V1 and V2 MAS-07 (Standard Costing With GP Variance Analysis) - Edited

ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY
CPA Review Batch 43  May 2022 CPA Licensure Examination  Weeks 6 - 7
MANAGEMENT ADVISORY SERVICES C. LEE  E. ARAÑAS  K. MANUEL
MAS-07: STANDARD COSTING WITH GP VARIANCE ANALYSIS

STANDARDS
 Standard costs are predetermined or targeted costs set by management for various purposes like product
costing, pricing, budgeting, cost control, motivation, and performance measurement.
 Standards are similar to budgeted amounts stated on a per unit basis, but standards differ from budgets in
that they actually appear in general ledger accounts, while budgeted amounts do not.
 Because of the impact of the fixed costs in most businesses, a standard costing system is usually not effective
unless the company uses a flexible budgeting system.
 Standards are developed for each factor of production (materials, labor and overhead) based on accounting,
engineering or statistical quality control studies and usually fit into one of the two (2) broad categories:
(1) IDEAL/THEORETICAL Standards – presume perfect efficiency and 100% capacity and hence not useful for
control purposes as they are not practically attainable.
(2) CURRENTLY ATTAINABLE/PRACTICAL Standards – based on higher-than-average levels of efficiency, but
are clearly achievable and hence typically used for employee motivation, product costing and budgeting.
 Standards based on historical information are not used as this practice may perpetuate past inefficiencies.
 Standards may be used by service and nonprofit organizations as well as manufacturing organizations.
 Standards can be used in both process costing and job-order costing systems.
 In manufacturing companies, standards are broadly classified into two (2) categories:
(1) QUANTITY Standard – usually indicates the quantity of raw materials or labor time required to produce
a unit of product. This is normally expressed per unit of output (e.g., 3 pieces per unit).
(2) COST Standard – usually indicates what the peso amount of the quantity standard should be. This is
normally expressed per unit of input (e.g., P 5.00 per piece).
STANDARD COST VARIANCE
 Standard costs are systematically pre-determined costs established by management to be used as a basis
for comparison with actual cost.
 Variance analysis explains the difference between standard costs and actual costs.
AC < SC: Favorable (credit balance)
VARIANCE = Actual Costs (AC) – Standard Costs (SC)
AC > SC: Unfavorable (debit balance)
 When standard costs are used for inventory valuation, variances are:
➢ If immaterial/insignificant: written-off to cost of goods sold
➢ If material/significant: allocated to ending work-in-process, finished goods, and cost of goods sold
 Under management by exception, managers focus attention on results that materially deviate from
expectations. Results that are close to expectations (e.g., immaterial variances) do not require investigation.
 Standard costing procedures: (1) establish standards, (2) measure actual performance, (3) compare
standards with actual performance, (4) take corrective actions, if needed (5) revise standards, if needed.
VARIANCE ANALYSIS: MATERIAL and LABOR COSTS
 DIRECT MATERIAL (DM) Variance = Actual Costs – Standard Costs = (AQ x AP) – (SQ x SP)
Materials Quantity Variance (MQV) = (AQ – SQ) SP
AQ – Actual Quantity
Materials Price Variance (MPV) = AQ (AP – SP)
AP – Actual Price
AQ x AP
Alternative MPV SQ – Standard Quantity
Solution  AQ x SP
SQ x SP MQV
DM Variance SP – Standard Price
 DIRECT LABOR (DL) Variance = Actual Costs – Standard Costs = (AH x AR) – (SH x SR)
Labor Efficiency Variance (LEV) = (AH – SH) SR
Labor Rate Variance (LRV) = AH (AR – SR) AH – Actual Hours
AR – Actual Rate
AH x AR
Alternative LRV SH – Standard Hours
Solution  AH x SR
SH x SR LEV
DL Variance SR – Standard Rate
 MATERIALS MIX and YIELD variances are normally calculated when production requires combining several
types of materials to produce a unit of product. In which case, over-all DM variance is analyzed as follows:
DIRECT MATERIAL (DM) Variance = Actual Costs – Standard Costs
TAQASP
Materials Price Variance (MPV) = AQ (AP – SP)
Total Actual Quantity at
Materials Mix Variance (MMV) = (AQ x SP) – TAQASP
Average Standard Price
Materials Yield Variance (MYV) = TAQASP – Standard Costs
 Mix and yield variances may also apply to direct labor, specifically in situations where various labor skills are
required to produce units of products.
 IMPORTANT NOTES on MATERIAL and LABOR VARIANCE ANALYSIS:
1. Materials PRICE variance (MPV) is also known as:
Materials spending variance, materials rate variance, materials money variance
2. Materials QUANTITY variance (MQV) is also known as:
Materials usage variance, materials efficiency variance
3. Materials usage variance is a quantity variance while materials price usage variance is a price variance.
4. Labor RATE variance (LRV) is also known as:
Labor price variance, labor spending variance, labor money variance
5. Labor EFFICIENCY variance (LEV) is also known as:
Labor hours variance, labor usage variance, labor quantity variance, labor time variance
6. Labor efficiency variance excludes idle time spent in the production. If any, idle time is separately
explained through the Idle Time Variance, which is regarded as unfavorable.
IDLE TIME variance = Idle Time x Standard Labor Rate
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ReSA – THE REVIEW SCHOOL OF ACCOUNTANCY MAS-07
Weeks 6-7: STANDARD COSTING with GP VARIANCE ANALYSIS
VARIANCE ANALYSIS: FACTORY OVERHEAD (FOH) COSTS

