INTEGRATED ACCOUNTING 2

MANAGEMENT SERVICES
DR. L.B. VIRADOR, CPA

STANDARD COSTING AND VARIANCE ANALYSIS

A standard is a benchmark or norm for measuring performance. In managerial accounting, standards relate to the
cost and quantity of inputs used in manufacturing goods or providing services.

A standard cost is the expected or budgeted costs of materials, labor, and manufacturing overhead required to
produce one unit of product.

Two reasons for adopting a standard cost system are:

• To improve planning and control. A standard cost system compares actual amounts with standard amounts
to determine variances from the standard.
• To facilitate product costing. standard costing uses standard cost for direct materials, direct labor, and
overhead. Standard cost systems provide readily available unit cost information that can be used for pricing
decisions.

Standard cost should be set so that they encourage efficient operations.

Standards tend to fall into two categories:

1) Ideal standards (theoretical, maximum efficiency, perfection) – allow for no machine breakdown or
work interruptions, and require that workers operate at peak efficiency 100 per cent of the time. Since
ideal standards rarely met, most managers believe they tend to discourage even the most diligent workers.
2) Practical standards (currently attainable standards) – are tight but attainable. They allow normal
machine downtime and employee rest periods and can be attained through reasonable, but highly efficient,
efforts by the average worker.

Different types of Production Capacities:

1. Budgeted (or expected output) capacity – is the estimated level of performance that the company plans
to achieve in the next 12 months.
2. Standard capacity – is the estimated capacity that should have been used in actual capacity. It is
determined by multiplying actual production in units by the standard rate per unit produced.
3. Normal capacity (normal standard) – is the average production level over a long-period of time. It is
the middle point where variations in production levels over a longer span of time would finally settle
down. It is determined to serve as a basis in long-term planning where the concept of long-term stability
is of prime importance. This capacity is the basis in determining fixed overhead rate.

A General Model for Variance Analysis.

A variance is the difference between standard prices and quantities on the one hand and actual prices and quantities
on the other hand. A general model can be used to describe the variable cost variances.

The general model for calculating variable cost variances appears below:

Actual quantity of Actual quantity of Standard quantity

input at actual price input at standard of input at standard
(AP X AQ) price price
(SP X AQ) (SP X SQ)
(AP – SP)AQ (AQ-SQ)SP
Price Variance Usage or efficiency
variance
Total variance = (AP X AQ) – (SP X SQ)

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Price and Efficiency Variances

The total budget variance is the difference between actual cost of inputs and the standard (or planned) cost of
inputs.

There are two variances for variable production costs:

1. Price or rate variances – the difference between actual cost of inputs and what the inputs should have
costs (standard prices).
2. Usage or efficiency variances – the difference between the actual quantity used and the standard quantity
allowed for units produced.

ALTERNATIVE METHODS
An alternative to the general model, variances can be computed by the use of formulas.

The formulas for the price variances are:

Price (rate) variance = (AQ X AP) – (AQ X SP) or
Price (rate) variance = AQ(AP – SP)

The formulas for the quantity variance are:

Quantity (efficiency) variance = (AQ X SP) – (SQ – SP) or
Quantity (efficiency) variance = SP(AQ – SQ)

Three-Way Variance Analysis for Direct Materials and Direct Labor

Materials Price Variance = (Actual Price – Standard Price) x Standard Quantity

Materials Quantity Variance = (Actual Quantity – Standard Quantity) x Standard Price
Joint Materials Variance = (Actual Price – Standard Price) x (Actual Quantity – Standard Quantity)

Labor Rate Variance = (Actual Rate – Standard Rate) x Standard Hours

Labor Efficiency Variance = (Actual Hours – Standard Hours) x Standard Rate
Joint Labor Variance = (Actual Rate – Standard Rate) x (Actual Hours – Standard Hours)

Computation and Interpretation of Standard Cost Variances.

Since direct material, direct labor and variable overhead are all variable manufacturing costs, the process of
computing price and quantity variances for each cost category is the same. The general model can be used in each
case to compute the variances. The only complication is deciding in each case whether the actual quantity of
inputs refers to the actual quantity purchased or the actual quantity used.

