16 Standard Costingx PDF

PRACTICAL ACCOUNTING 2
THEORY & PRACTICE

COST ACCOUNTING
STANDARD COSTING
QUIZZER
Standard Costing
Standard Costing
I. Introduction
A company can employ a cost accounting system that records manufacturing related
activity using actual costs (actual or normal costing system) or standard costs
(standard cost system).
In a standard cost system, management, using information form historical data,

inputs from factory employees and supervisory personnel, and data relevant to the
industry and the technology that relates to the manufacturing process, will determine
the amount that the manufacturing activity should cost and compares this to the
amount that it actually costs.
Although external financial statements under a standard cost system are not
generally acceptable, the use of standard costing is a means of allowing management
to evaluate the performance of the manufacturing related departments on a
management by exception basis. Under the concept of management by exception,
material differences between expected performance and actual performance are
investigated, whether favorable or unfavorable. If differences, referred to as
variances, are not material, management will ignore them under the assumption that
things proceed smoothly as expected.
II. Selecting Standards

There are several factors that must be considered in standards setting including
economic conditions, the efficiency or inefficiency of the production process,
availability of qualified laborers, and quality materials. There are also different
methods for such selection:
• Standards based upon past performance are not widely used. The major reason is
that inefficiencies of previous periods still exist. It also neglects changes in
economic conditions and other factors from one period to the next.
• Basic Standards are standards that are developed when the standard cost system
is initiated, but do not change any time in the future. These are not realistic, and
over long periods of time become somewhat meaningless.
• Perfection or Maximum or Ideal Standards are based upon perfect conditions

where in allowances are not considered. They are unrealistic and often counter-
productive.
Standard Costing - Lecture Page 3

COST ACCOUNTING
• Currently Attainable Standards are the ones most commonly use. They are usually
strict enough so that it will require substantial effort to maintain them, but lax
enough so that they can be achieved by a reasonably efficient manufacturing
system.
III. Advantages
Standard cost systems aid in planning and controlling operations and gaining insights into
the probable impact of managerial decisions on costs and profits. Standard costs are used
for:
1. Establishing budgets
2. Cost control
3. Price setting
4. Cost awareness
IV. Direct Materials

Direct materials variances are usually divided into price and usage/efficiency components.
Part of a total materials variance may be attributed to using more raw materials than the
standard quantity and part to a cost that was higher than standard. These two sources of
the total variance can be isolated as follows:
A. Materials Price Variance is the actual price less the standard price, times the actual
quantity: (Actual Price - Standard Price) x Actual Quantity
• The price variance may be isolated at the time of purchase or when the
materials are issued to production (materials are transferred).
• Analysis of variance - if the variance is favorable, it indicates the company has

spent less money than expected; however, this may not benefit the company.
If less money was spent, but a lesser quality of material was purchased, the
quality of the finished product may not be good and sales may decline. If the
quality was the same, however, then, this favorable variance benefited the
company.
If an unfavorable variance resulted, management must determine whether the
purchasing department is not functioning properly, or if the standard price is
unreasonable. ,
• Responsibility - it is usually the purchasing department that is responsible for

materials price variance.

Standard Costing
B. Materials Quantity (or Efficiency) Variance is the actual quantity less the standard
quantity, times the standard price. (Actual Quantity Used Standard Quantity) x
Standard Price.
• When determining the materials quantity variance, the actual costs of the
materials is ignored because the only concern is the amount of variance that
would have occurred given no price variance.
• Analysis of variance - if the variance is favorable it indicates that the workers

have either been unusually efficient or are producing lower quality products
with less than the standard quantity of materials. Hence, a favorable variance
is not always positive. A favorable may be as bad as or worse than an
unfavorable variance, it may suggest that costs have been reduced at the
expense of product quality. An unfavorable materials quantity variance is
usually caused by waste shrinkage, or theft. Possibly materials are being used
inefficiently wherein the workers might need further training.
• Responsibility - as a result, the production department or cost center that

controls the direct materials into the production process is responsible.
Journal Entries for Direct Materials

1. Materials are recorded at Standard Price:
a. To record purchase of materials:
Materials at standard price xxx
Accounts payable, at actual price xxx
Materials Purchase Price variance-fav xxx
b. To record the issuance of materials to production:
Work in Process, at standard cost xxx
Materials Quantity Variance - unfavorable xxx
Materials, at standard price xxx
2. Materials are recorded at Actual Price:
a. To record purchase of materials:
Materials at actual price xxx
Accounts payable, at actual price xxx
b. To record the issuance of materials to production:
Materials Quantity - unfavorable xxx
Materials, at actual price xxx
Materials Price Usage variance - favorable....... xxx

COST ACCOUNTING
V. Direct Labor
The direct labor variance is similar to the direct materials variance which also arise
from two sources. The total direct labor variance consists of the rate (price) variance
and the efficiency (quantity) variance. The labor efficiency variance is also called the
labor time or usage variance.
A. Labor Rate Variance is the actual rate less the standard rate, times the actual
hours used: (Actual Price - Standard Price) x Actual Hours.
• Analysis of variance - if this variance is favorable it means less wages per hour
were paid than as expected.
If this variance is unfavorable, the supervisor must determine whether

workers are properly assigned to their particular jobs or it is the result of a
re-negotiated labor contract. Hence if it is outside the control of the
management, then cost standards should be revised.
Responsibility - it is usually the supervisor of the department or cost center
where the work is performed is responsible for the direct labor rate
variance.
B. Labor Efficiency (or Usage) Variance is the actual hours less the standard hours, times
the standard rate: (Actual Hours - Standard Hours) x Standard Rate.
• Analysis of variance - if this variance is favorable, it indicates that fewer direct

labor hours were used than what is expected. This benefits the company if the
labor was efficient; however, if inferior production resulted, this could reduce the
quality of the product and cause a negative impact on the entity.
An unfavorable efficiency variance may be caused by worker's taking unauthorized
work breaks which results to the inefficiency of the workers. It may also be caused
by production delays resulting from materials shortages or inferior materials.
• Responsibility - usually the supervisor of the department or cost center in which

the work is performed is responsible for the direct labor efficiency variance.
Journal Entries for Direct Labor
a. To record Incurrence of Labor:

Payroll xxx
Accrued Payroll xxx

Standard Costing
b. To record Labor Distribution:

Labor Rate Variance - unfavorable xxx
Payroll xxx
Labor Efficiency Variance - favorable xxx
Alternative Approaches to Direct Materials and Direct Labor:

1. Materials and Labor may be transferred to work-in- process at their actual
quantities. In that case, the direct materials quantity and direct labor efficiency
variances may be recognized when goods are transferred from work-in-process to
finished goods.
2. The materials price variance may be isolated at the time of transfer to work-in-
process.
3. The difficulty with these methods used is that they delay the recognition of
variances.
Early recognition is desirable for control purposes.

VI. Factory Overhead
Factory overhead variances are similar to direct materials and direct labor variances in a way
that the predetermined costs are compared with actual costs. However, because factory
overhead includes many types of costs, which are variable as well as fixed, the procedures for
determining the variances are different.
A. Two-Way Variance. Under this method, the factory overhead variance is comprised of
two components: Controllable and Volume variance:
Controllable Variance:
Actual Factory Overhead Pxxx
Less: Budgeted Allowed Based on Standard Hours:
Fixed as Budgeted Pxxx
Variable xxx xxx Pxxx
Volume Variance:
Budgeted Allowed Based on Standard Hours Pxxx
Less: Standard Factory Overhead or Applied FOH xxx xxx
Net Overhead or Overall Overhead Variance - (F) U Pxxx
Analysis of variances
Controllable Variance. A variance will occur if a company actually

COST ACCOUNTING
spends more or less on factory overhead than expected and/or uses

more or less than the number of direct labor hours allowed. It assumes
a manager or supervisor can control these factors (hence controllable
variance).
Volume variance. This variance might indicate the unutilized portion
expressed in hours that were not effectively applied or over applied
during the period.
B. Three-Way Variance. Under this method, the factory overhead variance is comprised of
three components, however, there are two variations:
1. Spending Variance, Idle Capacity Variance, and Efficiency Variance

2. Spending Variance, Variable Efficiency Variance and Volume Variance
Method I:
Spending Variance:
Less: Budgeted Allowed Based on Actual Hours:
Idle Capacity Variance:
Budgeted Allowed Based on Actual Hours Pxxx
Less: Actual Hours x Standards Rate xxx xxx
Efficiency Variance:
Actual Hours x Standard Rate Pxxx
Method 2:
Spending Variance:
Variable Efficiency Variance:
Less: Budgeted Allowed Based on Standard Hours
Variable xxx xxx xxx

Standard Costing
Volume Variance:
Budgeted Allowed Based on Standard Hours Pxxx
• Analysis of variances
Spending Variance. This variance is referred to as spending variance because it
is caused by price changes or changes in operating conditions. If this variance is
a result of an external force (e.g., power Company increasing its rates) then these
costs are not controllable by management.
Idle Capacity Variance. When the actual direct labor hours are different than the
expected, a variance occurs because the fixed costs are a specific amount, but
have been either under or over-applied based on the actual direct labor hours.
Efficiency Variance. This variance will indicate the savings or additional costs of
variable overhead due to efficiency or inefficiency of amounts.
Variable Efficiency Variance. It is the portion of the efficiency variance that
measures the effect of the efficient or inefficient use of the input used as an
allocation base on the cost of the variable factory overhead.
Volume Variance. This variance might indicate the unutilized portion expressed in
hours that were not effectively applied or over applied during the period.
C. Four-Way Variance. Under this method, the factory overhead variance is comprised of
four components: Spending variance, Idle Capacity Variance, Variable Efficiency
Variance and Fixed Efficiency Variance:
Spending Variance:
Variable xxx xxx
Pxxx
Idle Capacity Variance:
Less: Actual Hours x Standard Rate xxx xxx

COST ACCOUNTING
Efficiency Variances:
Variable Efficiency Variance:
Actual Hours xx
Less: Standard Hours xx
Efficiency Hours- (F) U : xx
x: Variable Overhead Rate Pxx xxx
Fixed Efficiency Variance:
Actual Hours xx
Less: Standard Hours xx
Efficiency Hours- (F) U xx
x: Fixed Overhead Rate Pxx
• Analysis of variance
Fixed Efficiency Variance. It is the portion of the efficiency variance that measures the
effect of the efficient or inefficient use of the input used as an allocation base on the
cost of the fixed factory overhead.
Alternative:
Controllable Variance: Spending Variance plus Variable Efficiency Variance Volume
Variance: Volume Variance plus Fixed Efficiency Variance
Note: A lot of alternative formulas (terms used to indicate the other variances) can be
used to compute the above variances.
Journal Entries for Factory Overhead (Two-Variance Method)
a. To record Incurrence of Factory Overhead:
Factory Overhead Control xxx
Cash, Materials, Payroll, Accumulated
Depreciation, Prepaid Insurance, etc xxx
b. To record Factory Overhead Applied to Production:
Controllable Variance - unfavorable xxx
Factory overhead control xxx
Volume Variance - favorable xxx
VII. Variances in the Ledger Accounts.

Variances usually do not appear on the financial statements of a company. They are used for
managerial control and are recorded in the ledger accounts.

Standard Costing
VIII. Disposition of Variances

1. Immaterial variances are customarily treated as period cost as an adjustment to
cost of goods sold account or income summary.
2. Variances that are material may be prorated. A simple approach to allocation is to
allocate the total net variance (materials, labor, and overhead) to work in process,
finished goods, and cost of goods sold based on the balances in those accounts.
However, there might be some other methods to be used.

COST ACCOUNTING
MCQ - THEORY
1. A standard cost system may be used in
a. Job order costing but not process costing.
b. Either job order costing or process costing.
c. Process costing but not job order costing.
d. Neither process costing nor job order costing. Punzalan 2014
2. Which of the following is a purpose of standard costing?

a. Determine breakeven production level.
b. Control costs.
c. Eliminate the need for subjective decisions by management.
d. Allocate cost with more accuracy. Punzalan 2014
3. Which of the following 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, standard can help motivate employees.
d. Unfavorable variances, material in amount, should be investigated, but large favorable
variances need not be investigated. Punzalan 2014
4. When standard costs are used in a process costing system, how, if at all, are equivalent
units of production (EUP) involved or used in the cost report at standard?
a. Equivalent units are not used.
b. Equivalent units are computed using a special approach. Punzalan 2014
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.
5. The difference between the actual amounts and the flexible budget amounts for the actual
output achieved is the
a. Production volume variance. c. Sales volume variance.
b. Flexible budget variance. d. Standard cost variance. Punzalan 2014
6. The sales volume variance equals

a. A flexible budget amount minus a static budget amount.
b. Actual operating income minus flexible budget operating income.
c. Actual unit price minus budgeted unit price, times the actual units produced.
d. Budgeted unit price times the difference between actual inputs and budgeted inputs for
the actual activity level achieved. Punzalan 2014
Standard Costing – MCQ - Theory Page 12

Standard Costing
7. An efficiency variance equals

a. A flexible budget amount minus a static budget amount.
b. Actual operating income minus flexible budget operating income.
c. Actual unit price minus budgeted unit price, times the actual units produced.
d. Budgeted unit price times the difference between actual inputs and budgeted inputs for
the actual activity level achieved. Punzalan 2014
8. Standard costing will produce the same income before extraordinary items as actual costing
when standard cost variances are assigned to
a. Work in process and finished goods inventories.
b. An income or expense account.
c. Cost of goods sold and inventories.
d. Cost of goods sold. Punzalan 2014
9. If the total materials variance (actual cost of materials used compared with the standard cost
of the standard amount of materials required) for a given operation is favorable, why must
this variance be further evaluated as to price and usage?
a. There is no need to further evaluate the total materials variance if it is favorable.
b. Generally accepted accounting principles require that all variances be analyzed in three
stages.
c. All variances must appear in the annual report to equity owners for proper disclosure.
d. Determining price and usage variances allows management to evaluate the efficiency of
the purchasing and production functions. Punzalan 2014
10. Which department is customarily held responsible for an unfavorable materials usage
variance?
a. Quality control. c. Engineering.
b. Purchasing. d. Production. Punzalan 2014
11. Price variances and efficiency variances can be key to the performance measurement within
a company. In evaluating the performance within a company, a materials efficiency variance
can be caused by all of the following except the
a. Performance of the workers using the material.
b. Actions of the purchasing department.
c. Design of the product.
d. Sales volume of the product. Punzalan 2014
Standard Costing – MCQ – Theory Page 13

COST ACCOUNTING
12. Which of the following unfavorable variances is directly affected by the relative position of a
production process on a learning curve?
a. Materials mix. c. Labor rate.
b. Materials price. d. Labor efficiency. Punzalan 2014
13. Excess direct labor wages resulting from overtime premium will be disclosed in which type of
variance?
a. Yield c. Labor efficiency
b. Quantity d. Labor rate Punzalan 2014
14. The difference between the actual labor rate multiplied by the actual hours worked and the
standard labor rate multiplied by the standard labor hours is the
a. Total labor variance.
b. Labor rate variance.
c. Labor usage variance.
d. Labor efficiency variance. Punzalan 2014
15. Differences in product costs resulting from the application of actual overhead rates rather
than predetermined overhead rates could be immaterial if
a. Production is not stable.
b. Fixed factory overhead is a significant cost.
c. Several products are produced simultaneously.
d. Overhead is composed only of variable costs. Punzalan 2014
16. The fixed factory overhead application rate is a function of a predetermined activity level. If
standard hours allowed for good output equal this predetermined activity level for a given
period, the volume variance will be
a. Zero.
b. Favorable.
c. Unfavorable. Punzalan 2014
d. Either favorable or unfavorable, depending on the budgeted overhead.
17. Which of the following standard costing variances would be least controllable by a production
supervisor?
a. Overhead volume. c. Labor efficiency.
b. Overhead efficiency. d. Materials usage. Punzalan 2014

Standard Costing
18. A spending variance for variable factory overhead based on direct labor hours is the
difference between actual variable factory overhead and the variable factory overhead that
should have been incurred for the actual hours worked. This variance results from
a. Price and quantity differences for factory overhead costs.
b. Price differences for factory overhead costs.
c. Quantity differences for factory overhead costs.
d. Differences caused by variations in production volume. Punzalan 2014
19. Under the two-variance method for analyzing factory overhead, the difference between the
actual factory overhead and the factory overhead applied to production is the
a. Controllable variance. c. Efficiency variance.
b. Net overhead variance. d. Volume variance. Punzalan 2014
20. Under the three-variance method for analyzing factory overhead, the difference between the
actual factory overhead and the factory overhead applied to production is the
a. Net factory overhead variance. c. Efficiency variance.
b. Controllable variance. d. Spending variance. Punzalan 2014
21. Carr Co. had an unfavorable materials usage variance of P900. What amount of this variance
should be charged to each department?
Purchasing Warehousing Manufacturing
A. 0 0 900
B. 0 900 0
C. 300 300 300
D. 900 0 0 Punzalan 2014
22. What type of direct material variances for price and usage will arise if the actual number of
pounds of materials used exceeds standard pounds allowed but actual cost was less than
standard cost?
Usage Price
A. Unfavorable Favorable
B. Favorable Favorable
C. Favorable Unfavorable
D. Unfavorable Unfavorable Dayag 2013
23. An unfavorable price variance occurs because of:

a. Price increases on raw materials.
b. Price decreases on raw materials.
c. Less than anticipated levels of waste in the manufacturing process.
d. More than anticipated levels of waste in the manufacturing process. Dayag 2013