 1-way variance analysis:
FOH Variance = AFOH – SFOH AFOH: Actual FOH
SFOH: Standard FOH = SH x SR
Controllable variance = AFOH – BASH BASH: Budget Adjusted for Standard Hours
Volume variance = BASH – SFOH BASH = Budgeted FFOH + (SH x Variable FOH Rate)
FFOH: Fixed Factory Overhead
Spending variance = AFOH – BAAH BAAH: Budget Adjusted for Actual Hours
Efficiency variance = BAAH – BASH BAAH = Budgeted FFOH + (AH x Variable FOH Rate)
Volume variance = BASH – SFOH
Variable Spending variance = AFOH (V) – BAAH (V) AFOH (V): Actual Variable FOH
Fixed Spending variance = AFOH (F) – BAAH (F) AFOH (F): Actual Fixed FOH
Efficiency variance (variable) = BAAH – BASH BAAH (V): Actual Hours x Variable FOH Rate
Volume variance (fixed) = BASH – SFOH BAAH (F): Budgeted FFOH
 IMPORTANT NOTES on FACTORY OVERHEAD VARIANCE ANALYSIS

1. Standard Factory Overhead (SFOH) = Standard Hours (SH) x Standard FOH Rate (SR).
2. Under standard costing, SFOH is likewise referred to as the Applied Factory Overhead:
➢ AFOH > SFOH (applied FOH): FOH is under-applied, indicating an unfavorable variance
➢ SFOH (applied FOH) > AFOH: FOH is over-applied, indicating a favorable variance.
3. Budget Variance = Actual Cost – Budgeted Cost = Actual FOH (AFOH) – Budgeted FOH (BASH or BAAH)
➢ Under 2-way analysis where BASH is deducted from AFOH, budget variance = controllable variance
➢ Under 3-Way analysis where BAAH is deducted from AFOH, budget variance = spending variance
4. The term capacity variance is also used to mean the volume variance.
5. Volume variance is actually the fixed volume variance; there is no such thing as a variable volume or
variable capacity variance.
6. FOH Efficiency Variance is actually the Variable FOH Efficiency Variance. Other than ‘BAAH – BASH,’
variable overhead efficiency variance may also be computed based on:
Change in hours x variable FOH rate = (AH – SH) VR
7. FOH variances may classified into:
➢ Variable FOH Variances = Variable Spending Variance + (variable) Efficiency Variance
➢ Fixed FOH Variances = Fixed Spending Variance + (fixed) Volume Variance
8. Alternatively, another FOH variance analysis may include the following variances (NOTE: these variances
are not included in the CPA board exam syllabus for both subjects MAS and AFAR):
➢ IDLE capacity variance: BAAH – (AH x SR)
➢ TOTAL efficiency variance: ∆H x SR
➢ FIXED efficiency (effectiveness) variance: ΔH x FR (where: FR is the fixed FOH Rate)
9. The Manufacturing Efficiency Variance incorporates the effect of both FOH Efficiency Variance and Labor
Efficiency Variance. In some cases, the material quantity variance may also be included.
10. DM Variance + DL Variance + FOH Variance = Production or Manufacturing Cost Variance.
GROSS PROFIT VARIANCE ANALYSIS
Gross profit variance analysis is a useful tool in evaluating operational performance as gross profit must be
adequate enough to cover operating and other expenses and generate a desired amount of profit.
Sales = Unit Sales x Unit Selling Price
- Cost of Goods Sold = Unit Sales x Unit Cost
Gross Profit = Unit Sales x (Unit Selling Price – Unit Cost)
Gross Profit (GP) variance = GP (Actual/Current) – GP (Budget/Previous)
Favorable: If actual (current) GP is greater than budgeted (previous) GP.

Unfavorable: If actual (current) GP is less than budgeted (previous) GP.
Analysis:
PRICE Factor = Sales price variance = AQ x Δ SP = AQ (Actual SP – Budgeted SP)
COST Factor = Cost price variance = AQ x Δ CP = AQ (Actual CP – Budgeted CP)
VOLUME Factor = ΔQ x Budgeted Unit GP = (AQ – BQ) x Budgeted Unit GP
Sales volume variance = ΔQ x Budgeted SP
Cost volume variance = ΔQ x Budgeted CP
Alternative analysis:
Sales price variance = Actual Sales – AQ @ Budgeted SP
Sales variance Sales volume variance = AQ @ Budgeted SP – Budgeted Sales
Cost price variance = Actual CGS – AQ @ Budgeted CP
Cost variance Cost volume variance = AQ @ Budgeted CP – Budgeted CGS
Legend
AQ – Actual Quantity SP – Sales Price per unit CGS – Cost of Goods Sold
BQ – Budgeted Quantity CP – Cost Price per unit

