1. Agree or Disagree? I have read and understood the lesson about standard costing.

2. Agree or Disagree? I answer all the activities on my own with complete solution per each problem.

3. Both standard costs and budgeted costs are used for controlling costs. However, the two terms are not the same.
Standard costs differ from budgeted costs in that standard costs
a. Are based on engineering studies while budgeted costs are historical costs
b. Costs that were incurred for actual production, while budgeted costs are costs that should have been incurred for
such production
c. Are costs that should have been incurred for actual production, while budgeted costs are costs that should
be incurred for budgeted or planned production
d. Are always expressed in total amounts, while budgeted costs are always expressed in per-unit amounts

4. The following describe ideal standards, except

a. Currently attainable standards
b. Theoretical or maximum-efficiency standards
c. Make no allowance for waste, machine downtime, and spoilage
d. Perfection standards

5. A standard cost is an estimate of what a cost should be under normal operating conditions. In establishing standard
costs, the following organizational personnel may be involved, except

a. Top management c. Quality control personnel

b. Budgetary accountants d. Industrial engineers

Questions 6 to 8 are based on the following information.

Burger Queen 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 materials 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 P 60,000, and there
was an unfavorable quantity variance of P 2,500.

6. Burger Queen’s standard price for one unit of materials is

a. P 2.50 b. P 3.00 c. P 5.00 d. P 6.00

Solution:
If we are to use the formula:
AQ x AP****
Material Price Variance
AQ*** x SP P 62,500 [work back (P 60,000 of Standard cost of material + 2,500 UF
Variance)
P 2,500 UF Material Quantity Variance
SQ* x SP** P 60,000

* 12,000 units of actual units produced x 2 units of materials =24,000 units

** P 60,000/ 24,000 units = P 2.50 per unit of material (6)
*** P 62,500/P 2.50 per unit of materials = 25,000 units of materials (7)
**** P 105,000/ 35,000 units of material = P 3.00 per unit of material

AQ x AP = 25,000 x P 3.00 = P 75,000

P 12,500 UF Material Price Variance (8)
AQ x SP = 25,000 x P 2.50 = P 62,500
P 2,500 UF Material Quantity Variance (9)
SQ x SP = 24,000 x P 2.50 = P 60,000

7. The units of material used to produce November output totaled

a. 12,000 units b. 23,000 units c. 24,000 units d. 25,000 units

8. The materials price variance for the units used in November was

a. P 2,500 unfavorable c. P 12,500 unfavorable

b. P 15,000 unfavorable d. P 2,500 favorable

9. In a standard costing system, actual costs are compared with standard costs. The difference or variance is determined,
and responsibility for such variance is assigned or identified to a particular person or department, in order to
a. Determine who is at fault and render the appropriate punishment
b. Be able to set the correct selling price of the product
c. Use the knowledge about the variances to promote learning and continuous improvement in the
manufacturing operations
d. Trace the variances to the proper inventory accountants so that they may be valued at actual costs

10. The materials mix variance for a product is P 450 unfavorable and the materials yield variance is P 150 unfavorable.
This means that
a. The materials price variance is P 600 unfavorable
b. The materials quantity variance is P 600 unfavorable
c. The total materials cost variance is definitely P 600 unfavorable
d. The materials price variance is also unfavorable, but the amount cannot be determined from the given
information

11. Variable overhead is applied on the basis of standard direct labor hours. If for a given period, the direct labor
efficiency variance is favorable, the variable overhead efficiency variance will be

a. Favorable c. Zero
b. Unfavorable d. The same amount as the labor efficiency variance

12. Under a standard cost system, the materials efficiency variances are the responsibility of
a. Production and industrial engineering
b. Purchasing and industrial engineering
c. Purchasing and sales
d. Sales and industrial engineering

13. A favorable materials price variance coupled with an unfavorable materials usage variance would most likely result
from
a. Machine efficiency problems
b. Product mix production changes
c. Labor efficiency problems
d. The purchase of lower-than-standard-quality materials

14. 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 towards the use of highly paid
experienced individuals
b. The mix of workers assigned to the particular job was heavily weighted towards the use of new relatively low
paid unskilled workers
c. Because of the production schedule workers from other production areas were assigned to assist this particular
process
d. Defective materials caused more labor to be used in order to produce a standard unit