Static Budgets. The term static budget refers to the budget that is set at the beginning of a budgeting period and
that is geared to only one level of activity – the budgeted level of activity.

Flexible Budgets. A flexible budget is geared to all levels of activity within the relevant range and is used to plan
and control spending. The flexible budget will show the cost formula for each variable cost and total cost (possibly
including fixed costs) at various levels of activity.

Predetermined Overhead Rate = Overhead from the flexible budget at the normal level of activity / Normal
Level of Activity

Applying overhead in a Standard Cost System.

Overhead can be applied to units based on actual hours or standard hours allowed for the actual output. In a
standard cost system it is simplest to apply overhead on the basis of the standard hours allowed for actual output.
This results in each unit being assigned the same overhead cost – regardless of how many hours were actually
required to make the unit.

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1. Variable overhead variances

a. The variable overhead spending variance is computed as follows when the variable overhead rate is
expressed in terms of direct-labor hours

Variable overhead spending variance = (Actual Overhead Rate – Standard Overhead Rate) x Actual
Time

The variable overhead spending variance compares actual spending on variable overhead to the amount of
spending that would be expected, given the actual direct labor-hours for the period.

b. The variable overhead efficiency variance is computed as follows when the variable overhead rate is
expressed in terms of direct-labor hours:
Variable overhead efficiency variance = (Actual hours – Standard hours) x Variable standard
overhead rate

2. Fixed Overhead Variances

a. Budget variance – the budget variance is the difference between the actual fixed overhead costs incurred
during the period and the budgeted fixed overhead costs contained in the flexible budget. This
variance is very useful in that it indicates how well spending on fixed items was controlled.
b. Volume variance – the volume variance is the difference between the total budgeted fixed overhead
and the fixed overhead applied to production. Alternatively, it can be expressed as the difference
between the denominator level of activity and the standard hours allowed for the output of the period,
multiplied by the fixed portion of the predetermined overhead rate.

The volume variance occurs because the denominator level of activity differs from the standard
hours allowed for production. Thus, an unfavorable variance means that the company operates at
an activity level below the denominator level of activity.

Conversely, the favorable variance means that the company operates at an activity level greater
than the denominator level of activity.

c. Fixed Overhead Rates based on Normal Capacity

i. Although fixed overhead are often based on budgeted production levels, it may be a better approach
if it is based on normal capacity.
ii. Normal capacity is the volume that could be achieved under normal (not ideal) operating conditions.
It allows some downtime for necessary activities such as employee training, shift changes, breaks
and preventive maintenance.
iii. Using the capacity supplied as the denominator when calculating fixed overhead rate (as opposed
to the amount of capacity actually used) prevents the rate from fluctuating due to changes in
demand. It also highlights the cost of unused capacity for management attention.

ANALYSIS OF FACTORY OVERHEAD VARIANCES

4-WAY ANALYSIS 3-WAY ANALYSIS 2-WAY ANALYSIS

1. Variable spending or rate 1. Spending variance: 1. Controllable variance:
variance Variable spending Variable spending
2. Variable efficiency or Fixed spending Variable efficiency
time variance Fixed spending
3. Fixed spending or budget 2. Efficiency variance
variance
Variable efficiency 2. Volume or Capacity
4. Volume or capacity
variance
variance
3. Volume or capacity
variance

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Alternative Method:
2- Way Analysis (ConVo)
Controllable Variance
Actual Factory Overhead (AFOH)
Less: Budgeted Allowance on Standard Hours (BASH)
Fixed OH (Normal Capacity x Standard FOH Rate)
Variable OH (Standard Hours x Standard VOH Rate)

Volume Variance
Budgeted Allowance on Standard Hours
Less: Standard Factory Overhead (Standard Hours x Total Standard OH Rate)

3- Way Analysis (SEV)

Spending (Budget) Variance
Actual Factory Overhead (AFOH)
Less: Budgeted Allowance on Actual Hours (BAAH)
Fixed OH (Normal Capacity x Standard FOH Rate)
Variable OH (Actual Hours x Standard VOH Rate)

Variable Efficiency Rate

Budgeted Allowance on Actual Hours (BAAH)
Less: Budgeted Allowance on Standard Hours (BASH)

Volume Variance
Budgeted Allowance on Standard Hours
Less: Standard Factory Overhead (Standard Hours x Total Standard OH Rate)

MATERIALS PRICE, MIX AND YIELD VARIANCE ANALYSIS:

When the production process involves combining or mixing several materials in varying proportions, the 3-way
analysis (Price, Mix and Yield Variance Analysis) is used.