EXERCISES: STANDARD COSTING with GROSS PROFIT VARIANCE ANALYSIS

1. Materials and Labor Variance Analysis
Jollibee Company has established the standard for a single unit of its product, CLICK Camera Tripod:
Inputs Standards
Direct materials 3 metallic bars at P 5 per bar
Direct labor 2 labor hours at P 10 per hour
 At the start of the year, the budget includes a planned production of 100 units of tripod based on
normal capacity.
 At the end of the year, actual production was 120 units of tripod, which resulted to using 400 bars of
metal, purchased at a cost of P 6 per bar.
REQUIRED:
1. Based on the BUDGETED production of 100 units:
A) How many bars must the company plan to use? (Budgeted quantity)
B) How much materials cost is included in the budget? (Budgeted materials cost)
2. Determine the actual cost of materials used.
3. Based on the ACTUAL production of 120 units:
A) How many bars should have been used? (Standard quantity)
B) How much materials cost should have been incurred? (Standard materials cost)
C) How many labor hours should have been spent? (Standard hours)
D) How much labor cost should have been incurred? (Standard labor cost)
4. Determine the following:
A) Materials budget variance
B) Materials standard cost variance
C) Materials quantity variance (MQV)
D) Materials price variance (MPV)
5. In the following year, Jollibee purchased 500 bars at a total cost of P 2,000 and 400 bars of these
were used; the standard quantity allowed for the actual production was 380 bars. Determine:
A) Total materials cost variance
B) Materials quantity variance
C) Materials price usage variance
D) Materials purchase price variance
E) If Jollibee has a favorable MPV and an unfavorable MQV, then this most likely results from
a. Machine efficiency problems
b. Product mix production changes
c. Purchase and use of lower-than-standard quality materials
d. Purchase and use of higher-than-standard quality materials
6. During the year, Jollibee paid a total payroll of P 2,200 to laborers, who rendered 200 labor hours
to produce the 120 units of Tripod. Determine the following:
A) Total labor cost variance
B) Labor efficiency variance (LEV)
C) Labor rate variance (LRV)
D) What is a possible reason Jollibee would experience an unfavorable LRV and favorable LEV?
a. Labor employed was heavily weighted towards higher-paid experienced workers
b. Workers assigned for the job were replaced by workers from other departments
c. Labor employed was heavily weighted towards low-paid unskilled workers
d. Defective materials extended the labor hours required to produce a single unit
2. Materials Price, Mix and Yield Variances

McDo produces the popular “3n1” face powder that has gone viral in various social media. McDo has in
its budget the following standards for one kilo of the “3n1” face powder:
Ingredients Standard Quantity
(Input) (Grams) Standard Unit Cost Standard Cost
Paminta 200 grams (20%) P 3.00 P 600
Gawgaw 700 grams (70%) P 4.00 P 2,800
Atsuete 100 grams (10%) P 5.00 P 500
TOTAL 1,000 grams (100%) P 3,900
McDo reported the following production and cost data for the January 2022 operations:
Ingredients Actual Quantity
(Input) (Grams) Actual Unit Price Actual Cost
Paminta 45,000 P 4.00 P 180,000
Gawgaw 125,000 P 3.00 P 375,000
Atsuete 30,000 P 6.00 P 180,000
TOTAL 200,000 P 735,000
McDo produced 190 kilos of “3n1” face powder in January 2022.
REQUIRED:
1. Total materials cost variance
2. Materials price variance
3. Material mix variance
4. Materials yield variance

3. Factory Overhead Budget

Mang Inasal Company shows the following data regarding its factory overhead:
Flexible Budget Formula: FOH = 20,000 + 1 X where: X – number of labor hours
• Standard: 1 unit of product requires 4 labor hours
• Normal Capacity: 2,500 units
• Budgeted Hours: A) ________ hours
Fixed Overhead (FFOH) B) _______ Fixed Overhead Rate (FR) E) _____
Variable Overhead (VFOH) C) _______ Variable Overhead Rate (VR) F) _____
Total Budgeted Overhead D) _______ Standard Overhead Rate (SR) G) _____
REQUIRED:
1. Compute for the missing amounts.
2. What is the budgeted FOH if adjusted based on 7,500 actual hours (BAAH)?
3. What is the budgeted FOH if adjusted based on 8,000 standard hours (BASH)?
4. 2-way Factory Overhead Variance Analysis

The normal capacity of Chowking Company is 12,000 labor hours per month. At normal capacity, the
standard factory overhead rate is P 8 per labor hour based on P 72,000 of budgeted fixed cost per month
and a variable cost rate of P 2 per labor hour. During January, Chowking operated at 12,500 labor hours,
with actual factory overhead cost of P 75,000. The number of standard labor hours allowed for the
production actually attained is 10,000.
REQUIRED: 1. Overall FOH variance 2. FOH controllable variance 3. FOH volume variance
5. 2-way, 3-way and 4-way Factory Overhead Variance Analysis

BonChon Company provides the following production data:
Standard factory overhead cost per unit of product: 4 hours at P 3.00 per hour
A) Budgeted fixed factory overhead P 20,000
B) Normal capacity 2,500 units
C) Actual production 2,000 units
D) Actual hours 7,500 hours
E) Actual factory overhead incurred (60% fixed) P 25,000
REQUIRED: Determine the following:
1. Budgeted factory overhead 6. Volume variance
2. Standard factory overhead 7. Spending variance
3. Budgeted FOH based on actual hours 8. Efficiency variance
4. Budgeted FOH based on standard hours 9. Variable spending variance
5. Controllable variance 10. Fixed spending variance
6. Factory Overhead Variance Analysis - Budget, Variable & Fixed Variances