COST ACCOUNTING
24. If a company follows a practice of isolating variances at the earliest time, what would be the
appropriate time to isolate and recognize a direct material price variance?
a. When material is issued.
b. When material is purchased.
c. When material is used in production.
d. When the purchase order is originated. Dayag 2013
25. Materials usage variances are normally chargeable to which department?

a. Production. c. Finished goods.
b. Purchasing. d. Materials storage. Dayag 2013
26. Which of the following would least likely cause an unfavorable materials quantity (usage)
variance?
a. Materials that do not meet specifications.
b. Machinery that has not been maintained properly.
c. Labor that possesses skills equal to those required by the standards.
d. Scheduling of substantial overtime. Dayag 2013
27. Todco planned to produce 3,000 units of its single product, Teragram, during November. The
standard specifications for one unit of Teragram include six pounds of material at P.30 per
pound. Actual production in November was 3,100 units of Teragram. The accountant
computed a favorable materials purchase price variance of P380 and an unfavorable
materials quantity variance of P120. Based on these variances, one could conclude that
a. More materials were purchased that were used.
b. More materials were used than were purchased.
c. The actual cost of materials was less than the standard cost.
d. The actual usage of materials was less than the standard allowed. Dayag 2013
28 How is a labor rate variance computed?

a. The difference between standard and actual rate times standard hours.
b. The difference between standard and actual hours times actual rate.
c. The difference between standard and actual rate times actual hours.
d. The difference between standard and actual hours times the difference between
standard and actual rate. Dayag 2013
29. Excess direct labor wages resulting from overtime premium will be disclosed in which type of
variance?
a. Yield c. Labor efficiency
b. Quantity d. Labor rate

Standard Costing
30. An unfavorable labor efficiency variance means that

a. The actual labor rate was higher than the standard labor rate.
b. The total labor variance must also be unfavorable.
c. Actual labor hours worked exceeded standard labor hours for the production level
achieved.
d. Overtime labor was used during the period. Dayag 2013
31. A debit balance in the labor efficiency variance indicates that

a. Standard hours exceed actual hours.
b. Actual hours exceed standard hours.
c. Standard rate and standard hours exceed actual rate and actual hours.
d. Actual rate and actual hours exceed standard rate and standard hours. Dayag 2013
32. During the last 3 months, a manufacturer incurred an unfavorable labor efficiency variance.
Which of the following is the least likely cause of this variance?
a. Substandard materials were purchased at a discount at a supplier's liquidation.
b. For one week only half of the work force, those with the highest seniority, were called in
to work.
c. A second production line with all new personnel was started.
d. The cost-of-living adjustment for the 3-month period was P. 10 more per hour than
expected. Dayag 2013
33. When a change in the manufacturing process reduces the number of direct labor hour and
standards are unchanged, the resulting variance will be
a. A favorable labor usage variance.
b. An unfavorable labor usage variance.
c. An unfavorable labor rate variance.
d. A favorable labor rate variance. Dayag 2013
34. Which of the following is the most probable reason 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
higher 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 production schedule, workers from other production areas were assigned
to assist in this particular process. Dayag 2013
d. Defective materials caused more labor to be used in order to produce a standard unit.

COST ACCOUNTING
35. The difference between the actual labor rate multipled by the actual hours worked and the
standard labor rate multiplied by the standard labor hours is the
a. Total labor variance. c. Labor usage variance.
b. Labor rate variance. d. Labor efficiency variance. Dayag 2013
36. In a standard cost system, an unfavorable overhead volume variance would result if:
a. There is an unfavorable labor efficiency variance.
b. There is a favorable labor rate variance.
c. Production is less than planned.
d. All of the above. Dayag 2013
37. Under the two-variance method for analyzing factory overhead, the factory overhead applied
to production is used in the computation of the:
Controllable Volume
(Budget) Variance Variance
A. Yes No
B. Yes Yes
C. No Yes
D. No No Dayag 2013
38. A company uses a two-way analysis for overhead variances: budget (controllable) and
volume. The volume variance is based on the:
a. Total overhead application rate.
b. Volume of total expenses at various activity levels.
c. Variable overhead application rate.
d. Fixed overhead application rate. Dayag 2013
39. The planned activity level for the assembly department of the Shields Company during the
month of December was 10,000 direct labor hours. The actual number of direct labor hours
worked during December was 9,000. Overhead is allocated on the basis of actual direct labor
hours. What kind of variance occurred?
a. An unfavorable labor rate variance.
b. A favorable overhead volume variance.
c. An unfavorable labor efficiency variance.
d. An unfavorable overhead volume variance. Dayag 2013
40. Under the three-variance method for analyzing factory overhead, the difference between the
actual factory overhead and the budget allowance based on actual hours is the:
a. Efficiency variance. c. Volume variance.
b. Spending variance. d. Idle capacity variance. Dayag 2013

Standard Costing
41. Under the three-variance method for analyzing factory overhead, which of the following is
used in the computation of the spending variance?
Actual Factory Budget Allowance
Overhead Based on Actual Hours
A. No Yes
B. No No
C. Yes No
D. Yes Yes Dayag 2013
42. Overhead spending variance is the difference between the:

a. Actual overhead cost and budgeted overhead cost for actual hours worked.
b. Standard overhead cost and budgeted overhead cost for actual hours worked.
c. Actual overhead cost and standard overhead cost for standard hours. Dayag 2013
d. Standard overhead cost and budgeted overhead cost for standard hours.
43. A spending variance for variable overhead based on direct labor hours is the difference
between actual variable overhead cost and variable overhead cost that should have been
incurred for the actual hours worked. 'This variance results from:
a. Price and quantity differences for overhead costs.
b. Price differences for overhead costs.
c. Quantity differences for overhead costs.
d. Differences caused by variations in production volume. Dayag 2013

COST ACCOUNTING
MCQ - PROBLEMS
TOTAL STANDARD COST
44. Micro Processing Services Inc. provides computer processing services in the University of
Students. Below are relevant data as set by the firm:
Number of pages per hour 20
Variable cost per hour P30.00
Fixed cost per month P10,000.00
The owner-manager estimated that the firm should operate 500 hours per month. For the
month of March, 12,000 pages were generated in 450 hours. Actual variable overhead
summate up to PI3,200 while fixed overhead matched the estimated amount.
The total standard cost for March was:
a. P30,000 c. P27,500
b. P25,000 d. P31,500 Guerrero 2013
DIRECT MATERIALS
Material Usage Variance
45. A company uses a standard cost sytem to account for its only product. The materials
standard per unit was 4 lbs. at P5.10 per lb. Operating data for April were as follows:
Material used 7,800 lbs.
Cost of material used P40,950
Number of finished units produced 2,000
The material usage variance for April was:
a. 1,020 favorable c. 1,170 unfavorable
b. 1,050 favorable d. 1,200 unfavorable Dayag 2013
46. Buckler Company manufactures desks with vinyl tops. The standard material cost for the
vinyl used per Model S desk is P27.00, based on 12 square feet of vinyl at a cost of P2.25
per square foot. A production run of 1,000 desks in March resulted in usage of 12,600 square
feet of vinyl at a cost of P2.00 per square foot, a total cost of P25,200. The usage variance
resulting from the above production run was
a. 1,200 unfavorable c. 1,800 favorable
b. 1,350 unfavorable d. 3,150 favorable Dayag 2013
47. During March, Younger Company's direct material costs for the manufacture of product T
were as follows:
Actual unit purchase price P 6.50
Standard quantity allowed for actual production 2,100
Quantity purchased and used for actual production 2,300
Standard unit price P 6.25
Standard Costing – MCQ - Problems Page 20

Standard Costing
Younger's material usage variance for March.

a. 1,250 unfavorable c. 1,300 unfavorable
b. 1,250 favorable d. 1,300 favorable Dayag 2013
48. Information on Cox Co.'s direct material costs for the month of January was as follows:
Actual quantity purchased 18,000

Actual unit purchase price P 3.60
Materials purchase price variance - unfavorable
(based on purchases) P 3,600
Actual quantity used 15,000
For the month of January, there was a favorable direct material usage variance of
a. 3,360 c. 3,400
b. 3,375 d. 3,800 Punzalan 2014
49. During March 2Q13 Younger Company's direct-materials costs for the manufacture of
product T were as follows:
Actual unit purchase price P6.50
Quantity purchased and used for actual production 2,300
Standard unit price P6.25
Younger's materials usage variance for March 2013 was:
a. P1,250 unfavorable c. P1,300 unfavorable
b. P1,250 favorable d. P1,300 favorable Guerrero 2013
Materials Purchase Price Variance

50. Perkins 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 1,400
Actual number of units used 1,500
Standard number of units allowed for actual production 1,300
Standard cost per unit P1.00
Actual cost per unit P1.10
The unfavorable materials purchase price variance for raw material S for June was
a. P0 c. P140
b. 130 d. 150 Dayag 2013
Standard Costing – MCQ – Problems Page 21

COST ACCOUNTING
51. Information on Rex Co.'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 P84,000
Unfavorable direct materials usage variance 3,000
Standard quantity of direct materials allowed for May
production 29,000 lbs.
For the month of May, what was Rex's direct materials price variance?
a. P2,800 favorable c. P6,000 unfavorable
52. The standard direct material cost to produce a unit of Lem is 4 meters of material at P2.50
per meter. During May 1998, 4,200 meters of material costing PI0,080 were purchased and
used to produce 1,000 units of Lem. What was the material price variance for May 1998?
a. 400 favorable c. 80 unfavorable
b. 420 favorable d. 480 unfavorable Punzalan 2014
53. Information on Material company's direct-material costs is as follows:

Actual units of direct material used 20,000
Actual direct-material costs P40,000
Standard price per unit of direct materials P2.10
Direct-material quantity variance-favorable P 3,000
What was material's direct-material price variance?
a. P1,000 favorable c. P2,000 favorable
b. P1,000 unfavorable d. P2,000 unfavorable Guerrero 2013
54. Matt Company uses a standard cost system. Information for raw materials for Product RBI for
the month of October is as follows:
Actual purchase price per unit P1.55
Actual quantity purchased 2,000 units
Actual quantity used 1,900 units
Standard quantity allowed for actual production 1,800 units
What is the materials purchase price variance?
a. P90 favorable c. P100 favorable
b. P90 unfavorable d. P100 unfavorable Guerrero 2013

Standard Costing
Material Usage & Price Variance

55. Throop Company had budgeted 50,000 units of output using 50,000 units of raw materials at
a total material cost of P100,000. Actual output was 50,000 units of product, requiring
45,000 units of raw materials at a cost of P2.10 per unit. The direct material price variance
and usage variance were
Price Usage
A. P4,500 unfavorable P10,000 favorable
B. P5,000 favorable P10,500 unfavorable
C. P5,000 unfavorable PI0,500 favorable
D. P10,000 favorable P4,500 unfavorable Dayag 2013
Questions 1 thru 3 are based on the following: Punzalan 2014

ChemKing uses a standard costing system in the manufacture of its single product. The 35,000
units of raw materials in inventory were purchased for PI 05,000, and two units of raw materials
are required to produce one unit of final product. In November, the company produced 12,000
units of product. The standard allowed for materials was P60,000, and there was an unfavorable
quantity variance of P2,500.
56. ChemKing's standard price for one unit of material is
a. 2.00 c. 3.00
b. 2.50 d. 5.00
e. 6.00
57. The units of materials used to produce November output totaled
a. 12,000 units c. 23,000 units
b. 12,500 units d. 24,000 units
e. 25,000 units
58. The materials price variance for the units used in November was
a. 2,500 unfavorable. c. 12,500 unfavorable.
b. 11,000 unfavorable. d. 3,500 unfavorable.
e. 2,500 favorable.
Questions 1 & 2 are based on the following: Punzalan 2014

Blaster, Inc. a manufacturer of portable radios, purchases the components from subcontractors to
use to assemble into a complete radio. Each radio requires three units each of Part XBEZ52 which
has a standard cost of PI.45 per unit. During May, Blaster experienced the following with respect
to Part XBEZ52.
Units
Purchases (P18,000) 12,000
Consumed in manufacturing 10,000
Radios manufactured 3,000

COST ACCOUNTING
59. During May, Blaster, Inc. incurred a direct materials purchase price variance of
a. 450 unfavorable.
b. 450 favorable.
c. 500 favorable.
d. 600 unfavorable.
e. 600 favorable.
60. During May, Blaster, Inc. incurred a materials efficiency variance of

a. 1,450 unfavorable. c. 4,350 unfavorable.
b. 1,450 favorable. d. 4,350 favorable.
e. 4,500 unfavorable.
Total Variance
61. Yamaha Instruments established a standard cost for raw materials at P25 per unit. During the
period just ended, a total of 10,000 units were purchased of which 50% was at P24.70 each,
20% was at P24.90 each, and the balance was at P25.60 each. The raw materials cost
variance is a favorable (an unfavorable):
a. 100 c. (100)
b. 900 d. (900) Dayag 2013
Actual Purchase Price

62. Information on Kennedy Company's direct material costs is as follows:
Actual quantity purchased 1,600
Materials purchase price variance - favorable P240
What was the actual purchase price per unit, rounded to the nearest centavo?
a. 3.06 c. 3.45
b. 3.11 d. 3.75 Dayag 2013
Std Price & Units Used

63. ChemKing uses a standard costing system in the manufacture of its single product. The
35,000 units of raw material in inventory were purchased for PI05,000, 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
was an unfavorable quantity variance of P2,500. Compute for ChemKing's: (1) standard price
for one unit of material, and (2) the units of material used to produce November output:
a. (1) P3.00; (2) 24,000 units c. (1) P2.50; (2) 23,000 units
b. (1)P2.50; (2) 25,000 units d. (1) P5.00; (2) 25,000 units Dayag 2013

Standard Costing
Cost per Unit

Std Cost
64. Dahl Co. uses a standard costing system in connection with the manufacture of a "one size
fits all" article of clothing. Each unit of finished product contains 2 yards of direct material.
However, a 20% direct material spoilage calculated on input quantities occurs during the
manufacturing process. The cost of the direct material is P3 per yard. The standard direct
material cost per unit of finished product is
a. 4.80 c. 7.20
b. 6.00 d. 7.50 Dayag 2013
DIRECT LABOR
Direct Labor Efficiency Variance
65. A company's direct labor costs for manufacturing its only product were as follows for October:
Standard direct labor hours per unit of product 1
Number of finished units produced 10,000
Standard rate per direct labor hour P10
Actual direct labor costs incurred P103,500
Actual rate per direct labor hour P9
The direct labor efficiency variance for October was
b. 11,500 favorable d. 15,000 unfavorable Dayag 2013
66. Lion Company's direct labor costs for the month Of January were as follows:
Actual direct labor hours 20,000
Standard direct labor hours 21,000
Direct labor rate variance - (unfav.) P3,000
Total payroll P126,000
What was Lion's direct labor efficiency variance?
a. 6,000 favorable c. 6,300 favorable
67. The direct labor standards for producing a unit of a product are two hours at P10 per hour.
Budgeted production was 1,000 units. Actual production was 900 units and direct labor cost
was P19,000 for 2,000 direct labor hours. The direct labor efficiency variance was
b. 1,000 unfavorable d. 2,000 unfavorable Dayag 2013

COST ACCOUNTING
68. Yola Co. manufactures one product with a standard direct manufacturing labor cost of 4 hours
at P24.00 per hour. During June, 1,000 units were produced using 4,100 hours at P24.40 per
hour. The unfavorable direct labor efficiency variance was
a. 2,440 c. 1,640
b. 2,400 d. 800 Punzalan 2014
69. Cola manufactures one product with a standard direct labor cost of four hours at P12.00 per
hour. During June, 100 units were produced using 4,100 hours at P12.20 per hour. The
unfavorable direct labor efficiency variance was:
a. P1,220 c. P820
b. P1,200 d. P400 Guerrero 2013
Direct Labor Rate Variance

70. Operational statistics generated for the period just ended for Apex Manufacturing Co., maker
of a line of furniture, follow:
Standards per set:
Materials 2.0 yds@P100
Direct labor 5 hr.@P200
Actual results:
Production 20,000 sets
Materials used 37,000 yds.
Price per yard P102
Direct labor hours used 9,000 hrs.
Direct labor cost P1,764,000
The direct labor rate variance was:
71. Information on Barber Company's direct labor costs for the month of January is as follows:
Total direct labor payroll P241,500
Direct labor efficiency variance - favorable P3,200
What is Barber's direct labor rate variance?

