,000
Actual quantity of materials 138,000 lxxxviii. Answer: A
Delivery cycle time:
lxxxi. Answer: C Total waiting time 15.00
Actual quantity purchased and used at standard price (138,000 x 3) 414,000 Inspection time 1.50
Favorable price variance 6,900 Processing time 3.00
Actual Quantity @ Actual Price 407,100 Move time 2.50
Actual Price (407,100 ÷ 138,000) P2.95 Delivery Cycle Time 22.00

lxxxii. Answer: C lxxxix. Answer: C

SH @ SR 90,000 A favorable volume variance arises when the applied fixed overhead is higher than the budgeted
Efficiency Variance 7,000 fixed overhead.
AH @ SR 97,000 Budgeted fixed overhead 500,000
Actual hours (97,000 ÷ 5) 19,400 Favorable volume variance (overapplied) 12,000
Applied fixed overhead 512,000
lxxxiii. Answer: D
AH @ SR (19,400 x 3) 58,200
Spending variance 1,300

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