Assume the same data in item number 5:
One-way Two-way Three-way Four-way
AFOH: P 25,000 Con = S = S (V) =
SFOH: P 24,000 Vol = ________ E = S (F) =
FOH Var: P 1,000 U P 1,000 U Vol = _________ E (V) =
P 1,000 U Vol (F) = _________
P 1,000 U
ADDITIONAL REQUIREMENTS (continued from item number 5):
11. Budget (flexible) variance (2-way) 14. Fixed volume variance
12. Budget (flexible) variance (3-way) 15. Variable FOH variance
13. Variable controllable variance 16. Fixed FOH variance
7. Materials, Labor and Overhead Variances (Comprehensive Problem, Reconstruction)

 Standard variable costs per unit:
A) Materials: 4 pounds @ (1) ______ (2) ______
B) Direct Labor: (3) ______ hours @ P 12.00 P 6.00
C) Variable overhead: P 8 per direct labor hour (4) ______
 Production 8,000 units
 Materials purchases, 32,000 pounds P 62,000
 Materials used at standard prices, 31,200 pounds (5) ________
 Direct labor (actual): (6) _______ hours P 47,200
 Material purchase price variance P 2,000 adverse
 Material use variance (7) ________
 Direct labor rate variance P 2,000 favorable
 Direct labor efficiency variance (8) ________
 Variable overhead spending variance P 1,500 credit
 Variable overhead efficiency variance (9) ________
 Actual variable overhead cost (10) ________
REQUIRED:
Compute for the missing amounts (1) to (10).

8. GP Variance Analysis with Complete Information

KFC Company prepared the following budgetary information for July 2022:
Sales (12,000 units) P 432,000
Cost of Goods Sold 288,000
Gross Profit P 144,000
In July, actual operations resulted in the production and sale of 13,000 units which were sold for a
selling price of P 34 per unit. The unit cost of goods sold increased by P 3.
REQUIRED:
1. Overall GP variance
2. Sales price variance
3. Sales volume variance
4. Cost price variance
5. Cost volume variance
9. GP Variance Analysis with Incomplete Information
Burger King Company has requested you to determine the cause of the difference between its 2021 and
2022 gross profit based on the following data:
2021 2022
Sales P 200,000 P 252,000
Cost of Goods Sold 120,000 180,000
Gross Profit P 80,000 P 72,000
No additional data was made available except that unit sales increased by 20% in 2022.
REQUIRED:
1. Overall GP variance
2. Price factor
3. Cost factor
4. Volume factor
10. Supplemental Lecture: Strategic Analysis to Operating Income (Oct/Dec 2021 CPALE)
Greenwich Company uses several pounds of materials to produce a single product. 2021 and 2022
operating incomes are shown as follows:
2021 2022
Revenues (2021: 1,000 units x P 26) P 26,000
(2022: 1,100 units x P 25) P 27,500
Expenses:
Materials (2021: 400 lbs. x P 10) 4,000
(2022: 420 lbs. x P 12.50) 5,250
Others (Conversion, Selling, Etc.) 15,000 15,000
Operating Income P 7,000 P 7,250
Aside from materials, other costs (conversion, selling, etc.) remain stable since adequate capacity exists
to support 2022 output and customers.
REQUIRED: Analyze the 2022 increase in operating income of P 250 based on the following:
1. GROWTH component
A) Revenue effect
B) Cost effect
2. PRICE-RECOVERY component
A) Revenue effect
B) Cost effect
3. PRODUCTIVITY component
4. Determine the net effect (change in operating income) due to:
A) Growth component
B) Price-Recovery component
C) Productivity component
2021 GROWTH PRICE-RECOVERY PRODUCTIVITY 2022

Amounts Component Component Component Amounts
Revenues P 26,000 P 27,500
Costs 19,000 20,250
Operating Income P 7,000 P 7,250