General Procedures:
1. Actual Material Cost* - Standard Materials Cost** = Material Cost Variance
2. Actual Material Cost = The total actual cost of the several materials used
3. Standard Materials Cost = Actual production x average standard output cost

ANALYSIS:

A. Price Variance = Differences in prices x actual quantity, (computed for each type of materials, then
summarized to get the net price variance)
B. Mix Variance = Total actual quantity at standard rate – total actual input at average standard input cost
(ASIC)
C. Yield Variance = Total actual input at average standard input cost – Standard cost (actual output x std.
output cost (ASOC))
D. ASIC = Total Std. Input Cost ÷ Total Std. Input Quantity
E. Yield % = Std. Output Quantity ÷ Std. Input Quantity
F. ASOC = Total Std. Input Cost ÷ Total Standard Output Quantity

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THEORIES
1. Which of the following statements about standard costs is false?
A. Properly set standards should promote efficiency.
B. Standard costs facilitate management planning.
C. Standards should not be used in "management by exception."
D. Standard costs can simplify the costing of inventories.
2. Which of the following statements is false?
A. A standard cost is more accurate than a budgeted cost.
B. A standard is a unit amount.
C. In concept, standards and budgets are essentially the same.
D. The standard cost of a product is equivalent to the budgeted cost per unit of product.
3. Ideal standards
A. are rigorous but attainable.
B. are the standards generally used in a master budget.
C. reflect optimal performance under perfect operating conditions.
D. will always motivate employees to achieve the maximum output.
4. A bill of material does not include
A. quantity of component inputs.
B. price of component inputs.
C. quality of component inputs.
D. type of product output.
5. A company wishing to isolate variances at the point closest to the point of responsibility will determine its
material price variance when
A. material is purchased. C. material is used in production.
B. material is issued to production. D. production is completed.
6. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of flour with a
quality rating two grades below that which the company normally purchased. This purchase covered
about 90% of the flour requirement for the period. As to the material variances, what will be the likely
effect?
A. B. C. D.
Price variance Favorable Favorable Unfavorable No effect
Usage variance Favorable Unfavorable Favorable Unfavorable
7. The journal entry to record the direct materials quantity variance may be recorded
A. Only when direct materials are purchased
B. When inventory is taken at the end of the year.
C. Only when direct materials are issued to production
D. Either (A) or (C)
8. The variance resulting from obtaining an output different from the one expected on the basis of input is
the:
A. efficiency variance C. usage variance
B. mix variance D. yield variance
9. An unfavorable labor efficiency variance
A. means that workers were inefficient and their supervisor did a poor job.
B. causes a favorable variable overhead efficiency variance.
C. can result from an action taken by a manager other than the supervisor of the workers.
D. should always be investigated and corrected.