Standard Costing
72. The flexible budget for the month of May was for 9,000 units with direct materials at PI5 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 materials and P77,775 in direct labor
expense. The direct labor standard of 45 minutes was maintained throughout the month.
Variance analysis of the performance for the month of May would show a (an)
a. 7,500 favorable materials usage variance.
b. 1,275 favorable direct labor efficiency variance.
c. 1,275 unfavorable direct labor efficiency variance.
d. 7,500 unfavorable material usage variance.
e. 1,275 unfavorable direct labor price variance. Punzalan 2014
73. The following processing standards have been set for TMT Company's clerical workers:
Number of hours per 1,000 papers processed 150
Normal number of papers processed per year 1,500,000
Wage rate per 1,000 papers P600
Standard variable cost of processing 1,500,000 papers P900,000
Fixed costs per year P150,000
The following information pertains to the 1,200,000 papers that were processed during 2013:
Total cost P915,000
Labor cost P760,000
Labor hours 190,000
For 2013, TMT's labor rate variance would be:
a. P40,000 unfavorable c. P10,000 unfavorable
b. P32,000 favorable d. P0 Guerrero 2013
Actual Direct Labor Cost

74. Information on Townsend Company's direct labor costs for May is as follows:
Standard direct labor rate P6.00
Actual direct labor rate P5.80
Direct labor rate variance - favorable P 4,200
What is Townsend's total direct labor payroll for May?
a. 116,000 c. 120,000
b. 117,600 d. 121,800 Dayag 2013

COST ACCOUNTING
75. The following information pertains to Bates Co.'s direct labor for March:
Favorable direct labor rate variance P8,400
Standard direct labor rate per hour 6.30
What was Bate's total actual direct labor cost for March?
a. 117,600 c. 134,000
b. 118,000 d. 134,400 Punzalan 2014
Actual Hours Worked

76. Tub Co. uses a standard cost system. The following information pertains to direct labor for
product B for the month of October:
Standard hours allowed for actual production 2,000
Actual rate paid per hour P 8.40
Standard rate per hour P 8.00
Labor efficiency variance P1,600U
What were the actual hours worked?
a. 1,800 c. 2,190
b. 1,810 d. 2,200 Dayag 2013
77. Information on Westcott Company's direct labor costs is as follows:
Standard direct labor rate P 3.75
Actual direct labor rate P 3.50
Direct labor usage (efficiency) variance - unfavorable P4,200
What were the actual hours worked, rounded to nearest hour?
a. 10,714 c. 11,200
b. 11,120 d. 11,914 Dayag 2013
78. Harper Co. uses a standard cost system. Data relating to direct labor for the month of August
is as follows:
Direct labor efficiency variance - favorable P5,250

Standard direct labor rate 7.00
Actual direct labor rate 7.50
What are the actual hours worked for the month of August?
a. 9,750 c. 8,300
b. 8,400 d. 8,250 Punzalan 2014

Standard Costing
Std Hours Allowed

79. Silver 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 PI, 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 which was higher by P0.40 than the standard
average wage rate per hour. The total number of standard direct labor hours allowed for the
actual units produced is:
a. 52,500 c. 62,500
b. 60,000 d. 70,000 Dayag 2013
Cost per Unit

Std Cost
80. The following direct manufacturing labor information pertains to the manufacture of product
Glu:
Time required to make one unit 2 DHL
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker P500
Worker's benefits treated as direct manufacturing labor 20% of wages costs
What is the standard direct manufacturing labor cost per unit of product Glu?
a. 30 c. 15
b. 24 d. 12 Punzalan 2014
Direct Labor Rate

Std Rate
81. Thorp Co.'s records for April disclosed the following data relating to direct labor:
Actual cost P10,000
Rate variance 1,000F
Efficiency variance 1,500UF
Standard cost P 9,500
Actual direct labor hours for April amounted to 2,000. Thorp's standard direct labor rate per
hour in April was
a. 5.50 c. 4.75
b. 5.00 d. 4.50 Dayag 2013

COST ACCOUNTING
Actual
82. Cow, Inc. has a maintenance shop where repairs to its motor vehicles are done. During last
month's labor strike, certain records were lost. The actual input of direct labor hours was
1,000, and the resulting direct labor budget variance was a favorable P3,400. The standard
direct labor rate was P28.00 per hour, but an unexpected labor shortage necessitated the
hiring of higher paid workers for some jobs and had resulted in a rate variance of P800. The
actual direct labor rate was:
a. 27.20 per hour c. 30.25 per hour
b. 28.80 per hourd. 31.40 per hour Dayag 2013
Actual & Std Rate

83. Goodman Company's direct labor costs:
Direct labor usage (efficiency) variance - favorable P4,000
Direct labor rate variance - favorable P5,800
Total payroll P110,200
Compute the: (1) standard direct labor rate,a nd (2) actual direct labor rate:
a. (1)P3.80;(2)P4;00 c. (1) P3.54; (2) P3.80
b. (1)P4.00;(2)P3.80 d. (1) P4.00; (2) P3.60 Dayag 2013
Basis for Establishing Std Hours

84. In connection with a standard cost system being developed by Flint Co. the following
information is being considered with regard to standard hours allowed for output of one unit of
product:
Hours
Average historical performance for the past 3 years 1.85
Production level to satisfy average consumer demand
over a seasonal time span 1.60
Engineering estimates based on attainable performance 1.50
Engineering estimates based on ideal performance 1.25
To measure controllable production inefficiencies, what is the best basis for Flint to use in
establishing standard hours allowed?
a. 1.25 c. 1.60
b. 1.50 d. 1.85 Dayag 2013

Standard Costing
85. In connection with a standard cost system being developed by Sarsi Company, the following
information is being considered with regard to standard hours allowed for output of one unit of
product:
Average historical performance for the past three years 1.85 hrs.
Production level to satisfy average consumer
demand over a seasonal time span 1.60 hrs.
Engineering estimates based on attainable performance 1.50 hrs.
Engineering estimates based on ideal performance 1.25 hrs.
To measure controllable production inefficiencies, what is the best basis for Sarsi to use in
establishing standard hours allowed?
a. 1.25 c. 1.60
b. 1.50 d. 1.85 Guerrero 2013
FACTORY OVERHEAD
Actual Overhead
86. Dickey Company had total under applied overhead of P15,000. Additional data:
Variable Overhead:
Applied based on standard DLH allowed P42,000
Budgeted based on standard DLH 38,000
Fixed Overhead:
Applied based on standard DLH allowed 30,000
Budgeted based on standard DLH 27,000
What is the actual total overhead?
a. 50,000 c. 80,000
b. 57,000 d. 87,000 Dayag 2013
87. The following were among Gage Co.'s 2011 costs:

Normal spoilage P5,000
Freight out 10,000
Excess of actual manufacturing costs over standard cost 20,000
Standard manufacturing costs 100,000
Actual prime manufacturing costs 80,000
Gage's 2011 actual manufacturing overhead was:
a. 40,000 c. 55,000
b. 45,000 d. 120,000Dayag 2013

COST ACCOUNTING
88. Phi Co. normally uses 40,000 direct labor hours for manufacturing 120,000 units of product.
Three units are produced in one hour, and the direct labor rate is P15 per hour. At normal
capacity of 40,000 hours, the factory overhead is estimated as follows:
Fixed overhead P100,000
Variable overhead 120,000
Total overhead P220,000
If 30,000 direct labor hours are used, total factory overhead costs would amount to:
a. 165,000 c. 195,000
b. 190,000 d. 220,000 Dayag 2013
Applied Overhead
89. Union Company uses a standard cost accounting system. The following overhead costs and
production data are available for August:
Standard fixed overhead rate per DLH P1
Standard variable overhead rate per DLH P4
Budgeted monthly DLH 40,000
Actual DLH worked 39,500
Standard DLH allowed for actual production 39,000
Overall overhead variance favorable P2,000
The applied factory overhead for August should be
a. 195,000 c. 197,500
b. 197,000 d. 199,500 Dayag 2013
Actual & Applied FOH

90. GMA Company's budgeted fixed factory overhead costs are P50,000 per month plus a
variable factory overhead rate of P4 per direct labor hour. The standard direct labor hours
allowed for October production were 18,000. An analysis of the factory overhead indicates
that, in October, GMA had an unfavorable budget (controllable) variance of P1,000 and a
favorable volume variance of P500. GMA uses a two-way analysis of overhead variances.
The actual and applied factory overhead in October are:
Actual F/O Applied F/O
A. P121,000 P121,000
B. P122,000 P122,5 00
C. P122,5 00 P123,000
D. P123,000 P122,500 Guerrero 2013

Standard Costing
Indirect Cost Rate per Hour

91. Information on San Edilbcrto Co.'s direct labor costs for the month of August is as follows:
Actual rate P 7.50

Standard hours 11,000
Actual hours 10,000
Direct labor price variance - unfavorable P 5,000
What was the standard rate for August?
a. 8.00 c. 8.05
b. 6.95 d. 7.00 Punzalan 2014
92. Below were reported as the budgeted and actual amounts for the year just ended for the P&P
Consulting Co.
Budget Actual
Professional labor cost P1,920,000 P1,798,000
Support costs P1,440,000 P1,488,000
Professional hours billed to clients 16,000 15,500
The firm had two types of costs - professional labor and support costs. The support costs
were allocated to individual jobs using actual professional labor hours. The indirect cost rate
per professional labor hour amounted to:
a. P96.00 c. P116.00
b. P100.00 d. P120.00 Guerrero 2013
Factory Overhead Rate per unit

93. Negros Co.'s factory overhead rate is pre-determined at the start of the fiscal period based on
expected actual production capacity. Budgeted factory overhead is P175,000 for a normal
capacity of 50,000 units and P225,000 for a maximum capacity of 75,000 units. At the
beginning of 2008, the company forecasted a production of 60,000 units. For 2008, the
factory overhead rate per unit would be:
a. 2.75 c. 3.25
b. 3.00 d. 3.50 Dayag 2013
Variable Overhead Cost per unit

94. Pale Manufacturing Co. has an expected production level of 175,000 product units for 2001.
Fixed factory overhead is P450,000 and the company applies factory overhead on -the basis
of expected production level at the rate of P5.20 per unit. The variable overhead cost per unit
is:
a. 2.57 c. 2.93
b. 2.63 d. 3.02 Dayag 2013

COST ACCOUNTING
2-way Analysis
Controllable Variance
95. El Mondo Company uses a standard cost system and prepared the following budget at
normal capacity for the month of January 2013:
Direct-labor hours 24,000
Variable factory overhead P48,000
Fixed factory overhead P108,000
Total factory overhead per direct-labor hour P6.50
Actual data for January 2013 were as follows:
Direct-labor hours worked 22,000
Total factory overhead P147,000
Standard direct-labor hours allowed for capacity attained 21,000
Using the two-way analysis of overhead variances what is the budget (controllable)
variance for January 2013?
b. P5,000 favorable d. P10,500 unfavorable Guerrero 2013
Budget Variance
96. Baxter Corporation's master budget calls for the production of 5,000 units of product monthly.
The master budget includes indirect labor of P144,000 annually; Baxter 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 PI0,100 were incurred. A performance report utilizing flexible
budgeting would report a budget variance for indirect labor of
b. 700 favorable d. 700 unfavorable Dayag 2013
97. Alden Company has a standard absorption and flexible budgeting system and uses a two-
way analysis of overhead variances. Selected data for the February production activity are:
Budgeted fixed factory overhead costs P 64,000
Actual factory overhead incurred P230,000
Variable factory overhead rate per DLH P5
Standard DLH 32,000
Actual DLH 32,000
The budget (controllable) variance for February is

Standard Costing
Budget & Volume Variance

98. The data below relates to the Month of April 2013 for Marilyn, Inc., which uses a standard
cost system:
Actual total direct labor P43,400
Actual hours used 14,000
Standard hours allowed for good output 15,000
Direct labor rate variance-debit P 1,400
Actual total overhead P32,000
Budgeted fixed costs P9,000
"Normal" activity in hours 12,000
Total overhead application rate per
standard direct-labor hour P2.25
Using 2-way analysis compute the budget variance and the volume variance for the month of
March.
Budget Volume
Variance Variance
A. P900 (u) P2,250 (u)
B. P500 (u) P2,250 (F)
C. P500 (F) P2,000 (u)
D. P800 (F) P2,000 (F) Guerrero 2013
3-way Analysis
Spending Variance
99. Using the information presented below, calculate the total overhead spending variance.
Budgeted fixed overhead P10,000

Standard variable overhead (2 DLH at P2 per DLH) P4 per unit
Actual fixed overhead P10,300
Actual variable overhead P19,500
Budgeted volume (5,000 units x 2 DLH) 10,000 DLH
Actual direct labor hours (DLH) 9,500
Units produced 4,500
a. 500 unfavorable c. 1,000 unfavorable

b. 800 unfavorable d. 1,300 unfavorable Dayag 2013

COST ACCOUNTING
100. Jones, a department manager, exercises control over the department's costs.
Following is selected information relating to the department for July:
Variable factory overhead:
Budgeted based on standard hours allowed P80,000
Actual 85,000
Fixed factory overhead:
Budgeted 25,000
Actual 27,000
The department's unfavorable spending variance for July was
a. 7,000 c. 2,000
b. 5,000 d. 0 Punzalan 2014
Efficiency Variance
101. The following information pertains to FPJ Company 2013 manufacturing operations:
Standard direct labor hours per unit 2
Number of units produced 5,000
Standard variable overhead per standard direct labor hour P3
Actual variable overhead P28,000
FPJ's 2013 unfavorable overhead efficiency variance was:
a. P0 c. P2,000
b. P15,000 d. P3,500 Guerrero 2013
4-way Analysis
Variable Efficiency & Variable Spending
102. Using the following information.
Actual direct labor hours used 4,700
Units produced 1,500
Standard labor hours per unit produced 3
Budgeted variable overhead per standard direct labor hour P2
Actual variable overhead incurred P9,500
Compute the: (1) variable overhead efficiency variance, and (2) variable overhead spending
variance:
a. (1) P400 fav.; (2) P100 fav. c. (1) P400 unfav.;(2) P100 fav. Dayag 2013
b. (1) P400fav.;(2) P100unfav. d. (1) P400 unfav.; (2) P100 unfav.

Standard Costing
Comprehensive
Questions 1 & 2 are based on the following: Dayag 2013
103. Derf Company applies overhead on the basis of direct labor hours. Manufacturing overhead
is budgeted at P135,000 for the period, of which 20% of this cost is fixed. Two direct labor
hours are required for each product unit. Planned production for the period was set at 9,000
units. 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. Derf Company uses a four variance method for analyzing
manufacturing overhead. Compute the: (1) variable overhead spending variance, and (2)
variable overhead efficiency variance:
a (1) P5,300 unfav.; (2) P1,200 fav. c. (1) P5,300fav.; (2) P1,200 fav.
b. (1) P5,300 unfav.; (2) P1,200 unfav. d. (1) P5,300fav.; (2) P1,200unfav.
104. Using the same information in No. 1, compute the: (1) fixed overhead budget (spending)
variance, and (2) fixed overhead volume variance:
a. (1) P1,000unf.;P1,500unf. c. (1) P1,000 unf.; P1,500 fav.
b. (1) P1,000 fav.; P1,500 fav. d. (1) P1,000fav.; P1,500 (unfav.
Volume Variance
105. Information on Ripley Company's overhead costs for the January production activity is as
follows:
Budgeted fixed overhead P75,000
Standard fixed overhead rate per DLH P3
Standard variable overhead rate per DLH P6
Standard DLH allowed for actual production 24,000
Actual total overhead incurred P220,000
Ripley has a standard absorption and flexible budgeting system, and uses the two-variance
method (two-way analysis) for overhead variances. The volume (denominator) variance for
January is
106. John Player Corp. employs a standard absorption system for product costing. The standard
cost of its product is as follows:
Direct materials P 14.50

Direct labor (2 direct labor hours @ P8) 16.00
Manufacturing overhead (2 direct labor hours @ PI 1) 22.00
Total standard cost P 52.50

COST ACCOUNTING
The manufacturing overhead rate is based upon normal activity level of 600,000 direct labor
hours. JP planned to produce 25,000 units each month during the year. The budgeted annual
manufacturing overhead is:
Variable P 3,600,000
Fixed 3,000,000
Total P 6,600,000
During October, JP produced 26,000 units. JP used 53,500 direct labor hours in October
at a cost of P433,350. Actual manufacturing overhead for the month was P250,000 fixed
and P325,000 variable. What is the manufacturing overhead volume variance for October?
b. 3,000 unfavorable d. 10,000 favorable Punzalan 2014
Net Overhead Variance

107. Peters Company uses a flexible budget system and prepared the following information for the
year:
Percent of capacity 80% 90%
Direct labor hours 24,000 27,000
Variable factory overhead P 48,000 P 54,000
Fixed factory overhead P108,000 P108,000
Total factory overhead rate per DLH P 6.50 P 6.00
Peters operated at 80% of capacity during the year, but applied factory overhead based on
the 90% capacity level. Assuming that actual factory overhead was equal to the budgeted
amount for the attained capacity, what is the amount of overhead variance for the year?
a. 6,000 over absorbed c. 12,000 over absorbed
b. 6,000 under absorbed d. 12,000 under absorbed Dayag 2013
108. Air, Inc. uses a standard cost system. Overhead cost information for Production for the month
of October is as follows:
Total actual overhead incurred P12,600
Fixed overhead budgeted P3,300
Total standard overhead rate per DLH P4
Variable overhead rate per DLH P3
What is the overall or net overhead variance?

