College of Accounting Education

3F, Business & Engineering Building

Matina, Davao City
Phone No.: (082)300-5456 Local 137

STANDARD COSTING AND VARIANCE ANALYSIS

Multiple Choice
1. Standard cost system
a. are generally acceptable for external financial statements.
b. allows management to evaluate the performance of the manufacturing departments
c. is the same as normal costing.
d. uses only information from historical data of the manufacturing department.
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
3. 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.
4. The absolute minimum cost that would be possible under the best operating conditions is a description of which type
of standard cost?
a. Theoretical
b. Normal
c. Practical
d. Currently attainable
5. The best basis upon which cost standards should be set to measure controllable production inefficiencies is
a. engineering standards based on ideal performance.
b. normal capacity.
c. recent average historical performance.
d. engineering standards based on attainable performance.

EXERCISES
Problem 1
Production 50,000 plastic microcomputer cases
Standard variable cost per unit (per case):
DM 2 LB @ P1 P2.00
DL .10 hour @ P15 1.50
Variable OH .10 hour @ P5 0.50
P4.00
Fixed OH P80,000
(monthly budget – 40,000 cases or 4,000 standard hours)
Actual:
DM purchased 200,000 lbs @ P1.20 P240,000
DM used 110,000 lbs @ P1.20 132,000
DL 6,000 hours @ P14 84,000
Fixed OH 75,000
Variable OH 36,000
Compute the following variances:
A. DIRECT MATERIALS
AQ x AP 200,000 lb x P1.20 P 240,000
AQ x SP 200,000 lb x P1.00 (200,000)
Materials Price Variance P 40,000 Unfavorable (U)
AQ x SP 110,000 lb x P1.00 P 110,000
SQ x SP 50,000 units x 2 lb = 100,000 lb
100,000 lb x P1.00 (100,000)
Materials Quantity Variance 10,000 Unfavorable (U)
TOTAL MATERIALS VARIANCE P 50,000 Unfavorable (U)

B. DIRECT LABOR
AH x AR 6,000 hr x P14 P 84,000
AH x SR 6,000 hr x P15 (90,000)
Labor Rate Variance P 6,000 Favorable (F)
AH x SR 6,000 hr x P15 P 90,000
SH x SR 50,000 units x .10 hr = 5,000 hr
5,000 hr x P15 (75,000)
Labor Efficiency Variance 15,000 Unfavorable (U)
TOTAL LABOR VARIANCE P 9,000 Unfavorable (U)

C. FACTORY OVERHEAD
MYRA T. MIRAFLORES, CPA Page 1 of 5
 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

2 WAY
AFOH Actual FOH
BASH budget allowance based on standard hours
Fixed normal capacity x FR
Variable SH x VR
SH x SR
---------------

AFOH Fixed OH P 75,000

Variable OH 36,000 P 111,000
BASH Fixed OH P 80,000
Variable [5,000 hr x P5] 25,000 (105,000)
Controllable Variance – manager/supervisor has some control over the P 6,000 Unfavorable (U)
combined spending and efficiency variance
BASH P 105,000
SH x SR Fixed OH [P80,000/4,000 hr=P20]
5,000 hr x P20 P 100,000
Variable [5,000 hr x P5] 25,000 (125,000)
Volume Variance (denominator variance) – result of production at an 20,000 Favorable (F)
activity level different from that used in the denominator to calculate Fixed
FOH application rate
TOTAL OH VARIANCE P 14,000 Favorable (F)
__________________________________________________________
3 WAY (BUCE)
AFOH Actual FOH
BAAH budget allowance based on actual hours
Fixed
Variable AH x VR
AH x SR
SH x SR
---------------

AFOH Fixed OH P 75,000

Variable OH 36,000 P 111,000
BAAH Fixed OH P 80,000
Variable [6,000 hr x P5] 30,000 (110,000)
Budget/Spending Variance P 1,000 Unfavorable (U)
BAAH P 110,000
AH x SR Fixed OH [P80,000/4,000 hr=P20]
6,000 hr x P20 P 120,000
Variable [6,000 hr x P5] 30,000 (150,000)
Capacity Variance 40,000 Favorable (F)
AH x SR P 150,000
SH x SR Fixed OH [P80,000/4,000 hr=P20]
5,000 hr x P20 P 100,000
Variable [5,000 hr x P5] 25,000 (125,000)
Efficiency Variance 25,000 Unfavorable (U)
TOTAL OH VARIANCE P 14,000 Favorable (F)
______________________________________________________
3 WAY (SVV)
AFOH Actual FOH
BAAH budget allowance based on actual hours
Fixed
Variable AH x VR
BASH budget allowance based on standard hours
Fixed normal capacity x FR
Variable SH x VR
SH x SR
---------------

AFOH Fixed OH P 75,000

Variable OH 36,000 P 111,000
BAAH Fixed OH P 80,000
Variable [6,000 hr x P5] 30,000 (110,000)
Budget/Spending Variance P 1,000 Unfavorable (U)
BAAH P 110,000

MYRA T. MIRAFLORES, CPA Page 2 of 5

 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

BASH Fixed OH P 80,000

Variable [5,000 hr x P5] 25,000 (105,000)
Variable Efficiency Variance 5,000 Unfavorable (U)
BASH P 105,000
SH x SR Fixed OH [P80,000/4,000 hr=P20]
5,000 hr x P20 P 100,000
Variable [5,000 hr x P5] 25,000 (125,000)
Volume Variance 20,000 Favorable (F)
TOTAL OH VARIANCE P 14,000 Favorable (F)
__________________________________________________
4 WAY