10. Using the two-variance method for analyzing overhead, which of the following variances contains both
variable and fixed overhead elements?
A. B. C. D.
Controllable (Budget) Variance Yes Yes Yes No
Volume Variance Yes Yes No No
Efficiency Variance Yes No No No
11. When the actual wage rate paid to direct labor workers exceeds the standard wage rate, the journal entry
would include:
A. Debit to Wages Payable; Credit to Labor Rate Variance
B. Debit to Work-In-Process; Credit to Labor Rate Variance
C. Debit to Wages Payable; Debit to Labor Rate Variance
D. Debit to Work-In-Process; Debit to Labor Rate Variance
12. Allowance for spoilage is part of the direct
A. materials price standard. C. labor price standard.
B. materials quantity standard. D. labor quantity standard.
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13. Dori Castings is a job-order shop that uses a full-absorption, standard cost system to account for its
production costs. The O/H costs are applied on a direct-labor-hour basis. The amount of fixed factory
O/H that Dori will apply to finished production is the (M)
A. Actual direct labor hours times the standard fixed factory O/H rate per direct labor hour.
B. Actual fixed factory O/H cost per direct labor hour times the standard allowed direct labor hours.
C. Standard units of output for the actual direct labor hours worked times the standard fixed factory
O/H rate per unit of output.
D. Standard allowed direct labor hours for the actual units of finished output times the standard fixed
factory O/H rate per direct labor hour.
14. Rigor Ltd. uses direct labor hours as the cost driver for variable overhead. In order to calculate the variable
overhead efficiency variance, which of the following items does not need to be known? (E)
A. Actual overhead costs
B. Actual direct labor hours
C. Standard direct labor hours allowed
D. Standard variable overhead rate per direct labor hour
15. A decrease in denominator level of activity will: (M)
A. increase the fixed portion of the predetermined overhead rate.
B. decrease the fixed portion of the predetermined overhead rate.
C. increase the variable portion of the predetermined overhead rate.
D. decrease the variable portion of the predetermined overhead rate.
16. Management scrutinizes variances because
A. It is desirable under conventional knowledge on good management.
B. Management needs to determine the benefits foregone by such variances.
C. Management desires to detect such variances to be able to plan for promotions.
D. Management recognizes the need to know why variances happen to be able to make corrective
actions and fairly reward good performers.
17. A company reported a significant materials efficiency variance for the month of January. All of the following
are possible explanations for this variance except
A. Cutting back preventive maintenance.
B. Processing a large number of rush orders.
C. Inadequately training and supervising the labor force.
D. Producing more units than planned for in the master budget.
18. An unfavorable fixed overhead volume variance is most often caused by
A. actual fixed overhead incurred exceeding budgeted fixed overhead.
B. an over-application of fixed overhead to production.
C. an increase in the level of the finished inventory.
D. normal capacity exceeding actual production levels.
19. At the end of a period, a significant material quantity variance should be
A. closed to Cost of Goods Sold.
B. allocated among Raw Material, Work in Process, Finished Goods, and Cost of Goods Sold.
C. allocated among Work in Process, Finished Goods, and Cost of Goods Sold.
D. carried forward as a balance sheet account to the next period
20. Which of the following is the most probable reason a company would experience an unfavorable labor rate
variance and a favorable efficiency variance?
A. Defective materials caused more labor to be used to product a standard unit.
B. Because of the production schedule, workers from other production areas were assigned to assist in
this particular process.
C. The mix of workers assigned to the particular job was heavily weighted toward the use of higher-
paid, experienced individuals.
D. The mix of workers assigned to the particular job was heavily weighted toward the use of new,
relatively low-paid unskilled workers.
21. A standard cost is
A. a cost which is paid for a group of similar products.
B. the average cost in an industry.
C. a predetermined cost.
D. the historical cost of producing a product last year.
22. The major variance used in controlling fixed costs is the
A. efficiency variance. C. use variance.
B. budget variance. D. none of the above.
23. The labor price variance is
A. (AH × AR) – (SH × SR). C. (AH × SR) – (SH × SR).
B. (AH × AR) – (AH × SR). D. (AH × SR) – (SH × AR).
24. Which of the following variances cannot occur together during the same accounting period?

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A. Unfavorable labor rate variance and favorable labor efficiency variance.
B. Unfavorable labor efficiency variance and favorable materials quantity variance.
C. Favorable labor rate variance and unfavorable total labor variance.
D. Favorable labor efficiency variance and favorable materials quantity variance.
E. None of the above, as all of these variance combinations are possible.
25. The purchasing agent of the Skateboard Company ordered materials of lower quality in an effort to
economize on price. What variance will most likely result?
A. Favorable materials quantity variance C. Unfavorable materials price variance
B. Favorable total materials variance D. Unfavorable labor quantity variance
26. Which of the following individuals is least likely to become involved in the setting of either direct material
standards or direct labor standards?
A. The purchasing manager. D. A machine operator.
B. A production supervisor. E. A company's president.
C. An engineer.
27. The material price variance (computed at point of purchase) is
A. the difference between the actual cost of material purchased and the standard cost of material
purchased.
B. the difference between the actual cost of material purchased and the standard cost of material used.
C. primarily the responsibility of the production manager.
D. both a and c.
28. A standard cost system may be used in
A. job order costing, but not process costing.
B. process costing, but not job order costing.
C. either job order costing or process costing.
D. neither job order costing nor process costing.
29. Which of the following standards can commonly be reached or slightly exceeded by workers in a motivated
work environment?
A. B. C. D.
Ideal No No Yes No
Practical No Yes Yes Yes
Expected Annual No Yes No No
30. The journal entry to record the direct materials quantity variance may be recorded (D)
A. Only when direct materials are purchased
B. Only when direct materials are issued to production
C. Either (a) or (b)
D. When inventory is taken at the end of the year.