WRAP-UP EXERCISES
1. Determine the FALSE statement about standard costing.
a. Standard costing is compatible with both job order costing and process costing.
b. Standard costs usually appear in the general ledger while budgeted costs do not.
c. A variance that has a debit balance generally indicates an unfavorable performance.
d. Unfavorable variances should be reviewed, but significant favorable variances need not be
reviewed.
2. When used for inventory valuation, standard cost variances with material amounts are closed to the
a. Cost of goods sold only
b. Cost of goods sold and finished goods inventory
c. Cost of goods sold, finished goods inventory and work in process
d. Cost of goods sold, finished goods inventory, work in process and direct materials
3. Which department is usually held responsible for an unfavorable materials price variance?
a. Production c. Engineering
b. Purchasing d. Materials handling
4. In standard costing, materials quantity variances are the responsibility of
a. Purchasing and sales c. Production and industrial engineering
b. Sales and industrial engineering d. Purchasing and industrial engineering
5. Which set of terms describes the same type of variance?
a. Price variance, rate variance, use variance
b. Price variance, rate variance, efficiency variance
c. Use variance, efficiency variance, quantity variance
d. Use variance, efficiency variance, spending variance
Items 6 and 7 are based on the following information
The standard for each finished unit of product allows for 3 pounds of plastic at P 0.72 per pound. During
December, 4,500 pounds of plastic were bought at P 0.75 per pound, and used 4,100 pounds in the
production of 1,300 finished units of product.
6. What is the materials quantity variance (MQV) for December?
a. P 144 favorable c. P 432 favorable
b. P 144 unfavorable d. P 432 unfavorable
7. What is the materials price variance (MPV) for December?
a. P 135 favorable c. P 123 favorable
b. P 135 unfavorable d. P 123 unfavorable
8. A debit balance in the labor efficiency variance indicates that
a. Standard hours exceed actual hours c. Actual hours exceed normal hours
b. Actual hours exceed standard hours d. Normal hours exceed actual hours
9. The direct labor costs for the month of January 2022 were as follows:
Actual direct labor hours 20,000
Standard direct labor hours 21,000
Direct labor rate variance, unfavorable P 3,000
Total payroll P 126,000
What was the direct labor efficiency variance?
a. P 6,000 favorable c. P 6,150 unfavorable
b. P 6,150 favorable d. P 6,300 unfavorable
10. An unfavorable labor efficiency variance could be caused by a
a. Unfavorable materials usage variance
b. Unfavorable fixed overhead volume variance
c. Favorable variable overhead spending variance
d. Unfavorable variable overhead spending variance
11. Under the two-variance method for analyzing FOH, budget or controllable variance is computed by
subtracting from actual FOH costs incurred the
a. Budgeted FOH based on actual hours c. Budgeted FOH based on standard hours
b. Budgeted FOH based on normal hours d. Budgeted FOH based on budgeted hours
12. Which of the following is considered as a non-controllable FOH variance?
a. Variable spending variance c. Efficiency Variance
b. Fixed spending variance d. Volume Variance
13. The FOH variances were determined as follows:
Variable overhead spending variance P 3,500 F
Variable overhead efficiency variance P 4,000 U
Fixed overhead spending variance P 5,000 F
Fixed overhead volume variance P 6,500 U
What was overhead controllable variance?
a. P 500 U c. P 4,500 F
b. P 1,500 U d. P 5,500 U
14. Assuming the same data in item 13, what is the total overhead variance?
a. P 2,000 over-applied c. P 3,500 under-applied
b. P 2,000 under-applied d. Cannot be determined from given info
15. How do you call the sum of materials variance, labor variance, and overhead variance?
a. Mix variance c. Volume variance
b. Yield variance d. Production cost variance

SELF-TEST QUESTIONS - with suggested answers

(Sources: CMA/CIA/RPCPA/AICPA/Various test banks)
1. Which of the following is a purpose of standard costing?
B a. To replace budgets and budgeting
b. To simplify costing procedures and expedite cost reports
c. To eliminate under/over applied factory overhead at the end of period
d. To use them as a basis for product costing for external reporting purposes
2. A primary purpose of using a standard cost system is
B a. To minimize the cost per unit of production
b. To provide a distinct measure of cost control
c. To make things easier for managers in the production facility
d. To minimize recording of certain recurring business transactions
3. Standard costs are LEAST useful for
D a. Measuring production efficiency c. Estimating future costs
b. Simplifying costing procedures d. Determining minimum inventory levels
4. Which of the following is true concerning standard costs?
A a. If properly used, standards can help motivate employees.
b. Standard costs are difficult to use with a process-costing system.
c. Standard costs are estimates of costs attainable only under the most ideal conditions, but rarely
practicable.
d. Unfavorable variances, when material in amount, should be investigated, but favorable variances need
not be investigated.
5. A company using very tight standards in standard cost system should expect that
B a. No incentive bonus will be paid
b. Most variances will be unfavorable
c. Employees will be strongly motivated to attain the standards
d. Costs will be controlled better that if lower standards were used
6. The materials cost variance is composed of
B a. Quantity and efficiency variances c. Price and mix variances
b. Quantity and price variances d. Mix and yield variances
7. What is the variation in the use of materials at actual prices and use of materials at standard prices?
A a. Materials price variance c. Materials mix variance
b. Materials usage variance d. Materials yield variance
8. Lee Company installs solar panels on residential houses. The standard material cost for Type-C house is P 1,250 based
on 1,000 units at a cost of P 1.25 each. During April, Lee Company installed solar panels on 20 Type-C houses, using
22,000 units of materials at a cost of P 1.20 per unit, and a total cost of P 26,400. What is Lee Company’s materials
spending (price) variance?
B a. P 1,000 favorable c. P1,400 unfavorable
b. P 1,100 favorable d. P2,500 unfavorable
9. Information on Beatle Company’s direct materials cost is as follows:
Actual units of direct materials used 20,000
Actual direct materials costs 40,000
Standard price per unit of direct materials P 2.10
Direct material quantity variance, favorable P 3,000
What was Beatle’s materials price variance?
C a. P 1,000 favorable c. P 2,000 favorable
b. P 1,000 unfavorable d. P 2,000 unfavorable
10. Information on Termites 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 centavo?
C a. P 3.06 c. P 3.45
b. P 3.11 d. P 3.75
11. If a company follows the practice of isolating variance at the earliest point in time, what would be the appropriate time
to isolate and recognize a direct material price variance?
B a. When material is issued to the requesting department or division
b. When material is purchased
c. When material is used in production
d. When purchase order is originated
12. A credit balance in the materials price variance indicates that
B a. Actual price exceeds standard price c. Actual quantity exceeds standard quantity
b. Standard price exceeds actual price d. Standard quantity exceeds actual quantity
13. Roach Company manufactures tables with glass tops. The standard material cost for the glass used per table is P7.80
based on six square-feet of vinyl at a cost of P 1.30 per square-foot. A production run of 1,000 tables in 2021 resulted
to usage of 6,400 square-feet of vinyl at a cost of P 1.20 per square-foot, a total of P 7,680. What was the materials
usage variance resulting from the above production run?
C a. P 120 favorable c. P 520 unfavorable
b. P 480 unfavorable d. P 640 favorable