Variable Overhead Variance Fixed Overhead Variance

Actual Variable OH Actual Fixed OH
AH x VR Budgeted Fixed OH at normal capacity
SH x VR SH x FR
---------------

AVOH Variable OH P 36,000

AH x VR Variable [6,000 hr x P5] 30,000
Variable Spending Variance P 6,000 Unfavorable (U)
AH x VR Variable [6,000 hr x P5] P 30,000
SH x VR Variable [5,000 hr x P5] 25,000
VOH Efficiency Variance 5,000 Unfavorable (U)
Total Variable OH Variance P 11,000 Unfavorable (U)
AFixedOH Fixed OH P 75,000
BFixed OH @normal capacity 80,000
Fixed Spending Variance P 5,000 Favorable (F)
BFixed OH @normal capacity P 80,000
SH x FR Fixed OH [P80,000/4,000 hr=P20]
5,000 hr x P20 100,000
Volume Variance 20,000 Favorable (F)
Total Fixed OH Variance P 25,000 Favorable (F)
TOTAL OH VARIANCE P 14,000 Favorable (F)

Problem 2
Materials cost in producing 400 units
Material Qty (lb) Price/lb (SUC) Total Cost
A 400 P10 P4,000
B 500 P 5 2,500
C 100 P 8 800
1,000 P7,300
Actual units produced: 16,000 units
Material Qty (lb) Price/lb Total Cost
A 18,000 P10.20 P183,600
B 19,000 P 4.90 93,100
C 5,000 P 8.05 40,250
42,000 P316,950
Compute the following:
1. Materials Price Variance
2. Materials Mix Variance
3. Materials Yield Variance

MATERIALS MIX
AQ x AP Materials Price Variance
AMI x SUC Materials Mix Variance
AMI x SIC Materials Yield Variance
AO x SOC ------------------------------------------
Net Materials Cost Variance
SIC = total standard material cost = P7,300/1,000 lb = P7.30/lb
standard input quantity
SOC = total standard material cost = P7,300/400 units = P18.25/unit
standard output quantity
SUC = standard unit cost
-------------------
AQ x AP P 316,950

MYRA T. MIRAFLORES, CPA Page 3 of 5

 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

AMI x SUC A 18,000 lb x P10 = P180,000

B 19,000 lb x P 5 = P 95,000
C 5,000 lb x P 8 = P 40,000 315,000
Materials Price Variance P 1,950 Unfavorable (U)
AMI x SUC P 315,000
AMI x SIC 42,000 lb x [P7,300/1,000 lb = P7.30/lb] 306,600
Materials Mix Variance 8,400 Unfavorable (U)
AMI x SIC 306,600
AO x SOC 16,000 units x [P7,300/400 units = P18.25/unit] 292,000
Materials Yield Variance 14,600 Unfavorable (U)
NET MATERIALS COST VARIANCE P 24,950 Unfavorable (U)

Problem 3
MAGS Corp. uses two different types of labor to manufacture its product. The types of labor, Mixing and Finishing, have the
following standards:
Labor Type Std Mix Std Hourly Rate Std Cost
Mixing 500 hours P10 P5,000
Finishing 250 hours P 5 P1,250
Yield: 4,000 units
During January, the following actual production information for 10 batches was provided:
Labor Type Actual Mix
Mixing 4,500 hours
Finishing 3,000 hours
Yield: 36,000 units
Compute the following:
1. Labor Mix Variance
2. Labor Yield Variance

LABOR MIX
SR x AH @ actual mix Labor Mix Variance
SR x AH @ standard mix Labor Yield Variance
SR x SH @ standard mix ----------------------------------------
Net Labor Cost Variance
Yield Variance = (EY-AY) x SLC/u
SLC/u = standard labor cost
standard yield

SR x AH @ Actual Hours @ actual mix

actual mix M 4,500 hr
F 3,000 hr
SR x AH
M P10/hr x 4,500 hr = P45,000
F P 5/hr x 3,000 hr = 15,000
P 60,000
SR x AH @ Actual Hours @ standard mix
standard mix M 500 hr x 10 batches = 5,000 hr
F 250 hr x 10 batches = 2,500 hr
SR x AH
M P10/hr x 5,000 hr = P50,000
F P 5/hr x 2,500 hr = 12,500 62,500
Labor Mix Variance P 2,500 Favorable (F)
SR x AH @ P 62,500
standard mix
SR x SH @ standard mix
standard mix = 36,000 units/4,000 units per batch
= 9 batches
Standard Hours @ standard mix
M 500 hr x 9 batches = 4,500 hr
F 250 hr x 9 batches = 2,250 hr
SR x AH
M P10/hr x 4,500 hr = P45,000

MYRA T. MIRAFLORES, CPA Page 4 of 5

 College of Accounting Education
3F, Business & Engineering Building
Matina, Davao City
Phone No.: (082)300-5456 Local 137

F P 5/hr x 2,250 hr = 11,250 56,250

Labor Yield Variance 6,250 Unfavorable (U)
NET LABOR COST VARIANCE P 3,750 Unfavorable (U)

Let’s test:
Expected Yield = 10 batches x 4,000 units/batch = 40,000 units
Actual Yield = 36,000 units
SLC/u = standard labor cost = P5,000 (M) + P1,250 (F) = P 6,250 = P1.5625/unit
standard yield 4,000 units 4,000 units
Yield Variance = [Expected Yield – Actual Yield] x SLC/u = [40,000 – 36,000 = 4,000] x P1.5625/unit = P 6,250 U

PROCEED TO DO-IT-YOURSELF

MYRA T. MIRAFLORES, CPA Page 5 of 5