15. 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

16. Under the three variance method for analyzing factory overhead, which of the following is used in the computation of
the spending variance?
Budget allowance based on standard hours Factory overhead applied to production
 a. Yes Yes
b. Yes No
c. No Yes
d. No No

17. What is the normal year end treatment of immaterial variances recognized in a cost accounting system using standard
costs?
a. Reclassified as deferred charges until all related production is sold
b. Allocated among cost of goods manufactured and ending work in process inventory
c. Closed to cost of goods sold in the period in which they arose
d. Capitalized as a cost of ending finished goods inventory

For questions 18 to 26
Villaverde Corporation’s standard cost system contains the following overhead costs, computed based on a monthly
normal volume of 25,000 units or 50,000 direct labor hours:

Variable factory overhead P 12 per unit

Fixed factory overhead 8 per unit
Total P 20

The following information pertains to the month of April 2014:

Actual FOH costs incurred: Variable P 316,680
Fixed 225,000
Actual production 26,000 units
Actual direct labor hours worked 54,600 hours

18. The total FOH cost variance is

a. P 25,000 unfavorable c. P 21,680 unfavorable

b. P 17,000 unfavorable d. P 4,680 unfavorable

Solution:
AFOH (316,680+225,000) = P 541,680
SHSR (26,000 units x P 20) = 520,000
Total FOH Variance P 21,680

19. The variable overhead variance amounts to

a. P 25,000 unfavorable c. P 283,320 favorable

b. P 16,680 unfavorable d. P 4,680 unfavorable

AH x AVOR P 316,680
(20) P (10,920) F (VOH. Spending Var)
AH x SVOR 54,600 DLH x P 6/DLH 327,600 P 4,680 UF
(21) 15,600 UF (VOH Efficiency Var) (19)
SH* x SVOR** 52,000 DLH x P 6/DLH 312,000

* Standard hour per unit = 50,000 DLH / 25,000 units = 2 DLH / unit
Standard hours = actual production/ capacity x standard hour per unit
Standard hours = 26,000 units x 2 DLH = 52,000 DLH
** SVOR
First get, the VOR per hour, not per unit. What was given was the VOR rate per unit.
VOR per hour = (25,000 units x P 12 / unit) / 50,000 DLH
VOR per hour = P 300,000/ 50,000 DLH
VOR per hour = P 6 per DLH

20. The variable overhead spending variance is

a. P 16,680 unfavorable c. P 10,920 favorable

b. P 4,680 unfavorable d. P 12,000 unfavorable
21. The variable overhead efficiency variance is

a. P 15,600 unfavorable c. P 4,680 unfavorable

b. P 10,920 favorable d. P 12,000 unfavorable

22. The fixed overhead variance amounts to

a. P 25,000 unfavorable c. P 8,000 unfavorable

b. P 17,000 unfavorable d. P 6,600 unfavorable

AH x AFOR P 225,000
(23)P 25,000 UF (Fixed. Spending Var)
NH x SFOR 50,000 DLH x P 4/DLH 200,000 P 17,000UF (22)
(24) 8,000 F (FOH Volume Var)
SH x SFOR* 52,000 DLH x P 4/DLH 208,000

* SFOR
First get, the FOR per hour, not per unit. What was given was the FOR rate per unit.
VOR per hour = (25,000 units x P 8 / unit) / 50,000 DLH
VOR per hour = P 200,000/ 50,000 DLH
VOR per hour = P 4 per DLH