Problems:

1. The following direct 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 40
Weekly wages per worker P500
Workers’ benefits treated as direct labor costs 20% of wages
What is the standard direct labor cost per unit of product Glu?
A. P12. C. P24.
B. P15. D. P30.

2. ALABAMA INC. uses a standard costing system in the manufacture of its single product. The 35,000 units
of raw material in inventory were purchased for P105,000, and two units of raw material are required to
produce one unit of final product. In November, the company produced 12,000 units of product. The
standard allowed for material was P60,000, and there was an unfavorable quantity variance of P2,500.
The materials price variance for the units used in November was
A. P2,500 U C. P11,000 U
B. P3,500 F D. P12,500 U
3. VIRGINIA COMPANY has a standard cost system. In July the company purchased and used 22,500 pounds
of direct material at an actual cost of P53,000; the materials quantity variance was P1,875 Unfavorable;
and the standard quantity of materials allowed for July production was 21,750 pounds. The materials price
variance for July was:
A. P2,725 F. C. P3,250 F.
B. P2,725 U. D. P3,250 U.

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4. Cox Company's direct material costs for the month of January were as follows:
Actual quantity purchased 18,000 kilograms
Actual unit purchase price P 3.60 per kilogram
Materials price variance – unfavorable (based on purchases) P 3,600
Standard quantity allowed for actual production 16,000 kilograms
Actual quantity used 15,000 kilograms
For January there was a favorable direct material quantity variance of
A. P3,360. C. P3,400.
B. P3,375. D. P3,800.
Use the following to answer questions 6 & 7:
The following data relate to product no. 89 of ARIZONA INC.
• Direct material standard: 3 square feet at P2.50 per square foot
• Direct material purchases: 30,000 square feet at P2.60 per square foot
• Direct material consumed: 29,200 square feet
• Manufacturing activity, product no. 89: 9,600 units completed
5. The direct-material quantity variance is:
A. P1,000F. D. P1,040U.
B. P1,000U. E. P2,000F.
C. P1,040F.
6. The direct-material price variance is:
A. P2,880U. D. P3,000F.
B. P2,920F. E. P3,000U.
C. P2,920U.
7. ALASKA CO. uses a standard cost system. Direct materials statistics for the month of May, 19x7 are
summarize below:
Standard unit price P90.00
Actual units purchased 40,000
Standard units allowed for actual production 36,250
Materials price variance- favorable P6,000
What was the actual purchase price per unit?
A. P75.00 C. P88.50
B. P85.89 D. P89.85
Questions 9 and 10 are based on the following information.
WASHINGTON CORP. has set a standard cost, P5.25 per unit for Material D and P12.25 per unit for Material
E. In June, Valenzuela bought 17,500 units of Material D and 8,750 units of Material E. All Material D,
except 1,400 units were bought at the standard unit cost. The 1,400 units had a unit cost of P6.15.
WASHINGTON bought 7,875 units of Material E at standard cost and 875 units at a unit cost of P14.
In accordance with the standard two units of Material D and one unit of Material E should be used to make
each unit of Product F. In January, 7,000 units of Product F were made and 15,050 units of Material D
were used and 7,175 units of Material E were used.
8. The total materials price variance is
A. P2,791.25 F C. P13,781.25 F
B. P2,791,25 U D. P13,781.25 U

