Sample Problems Variances.

1. (Master Budget and Flexible Budget) A company uses flexible budgeting for the control
of costs. The company’s annual master budget includes P324,000 for fixed production
supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to be
incurred uniformly throughout the year. During the month of September, 15,750 units
were produced, and production supervisory salaries incurred were P28,000.
a. A performance report for September would reflect a budget variance of?
b. A performance report for September would reflect a flexible variance of ?
Answer: (a)1,000U (b)350F

2. (Master and Flexible Budget) A company’s master budget projected the following
information: Sales (25,000 units) – P250,000; Manufacturing cost (1/3 fixed) – P120,000;
Other operating costs (all fixed) – P100,000. If the company actually sold 27,500 units.
a. The operating income under flexible budget will be?
b. Compute the sales volume variance.
Answer: (a) P47,000 (b) P17,000 Favorable

3. (Sales Variance) At the beginning of the year, a company budgeted to sell 600,000 units
at a price of P12 per unit. It actually sold 585,000 units at a price of P12.50 per unit.
Compute the sales price variance and sales volume variance.
Answer: P292,000F and P180,000U

4. (Sales Variance) A company expects to earn P240,000 in operating income on sales of

30,000 units. It actually earns P180,000 in operating income on sales of 26,000 units. If the
flexible budget operating income for 26,000 units of P208,000, what is the sales volume
variance?
Answer:P32,000U

5. (Sales Variance) The ABC Company sold 1,200 units at a sales price of P54 per unit in its
most recent fiscal year. In the same year, it had a favorable sales volume variance of
P10,000 and a favorable sales price variance of P4,800. What is ABC’s budgeted sales
price and its master(static) budget variance based on sales price for that year?
Answer: P50 and P14,800F

6. (Sales Variance) The following information is available for the month of July
Master Budget Actual
Units 4,000 3,800
Sales revenue P60,000 P53,200
Variable Manufacturing cost 16,000 19,000
Fixed Manufacturing cost 15,000 16,000
Variable selling and admin expense 8,000 7,600
Fixed selling and admin expense 9,000 10,000
The sales volume variance for the month of July would be?
Answer: P1,800U

7. (Sales Variance) The ABC Company sold 600 units in its most recent fiscal year. It
expected to sell its product for P60 per unit that year. In that year, it had a favorable
master (static) budget variance based on sales price of P4,200 and an unfavorable
 sales price (flexible budget) variance of P1,800. What is ABC’s actual sales price and its
sales volume variance for that year?
Answer: P57 and P6,000F

8. (Sales Variance) The ABC Company has the following information for two of its products
Budgeted Actual
Units USP CM Units USP CM
Product 1 10,000 P25 P15 8,000 P29 P17
Product 2 6,000 P45 P32 7,000 P43 P28
a. Compute the Sales Price and Volume Variance for Product A, Product B and both
products if the basis is Selling price:
b. Compute the Sales price and Volume Variance for Product A, Product B and both
products if the basis is UCM
c. Compute the Sales Mix and Sales Quantity variance
Answer: (a) Product A – P32,000F; 50,000U; Product B – 14,000U; 45,000F; Both – P18,000F; 5,000U
(b) Product A- P32,00)F; 30,000U; Product B – 14,000U; P32,000F; Both – P18,000F; 2,000F
(c ) P23,375F; 21,375U

9. (Sales Variance) A company sells two products, Product E and F, and had the following
data for last month:
Product E Product F
Budget Actual Budget Actual
Unit Sales 5,500 6,000 4,500 6,000
UCM P4.50 P4.80 P10.00 P10.50
The company’s sales mix variance, sales quantity and sales volume variance will be
Answer:P3,300F; 13,950F and P17,250F

10. (Sales Variance) ABC Fashions sells a line of women’s dresses. ABC’s performance report
for November follows: The company uses a flexible budget to analyze its performance
and to measure the effect on operating income of the various factors affecting the
difference between budgeted and actual operating income.
Actual Budget
Dresses sold 5,000 6,000
Sales P235,000 P300,000
Variable Cost 145,000 180,000
Contribution Margin 90,000 120,000
Fixed Cost 84,000 80,000
Operating Income 6,000 40,000
Compute the sales quantity variance.
Answer: P20,000U

11. (Material Variance) ABC Company use the following information for May: Actual Cost –
4,600 @ P5.50 and Standard Cost – 4,500 @P6.00. Compute the Material Price and
Quantity Variance.
Answer: P2,300F and P6,000U

12. (Material Variance) ABC Company makes iron table and chair sets. During May, the
purchasing agent bought 12,800 pounds of scrap iron at P0.89 per pound. During the
month, 10,700 pounds of scrap iron were used to produce 300 table and chair sets. Each
 set requires a standard quantity of 35 pounds at a standard cost of P0.85 per pound.
Compute the material price, material quantity and material usage variance.
Answer: P512U; P1,955U; P170U

13. (Material Variance) In May ABC Company costs and quantities of paper consumed:
Actual unit purchase price – P0.075 per page; Standard quantity allowed for good
production – 195,800 pages; Actual quantity purchased during May – 230,000 pages;
Actual quantity used in May – 200,000 pages; Standard unit price – P0.080 per page.
Compute the Material Price, Material Quantity and Material Usage Variance.
Answer: P1,150F; P2,736U; P336U