23. The fixed overhead budget or spending variance amounts to

a. P 0 c. P 17,000 unfavorable
b. P 8,000 unfavorable d. P 25,000 unfavorable

24. The fixed overhead volume or capacity variance amounts to

a. P 8,000 favorable c. P 25,000 unfavorable

b. P 8,000 unfavorable d. P 25,000 favorable

25. Using the two-variance method, the controllable variance is

a. P 21,680 unfavorable c. P 29,680 unfavorable

b. P 4,680 unfavorable d. P 15,600 unfavorable

AFOH P 541,680
P 29,680 UF Controllable Variance
BASH* 512,000

y = a + bx
y = 200,000 + 6 (52,000 DLH)
y = 200,000 + 312,000
y = P 512,000

26. The following information is available from the Faith Company:

Actual factory overhead P 15,000
Fixed overhead expenses, actual P 7,200
Fixed overhead expenses, budgeted P 7,000
Actual hours 3,500
Standard hours 3,800
Variable overhead rate per DLH P 2.50
 Assuming that Faith uses a three-way analysis of overhead variances, what is the spending variance?
P 750 favorable

Solution:
(3-way analysis) – solution for spending variance only
AFOH P 15,000
P (750) Favorable Spending variance
BAAH 15,750 y = 7,000 + 2.50(3,500)

27. Information on Kenon Company’s direct material costs is as follows:

Standard unit price P 3.60
Actual quantity purchased 1,600
Standard quantity allowed for actual production 1,450
Materials purchase price variance – favorable P 240
What was the actual purchase price per unit, rounded to the nearest cent? P 3.45

Solution:
AQ x AP 1,600 x P 3.45 = P 5,520 (workback)
P (240) F - given
AQ x SP 1,600 x P 3.60 = P 5,760
28. For the month of April, Thorp Company’s records disclose the following data relating to direct labor:
Actual cost P 10,000
Rate variance 1,000 favorable
Efficiency variance 1,500 unfavorable
Standard cost P 9,500
For the month of April,, actual direct labor hours amounted to 2,000. In April, Thorp’s standard direct labor rate per
hour was P 5.50

Solution:

AH x AR 2,000 x P 5.00 P 10,000

P (1,000) favorable - given
AH x SR 2,000 x P 5.50 11,000 (workback) after determining P 11,000, divide by 2,000
1,500 unfavorable - given
SH x SR 9,500

29. Sullivan Corporation’s direct labor costs for the month of March were as follows:
Standard direct labor hours 42,000
Actual direct labor hours 40,000
Direct labor rate variance – favorable P 8,400
Standard direct labor rate per hour P 6.30
What was Sullivan’s total direct labor payroll for the month of March? P 243,600

AH x AR 40,000 x P 6.09 P 243,600 (workback)

P (8,400) favorable - given
AH x SR 40,000 x P 6.30 252,000

SH x SR 42,000 x P 6.30 9,500

30. Mars Company ends the month with a volume variance of P 6,360 unfavorable. If budgeted fixed overhead was P
480,000, overhead was applied on the basis of 32,000 budgeted machine hours, and budgeted variable factory
overhead was P 170,000, what was the actual hours for the month? 31,576

Solution:

The volume variance arises from the difference between budgeted fixed overhead and the fixed overhead applied
at the standard rate based on the standard input allowed for actual output. The Overhead rate is P 15 per machine
hour (P 480,000/32,000).
Volume Variance P 6,360 UF = Budgeted Fixed O/H - Applied Fixed Overhead
 P 6,360 = P 480,000 - (P15 x AH)
P 15 x AH = P 480,000 - P 6,360
= P 473,640 / P 15 AH
AH = 31,576

31. Mola Company manufactures one product with a standard direct labor cost of 4 hours at P 12.00 per hour. During
June 1,000 units were produced using 4,100 hours at P 12.20 per hour. The unfavorable direct labor efficiency
variance was P 1,200

Solution:
AH x SR 4,100 x P 12.00 = P 49,200
P 1,200 DL Efficiency Variance
SH x SR 4,000 x P 12.00 = 48,000

32. New Technology Company uses a predetermined factory overhead application rate based on direct labor cost. For the
year ended December 31, Neil’s budgeted factory overhead was P 600,000, based on budgeted volume of 50,000
direct labor hours at a standard direct labor rate of P 6 per hour. Actual factory overhead amounted to P 620,000, with
actual direct labor cost of P 325,000. For the year, overapplied factory overhead was P 30,000

AFOH P 620,000
P 30,000 Favorable/ overapplied Factory overhead
SFOH (P 325,000 x 200%*) 650,000

*FOH rate = P 600,000/(50,000 x P 6)

= 200%