Standard Costing
109. A manufacturing firm planned to manufacture and sell 100,000 units of product during the
year at a variable cost per unit of P4.00 and a fixed cost per unit of P2.00. The firm fell short
of its goal and only manufactured 80,000 units at a total incurred cost of P515,000. The firm's
manufacturing cost variance was
a. 85,000 favorable. c. 5,000 favorable.
e. 80,000 unfavorable. Punzalan 2014
110. Information on Pool Company's overhead costs is as follows:
Standard applied overhead P80,000
Budgeted overhead based on standard
direct-labor hours allowed P84,000
Budgeted overhead based on actual
direct-labor hours allowed P83,000
Actual overhead P86,000
What is the total overhead variance?
a. P2,000 unfavorable c. P4,000 favorable
b. P3,000 favorable d. P6,000 unfavorable Guerrero 2013
111. Golf Company uses a standard cost system. Overhead cost information for Product CO for
the month of October is as follows:
Total overhead cost incurred P12,600
Fixed overhead budgeted P3,300
Total standard overhead rate per direct labor hour P4.00
Variable overhead rate per direct labor hours P3.00
What is the overall (or net) overhead variance?
b. P1,200 unfavorable d. P1,400 unfavorable Guerrero 2013
COMPREHENSIVE
112. The following direct manufacturing labor information pertains to the manufacture of product
Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 4D
Workers' benefits treated as direct manufacturing
labor costs 20% of wages

COST ACCOUNTING
What is the standard direct manufacturing labor cost per unit of product Glu?
a. 30 c. 15
b. 24 d. 12 Dayag 2013
113. Blanco, Inc. provides computer processing services, and relevant data set up by the firm's
management are shown below:
No. of pages per hour, 20.
No. of hours per month, 500.
Variable costs per hour, P30.
Fixed costs per month, P10,000.
For the month of May, 2011 12,000 pages are generated in 450 hours. The actual variable
costs totaled P13,200, while the actual fixed costs equaled the estimated amount. The total
standard cost for May was:
a. 25,000 c. 30,000
b. 27,500 d. 31,500 Dayag 2013
114. Blot, Inc. estimated the cost of a project it started in October, 2011 as follows: direct
materials, P495,000; direct labor, 6,000 hours at P30 per hour; variable overhead, P24 per
direct labor hour. By the end of the month, all the required materials have been used at
P49U00; labor was 80% complete at 4,650 hours at P30 per hour; and, the variable overhead
amounted to P113,700. The total variance for the project as at the end of the month was:
Questions 1 & 2 are based on the following: Punzalan 2014
Tiny Tykes Corp. had the following activity relating to its fixed and variable overhead for the month
of July.
Actual costs:
Fixed overhead P 120,000
Flexible budget:
(Standard input allowed for actual output
achieved x the budgeted rate)
Applied:
(Standard input allowed for actual output
achieved x the budgeted rate)
Fixed overhead 125,000
Variable overhead spending variance 2,000 f
Production volume variance 5,000 u

Standard Costing
115. If the budgeted rate for applying variable manufacturing overhead was P20 per direct labor
hour, how efficient or inefficient was Tiny Tykes Corp. in terms of using direct labor hours as
an activity base?
a. 100 direct labor hours inefficient. c. 400 direct labor hours inefficient.
b. 100 direct labor hours efficient. d. 400 direct labor hours efficient.
e. 500 direct labor hours efficient.
116. The fixed overhead efficiency variance is

a. 3,000 favorable c. 5,000 favorable.
b. 3,000 unfavorable d. 10,000 unfavorable
e. Not a meaningful variance

Water Control, Inc. manufactures water pumps and uses a standard cost system. The standard
factory overhead cost per water pump is based on direct labor hours and is as follows:
Variable overhead (4 hours at P8.00 per hour) P 32.00

Fixed overhead (4 hours at P5.00 * per hour) 20.00
Total overhead cost per unit P 52.00
Based on a capacity of 100,000 direct labor hours per month.
The following additional information is available for the month of November:
• 22,000 pumps were produced although 25,000 had been scheduled
for production.
• 94,000 direct labor hours were worked at a total cost of P940,000.
 The standard direct labor rate is P9.00 per hour.
• The standard direct labor time per unit is 4 hours.
• Variable overhead costs were P740,000.
• Fixed overhead costs were P540.000.
117. The fixed overhead spending variance for November was

e. 15,000 favorable
118. The variable overhead spending variance for November was

a. 60,000 favorable. c. 48,000 unfavorable.
b. 12,000 favorable. d. 40,000 unfavorable.

COST ACCOUNTING
119. The variable overhead efficiency variance for November was

a. 48,000 unfavorable c. 96,000 unfavorable.
120. The direct labor price variance for November was

a. 54,000 unfavorable. c. 60,000 favorable.
121. The direct labor efficiency variance for November was

a. 108,000 favorable. c. 60,000 favorable.

Nanjones Co. manufactured a line of products distributed nationally through wholesalers
Presented below are planned manufacturing data for 2009 and actual data for November 2009.
The company applies overhead based on planned machine hours using a predetermined annual
rate.
2009 Planning data
Annual November
Fixed manufacturing overhead P1,200,000 P100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000
Data for
November
2009
Direct labor hours (actual) 4,200
Direct labor hours (plan based on output) 4,000
Machine hours (actual) 21,600
Machine hours (plan based on output) 21,000
Fixed manufacturing overhead P 101,200
Variable manufacturing overhead P 214,000

Standard Costing
122. The predetermined overhead application rate for Nanjones Co. for 2009 is
a. 5.00 c. 10.00
b. 25.00 d. 50.00
e. 15.00
123. The total amount of overhead applied to production for November 2009 was
a. 316,200 c. 320,000
b. 315,000 d. 300,000
e. 324,000
124. The amount of over-or under-applied variable manufacturing overhead for November 2009
was
a. 6,000 over-applied c. 20,000 over-applied
b. 4,000 under-applied d. 2,000 over-applied
e. 6,000 under-applied
125. The variable overhead spending variance for November 2009 was
b. 6,000 favorable d. 6,000 unfavorable
e. 2,000 unfavorable
126. The fixed overhead volume variance for November 2009 was
b. 5,000 unfavorable d. 5,000 favorable
e. 1,200 favorable
The U.R. Good Co. produces a product using standard costs as follows:
1. Standard cost per unit
Materials 7 kilos at P3.50 per kilo
Labor 8 hours at P1.75 per kilo
Overhead: Fixed P1.15 per hour or P9.20 per unit
Variable P0.85 per hour or P6.80 per unit
2. Overhead applied on direct labor hours
3. Actual performance (1 month)
a. volume produced 800
b. labor hours 6,300
c. overhead PI3,200
d. Material cost P3.45 per kilo
e. Labor cost P1.80 per kilo
f. materials used 4,800 kilos

COST ACCOUNTING
From the given information, determine the following:

127. Material price variance is
a. 240.00 favorable c. 240,00 unfavorable
b. 2,800.00 unfavorable d. 360.00 favorable
128. Labor rate variance is

a. 400.00 favorable c. 175.00 favorable
b. 315.00 unfavorable d. 500.00 unfavorable
129. Total material variance is

a. 2,800.00 favorable c. 3,000.00 unfavorable
b. 2,800.00 unfavorable d. 3,040.00 favorable
130. Total overhead variance in a 3-variance method is

a. 200.00 favorable c. 400.00 unfavorable
b. 500.00 favorable d. 400.00 favorable
131. Material quantity variance is

a. 200.00 favorable c. 240.00 favorable
b. 250.00 unfavorable d. 2,800.00 favorable

Jordan Co. manufactures product X with the following standard costs of direct materials and direct
labor:
Direct materials, 20 yards @ P13.50 per yard P270.00

Direct labor, 4 hours @ P90.00 per hour 360.00
The following information pertains to the month of May:
Direct materials purchased, 18,000 yards @ P13.80 per yard P248,400.
Direct labor, 2,100 hours @ P91.50 per hour 192,150
Direct materials used, 9,500 yards
Production during May 500 units
132. What is the direct material price variance (based on purchases)?

133. What is the material usage variance?

Standard Costing
134. What is the direct labor rate variance?

135. What is the direct labor efficiency variance?

JOURNAL ENTRY
136. Assume price variances are recorded at the time of purchase. What is the journal entry to
record a direct materials price variance if materials are purchased at P50 per unit for P6,500
and their standard unit price is P40 per unit? Guerrero 2013
A. Materials P6,500
Accounts payable P6,500
B. Materials P5,200
Materials price variance 1,300
Accounts payable P6,500
C. Materials ' P5,200
Work in process 1,300
Cash P6,500
D. Finished goods P5,200
Materials price variance 1,300
Cash P6,500
137. MCG Company uses a standard cost system that carries materials at actual price until they
are transferred to the Work in Process account. In project A, 500 units of X were used at a
cost of P10 per unit. Standard requires 450 units to complete this project. The standard price
is established at P9 per unit. What is the proper journal entry? Guerrero 2013
A. Work in process P4,950
Direct materials price variance 500
Direct materials quantity variance P 450
Materials 5,000
B. Work in process P5,950
Direct materials price variance P 500
Direct materials quantity variance 450
Materials 5,000
C. Work in process P4,050
Direct materials price variance 500
Direct materials quantity variance 450
Materials P 5,000

COST ACCOUNTING
D. Work in process P5,000

Materials P5,000
138. If a project required 50 hours to complete at a cost of P10 per hour, but should have taken
only 45 hours at a cost of P12 per hour, what is the proper journal entry to record the costs?
a. Work in process P540

Labor efficiency variance 60
Labor price variance P100
Payroll payable 500
b. Wages expense P440
Labor efficiency variance 60
Payroll payable P500
c. Work in process P460
Labor price variance 100
Labor efficiency variance P 60
Payroll payable 500
d. Work in process P500
Payroll payable P500
Guerrero 2013
139. Alpha Company would have applied P32,500 of fixed factory overhead if capacity usage had
equaled the master budget. Given that amount, 2,000 standard hours (the normal volume)
were allowed for the actual output, that actual fixed factory overhead equalled the budgeted
amount, and that overhead was applied at a rate of P15 per hour, what is the journal entry to
close the fixed factory overhead accounts? Guerrero 2013
a. Applied factory overhead (fixed) P30,000

Overhead volume variance 2,500
Factory overhead control (fixed) P32,500
b. Factory overhead control (fixed) P30,000
Overhead volume variance 2,500
Applied factory overhead (fixed) P32,500
c. Work in process P30,000
Overhead price variance 2,500
Applied factory overhead (fixed) P32,500
d. Cost of goods sold P32,500
Factory overhead control (fixed) P32,500

Standard Costing
140. Bravo Company paid janitors P5 per hour to clean the production area. 530 hours were
worked by the janitors. The company initially set its standard cost of janitorial work at P4.50
per hour. Assuming that this is the only variable overhead variance, what is the journal entry
to recognize the variance that occurred? Guerrero 2013
a. Applied factory overhead (variable) P2,385
Overhead budget variance 265
Factory overhead control (variable) P2,650
b. Applied factory overhead (variable) P2,650
Variance summary P 265
Factory overhead control (variable) 2,385
c. Applied factory overhead (variable) P2,385
Overhead efficiency variance 265
Factory overhead control (variable) P2,650
d. Factory overhead control (variable) P2,385
Overhead budget variance 265
Applied factory overhead (variable) P2,650
OTHER TOPICS
141. Simson Company's master budget shows straight-line depreciation on factory equipment of
P258,000. The master budget was prepared at an annual production volume of 103,200 units
of product. This production volume is expected to occur uniformly throughout the year. During
September, Simson produced 8,170 units of product, and the accounts reflected actual
depreciation on factory machinery of P20,500. Simson controls manufacturing costs with a
flexible budget. The flexbile budget amount for depreciation on factory machinery for
September would be
a. 19,475 c. 20,500
b. 20,425 d. 21,500 Dayag 2013
142. Oyamat Co., at normal capacity, operates at 600,000 labor hours with standard labor rate of
P20 per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Four
units should be completed in an hour. Last year, 1,350,000 units were produced using
300,000 labor hours. All labor hours were paid at the standard rate, and actual overhead cost
consisted of P3,738,000 for variable items and P3,000,000 fixed items. The total labor and
overhead costs saved, by producing at more than standard, amounted to:
a. 450,000 c. 750,000
b. 500,000 d. 1,200,000 Dayag 2013

COST ACCOUNTING
143. 7-10 Store has several types of allocation bases for assigning overhead costs to its various
departments. The base options include the following: square meters of space occupied, peso
sales volume, and number of employees. For the month just ended, the overhead costs
incurred amounted to P12 million and the allocation criteria were as follows:
Space Total Number of
(Sq. M.) Sales Employees
Garments 1,000 P1,000.000 15
Hardware 400 700,000 8
Sporting goods 600 300,000 7
The Garments Department would prefer the assignment criteria resulting in the least amount
of overhead costs allocated to it; which is:
a. Space, at P480,000.
b. Peso sales, at P560,000.
c. Number of employees, at P600,000.
d. Indifferent. Dayag 2013
144. Handel Co. provides for an incentive scheme for its factory workers which features a
guaranteed minimum wage and a piece rate. Each worker is paid PI 1.25 per piece with a
minimum guaranteed wage of P875.00/week. Production records for a week show the
following:
Units
Worker Produced
H 80
A 67
N 78
D 72
E 82
L 75
What portion of the factory payroll for the week should properly be charged to factory
overhead?
a. 75.00 c. 217.50
b. 142.50 d. 292.50 Dayag 2013
145. To improve productivity, St. Michael Corporation instituted a bonus plan where employees
are paid 75% of the time saved when production performance exceeds the standard level of
production. The company computes the bonus on the basis of four-week periods. The
standard production is set at 3 units per hour. Each employee work 37 hours per week, and
the wage rate is P24 per hour. Below are data for one 4-week period:

Standard Costing
Weekly Production (Units)

Employee 1st 2nd 3rd 4th Total
ALAN 107 100 110 108 425
JOEL 104 110 115 115 444
ROMY 108 112 112 133 465
TONY 123 120 119 124 486
The employee who had inconsistent performance (sometimes performing below standard)
but got a bonus is:
a. Alan = P36 bonus c. Romy = P126 bonus
b. Joel = P54 bonus. d. Tony = P252 bonus Dayag 2013
146. Black Company manufactures only for specific orders and it uses a standard cost system.
During one large order, an unusual number of kits were spoiled. The normal spoilage is 10%
of kits started. The point of first inspection is 1/3 through processing, the second inspection is
2/3 through processing, and the final inspection is at the end of processing in a continuous
operation in a single department. Relevant data follow:
Kits started = 1,000 Kits spoiled = 150
Materials introduced at the beginning P200,000
Conversion costs for the job 400,000
Standard materials cost per kit 180
Standard conversion cost per kit 360
The average point of spoilage is the 2/3 completion point. The total standard cost of the
spoiled kits was:
A. P21,000 c. 63,000
B. 27,000 d. 81,000 Dayag 2013
147. The following is a standard cost variance analysis report on direct labor cost for a division of
a manufacturing company:
Actual Hours at Actual Hours at Standard Hours at
Job Actual Wages Standard Wages Standard Wages
213 P 3,243 P 3,700 P 3,100
215 15,345 15,675 15,000
217 6,754 7,000 6,600
219 19,788 18,755 19,250
221 3,370 3,470 2,650
Totals P48,500 P48,600 P46,600
What is the total flexible budget direct labor variance for the division?
a. P 100 favorable c. P1,900 favorable

COST ACCOUNTING
148. In trying to improve the productivity of the company, Japan Company instituted a labor bonus
plan. Effectivity, it pays employees 75% of the time saved in production when production
exceeds the standard level. For a more consistent performance, the bonus is computed on
the basis of production for four-week period. Each employee works 37 hours per week. The
standard production per hour was established at 3 units of product. Each employee is paid at
the rate of P24 per hour. Below are the data on four employees for Unit 1 for the month of
March.
Production in Units
Period Boyet Danny Rudy Vic
1st week 107 104 108 123
2nd week 100 110 112 120
3rd week 110 115 112 119
4th week 108 115 133 124
TOTAL 425 444 465 486
The employee who had inconsistent performance (who sometimes performed below
standard) but got a bonus was:
a. Rudy at 465 units or P126 bonus
b. Rudy at 465 units or PI 68 bonus
c. Vic at 486 units or P252 bonus
d. Vic at 486 units or P432 bonus Guerrero 2013

Standard Costing
ANSWER KEY
1. B 26. C 51. D 76. D 101. B 126. D
2. B 27. C 52. B 77. B 102. D 127. A
3. C 28. C 53. C 78. D 103. B 128. B
4. C 29. D 54. C 79. C 104. A 129. D
5. B 30. C 55. A 80. A 105. A 130. C
6. A 31. B 56. B 81. A 106. A 131. D
7. D 32. D 57. E 82. B 107. D 132. B
8. C 33. A 58. C 83. B 108. C 133. C
9. D 34. A 59. D 84. B 109. C 134. C
10. D 35. A 60. A 85. B 110. D 135. D
11. D 36. C 61. C 86. D 111. C 136. B
12. D 37. C 62. C 87. A 112. A 137. C
13. D 38. D 63. B 88. B 113. C 138. A
14. A 39. D 64. D 89. A 114. D 139. A
15. D 40. B 65. D 90. D 115. D 140. A
16. A 41. D 66. B 91. D 116. E 141. D
17. A 42. A 67. D 92. A 117. A 142. D
18. A 43. A 68. B 93. C 118. B 143. D
19. B 44. A 69. B 94. B 119. A 144. A
20. A 45. A 70. A 95. A 120. B 145. C
21. A 46. B 71. B 96. B 121. D 146. C
22. A 47. A 72. E 97. D 122. E 147. B
23. A 48. C 73. D 98. B 123. B 148. A
24. B 49. A 74. D 99. B 124. B
25. A 50. C 75. A 100. A 125. A
ANSWER KEY Page 51

COST ACCOUNTING
SOLUTION
,
1. Suggested answer (b) Either job order or process costing
Standard costing system costs the product at standard or predetermined costs and compares
expected with actual cost. This comparison allows deviations from expected results to be
identified and investigated. A standard cost system can be used in both job order and
process costing systems to isolate variances.
2. Suggested answer (b) Control cost
Standard costing is used to isolate the variances between expected costs and actual costs.
It a/lows management to measure performance and to correct inefficiencies. Thereby helping
to control costs.
3. Suggested answer(c) If properly used, standards can help motivate employees.