14. The Centipede Company uses standard costing. The following data are available for October:
Actual quantity of direct materials used 23,500 pounds
Standard price of direct materials P 2 per pound
Material quantity variance P 1,000 unfavorable
What is the standard quantity of materials allowed for October production?
A a. 23,000 pounds c. 24,500 pounds
b. 24,000 pounds d. 25,000 pounds
15. A company uses a standard costs system to account for its only product. The materials standard per unit was 4 pounds
at P 5.10 per pound. Operating data for April were as follows:
Materials used 7,800 lbs.
Cost of materials used P 40,950
Number of finished unit 2,000
What was the materials usage variance for April?
A a. P 1,020 favorable c. P 1,170 unfavorable
Items 16 to 18 are based on the following information
Caterpillar Co. purchases components from subcontractors for assembly into complete radios. Each radio requires 3
units of Part X at a standard cost of P 2.90 per unit. During June, the following data were made available:
Purchases (P 36,000) 12,000 units
Consumed in manufacturing 10,000 units
Radios manufactured 3,000 units
16. During June, the company incurred a materials purchase-price variance of
C a. P 900 unfavorable c. P 1,200 unfavorable
b. P 900 favorable d. P 1,200 favorable
17. During June, the company incurred a materials efficiency variance of
A a. P 2,900 unfavorable c. P 8,700 unfavorable
b. P 2,900 favorable d. P 8,700 favorable
18. What is the amount that will be shown on a flexible budget for Part X usage during the month of June?
A a. P 26,100 c. P 29,000
b. P 27,000 d. P 36,000
19. The following data relate to direct labor costs for the current period:
Standard costs 10,000 hours at P 20
Actual costs 9,800 hours at P 19.50
What was the direct labor efficiency variance?
20. Amoeba Corporation’s direct labor information for product C for the month of October is as follows:
Standard rate P 6.10 per hour
Actual rate paid P 6.00 per hour
Standard hours allowed for actual production 1,500 hours
Labor efficiency variance P 600 unfavorable
What is the actual hours worked?
C a. 1,400 c. 1,598
b. 1,402 d. 1,600
21. Worm 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 6.50
What was Worm’s direct labor payroll for the month of March?
C a. P 243,000 c. P 251,600
b. P 244,000 d. P 260,000
22. Leech Company’s operations for April disclosed the following data relating to direct labor:
Actual cost P 10,000
Rate variance (favorable) 1,000
Efficiency variance (unfavorable) 1,500
Standard cost P 9,500
Actual direct labor hours for April amounted to 2,000. What was the standard direct labor hourly rate?
A a. P 5.50 c. P 4.75
b. P 5.00 d. P 4.50
23. The following is a standard cost variance analysis report on direct labor for 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 P 15,345 P 15,675 P 15,000
Protex P 6,754 P 7,000 P 6,600
Benz P 19,788 P 18,755 P 19,250
CT-40 P 3,370 P 3,470 P 2,650
Total P 48,500 P 48,600 P 46,600
What is the total (flexible budget) direct labor variance for the division?
B a. P 100 favorable c. P 1,900 favorable

24. In determining the standard factory overhead rate, which level of capacity is used?
C a. Maximum capacity c. Normal capacity
b. Practical capacity d. Expected actual capacity
25. Which level of capacity if used would result into the lowest fixed overhead application rate?
A a. Theoretical capacity c. Normal capacity
b. Practical capacity d. Expected actual capacity
26. The flexible budget of Spider Company is summarized below:
Percent of normal operating capacity 80% 90% 100% 110%
Variable overhead P 21,000 P 23,000 P 25,000 P 27,000
Fixed overhead 50,000 50,000 50,000 50,000
Total factory overhead P 71,000 P 73,000 75,000 P 77,000
100,000 of units of product are produced when the company operates at its normal capacity. The standard labor time
per unit is 15 minutes. Actual production for the year was 90,000 units of product in 44,000 hours. What is the standard
variable factory overhead rate per hour?
A a. 1.00 c. 4.00
b. 1.25 d. 5.00
NOTE: Based on 100% operating capacity, the variable rate is: P 25,000 ÷ 25,000 hours = P 1
Flexible budget formula: FOH = 50,000 + 1 X, where ‘X’ is based on the number of hours.
27. Using data in No. 26, what is the budgetary factory overhead adjusted to standard hours?
C a. 22,500 c. 72,500
b. 50,000 d. 75,000
28. Information on Caterpillar Company’s overhead costs is as follows:
Standard applied overhead P 80,000
Budgeted overhead based on standard direct-labor hours allowed P 83,000
Budgeted overhead based on actual direct-labor hours allowed P 84,000
Actual overhead P 86,000
What was the total overhead variance?
D a. P 2,000 unfavorable c. P 4,000 favorable
29. Yeast Company has a standard absorption and flexible budgeting system and uses a two-way analysis for overhead
variances. Selected data for the February production activity is as follows:
Actual factory overhead incurred P 230,000
Budgeted fixed factory overhead costs P 64,000
Variable factory overhead rate per direct-labor hour P 5.00
Standard direct-labor hours 32,000
Actual direct-labor hours 33,000
What is the budget (controllable) variance for February?
D a. 1,000 favorable c. 6,000 favorable
b. 1,000 unfavorable d. 6,000 unfavorable
30. Information on Mold Company’s overhead costs for the January production activity is as follows:
Budgeted fixed overhead P 75,000
Standard fixed overhead rate per direct-labor hour P 3.00
Standard variable overhead rate per direct-labor hour P 6.00
Standard direct-labor hours allowed for actual production 24,000
Actual total overhead incurred P 220,000
Mold has a standard absorption and flexible budget system and uses the two-variance method (two-way analysis) for
overhead variances. What is the volume (denominator) variance for January?
Ant Company’s budgeted fixed factory overhead cost is P 50,000 per month plus a variable factory overhead rate of
P 4 per direct labor hour. The standard direct labor hours allowed for October production was 18,000. An analysis of the
factory overhead indicates that in October, Ant had an unfavorable budget (controllable) variance of P 1,000 and an
unfavorable volume variance of P 500. Ant uses a two-way analysis of overhead variance.
31. What is the actual factory overhead measured in October?
D a. P 121,000 c. P 122,300
b. P 122,000 d. P 123,000
32. What is the applied (standard) factory overhead in October?
A a. P 121,500 c. P 122,500
b. P 122,000 d. P 123,000
33. The following information is available from the Honey 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 direct labor hour P 2.50
Assuming that Honey uses a three-way analysis of overhead variance, what is the spending variance?
A a. P 750 favorable c. P 550 favorable
b. P 750 unfavorable d. P 1,500 unfavorable