9. The total materials quantity variance is

A. P7,656.25 F C. P13,781.25 F
B. P7,656.25 U D. P13,781.25 U

10. MINNESOTA CORP. has a maintenance shop where repairs to its motor vehicles are done. During last
month’s labor strike, certain recorded 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. P27.20 per hour C. P30.25 per hour
B. P28.80 per hour D. P31.40 per hour
11. OREGON CORP.’s operations for the month just ended originally set up a 60,000 direct labor hour level,
with budgeted direct labor of P960,000 and budgeted variable overhead of P240,000. The actual results
revealed that direct labor incurred amounted to P1,148,000 and that the unfavorable variable overhead
variance was P40,000. Labor trouble caused an unfavorable labor efficiency variance of P120,000, and
new employees hired at higher rates resulted in an actual average wage rate of P16.40 per hour. The
total number of standard direct labor hours allowed for the actual units produced is
A. P52,500 C. P62,500
B. P60,000 D. P70,000

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12. TENNESSEE INC. produces a product requiring 3 direct labor hours at P20.00 per hour. During January,
2,000 products are produced using 6,300 direct labor hours. Wild West’s actual payroll during January
was P122,850. What is the labor quantity variance?
A. P2,850 U C. P3,150 F
B. P6,000 F D. P6,000 U
13. MARYLAND INC. had a P18,000 favorable volume variance, a P15,000 unfavorable variable overhead
spending variance, and P12,000 total over-applied overhead. The fixed overhead budget variance was
A. P9,000 F. C. P16,000 U.
B. P16,000 F. D. 49,000 U.
14. MISSOURI INC. has total budgeted fixed costs of P75,000. Actual production of 19,500 units resulted in a
P3,000 favorable volume variance. What normal capacity was used to determine the fixed overhead rate?
A. 16,500 C. 18,750
B. 17,590 D. 20,313
15. WISCONSIN CORP. uses a standard cost system and prepared the following budget at normal capacity for
the month of January:
Direct labor hours 24,000
Variable factory O/H P48,000
Fixed factory O/H P108,000
Total factory O/H per DLH P6.50
Actual data for January were as follows:
Direct labor hours worked 22,000
Total factory O/H P147,000
Standard DLH allowed for capacity attained 21,000
Using the two-way analysis of O/H variances, what is the budget (controllable) variance for January?
A. P3,000 F. C. P10,500 U.
B. P9,000 F. D. P13,500 U.
Problems 19 and 20 are based on the following information.
The INDIANA CANDY FACTORY has the following budgeted factory overhead costs:
Budgeted fixed monthly factory overhead costs P85,000
Variable factory overhead P4.00 per direct labor hour
For the month of January, the standard direct labor hours allowed were 25,000. An analysis of the factory
overhead shows that in January, the factory had an unfavorable budget (controllable) variance of P3,500
and a favorable volume variance of P1,200. The factory uses a two-way analysis of factory overhead
variances.
16. The actual factory overhead incurred in January was
A. P103,500 C. P186,200
B. P181,500 D. P188,500
17. The applied factory overhead in January was
A. P103,500 C. P186,200
B. P183,800 D. P188,500
Questions 21 & 22 are based on the following information.
KENTUCKY CO. has a standard cost system in which manufacturing overhead is applied to units of product
on the basis of direct labor hours (DLHs). The following standards are based on 100,000 direct labor
hours:
Variable overhead 2 DLHs @ P3 per DLH = P6 per unit
Fixed overhead 2 DLHs @ P4 per DLH = P8 per unit
The following information pertains operations during March:
Units actually produced 38,000
Actual direct labor hours worked 80,000
Actual manufacturing overhead incurred:
Variable overhead P250,000
Fixed overhead P384,000
18. For March, the variable overhead spending variance was:
A. P6,000 F. C. P12,000 U.
B. P10,000 U. D. P22,000 F.
19. For March, the fixed overhead volume variance was:
A. P80,000 F. C. P96,000 F.
B. P80,000 U. D. P96,000 U.
20. The predetermined overhead rate for Weed-B-Gone is P8, comprised of a variable overhead rate of P5 and
a fixed rate of P3. The amount of budgeted overhead costs at normal capacity of P240,000 was divided