Standards are used as a norm against which actual results may be compared. One of the
benefits of a standard cost system is that it can be used to motivate employees to achieve
specified goals.
4. Suggested answer (c) The actual equivalent units are multiplied by the standard cost per
unit.
A process costing system is used to account for continuous production of homogeneous
products. Equivalent units of production are calculated to determine how many complete units
could have been produced. To determine the cost of the units produced, these equivalent
units of production are multiplied by the standard cost per unit.
5. Suggested answer (b) Flexible budget variance
A flexible budget is a series of several budgets prepared for many levels of activity. A
flexible budget allows adjustment of the budget to the actual level before comparing the
budgeted and actual results. The difference between the flexible budget and actual
figures is known as the flexible budget variance.
6. Suggested answer { a) A flexible amount minus a static budget amount.

The sales volume variance assumes that, unit prices and costs and total fixed costs
remain constant. The only variable is the sales activity level. Thus, the difference
between a given flexible budget amount and the corresponding static budget amount is
the sales volume variance.
ANSWER KEY Page 52

Standard Costing
7. Suggested answer (d) Budgeted unit price times the difference between actual inputs
and budgeted inputs for the actual activity level achieved.
An efficiency variance compares the actual use of inputs with the budgeted ^quantity of
inputs allowed for the activity level achieved. The variance equals this difference
multiplied by the budgeted unit price. The result is to isolate the cost effect of using more
or fewer units of inputs than budgeted.
8. Suggested answer (c) Cost of goods sold and inventories.
Allocation of variances, if the amount is material, to cost of goods sold and inventories
based on production and sales for the period will effectively convert standard costing
to actual costing.
9. Determining price and usage variances allows management to evaluate the efficiency
of the purchasing and production functions.
A standard cost system differentiates expected cost from actual cost, which allows deviations
from expected results to be identified on a timely basis. An overall variance may include both
unfavorable and favorable variances separate analyzing the components of the overall
variance results in more useful information. Thus, the price variance is used to evaluate the
purchasing department, and the usage variance pinpoints any production inefficiencies.
10. Suggested answer (d) Production

Responsibility for variances should bear some relationship to the decision and control
processes used. Material usage should be the primary responsibility of the production
management personnel.
11. Suggested answer (d) Sales volume of the product.
An unfavorable materials quantity or usage (efficiency) variance can be caused by a number

of factors, including waste, shrinkage, theft, poor performance by production workers, non-
skilled workers, or the purchase of below standard quality materials by the purchasing
department. Engineering changes in design of the production process or of the product can
also affect the quantity of materials used. However, sales volume should not be a contributing
factor to a materials efficiency variance.
12. Suggested answer (d) Labor efficiency
The efficiency of the employees varies with how long they have been performing the
particular task. Thus, more experienced employees are expected to be more efficient, which
affects the labor efficiency variance
ANSWER KEY Page 53

COST ACCOUNTING
13. Suggested answer (d) Labor rate
A standard cost system differentiates the expected cost from the actual cost. Thus,
deviations from expected results can be identified on a routine basis. Depending on the
circumstances, the premium paid for overtime hours may be treated as overhead or as a
direct labor cost. In the latter case, it increases the labor rate and is reflected in the labor
rate variance.
14. Suggested answer (a) Total labor variance
The total actual labor cost is determined by multiplying the actual labor rate times the actual
labor hours. The total standard cost for good output is determined by multiplying the standard
rate times the standard hours allowed. The total labor rate variance is the difference between
the total actual labor costs and the total standard labor costs.
15. Suggested answer (d) overhead is composed only of variable costs.
Actual overhead and predetermined amounts of overhead are most likely to be similar if
overhead is composed primarily of variable costs. In principle, unit variable overhead should
fluctuate little with the activity level.
16. Suggested answer (a) Zero
The volume variance is the difference between the budgeted fixed factory overhead and the
amount applied based upon standard input allowed for good output. Thus, given no
difference between the predetermined activity level and the standard input allowed for the
actual output, no variance occurs.
17. Suggested answer (a) Overhead volume.

The volume variance measures the effect of not operating at the budgeted activity level.
This variance can be caused by insufficient sales or a labor strike. These events are out of
the production supervisor's control. Thus, the production volume variance is the least
controllable by a production supervisor.
18. Suggested answer (a) Price and quantity differences for factory overhead costs.
Variable factory overhead includes numerous items, and an overall rate is required. The
spending variance results not only from differences in the prices of variable factory overhead
items but also from differences in quantities used. The spending variance is the difference
between actual variable factory overhead based on the application of a predetermined rate
to actual hours worked.
ANSWER KEY Page 54

Standard Costing
19. Suggested answer (b) Net overhead variance
The net factory overhead variance is the difference between the sum of actual fixed and
variable factory overhead and the sum of the fixed and variable factory overhead applied.
20. Suggested answer (a) Net factory overhead variance
The three-way analysis calculates spending, efficiency, and production volume variances.
However, regardless of whether two, three, or four-way analysis is used, the net factory
overhead variance is the difference between actual total factory overhead and the total
applied to the product.
21. Suggested answer (a) P 0 P0 P900
A material usage variance is a variance recorded at the time materials are issued to the
factory. It measures the actual amount of materials used against the standard amount that
should have been used given the level of output. Therefore, the material usage variance
should be charged entirely to the manufacturing department, the only department with control
over usage of material.
22. A favorable price variance arises when the actual units used exceeds standard units
allowed.
Answer (b) is incorrect because the actual usage would have to be less than standard
usage for a favorable usage variance. Answer (c) is incorrect because actual usage would
have to be less than standard usage for a favorable usage variance, and actual costs
would have to be greater than standard costs for an unfavorable price variance. Answer
(d) is incorrect because the actual costs would have to be greater than the standard costs
for an unfavorable price variance.
23.
A standard cost system differentiates the expected cost from the actual cost. Thus,
deviation from expected results are identified on a routine basis. An increase in the actual
price of raw material over the standard price will result in an unfavorable price variance.
Answer (b) is incorrect because a decrease in price would result in a favorable price
variance. Answer (c) is incorrect because less waste would result in a favorable materials
usage variance. Answer (d) is incorrect because more waste would result in an
unfavorable materials usage variance.
ANSWER KEY Page 55

COST ACCOUNTING
24.
The time of purchase is the most appropriate point to isolate and recognize a price variance.
Analysis here permits an earlier examination of variances.
Answers (a) and (c) are incorrect because time elapses between when the materials are
purchased and issued or used. Answer (d) is incorrect because the transaction has not yet
been consummated.
25.
Variances are chargeable to the department with control over the differences that occur.
Since the production department usually controls how much materials are used, materials
usage variances are normally chargeable to that department.
Answers (b), (c), and (d) are incorrect because the purchasing, finished goods, and materials
storage departments do not have control over materials usage.
26.
An efficiency, or usage, variance for materials occurs when more or less material than the
standard is used. Unfavorable variances are when actual is more than standard. Labor that
is skilled commensurate with materials usage standards should achieve standard materials
usage; i.e., little or no variance should arise.
Answers (a), (b) and (d), are incorrect because each is a possible cause of an unfavorable
materials quantity usage variance.
27.
A favorable price variance indicates that the materials were purchased at a price less than
standard. The unfavorable quantity variance indicates that the quantity of materials used for
actual production exceeded the standard quantity for the good units produced.
Answers (a) and (b) are incorrect because the quantity of materials purchased cannot be
determined from the information given. Answer (d) is incorrect because the actual usage was
greater than standard.
28.
The labor rate variance is computed by finding the difference between standard and
actual rate and then multiplying by actual hours: AH (AR - SR).
Answers (a) and (b) are incorrect because they give no useful variances. Answer (d) is
incorrect because it is the rate/usage variance in three-way analysis of labor variances
(not widely used).
ANSWER KEY Page 56

Standard Costing
29.
From the actual cost. Thus, deviations from expected results can be identified on a
routine basis. The premium paid for overtime hours increases the labor rate, which would
be reflected in the labor rate variance.
Answer (a), (b), and (c) are incorrect because overtime wages do not affect the yield,
quantity, or efficiency of labor.
30.
An unfavorable labor efficiency variance results from actual hours worked exceeding
standard hours.
Answer (a) is incorrect because it describes an unfavorable rate variance. Answer (b) is
incorrect because the overall variance can still be favorable even if a single variance is
unfavorable. Answer (d) is incorrect because overtime labor usually leads to unfavorable
rate, not efficiency, variances due to the overtime premium paid.
31.
A debit balance denotes an unfavorable labor efficiency situation in which actual hours
exceed standard hours.
Answer (a) is incorrect because SH greater than AH would result in a credit balance.
Answer (c) is incorrect because it would result in a credit balance in both the labor
efficiency and the labor rate accounts. Answer (d) is incorrect because it would result in
a debit balance in both the labor efficiency and the labor rate accounts.
32.
The labor efficiency variance is the difference between actual and standard hours required
to perform a function times the standard labor rate. Cost-of-living adjustments affect the
labor rate variance, not the labor efficiency variance.
Answer (a), (b), and (c) are incorrect because each is a likely cause of the variance.
Substandard materials probably take longer to process than standard materials; reducing
the work force by half may introduce inefficiencies caused by lack of specialization; and new
personnel will require more time to complete a function than those with experience.
33.
When the number of direct labor hours are reduced, without changing the standard number
of hours, a favorable labor usage variance results because actual hours will be less than
standard hours.
Answer (b) is incorrect because it would result from the direct labor hours increasing, with
the standards held constant. Answers (c) and (d) are incorrect because they concern labor
rate, not labor efficiency variances.
ANSWER KEY Page 57

COST ACCOUNTING
34.
More experienced people may perform more efficiently, but they usually cost more to use.
Answer (b) is incorrect because unskilled workers may result in an unfavorable labor
efficiency variance. Also, the labor rate variance would be favorable since they are paid less.
Answer (c) is incorrect because untrained labor who are paid at unbudgeted amounts may
result in both an unfavorable labor efficiency variance and an unfavorable labor rate
variance. Answer (d) is incorrect because defective materials usually cause an unfavorable
materials efficiency variance.
35.
The actual labor cost is found by multiplying the actual labor rate times the actual labor
hours. The standard cost for good output is found by multiplying the standard rate times the
standard hours. The total labor rate variance is the difference between the actual labor costs
and the standard labor cost.
Answer (b) is incorrect because the labor rate variance is AH (AR - SR). Answer (c) is
incorrect because the labor usage variance is SR (AH - SH). Answer (d) is incorrect because
the labor efficiency variance is the same as the labor usage variance.
36.
An unfavorable volume variance results when actual production is less than the expected
production level. Fixed overhead is applied at the predetermined rate but, since production
is less than estimated, less overhead is charged to production than anticipated, leaving
some overhead unallocated. This can be viewed as the cost of idle capacity.
Answers (a) and (b) are incorrect because no direct correlation exists between the labor
variances and the overhead volume variance.
37.
The controllable (budget) variance is the difference between actual overhead incurred and
budgeted overhead at standard input allowed for actual output [lump sum budgeted fixed
overhead + (the variable overhead rate x standard input)]. The volume variance is the
difference between budgeted fixed overhead and fixed overhead absorbed (applied).
38.
The volume variance arises from over- or under-application of budgeted fixed O/H. A
predetermined (budgeted) activity level is normally used to calculate the fixed O/H rate
per unit. A volume variance occurs when there is a difference between this budgeted
capacity and standard hours allowed for good output.
ANSWER KEY Page 58

Standard Costing
Answers (a) and (b) are incorrect because the total O/H application rate and total
expenses contain both variable and fixed rates. Volume variance only contains fixed O/H.
Answer (c) is incorrect because the volume variance is only applicable to fixed, not
variable, O/H.
39.
When the budgeted capacity is greater than actual production, an unfavorable fixed O/H
volume variance results. A predetermined (planned) activity level is used to calculate the
fixed O/H rate. An unfavorable volume variance occurs when actual activity (here, DLH
since that is the basis for O/H application) is less than budgeted. Unfavorable means some
budgeted fixed O/H has not been applied.
Answer (a) is incorrect because an unfavorable labor rate variance means the actual labor
rate exceeds standard. Answer (b) is incorrect because a favorable overhead volume
variance means actual production levels exceed budgeted production levels. Answer (c)
is incorrect because an unfavorable labor efficiency variance means actual hours worked
exceed standard hours allowed for good output.
40.
In three-way analysis, the spending variance is the difference between actual total
overhead and the sum of budgeted fixed costs and the variatjle overhead based on the
actual input at the standard rate. It combines the variable overhead spending and the fixed
overhead budget variances used in four-way analysis.
Answer (a) is incorrect because the efficiency variance in three- or four-way analysis is
the difference between variable overhead at the standard rate for actual input and at the
standard rate for standard input. Answers (c) and (d) are incorrect because the
production volume (idle capacity) variance is the difference between budgeted lump-sum
fixed overhead and fixed overhead applied based on the predetermined rate and the
standard input allowed for the actual output.
41.
In three-way analysis, the spending variance is the difference between actual total
overhead and the sum of budgeted fixed costs and the variable overhead based on the
actual input at the standard rate. It combines the variable overhead spending and the
fixed overhead budget variances used in four-way analysis.
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COST ACCOUNTING
42.
Overhead spending variance is the difference between actual O/H incurred and the
budgeted O/H at actual hours. In essence, this is the overhead "rate" variance.
Answer (b) is incorrect because actual O/H rather than standard O/H should be used.
Answer (c) is incorrect because actual rather than standard hours should be used.
Answer (d) is incorrect because actual cost and hours should be used rather than
standard cost and hours.
43
Variable overhead includes numerous items, and an overall rate is required. The
spending variance is made up of many price and quantity differences, some favorable,
some unfavorable. The spending variance is the difference between actual factory
overhead incurred and budgeted factory overhead based on actual hours worked.
Answers (b) and (c) are incorrect because the spending variance is concerned with both
price and quantity differences. Answer (d) is incorrect because a change in production
volume will not affect the spending variance, although it would affect the efficiency
variance.
44. Actual production 12,000 pages
Divide by pages per hour 20 pages
Standard direct labor hrs. 600 hrs.
Standard overhead rate:
Fixed (P 10,000* 500 his.) P20
Variable J0 x 50
45.
The material usage variance is the difference between actual and standard usage times
the standard price. Actual usage was 7,800 lbs. Standard usage was 8,000 lbs. (2,000
units x 4 lbs.]. Standard price was P5.IO/lb. Thus, the material usage variance was PI,020
[(7,800 - 8,000) x P5.10)]. The variance is favorable because actual materials used was
less than the standard quantity, (a)
46.
The usage variance is found by multiplying the difference between the actual usage
and the standard usage by the standard price. An unfavorable variance results when
actual usage is greater than standard.
Materials Usage Variance = Change in Qty. x Std. Price
= (12,600-12,000) xP2.25
= P 1,350 unfavorable (b)
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Standard Costing
47.
The material usage variance is found by multiplying the difference between actual
and standard usage by the standard price. An unfavorable variance results when
actual usage is greater than standard.
Materials Usage Variance = Change in Qty. x Std. Price
= (2,300-2,100) XP6.25
= PI,250unfavorable (a)
48. Suggested answer (c) P3,400