34. Queen Company has standard variable costs as follows:

Materials, 3 pounds at P 4.00 per pound P 12.00
Labor, 2 hours at P 10.00 per hour P 20.00
Variable overhead, P 7.50 per labor hour P 15.00
During September, Queen produced 6,000 units using 11,560 labor hours at a total wage of P 113,870 and incurring
P88,600 in variable overhead. What is variable overhead efficiency variance?
B a. P 4,400 U c. P 1,900 U
b. P 3,300 F d. P 1,400 F
35. Bee Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis
of direct labor hours. The information below pertains to a recent month’s activity:
Denominator (normal) activity 300 hours
Actual activity 350 hours
Standard hours allowed for output 360 hours
Predetermined overhead rate (P 2 variable + P 3 fixed) P 5 per hour
What would be the volume variance?
B a. P 300 favorable c. P 150 favorable
b. P 180 favorable d. P 120 favorable
36. One way of analyzing the variable factory overhead variance is breaking it down into
A a. Spending and efficiency variances c. Efficiency and volume variances
b. Spending and rate variances d. Spending and capacity variances
37. One way of analyzing the fixed factory overhead variance is breaking it down into
A a. Spending and volume variances c. Efficiency and volume variances
b. Spending and budget variances d. Efficiency and capacity variances
38. What is the factory overhead variance that serves as a measure of capacity utilization?
D a. The overhead spending variance c. The overhead budget variance
b. The overhead efficiency variance d. The overhead volume variance
39. Maggot Company has total budgeted fixed overhead costs of P 64,000. Actual production was 15,000 units; normal
capacity is 16,000 units. What was the volume variance?
D a. P 4,000 favorable c. P 4,267 unfavorable
40. An unfavorable volume variance signifies that
D a. Cost control was poor
b. Sales were less than budgeted
c. Production was less than sales
d. Production was less than the level used to set the fixed overhead application rate
41. Mosquito has budgeted fixed overhead of P 150,000. Actual production of 39,000 units resulted in a P 6,000 favorable
volume variance. What normal capacity was used to compute fixed overhead rate?
B a. 33,000 c. 40,560
b. 37,500 d. Undetermined due to lack of information
42. The production volume variance is due to
C a. Inefficient or efficient use of direct labor hours
b. Efficient or inefficient use of variable overhead
c. Difference from planned level of the base used for overhead allocation and actual level achieved
d. Excessive application of direct labor hours over the standard amounts for output level actually achieved
Items 43 to 48 are based on the following information:
Dee Company produces a single product. The standard cost card for the product follows:
Direct materials (4 yards @ P 5 per yard) P 20
Direct labor (1.5 hours @ P 10 per hour) P 15
Variable manufacturing overhead (1.5 hours @ P 4 per hour) P6
During a recent period, the company produced 1,200 units of product. Various costs associated with the production of these
units are given below:
Direct materials purchased (6,000 yards) P 28,500
Direct materials used in production 5,000 yards
Direct labor cost incurred (2,100 hours) P 17,850
Variable manufacturing overhead cost incurred P 10,080
The company records all variances at the earliest possible point in time. Variable manufacturing overhead costs are applied
to products on the basis of direct labor hours.
43. What is the materials price variance for the period?
B a. P 1,250 favorable c. P 1,250 unfavorable
44. What is the materials quantity variance for the period?
B a. P 950 unfavorable c. P 5,000 favorable
b. P 1,000 unfavorable d. P 5,000 favorable
45. What is the labor rate variance for the period?
46. What is the labor efficiency variance for the period?
47. What is the variable overhead spending variance for the period?
D a. P 1,440 favorable c. P 1,680 favorable