14. (Labor Variance) The following data relate to direct labor costs for the current period:
Standard costs – 7,500 @P11.60; Actual Cost – 6,000 hrs @P12.00. Compute the Labor
Rate and Efficiency Variance.
Answer: P2,400U; P17,400F

15. (Labor Variance) During the month, 1,200 units of plates were produced. Actual direct
labor required was 650 direct labor hours at an actual total cost of P6,370. According to
the standard cost card for plates, half an hour of labor should be required per unit of
plates produced, at a standard cost of P10 per labor hour. Compute the Labor Rate
and Efficiency Variance.
Answer: P130F; P500U

16. (Mix and Yield) Actual Data:

Material A: 10,716 gallons purchased and used @ P1.50 per gallon
Material B: 17,484 gallons purchased and used @ P1.90 per gallon
Skilled Labor: 1,950 hours @ P11.90 per hour
Unskilled Labor: 1,300 hours @ P7.15 per hour

Standard Data: (Per drum)

Material A: 30.25 gallons @P1.25 per gallon
Material B: 24.75 gallons @P2.00 per gallon
Skilled Worker: 4 hours @P12 per hour
Unskilled Worker: 2 hours@ P7 per hour
During the current month Classic Cleaning Company manufactured 500 55-
gallon drums.
a. Compute the Material Price, Mix and Yield Variance
b. Compute the Labor Rate, Mix and Yield Variance
Answer: a. P930.60U; P3,595.50U; P1,111.25U (b) P195F; P1,050.83F; P2,745.83U

17. (Mix and Yield) A paint manufacturing plant has two white pigments that are
substitutable for the same product. Natural pigment costs P3/gallon, and artificial
pigment costs P1/gallon. Standards call for 60% natural and 40% synthetic, but the
actual ratio used was 50% of each. The actual total quantity of both ingredients was
30,000 gallons while the budgeted total quantity was 32,000 gallons. What is the mix
variance for these ingredients?
Answer: P6,000F
 18. (Mix and Yield) The ABC Company uses two different types of labor to produce its
product. In 20x8, ABC expected to produce 10,000 units but it actually produced 10,800
units. Information about labor usage is as follows:
Labor Type Standard Wage Standard Actual Wage Actual Hours
Rate Usage Rate
A P12.00 5 hours/unit P14.00 51,000 hours
B P20.00 3 hours/unit P19.00 34,000 hours
Based on this information, what is ABC’s labor yield variance for 20x8?
Answer: P21,000F

19. (Variance Adjustment) ABC received a report from the production and purchasing
departments with the following values for April:
• Actual materials quantity: 14,000 pounds
• Total actual costs: P18,450
• Standard materials quantity: 2.7 pounds/unit
• Standard price: P1.35/pound
• Units made: 5,200
Three days later, she got a correction report from the purchasing department that
they forgot to add shipping to the price of the materials. Shipping for April cost P585.
How much would ABC’s material price variance change for the month of April? Do not
round any calculations.
Answer: P585 Unfavorable

20. (Variance Adjustment) ABC received a report from the production and purchasing
departments with the following values of August:
• Actual material quantity: 6,200 pounds
• Total actual cost: P9,250
• Standard materials quantity: 1.25 pounds/unit
• Standard price: P1.50/pound
• Units made: 4,800
Two days later, ABC received a correction from the production department that they
found a missing order for 200 units, which means they made 5,000 units in August. How
much would ABC’s material quantity variance change for the month of August?
Answer:P375F

21. (Overhead Variances)The ABC Company allocates both variable manufacturing

overhead and fixed manufacturing overhead using direct labor hours as the allocation
base. ABC expected to produce 10,000 units during the year and to use two direct labor
hours to produce each unit. It budgeted P400,000 for variable manufacturing overhead
and P600,000 for fixed manufacturing overhead. ABC actually produced 12,000 units
and used 18,000 direct labor hours during the year. If ABC incurred P415,000 in variable
manufacturing overhead costs and P580,000 in fixed manufacturing overhead costs,
a. Compute the variable spending and efficiency variance
b. Compute the fixed spending and efficiency variance
Answer: (a) P55,000U; P120,000F (b) P20,000F; P120,000F
22. (Overhead Variances) The ABC Company allocates both variable manufacturing
overhead and fixed manufacturing overhead using DLH as the allocation base. ABC
expected to produce 40,000 units during the year and to use three direct labor hours to
produce each unit. It budgeted P600,000 for variable manufacturing overhead and
P1,200,000 for fixed manufacturing overhead. ABC produced 35,000 units and used
 115,000 DLH during the year. If ABC incurred P650,000 in variable manufacturing cost
and P950,000 in fixed manufacturing overhead costs, what is the variable
manufacturing overhead efficiency variance? P50,000 unfavorable
a. Compute the variable spending and efficiency variance
b. Compute the fixed spending and volume variance
Answer: (a) P75,000U and P50,000 U (b)P250,000F and P150,000F

23. (Overhead Variances) A manufacturer has an estimated practical capacity of 90,000

machine hours, and each unit requires two machine hours. The following data apply to
a recent accounting period: Actual variable overhead – P240,000; Actual fixed
overhead – P442,000; Actual machine hours worked – 88,000; Actual finished units
produced – 42,000; Budgeted variable overhead – P200,000; Budgeted fixed overhead
– P450,000.
a. Compute the Variable spending and efficiency variance
b. Compute the Fixed spending and volume variance
Answer: (a) P44,640U; P8,880U (b) P8,000F; P30,000U