Materials price variance = (AP - SP) x Actual Qty. purchased
P3,600 = (P3.60-SP)x 18,000
P3,600 = P64,800-18,000 SP
Std. Unit price = P61,200/18,000
Std. Unit price = P3.40 unfavorable*
Actual quantity 15,000
Standard quantity 16,000
Variance 1,000 f
Multiply by standard price 3.40
Materials usage variance P 3,400 f
Again, materials quantity (or usage) variance is computed by a comparison of the actual
quantity of materials used with the standard quantity allowed, both measured at standard
cost (actual quantity used - standard quantity allowed x standard rate). Based on the
foregoing information, the standard rate was not directly provided; thus, since the
computations of materials price variance considers the standard rate and the unfavorable
variance of P3,600 was provided, the standard rate was determined at P3.40, as shown
above.
49. Material Price Variance = (AP - SP) x AQ used

= (P2.00P2.10)x 20,000
= P2,000 (F)
50.
The materials purchase price variance is found by multiplying the difference between the
standard cost per unit and actual cost per unit by the actual number of units purchased. An
unfavorable variance results when the actual cost exceeds the standard cost. Note that the
500 units previously purchased for P1.20/unit are carried at P1.001
Materials Purchase Price Variance = Change in Price x Actual Qty. Purchased
= (P1.10-P1.00) x 1.400
= P140 unfavorable (c)
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COST ACCOUNTING
51.
The direct material price variance is the difference between the actual price (AP) of direct
materials and the standard price (SP) per unit times the actual quantity (AQ). The actual
price is P2.80/lb. IP84,000/30,000 lbs.). The standard price is P3 per lb. based on the
unfavorable usage variance of P3,000 resulting from 1,000 lbs. of excess usage
(30,000 - 29,000). The actual quantity is 30,000 lbs. Therefore, the direct material price
variance is AQ (AP - SPj or 30,000 (P2.80 - P3) = (P6,000). The P6.000 is favorable
because the AP is less than the SP.
52. Suggested answer (b) P420 favorable
\ Qty. Price Total
Actual 4,200 P2.40 PI 0,080
Standard 4,000 2.50 10,000
Variance 200 u , PO.lOf P 80 u
Material purchase price variance
(4,200 x P0.10 f) P 420 favorable
A standard cost is the predetermined cost of manufacturing a single unit or a specific
quantity of product during a specific period. A standard cost has two components: 1.)
a physical standard (a standard quantity of inputs per unit of output), and 2.) a price
standard (a standard cost or rate per unit of
input). Variance is the difference between standard and actual result. If the actual
cost exceeds the standard cost, the variance is referred to as "unfavorable", because
the excess has an unfavorable effect on income. Conversely, if the standard cost
exceeds the actual cost, the variance is referred to as "favorable ", because it has a
favorable effect on income. If actual price paid is more or less than the standard price,
a price variance occurs. Materials price variance can be recorded at the time
materials are purchased (referred to as material purchase price variance) or at the
time materials are issued to the factory (referred to as materials price usage
variance).
Materials price variance, in this case, is the difference between actual unit price and
standard unit price multiplied by the actual quantity purchased. Based on the data
presented above, where the actual unit price (P2.40) is less than the standard unit
price (P2.50) the difference (P0.I0) is a favorable variance, because it has a favorable
effect on income. Therefore, the total amount saved is P420 -favorable (P0.10x
4,200).
Materials quantity (usage) variance is the difference between the actual quantity
used and the standard quantity multiplied by standard price per unit. Incidentally, the
materials quantity (usage) variance is P500 unfavorable (200 u x P2.50). Since
two major factors enter into the determination of standards of direct materials cost:
1.) the quantity (usage) standard, and 2.) the price standard, the total unfavorable
ANSWER KEY Page 62

Standard Costing
materials cost variance, as shown above, in the amount of P5O.OO is composed of

favorable materials price variance of P420 and unfavorable materials quantity
(usage) variance of P5OO.
53. Material Price Variance = (AP - SP) x AQ used

= (P2.00-P2.10)x 20,000
= P2,000 (F)
Actual price (P40,000 * 20,000) .. P2.00
Note: The price variance is based on the actual quantity used, because the actual
quantity purchased is not given.
54. Material Price Variance = (AP - SP) x AQ purchased

= (P1.55-P1.60)x 2,000
= (P100UF)
Note: The price variance is usually based on quantity purchased rather than quantity used.
55.
The material price variance IMPVj is determined by multiplying the difference between
actual and standard price by the actual quantity. The material usage variance (MUV) is
found by multiplying the difference between the actual and standard usage by the standard
price. A favorable variance results when the actual is less than the standard.
Materials Price Variance = Change in price x Actual Qty.
= Act. Price - Std. Price x Act. Qty.
= (P2.10-P2.00)x 45,000
= P4,500 unfavorable (a)
Materials Usage Variable = Change in Qty. x Std. Price

= (45,000-50,000) XP2.00
= P10,000 favorable (a)
56. Suggested answer (b) P2.50

Standard cost per unit of final product
(P60,000/12,000 units) P 5.00
Divide by required raw materials to produce one unit
of final product 2
Standard price for one unit of materials P 2.50
The requirement is to determine the standard price for one unit of materials. Given the total
standard cost for raw materials (P60.000) and actual production (12,000), the resulting
amount is the standard cost per unit of finished product. But it should be pointed out that each
ANSWER KEY Page 63

COST ACCOUNTING
unit of finished product requires two units of raw materials, thus the above, standard price for
one unit of materials
57. Suggested answer (e) 25,000

Standard input allowed for raw materials
(12,000x2) 24,000
Add additional units used (unfavorable materials
quantity variance) (P2,500/2.50) 1,000
Actual units of materials used in November 25,000
The unfavorable materials quantity variance signifies that the actual quantity used was
greater than the standard input allowed, thus, to determine the actual units of materials used
to produce November output, the equivalent units of raw materials of this unfavorable quantity
variance should be added to standard input allowed.
58. Suggested answer (c) 12,500 unfavorable
Actual unit price (P105,000/35,000 units) P3.00

Less standard unit price "a" 2.50
Unfavorable direct materials price variance per unit 0.50
Multiply by actual quantity used 25,000
Materials price variance for the units used P12,500 (unfavorable)
The requirement is to determine the materials price variance for the units used in November.
However, materials price variance is the difference between actual unit price of direct
materials purchased and standard unit price of direct materials purchased multiplied by the
actual quantity purchased. It should be noted that the actual quantity purchased is used
instead of the actual quantity used, since it is the act of purchasing and not requisitioning that
give rise to a price variance. And if the unfavorable direct materials price variance per unit
(P0.50) will be multiplied by the actual quantity purchased (35,000 units), the resulting
unfavorable materials price variance (PI 7,500) is none of the given choices. Since, materials
price variance for the units used (requirement) is unusual, it was assumed that the actual
units of materials used to produce November output may be used.
Furthermore, answer (a) is incorrect because P2,500 unfavorable is the material quantity
variance; answer (b) and (d) are incorrect because the unfavorable direct materials price
variance per unit is P0.50; and answer (e) is incorrect because the price variance is
unfavorable.
ANSWER KEY Page 64

Standard Costing
59. Suggested answer (d) P600 unfavorable

Actual unit price(P18,000/12,000) P 1.50
Less standard unit price 1.45
Unfavorable direct materials price variance per unit 0.05
Multiply by actual quantity purchased 12,000
Unfavorable direct materials price variance P600
The difference between actual price per unit and standard price per unit of direct materials
purchased results in the direct materials price variance per unit; when multiplied by the actual
quantity purchased will result in the total direct materials price variance. The variance is
unfavorable because the actual unit price is more than the standard unit price.
60. Suggested answer (a) Pl,450 unfavorable

Actual quantity used 10,000
Less standard quantity allowed (3 x 3,000) 9,000
Unfavorable materials efficiency variance 1,000
Multiply by standard unit price 1.45
Unfavorable materials efficiency variance for May P 1,450
The difference between actual quantity used and the standard quantity allowed for
production multiplied by the standard unit price equals the direct materials quantity (usage
or efficiency) variance. The variance is unfavorable because the actual quantity used is
more than the standard quantity allowed.
61.
Actual Cost of raw Materials:
(10,000x50%) XP24.70 P123,500
10,000x20%) XP24.90 49,800
10,000 x 30%) XP25.60 76,800 P250,100
Less: Standard Cost of Raw Materials: 10,000 x P25 . 250,000
Raw Materials Cost Variance-unfavorable P100
62. The actual price per unit can be found by subtracting the favorable price variance (P240) from
the standard cost (P5,760) and dividing by the number of units purchased.
Total standard cost (1,600 units at P3.60) P5,760
Less: Materials price variance (240)
Total actual cost P5,520
Divided by actual quantity 1,600
Actual cost per unit P 3.45
ANSWER KEY Page 65

COST ACCOUNTING
63.
Given that the company produced 12,000 units with a total standard cost for materials of
P60.000, the standard cost must be P5.00 (P60.000 &P2,000 units) per unit of finished
product. Because each unit of finished product requires two units of raw materials, the
standard unit cost for raw materials must be P2.50.
The company produced 12,000 units of output, each of which required two units of raw
materials. Thus, the standard input allowed for raw materials was 24,000 units at a standard
cost of P2.50 each (see preceding question). An unfavorable quantity variance signifies that
the actual quantity used was greater than the standard input allowed. The materials quantity
variance equals the difference between actual and standard 1,000 P2.50) additional units
were used, the actual total quantity must have been 25,000 units (24,000 standard +1,000).
64.
The standard direct material cost is equal to the cost per yard. Each finished unit contains 2
yards of direct materials. The problem states that the 20% direct material spoilage is
calculated based on the quantity of direct material input Therefore, a finished unit contains 2
yards after 20% spoilage, 2.5 yards (2 yards , 80%) are required times P3 standard direct
material:
Output in yards 2
Divided by: Net of spoilage 80%
Input 2.5
Multiplied by: Standard Direct Materials
Cost per yard P3
Standard Direct Materials Cost per unit P7.50
65.
The direct labor efficiency variance is the difference between actual and standard hours
times the standard labor rate. Actual hours were 11,500 (P103,500 * P9). Given standard
hours of 10,000 and the standard labor rate of PI0 per hour, the direct labor efficiency
variance was P15,000 U [(11,500 -10,000) x P10]. Since the number of actual hours used
was greater than standard hours budgeted, the variance is unfavorable.
66.
ANSWER KEY Page 66

Standard Costing
67.
68. Suggested answer (b) P2,400
Time Rate Total

Actual 4,100 P24.40 P100,040
Standard (1,000 x 4) 4,000 24.00 96,000
Variance 100U P 0.40U P 4,040U
Labor efficiency variance
(100 u xP24.00) P 2,400 unfavorable
The requirement is to compute the unfavorable direct labor efficiency (time) variance.
Given an actual hours to produce a product of 4,100 hours and standard hours of 4,000
resulting to unfavorable 100 hours, then multiplied by the standard rate, the direct labor
efficiency variance is P2,400 unfavorable.
Incidentally, the labor rate (price) variance is P1,640 unfavorable (4,100 x P0.40 u). Since
the total labor cost variance is composed of the labor efficiency variance ofP2,400
unfavorable and labor rate variance of PI,640 unfavorable, the total labor cost variance
should be P4,040 unfavorable, as shown above.
69. Labor efficiency variance = (Actrual Hrs. - std. hrs) x Std. rate
= (4,100-4,000) xP12
= P1,200 unfavorable
70.
Actual Direct Labor Rate: P1,764,000 + 9,000 hours P196
Less: Standard Direct Labor Rate 200
Change in Rate - favorable P(4)
Multiplied by: Actual hours 9,000
Labor Rate Variance - favorable P(36,000)
ANSWER KEY Page 67

COST ACCOUNTING
71
72. Suggested answer (e) P 1,275
Actual direct labor cost P 77,775

Less standard direct labor cost
[ 8,500 x(P81,000/ 9,000)] 76,500
Unfavorable direct labor price variance P 1,275
The requirement is to determine the resulting favorable or unfavorable variance based on

flexible budget for direct labor and materials. Given the actual output in direct materials of
P127,500 and the standard cost of materials for 8,500 units is P127,500 (8,500 x 15), no
variance arose with respect to direct materials.
Because the actual direct labor cost is greater than the budgeted amount, as shown above,
the difference (P1,275) is unfavorable direct labor variance. Although two major factors
enter into the determination of standards of direct labor cost (labor price/rate and labor
efficiency/time), no labor efficiency variance was incurred, because the actual time per unit
(45minutes) was the same as that budgeted. Hence, the entire P1,275 unfavorable
variance must be attributable to the labor rate (or price) variance.
73. This question can be answered by filling in the labor rate variance diagram:
AH x AR AH x SR
Labor Rate Variance
Actual labor hours (AH) are given as 190,000. The actual rate (AR) per hour is P4
and is computed by dividing the actual labor cost of P760,000 by the actual labor
hours of 190,000. The standard rate (SR) per hour is also P4. The SR is computed
by dividing the standard wage rate of P600 (per 1,000 papers) by the 150 standard
hours (per 1,000 papers). This will result in a labor rate variance of P0 as shown in
the diagram below:
ANSWER KEY Page 68

Standard Costing
AH x AR AH x SR
190,000 xP4 190,000 xP4
P760,000 P760,000
Labor Rate Variance = 0
74 .
The direct labor payroll is found simply by multiplying the actual rate by the actual hours.
21,000xP5.80f PI 21,800
75. Suggested answer (a) P117,600
Labor rate variance = (Actual rate - std. rate) x Actual hrs.

P8,400 favorable = (AR - P6.30) x 20,000
Actual rate = P_5.88
Total actual direct labor cost
(20,000 x P5.88) P 117,600
The requirement is to determine the total actual direct labor cost for the month of March
1998. Given the labor rate (price) variance of P8,400 (favorable), the actual rate is P5.88 then
multiply by actual direct labor hours, thus the actual direct labor cost is P117,600. Since
variance is the difference between actual and standard, an alternative approach to compute
the total actual direct labor cost is by working back, as shown below.
Total actual, direct labor cost P 117,600
Standard cost @ actual hours
(P6.30 x 20,000) 126,000
Favorable labor rate variance (given) P 8,400
76.
The standard hours allowed were 2,000 and there is a P1,600 unfavorable labor efficiency
variance, i.e., actual hours exceeded standard hours. The labor efficiency variance is the
standard rate (P8/hour) times the excess hours. Since the variance is P1,600, the excess
hours were 200 (P1,600*P8). Thus actual hours were 2,200 (2,000 standard + 200 excess).
77.
Using the given variables and the formula for the standard rate, the actual hours
worked is found as follows:
Labor Efficiency Variance = (Actual hrs. - Std. hrs.) x Std. DL Rate
P4,200 unfav. = (AH-10,000) x P3.75
1,120 = AH-10,000
Actual Hours = 11,120 (b)
ANSWER KEY Page 69

COST ACCOUNTING
78. Suggested answer (d) 8,250

Labor efficiency variance = (Actual hrs. - std. hrs.) x std. rate
P5,250 favorable = (AH - 9,000) x P7.00
Actual hours = 8,250
The requirement is to determine the actual hours worked for the month. Given the labor
efficiency (time) variance of P5,250 (favorable), the actual hours worked should be 8,250
hours.
79.
Actual Direct Labor Rate
Standard Direct Labor Rate: P960,000 * 60,000 DL hrs P16.00
Add: Difference in rate .40
Actual DL Rate P16.40
Actual hour (PI,148.000* PI6.40) 70,000
Less: Excess of actual hours to standard hours
(PI20,000*PI6.00) 7,500
80. Suggested answer (a) P30

Total direct manufacturing labor cost per week,
per worker [P500 + (20% x 500)] P600
Divide by number of hours per week 40
Standard rate per hour 15
Multiply by number of hours required for each unit 2
Standard direct manufacturing labor cost per unit P30
Again, a standard cost is the predetermined cost of manufacturing a single unit or a specific
quantity of product during a specific period. It is the planned cost of a product under current
and/or anticipated operating conditions. A standard is like a norm. Whatever is considered
normal can generally be accepted as standard. A standard should be thought of as a norm
for production inputs, such as units of materials, hours of labor, and percentage of plant
capacity used.
81.
There were 2,000 actual direct labor hours (AHj; therefore the actual direct labor rate
(AR) is P5 (P10.000 v 2,000 hrs.J. Rely on the basic equation for labor rate variance as
shown below.
AH(AR-SR) = rate variance
2,000 hrs. (P5 -SR) = (PI,000)
ANSWER KEY Page 70

Standard Costing
P5-SR = (PI,000) + 2,000 hrs.