by normal capacity of 30,000 direct labor hours, to arrive at the predetermined overhead rate of P8. Actual
overhead for June was P14,800 variable and P8,100 fixed, and 1,500 units were produced. The direct
labor standard is 2 hours per unit produced. The total overhead variance is
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A. P2,900 F. C. P1,100 U.
B. P1,100 F. D. P2,900 U.
21. The standard number of hours that should have been worked for the output attained is 10,000 direct labor
hours and the actual number of direct labor hours worked was 10,500. If the direct labor price variance
was P10,500 unfavorable, and the standard rate of pay was P15 per direct labor hour, what was the actual
rate of pay for direct labor?
A. P14 per direct labor hour C. P16 per direct labor hour
B. P12 per direct labor hour D. P15 per direct labor hour
22. NEVADA INC. manufactures a product requiring two pounds of direct material. During 2009, Debbie
purchases 24,000 pounds of material for P74,400 when the standard price per pound is P3.00. During
2009, Debbie uses 22,000 pounds to make 12,000 products. The standard direct material cost per unit of
finished product is
A. P6.20. C. P6.00.
B. P6.76. D. P6.40
23. The following information relates to Orc Company’s 2003 manufacturing activities:
Standard direct labor hours per unit 2
Number of units produced 5,000
Standard variable overhead per standard direct labor hours P3
Actual variable overhead P28,000
Unfavorable overhead efficiency variance P1,500
The number of actual direct labor hours are (M)
A. 10,000 C. 11,000
B. 10,500 D. Indeterminate
24. UTAH CORP. is a chemical manufacturer that supplies various products to industrial users. The company
plans to introduce a new chemical solution called Bysap, for which it needs to develop a standard product
cost. The following labor information is available on the production of Bysap.
• The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, and
Protet.
• The finished product is highly unstable, and one 10-liter batch out of six is rejected at the final
inspection. Rejected batches have no commercial value and are thrown out.
• It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work on eight-hour
a day, including one hour per day for rest breaks and cleanup.
What is the standard labor time to produce one 10-liter batch of Bysap?
A. 35 minutes C. 45 minutes
B. 40 minutes D. 48 minutes
25. MAINE INC.’s direct labor costs for the month of May are as follows:
Standard direct labor hours allowed 12,500
Actual direct labor rate P8.25
Actual direct labor hours 10,000
Direct labor rate variance – favorable P5,600
What was MAINE's standard direct labor rate in May? (M)
A. P7.69 C. P8.25
B. P7.80 D. P8.81
26. In MONTANA INC.’s income statement, they report actual gross profit of P52,500 and the following
variances:
Materials price P420 F
Materials quantity 600 F
Labor price 420 U
Labor quantity 1,000 F
Overhead 900 F
MONTANA would report gross profit at standard of
A. P46,660. C. P50,000.
B. P47,500. D. P53,340.
27. The following information is available from the KANSAN CORP.:
Actual factory O/H P15,000
Fixed O/H expenses, actual P7,200
Fixed O/H expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable O/H rate per DLH P2.50
Assuming that Tyro uses a three-way analysis of O/H variances, what is the spending variance?
A. P200 U C. P750 U.
B. P750 F. D. P950 F

MAS 2305
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28. Lopez Jaena, Inc. has provided the following information: Standards:
Direct materials 10 lbs. @ P1.2/lb
Direct labor 2 hours @30/hr
Variable overhead 2 hours @12/hr.
Fixed overhead 2 hours @P20/hr.
Budgeted production 7,000 units

Actual results:
Materials 74,950 lbs. P 192,200
Direct labor 15,300 hours 428,400
Variable overhead 172,125
Fixed overhead 292,000
Units produced 7,400

Calculate the following variances:

a. Direct materials price variance
b. Direct materials quantity variance
c. Direct labor rate variance
d. Direct labor efficiency variance
e. Variable overhead rate variance
f. Variable overhead efficiency variance
g. Fixed overhead spending variance
h. Fixed overhead volume variance

-END OF HANDOUTS

MAS 2305