P5-SR = (P50)
SR = P5.50 (a)
82
Standard Direct Labor Rate per hour P28.00
Add: Labor Rate Variance - unfavorable: P800 * 1,000 .80
Actual Direct Labor Rate P28.80
83.
Actual payroll is found by first multiplying the actual hours times the actual rate.
Adding the rate variance converts actual payroll to actual hours at standard rate. To get the
standard rate, divide the standard payroll by the actual hours.
Actual payroll P110,200
Favorable variance 5,800
Actual hours at standard rate P116,000
PI V6,000 standard payroll + 29,000 actual hours = P4.00 standard rate.
The direct labor rate is the actual payroll divided by the actual direct labor hours.
P110,200
= P3.80
29,000
84.
Standard costs is the scientifically predetermined cost of manufacturing a single unit or a
specific quantity of product during a specific period.
Theoretical or Ideal standards is a standard set for an ideal or maximum level of activity and
efficiency. Such standards constitute goals to be aimed for rather than performances that
can currently be achieved.
Normal standard is a standard set for a normal level of activity and efficiency, intended to
represent challenging yet attainable results.
Therefore, engineering estimates based on attainable performance would provide the best
basis for Flirt in establishing standard hours allowed.
85. Standard costs are predetermined target costs which should be attainable under efficient
conditions. Currently attainable standards should be achieved under efficient operating
conditions. Therefore, engineering estimates based on attainable performance would provide
the best basis for Sarsi in establishing standard hours allowed, and answer (b) is correct.
ANSWER KEY Page 71

COST ACCOUNTING
86.
The total actual overhead is the sum of the total applied overhead P42.000 variable +
P30,000 fixed and the Pi5,000 under-applied overhead. P42,000 + P30.000 + P15,000 =
P87,000
87.
The actual factory overhead would be computed as follows:
Standard Factory Costs P100,000
Add: Excess of actual factory costs over standard costs 20,000
Actual factory cost P120,000
Normally any cost units that are considered normal are treated as product costs but not as an
overhead. Freight-out is ignored to determine actual overhead because they are considered
as selling expense. Thus,
Total Actual Factory Costs P120,000
Less: Actual Prime Costs 80,000
Actual Factory Overhead P 40,000
88. B
89.
The applied factory overhead is the standard direct hours allowed for actual production
multiplied by the total standard overhead rate per hour.
39,000 (P4 VOH + PI FOH) = P195,000
90. Actual factory overhead:

Budget based on STD:
Fixed P50,000
Variable (P18,000x4) 72,000 P122,000
Add: Controllable variance (U) 1,000
The P1,000 U controllable variance indicates that the actual overhead exceeded the
budgeted overhead. Therefore, the P1,000 U variance must be added to the budget to
derive the actual overhead.
Applied Factory Overhead:
Budget based on STD:
Fixed P50,000
Variable (18,000x4) 72,000 P122,000
Add: Volume variance (F) 500
Applied overhead P122,500
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Standard Costing
The P500 F volume variance indicates that budgeted overhead is less than applied overhead.
Therefore, the P500 F variance must be added to the budget to derive the applied overhead.
91. Suggested answer (d) P7.00

10,000 (SR-7.50) = 5,000 unfavorable
SR = 7.50-(5,000/10,000)
SR = P 7.00
The labor rate variance equals actual hours times the difference between the actual and
standard rates. The variance is unfavorable, so the standard rate must be less than the
actual rate, thus, deducted.
92. Indirect cost rate = Actual support cost * actual prof. hrs.
= P1,488,000-s-
15,500 = P96.00
93. C
94.
Applied Factory Overhead (P5.20x 175,000) P910,000
Less: Fixed factory overhead 450,000
Variable factory overhead P460,000
Divided by: Expected level of production 175,000
Variable overhead cost per unit P2.63
95. The requirement is to determine the budget (controllable) variance for January 2011,
using the two-way analysis of overhead variances. The controllable variance is the
difference between actual overhead costs (P 147,000), and overhead budgeted for the
output achieved. When overhead is applied based on direct-labor hours, the budgeted
amount is equal to budgeted fixed overhead (PI08,000), plus standard direct-labor hours
times the standard variable overhead rate (21,000 x P2 = P42,000). The standard variable
rate is computed by dividing budgeted variable overhead by the budgeted activity level
(P48,000 t 24,000 = P2). The budget (controllable) variance is computed below:
Budget for output achieved
Actual P108,000 + (21,000 xP2)
P 147,000 P150,000
Budget variance, P3,000 F
The variance is favorable because actual costs are less than budgeted costs.
ANSWER KEY Page 73

COST ACCOUNTING
96.
The P144,000 annual amount equals P12.000 per month. Since volume is expected to be
5,000 units per month, and the P12.000 is considered a variable cost, budgeted cost per
unit is P2.40 (P12,000 , 5,000 units). If 4,500 units are produced, the total variable
costs should be P10.800 (4,500 units x P2.40). Subtracting the P10, 100 of actual costs
from the budgeted figure results in a favorable variance of P700.
97.
Two-way analysis computes only two overhead variances: the controllable variance and the
volume variance. The controllable variance is the difference between actual overhead
incurred and standard allowed for output. The controllable variance is computed by first
multiplying the variable overhead rate by the standard direct labor hours, giving the
budgeted variable overhead. The fixed overhead is added to the variable overhead for the
total standard overhead. The difference between the actual and standard total overhead is
the controllable variance. An unfavorable variance results when actual is greater than
standard.
Actual Factory Overhead P230,000
Less: Budgeted Overhead based on Standard
Hours (32,000 hrs.)
Fixed as budgeted P64,000
Variable (P5x 32,000 hour) 160,000 224,000
Controllable Variance - unfavorable , P 6,000
98. Budget Variance:

Budgeted at standard hours:
Fixed P 9,000
Variable (15,000 hrs. xP1.50) 22,500 31,500
Budget Variance P500 (U)
Variable overhead rate = total overhead rate - fixed overhead rate
= P2.25 - (P9,000/12,000 DL hrs.)
= P2.25 - P0.75
= P1.50
Volume Variance:
Applied overhead (15,000 hrs. x P2.25) P33,450
Budgeted at standard hours (see budget variance) 31,500
Volume variance P 2,250 (F)
ANSWER KEY Page 74

Standard Costing
99.
The overhead spending variance is the difference between actual factory overhead and
budgeted overhead based on actual hours. Therefore, spending variance would
be P800 computed as follows:
Actual Factory Overhead (PI0,300 + P19,500) P29,800
Less: Budgeted Overhead Allowed based on
Actual hour (9,500 hour):
Fixed as budgeted P10,000
Variable (P2/hr. x 9,500 hr.) 19,000 29,000
Spending variance - unfavorable P 800
100. Suggested answer (a) P7,000 unfavorable

Actual factory overhead (P85,000 = 27,000) P 112,000
Less budgeted based on standard hours allowed
(P80,000 + 25,000) 105,000
Unfavorable spending variance for July P 7,000
The requirement is to determine the spending variance. Given that the variable costs are
budgeted using the standard hours allowed, the overhead spending variance is calculated
as the difference between actual overhead incurred and the budgeted overhead based on
standard hours allowed. The variance is unfavorable because actual overhead is more than
the budgeted overhead.
101. Overhead efficiency variance = (Actual hrs. - STD hrs.) x STD. rate
= (10,500-10,000) xP3
= P1, 500 unfavorable
Standard hrs (2 x 5,000) = 10,000 hrs.
102. Unit of the activity measure (direct labor hours) times the difference between the actual
activity and the standard activity for the actual output.
Actual hours 4,700

Less: Standard hours (3 hrs./unit x 1,500 units) 4,500
Difference in hours 200
Multiplied by: Variable Overhead Rate P2
Variable Overhead Efficiency-Unfavorable P 400
ANSWER KEY Page 75

COST ACCOUNTING
This variance is unfavorable because actual hours exceeded the standard hours
allowed for actual output.
(2).This variance equals the difference between the actual variable overhead incurred
and the standard cost based on the actual activity level.
Actual Variable OverheadP9,500
Less: Budgeted Variable Overhead based on
actual hours (4,700):
P2x4,7009,400
Variable Overhead Spending Variance - unfavorable P100
103.
(1). It is the difference between actual variable overhead costs (actual activity times the
actual rate) and actual activity times the standard rate.
Actual Variable Overhead P108,500
Less: Budgeted Variable Overhead based on actual hours
(17,200 hours): P6* x 17,200 103,200
Variable Overhead Spending Variance- Unf P5,300
*(P 135,000 x 80%) * (2 hrs./unit x 9,000 units) = P6.
(2). The variable overhead efficiency (quantity) variance is the standard variable overhead
rate times the difference between the actual activity and the standard activity allowed for
the actual output.
Actual hours 17,200
Less: Standard hours: (2 hr./units x actual
production of 8,500 units) 17,000
Difference in hours 200
Multiplied by: Variable Overhead Rate P6
Variable Overhead Efficiency Variance - UnfP1,200
104.
(1) The fixed overhead budget spending variance is the difference between actual fixed
costs and budgeted fixed costs.
Actual fixed overhead P28,000
Less: Budgeted fixed overhead based on actual hours
(20%xP135,000) 27,000
Fixed overhead budget (spending) variance - unf P1,000
(2) The fixed overhead volume variance is the difference between budgeted fixed costs
and the product of the standard fixed overhead rate times the standard activity allowed for
the actual output.
ANSWER KEY Page 76

Standard Costing
Budgeted fixed overhead (P135,000x20%) P27,000

Less: Standard fixed factory overhead
(P1 .5* x 17,000 hours**) 25,500
Fixed overhead volume variance – Unf P 1,500
*(P 135,000 x 20%) * (2 hr./U x 9,000 units) = PI .5

**Standard hours: 2 hr./U x 8,500 actual production = 17,000 hours.
This under-application of fixed overhead is unfavorable because it indicates an

underuse of facilities, that is, activity was less than budgeted. Unlike other variances,
this variance does not measure deviations from expected costs but rather departure
from the expected use of productive capacity.
105.
The volume variance is the difference between the budgeted fixed overhead and the
overhead applied based on the standard hours allowed times the standard fixed overhead
rate and the standard input allowed for actual output. An unfavorable variance results when
budgeted overhead is greater than applied overhead.
Budgeted Fixed Overhead P75,000
Less: Standard Fixed Factory Overhead
(P3/hr. x 24,000 hours) 72,000
Volume Variance - unfavorable P 3,000
106. Suggested answer (e) Not a meaningful variance

The requirement is to determine the fixed overhead efficiency variance. Variable overhead
variances can be subdivided into spending and efficiency components. However, fixed
overhead variances do not have an efficiency component because fixed costs, by definition,
are not related to changing levels of output. Consequently, there is no concept of efficiency
with respect to the incurrence of fixed costs. Fixed overhead are typically subdivided into a
budget (or fixed overhead spending) variance and a volume variance.
107.
Total overhead variance is computed by determining the difference between the actual
overhead and applied overhead. Given that no variation occurred for variable overhead,
you need only fixed overhead. The fixed overhead rate at the 90% activity level is
P108,000 Fixed O/H
= P4
27,000 DLH
ANSWER KEY Page 77

COST ACCOUNTING
Given that the actual activity level achieved was 80%, and that standard hours allowed was
24,000, P96,000 (24,000 x P4.00) of fixed overhead was applied.
Actual Fixed Overhead P108,000
Less: Applied Fixed Overhead (P4 x 24,000) 96,000
Underabsorbed fixed overhead P12,000
108.
The overall overhead variance can be found by finding the difference between actual
overhead incurred and the overhead applied at the standard hours allowed. The standard
overhead allowed is found by multiplying the standard hours allowed by the total overhead
rate per hour.
(3,500 x P4) - P12,600 = P1,400 Favorable (c)
The variance is favorable because actual overhead incurred was less than standard.
109. Suggested answer (c) P5.000 favorable

Flexible budget (variable costs) for a production
level of 80,000 units (80,000 x 4) P 320,000
Fixed cost (100,000 x 2) 200.000
Total flexible budget costs 520,000
Less Actual costs 515.000
Favorable manufacturing cost variance P5,000
The flexible budget includes variable costs and fixed costs remain constant, thus, the excess
of flexible budget costs over the given actual costs is a favorable manufacturing cost
variance, as shown above.
110.
Total variance:
Applied overhead 80,000
under-applied overhead P6,000
111.
Total variance
Applied overhead
(3,500 xP4.00) 14,000
over-applied overhead (P1,400)
ANSWER KEY Page 78

Standard Costing
112.
Standard costs is the scientifically predetermined costs which should be attained under
efficient conditions. The standard direct labor cost per unit would be computed
as follows:
Add: Benefits treated as DL cost 100
Total Direct Labor Cost per week per worker P600
Divided by: No. of hours per week 40
Direct Labor Cost per hour P 15
Multiplied by: no. of hr./unit 2
Standard DL cost per unit P 30
113.
Standard Cost per page:
Fixed Cost per month P10,000
Variable Cost per month: (P30/hr. x 500 hr.) 15,000
Total standard cost per month P25,000
Divided by: No. of pages per month
(500 hrs./mo. x 20 pages / hr) 10,000
Standard Cost per page P2.50
Multiplied by: No. of pages generated in May 12,000
P30,000
114.
Actual Costs:
Materials P491.100
Direct Labor (4,650 hours x P30/hr.) 139,500
Variable Overhead 113,700 P744,300
Less: Standard Costs:
Materials P495,000
Direct Labor (6,000 hours x 80% x P30) 144,000
Variable Overhead (4,800 hours x P24) 115,200 754,200
Total Cost Variance - favorable P(9,900)
115. Suggested answer (d) 400

Actual variable overhead P 80,000
Less flexible budget - variable overhead 90,000
Total favorable variance 10,000
Less favorable variable overhead spending variance 2,000
Favorable efficiency variance P 8,000
ANSWER KEY Page 79

COST ACCOUNTING
Divide by budgeted rate 20

Direct labor hours (efficient) 400
The requirement is to determine the efficiency variance stated in term of direct labor hours.
The variable overhead spending and efficiency variances are the components of the total
variable overhead variance. At a ratio ofP20 per hour, the efficiency variance is equivalent
to 400 direct labor hours, as shown above.
116. Suggested answer (e) Not a meaningful variance

The requirement is to determine the fixed overhead efficiency variance. Variable overhead
variances can be subdivided into spending and efficiency components. However, fixed
overhead variances do not have an efficiency component because fixed costs, by definition,
are not related to changing levels of output. Consequently, there is no concept of efficiency
with respect to the incurrence of fixed costs. Fixed overhead are typically subdivided into a
budget (or fixed overhead spending) variance and a volume variance.
117. Suggested answer (d) P5,000 favorable

Budgeted fixed cost for the month P 100,000
Less standard cost of actual output
[ 21,000 x (P1,200,000/ 240,000)] 105,000
Favorable fixed overhead volume variance P 5,000
The volume variance is the difference between the budget allowance based on the standard
hours of the allocation base allowed for actual production and the standard factory overhead
chargeable to that production. It indicates the cost of capacity available but not utilized
efficiently and therefore, may be the responsibility of the department manager (to the extent
caused by variances in production efficiency) or of executive management (to the extent
caused by unexpected changes in sales demand).
118. Suggested answer (b) P12,000 favorable
Actual variable overhead P 740,000

Less variable overhead applied based on standard
rate 752,000
and actual activity level (94,000 x 8)
Favorable variable overhead spending variance P 12,000
The variable overhead spending variance is the difference between actual variable overhead
and the variable overhead applied based on the standard rate and the actual activity level.
ANSWER KEY Page 80

Standard Costing
119. Suggested answer (a) P48,000 unfavorable
Factory overhead chargeable to production

at standard (94,000 x 8.00) P 752,000
Less actual hours at standard overhead rate
[(22,000 x 4) x 8.00] 704,000
Unfavorable variable overhead efficiency variance P 48,000
The variable overhead efficiency variance is the difference between the actual number of
hours of the allocation base used and the standard number of hours of the allocation base
allowed for actual production multiplied by the standard factory overhead rate. The variance
is unfavorable because actual hours exceeded standard hours.
120.
121. Suggested answer (d) P54,000 unfavorable

Standard direct labor hours (22,000 x 4) 88,000
Unfavorable direct labor efficiency variance 6,000
Multiply by standard labor rate 9.00
Unfavorable direct labor efficiency variance for
November 1998 P 54,000
The direct labor efficiency variance is the difference between the actual and standard hours
worked multiplied by the standard labor rate per hour. The resulting variance is unfavorable
because the actual hours worked is more than the standard hours.
122. Suggested answer (e) P15.00

Annual fixed manufacturing overhead P1,200,000
Annual variable manufacturing overhead 2,400,000
Total annual manufacturing overhead 3,600,000
Divide by annual machine hours 240,000
Predetermined overhead application rate P15.00
Types of overhead rates differ not only from one company to another, but also from one
department, cost center, or cost pool to another within the same company. One of the factors
that influence the selection of overhead rates is the "base to be used", which includes
machine hour base. When machines are used extensively, machine hours may be the most
ANSWER KEY Page 81

COST ACCOUNTING
appropriate basis for applying overhead. This method is based on time required to perform
identical operations by a machine or group of machines. Total machine hours expected to
be used are estimated, and a machine hour rate is determined by dividing the total estimated
factory overhead by the total estimated machine hours.
123. Suggested answer (b) P315,000

Plan machine hours for November 21,000 hrs.
Multiply by predetermined overhead rate 15.00
Total overhead applied to production P 315,000
Overhead is applied on the basis of planned machine hours. Given the predetermined
overhead rate of P15.00 and planned machine hours based on output of 21,000, thus the
total overhead applied to production for November 1998 was P315,000.
124. Suggested answer (b) P4,000 under-applied

Planned machine hours based on output 21,000
Multiply by predetermined variable overhead rate
(P2,400,000/ 240,000 hrs.) 10.00
Applied variable manufacturing overhead 210,000
Actual variable manufacturing overhead 214,000
Under-applied variable manufacturing overhead P 4,000
The requirement is to determine the over-or under-applied variable overhead for the month of
November 1998. The applied variable manufacturing overhead is P210,000 which is less
than the actual variable manufacturing overhead of P214,000, therefore, the under-applied
variable overhead is P4,000.
125. Suggested answer (a) P2,000 favorable

Total standard variable overhead (21,600 x 10) P 216,000
Less actual variable overhead 214,000
Favorable variable overhead spending variance P 2,000
The budget or spending variance is the difference between the amount of factory overhead
actually incurred, and the budgeted amount based on actual hours worked. It is the result of
spending more or less than the budgeted allowance for factory overhead. It is composed of
1.) The difference between the actual variable factory overhead incurred and the amount that
would have been budgeted at the actual level of activity, and 2.) The difference between the
actual fixed factory overhead and the budgeted fixed overhead.
ANSWER KEY Page 82

Standard Costing

Budgeted fixed cost for the month P 100,000
Less standard cost of actual output
[ 21,000 x (P1,200,000/ 240,000)] 105,000
Favorable fixed overhead volume variance P 5,000
The volume variance is the difference between the budget allowance based on the standard
hours of the allocation base allowed for actual production and the standard factory overhead
chargeable to that production. It indicates the cost of capacity available but not utilized
efficiently and therefore, may be the responsibility of the department manager (to the extent
caused by variances in production efficiency) or of executive management (to the extent
caused by unexpected changes in sales demand).
127. Suggested answer (a) P240.00 favorable
Material price variance = (AP - SP) x AQ purchased

= (P3.45 - 3.50) x 4,800
= P 240.00 favorable
The requirement is to determine the material price (purchase) variance. Given the materials
used and no materials purchased was mentioned, it was assumed that the materials
purchased is equal to materials used. Note that the actual price per unit is less than the
standard price per unit, the effect is favorable to income, thus the variance is favorable.
128. Suggested answer (b) P315.00 unfavorable
Labor rate variance = (AR - SR) x Actual hours

= (PI.80- 1.75) x 6,300
- P 315.00 unfavorable
The requirement is to determine the labor rate variance. Given the actual rate per hour of PI.
80 which is more than the standard rate per hour of PI. 75, the effect to income is
unfavorable, thus, the variance is unfavorable

Qty. Price Total
Actual 4,800 P3.45 P16,560
Standard (7 x 800) 5,600 3.50 19,600
Variance 800 f P0.05 f P 3,040 f
ANSWER KEY Page 83

COST ACCOUNTING
The requirement is to determine the total material variance, which is composed of

favorable material price variance ofP240 (4,800 x P0.05f) and favorable material
quantity variance of P2,800 (800 f x P3.50), because, as in the case of labor cost
variance, two major factors enter into the determination of standards of material cost
variance.
130. Suggested answer (c) P 400 unfavorable
Budget variance:
Actual overhead 13,200
Less budget based on actual hours:
Fixed overhead (800 x 8 x 1.15) 7,360
Variable overhead
(800 x 8 x 0.85) 544 1,920 11,280u
Capacity variance:
Budget based on actual hours 1,920
Less Actual hrs. x Std. Rate
(6,300 x P2.00) 12,600 10,680 f
Efficiency variance:
Actual hrs. x Std. rate
(6,300x2.00) 12,600
Less Std. hrs. x Std. Rate
[(800 x 8) x 2.00] 12,800 200 f
Total factory overhead variance 400 u
One of the problem of the two variance method is that is conceals the over-or under
utilization of the variable input used as the factory overhead allocation base. The three
variance method attempts to remedy this problem. There are two commonly found
alternative approaches for dividing the overall factory overhead variance into three variance,
and one of these methods is the three variance method that requires the computation of 1.)
budget variance, 2.) efficiency variance, and 3.) idle capacity variance. The budget variance
is the difference between the actual factory overhead incurred and the budget allowance on
the actual number of hours of the allocation base used in actual production.
The efficiency variance is the difference between the actual number of hours of the
allocation base used and the standard number of hours of the allocation base allowed for
actual production, multiplied by the standard factory overhead rate.
The idle capacity variance is the difference between the budget allowance based on the
ANSWER KEY Page 84

Standard Costing
actual number of hours of the allocation base used in actual production and the amount of
factory overhead chargeable to production in the absence of a standard cost system.

Material quantity variance = (AQ - SQ) x Std. unit price
= (4,800 - 5,600) x 3.50
= P2.800 favorable
The requirement is to determine the material quantity variance. Given the actual quantity
used which is less than the standard quantity, this will result to a favorable variance, because
the effect of which to income is favorable.
132. Suggested answer (b) P5,400 unfavorable

Qty. Price Total
Actual 18,000 P 13.80 P 248,400
Standard (20 x 500) 10,000 13.50 135,000
Variance 8,000u P 0.30u PI 13,400u
Materials purchase price variance

(18,000 xP0.30u) P 5,400 unfavorable
Based on the foregoing information, the actual purchase price per unit (PI3.80) is more than
the standard price per unit (PI3.50) resulting to unfavorable variance (P0.30). Since materials
purchase variance is the difference between the actual price per unit and the standard price
per unit, multiplied by the actual quantity purchased, therefore, the correct answer is P5,400
unfavorable
133. Suggested answer (c) P6,750 favorable

Qty. Price Total
Actual 9,500 P13.80 P131.100
Standard (20 x 500) 10,000 13.50 135,000
Variance 500 f P 0.30 u P 3,900 f
Materials usage variance

(500 f xP13.50) P 6,750 favorable
Materials quantity (usage) variance is the difference between the actual quantity used and
the standard quantity multiplied by standard price per unit. Based on the foregoing
information, the actual quantity used (9,500 yards) is less than the standard quantity
ANSWER KEY Page 85

COST ACCOUNTING
(10,000 yards) resulting to favorable variance (500 yards), therefore, the materials usage
variance is P6,750 favorable.
As mentioned earlier, two major factors enter into the determination of standards for direct
materials cost: 1.) the quantity (or usage) standard, and 2.) the price standard. If the actual
quantity of direct materials used in producing a commodity differs from the standard
quantity, there is a materials quantity variance; while, if the actual unit price of the materials
differs from the standard price, there is a materials price variance.
134. Suggested answer (c) P3,150 unfavorable

Time Rate Total
Actual 2,100 P 91.50 P 192,150
Standard (4 x 500) 2,000 90.00 180,000
Variance 100 u P 1.50 u P 12,150 u
Labor rate variance
(2,100 xP1.50u) P 3,150 unfavorable
Direct labor rate variance is the difference between the actual rate per hour and the standard
rate per hour multiplied by the actual hours worked. Based on the foregoing information, the
actual rate per hour (P91.50) is more than the standard rate per hour (P90.00) resulting to
unfavorable variance (P1.50), therefore, the labor rate variance is P3,150 unfavorable.
135. Suggested answer (d) P9.000 unfavorable

Time Rate Total
Actual 2,100 P 91.50 P 192,150
Standard (4 x 500) 2,000 90.00 180,000
Variance 100 u P 1.50 u P 12,150 u
Labor efficiency variance

100uxP90.00) P 9,000 unfavorable
Labor efficiency variance is the difference between the actual hours worked and the standard
hours multiplied by the standard rate per hour. Based on the foregoing information, the actual
hours worked (2,100 hours) is more than the standard hours (2,000 hours) resulting to
unfavorable variance (100 hours), therefore, the labor efficiency variance is P9,000
unfavorable.
As in the case of direct materials, two major factors enter into the determination of standards
of direct labor cost: 1.) the time (efficiency or usage) variance standard, and 2.) the rate (price
or wage) standard. If the actual direct labor hours spent in producing a product differ from the
ANSWER KEY Page 86

Standard Costing
standard hours, there is an labor efficiency variance; while is the labor rate paid differs from
the standard rate, there is a labor rate variance. Thus, the total unfavorable labor cost
variance shown above in the amount of PI 2,150 is made up of unfavorable labor rate variance
of P3750 and unfavorable labor efficiency variance of P9,000.
136. The entry at the time of purchase is to charge materials account for P5,200 which is the
actual quantity purchase (P6,500 / P50 per unit = 130 units) times the standard unit price
(P40). Accounts payable is credited for P6,500 (actual quantity x actual unit price). The
difference between the actual and standard prices is the price variance. Because the actual
price exceeded the standard, the price variance is debited for the difference. The price
variance is PI,300 [130 units x (P50 - P40)] unfavorable. Therefore entry
137. The entry to record direct materials used is to debit Work in Process account at standard
prices and standard quantities (450 units x P9 = P4,050). In this problem, all materials
variances are recorded at the time work in process is charged. The materials price and
quantity variances must be computed. The project used more units at a higher price than
estimated, so both variances will be unfavorable (deb¬ its). The material quantity variance is
P450 U [(P500 - P450) x P9]. The materials price variance is P500 U [P500 units x (P10-P9)].
Materials account is credited for the actual prices and actual quantities (500 x P10 = P5,000).
138. The entry to record the payroll payable (accrued payroll) is to charge Work in Process at the
standard number of hours and to credit Payroll Payable Account for the actual payroll peso
amount. The project required more hours but a lower wage rate than estimated. Hence, the
labor .efficiency variance will be favorable (a credit). The computation of the labor variances
are:
Labor efficiency variance (50-45) x P12 =
P60 U Labor price variance (PI2 - P10) x 50
= P100 F
139. The entry is to debit Applied Factory Overhead (fixed) and credit Factory Overhead Control
(fixed) for their respective balances. The difference is attributable solely to the volume
variance because the budget variance is zero (actual fixed factory overhead = the budgeted
amount). The volume variance is unfavorable because fixed overhead is under-applied. The
under-application (the unfavorable volume variance debited) is P2,500 [P32,500 budgeted
fixed factory overhead (2,000 hours x P15 per hour)].
140. The budget (controllable) is recognized by a debit, given that more was spent for that activity
than was estimated. The entry to record the unfavorable variable overhead budget variance
is to charge the Overhead Budget Variance account computed as follows:
ANSWER KEY Page 87

COST ACCOUNTING
Applied factory overhead - variable (530 x P4.50) P2,385

Actual factory overhead - variable (530 x P5) 2,650
Budget (controllable) variance P265 U
The variable applied factory overhead account is debited using the predetermined overhead
rate. The variable factory overhead control account is credited at actual cost. These entries
will result in a zero balance in both the applied and the control accounts assuming that no
variable efficiency variance existed. Therefore entry (a) is correct.
141.
Since depreciation is a fixed cost, that cost will be the same each month regardless of
production. Therefore, the budget for September would show depreciation of P21,500
(P258,000 annual depreciation x 1112).
142
Actual units produced 1,350,000
Divided by: Units per hour 4
Less: Actual hours 300,000
Difference in hour – favorable 37,500
Multiplied by: Labor and Overhead Rate (P20 + PI 2) P32
Total labor and overhead costs savings P1,200,000
143.
Basis of Allocation Factors Overhead Allocated
Garments 1,000/2,000 P1,200,000 P600,000
Hardware Pl,000.000/P2,000,000 1,200,000 600,000
No. of Employees 15/30 1,200,000 600,000
Any of the three bases of allocation will yield the same amount of allocated overhead.
144.
Average weekly output: P875 + P11.25 per piece 77.77 units (pcs)
It should be noted that anything in excess of basic rate or minimum guaranteed wage
rate is considered premium which maybe charged to work-in-process (direct labor) or
factory overhead. Anyway, the problem obviously states that such premium will be
charged to factory overhead, thus:
H:(80xP11.25)-P875 P25.00
N : (78 x PI 1.25) - P875 2.50
E : (82 x PI 1.25) - P875 47.50
P75.00
On H, N and E have a production of above 77.77 units.
ANSWER KEY Page 88

Standard Costing
145. Standard units produced per week: 37 hours/wk. x 3 units/hr 111

Standard units produced for four-week periods: 111 units x 4 wks. 444
By comparing the actual performance of the employee with the standard units produced for
four-weeks periods, i.e. 444, it is only Romy and Tony who performed above the standard.
But, since, we are looking for an employee who had inconsistent performance by performing
below standard, then, it is Romy who have met the particular
criteria (the 108 units in the 1st wk.) thus, Romy he will get a bonus of:
Actual Units produced during four-weeks period 465

Less: Standard units produced during four-weeks period.. 444
Excess units during four-weeks period 21units
Divided by: Units per hour 3 units/hr.
Excess hours 7 hours
Multiplied by: Time Saved - 757o x P24 P 18 /hour
Bonus to Romy P126
146 .
Standard Cost of Spoiled Kits:
Materials: 150 spoiled kits at P180 P27,000
Conversion Cost: 150 spoiled kits x 2/3 completion =
100 spoiled kits at P360 36,00
147 .
Standard Costing
The total flexible budget direct labor variance equals the difference between total actual
direct labor cast and standard direct labor cost (standard rate x standard hours) allowed for
the actual output. It combines the direct labor rate and efficiency variances. For this
company, the variance is P1,900 U (P48,500 actual wages at actual hours - P46.600
standard wages at standard hours).
Answer (a) is incorrect because the direct labor rate variance is P100 F (P48.500 -
P48.600). Answer (c) is incorrect because the total labor variance is unfavorable. Answer
(d) is incorrect because the direct labor efficiency variance is P2.000 U.
ANSWER KEY Page 89

COST ACCOUNTING
148.
Standard production per week (37 x 3 ) = 111 units
Standard production for 4 weeks (111x4) = 444 units.
The employee who had inconsistent performance is Rudy, because in the first week his
performance (108) is below the standard units (111) per week. The bonus to Rudy is
computed below:
Actual production 465 units
Standard production 444
Excess 21 units
Divide by STD units per hour * 3 units
Hours saved 7 hrs.
Bonus (7 hrs. x P24 x 75%) P 126
ANSWER KEY Page 90

Standard Costing
ANSWER KEY Page 91

COST ACCOUNTING
ANSWER KEY Page 92

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PRACTICAL ACCOUNTING 2

THEORY & PRACTICE

In a standard cost system, management, using information form historical data,

II. Selecting Standards

• Perfection or Maximum or Ideal Standards are based upon perfect conditions

Standard Costing - Lecture Page 3

IV. Direct Materials

• Analysis of variance - if the variance is favorable, it indicates the company has

• Responsibility - it is usually the purchasing department that is responsible for

Standard Costing - Lecture Page 4

• Analysis of variance - if the variance is favorable it indicates that the workers

• Responsibility - as a result, the production department or cost center that

Journal Entries for Direct Materials

Standard Costing - Lecture Page 5

If this variance is unfavorable, the supervisor must determine whether

• Analysis of variance - if this variance is favorable, it indicates that fewer direct

• Responsibility - usually the supervisor of the department or cost center in which

a. To record Incurrence of Labor:

Standard Costing - Lecture Page 6

b. To record Labor Distribution:

Alternative Approaches to Direct Materials and Direct Labor:

Early recognition is desirable for control purposes.

Standard Costing - Lecture Page 7

spends more or less on factory overhead than expected and/or uses

1. Spending Variance, Idle Capacity Variance, and Efficiency Variance

Standard Costing - Lecture Page 8

Standard Costing - Lecture Page 9

VII. Variances in the Ledger Accounts.

Standard Costing - Lecture Page 10

VIII. Disposition of Variances

Standard Costing - Lecture Page 11

2. Which of the following is a purpose of standard costing?

3. Which of the following is true concerning standard costs?

6. The sales volume variance equals

Standard Costing – MCQ - Theory Page 12

7. An efficiency variance equals

Standard Costing – MCQ – Theory Page 13

Standard Costing – MCQ - Theory Page 14

23. An unfavorable price variance occurs because of:

Standard Costing – MCQ – Theory Page 15

25. Materials usage variances are normally chargeable to which department?

28 How is a labor rate variance computed?

Standard Costing – MCQ - Theory Page 16

30. An unfavorable labor efficiency variance means that

31. A debit balance in the labor efficiency variance indicates that

Standard Costing – MCQ – Theory Page 17

Standard Costing – MCQ - Theory Page 18

42. Overhead spending variance is the difference between the:

Standard Costing – MCQ – Theory Page 19

Standard Costing – MCQ - Problems Page 20

Younger's material usage variance for March.

Actual quantity purchased 18,000

Materials Purchase Price Variance

Standard Costing – MCQ – Problems Page 21

53. Information on Material company's direct-material costs is as follows:

Standard Costing – MCQ - Problems Page 22

Material Usage & Price Variance

Questions 1 thru 3 are based on the following: Punzalan 2014

Questions 1 & 2 are based on the following: Punzalan 2014