48. What is the variable overhead efficiency variance for the period?
Items 49 and 50 are based on the following information:
The following information relates to a given department of Li Company for the first quarter of 2022:
Actual total overhead (fixed plus variable) P 178,500
Budget formula P 110,000 plus P 0.50 per hour
Total overhead application rate P 1.50 per hour
Spending variance (from three-way analysis) P 8,000 unfavorable
Volume variance (from two-way analysis) P 5,000 favorable
Over-all factory overhead variance P 6,000 unfavorable
49. What were the actual hours worked in this department during the quarter?
B a. 110,000 c. 137,000
b. 121,000 d. 153,000
50. What were the standard hours allowed for good output in this department?
D a. 105,000 c. 110,000
b. 106,667 d. 115,000
51. Information on Lee Company’s manufacturing overhead costs for last period is given below:
Actual direct labor hours worked 40,000 hours
Standard hours allowed for actual production 38,000 hours
Denominator hours used in computing the predetermined overhead rate 35,000 hours
Predetermined overhead rate P 4 per hour
Actual overhead costs incurred P 150,000
Lee Company uses a standard cost system and applies manufacturing overhead cost to units of product on the basis of
direct labor hours. Given these data, the overhead cost for the period would be:
A a. P 2,000 over-applied c. P 10,000 over-applied
b. P 8,000 under-applied d. P 10,000 under-applied
52. Lim Company has a P 20,000 unfavorable fixed overhead budget variance, a P 12,000 unfavorable variable overhead
spending variance, and a P 4,000 favorable volume variance. What was the total overhead?
B a. P 28,000 over-applied c. P 36,000 over-applied
b. P 28,000 under-applied d. P 36,000 under-applied
Solution: FOH Variance: AFOH – SFOH (Applied) = VFOH variance + FFOH variance
= (variable spending var + variable efficiency var) + (fixed budget var) + (fixed volume var)
= (12,000 U + 0) + (20,000 U + 4,000 F) = P 28,000 unfavorable (under-applied)
53. Lo Company had a P 18,000 favorable volume variance, a P 15,000 unfavorable variable overhead spending variance,
and P 12,000 total over-applied overhead. The fixed overhead budget variance was
A a. P 9,000 favorable c. P 9,000 unfavorable
b. P 16,000 unfavorable d. P 16,000 favorable
Solution: FOH Variance: 12,000 F = fixed budget variance + 18,000 F + 15,000 U
54. The efficiency variance for either labor or materials can be divided into
D a. Spending variance and yield variance c. Volume variance and mix variance
b. Yield variance and price variance d. Yield variance and mix variance
Lam Company’s standard direct labor rates in effect for the fiscal year ending June 30 and standard hours allowed for
the output in April are:
Standard DL Rate per Hour Standard DL Hours Allowed for Output
Engineering P 8.00 500
Carpentry 7.00 500
Masonry 5.00 500
The wage rates for each labor class increased on January 1 under the terms of a new union contract. The actual direct
labor hours (DLH) and the actual direct labor rates for April were as follows:
Actual Rate Actual DLH
Engineering P 8.50 550
Carpentry 7.50 650
Masonry 5.40 375
55. How much is the labor yield variance?
A a. P 500 c. P 820
b. P 320 d. P 515
56. How much is the labor mix variance?
B a. P 50 c. P 66.67
b. P 325 d. P 500
57. A standard costing system is most often used by a firm in conjunction with
D a. Management by objectives c. Participative management programs
b. Target (hurdle) rates of return d. Flexible budgets
58. A difference between standard costs used for cost control and budgeted costs
B a. Can exist because standard costs must be determined after the budget is completed.
b. Can exist because standard costs represent what costs should be, whereas budgeted costs represent
expected actual costs.
c. Can exist because standard costs are historical, whereas standard costs are based on engineering
studies.
d. Cannot exist because they should be the same amounts.

59. Setting standards

A a. Has important behavioral implications
b. Is largely a matter of calculating rates and quantities
c. Should be done to make them as tight as possible
d. Is done only for manufacturing activities
60. A major drawback to setting standards based on historical results is that such standards
A a. Can perpetuate inefficiencies
b. Are harder to compute than are engineered standards
c. Are usually too hard to meet because of inflation
d. Are usually not well received by workers.
61. Each finished unit of Product Lui contains 60 pounds of raw material. The manufacturing process must provide for a
20% waste allowance. The raw material can be purchased for a cost of P 2.50 a pound under terms of 2/10, n/30. The
company takes all cash discounts. What is the standard direct material cost of each unit of product Lui?
C a. P 180.00 c. P 183.75
b. P 187.50 d. P 176.40
Solution: 60 lbs. ÷ (100% - 20%) = 75 lbs. (with allowance)
75 bs. (2.50 x 98%) = P 183.75 (net of cash discount)
62. The following direct labor information pertains to the manufacture of product Lu:
Time required to make one unit 2 labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker P 500
Workers’ benefit treated as direct labor costs 20% of wages
What is the standard direct labor cost per unit of product Lu?
A a. P 30 c. P 15
b. P 24 d. P 12
Solution: (P 500 x 1.2) ÷ 40 hours = P 15 per hour 2 hours x P 15 per hour = P 30 per unit
63. A standard costing system may be used in
C a. Process costing but not job-order costing c. Either job-order costing or process costing
b. Job-order costing but not process costing d. Neither process costing nor job-order costing
64. Which one of the following management practices involves concentrating on areas that deserve attention and placing
less attention on areas operating as expected?
D a. Management by objectives c. Benchmarking
b. Responsibility accounting d. Management by exception
65. Which of the following is best identified with a system of standard costing?
B a. Variable costing c. Contribution margin approach
b. Management by exception d. Standardized accounting system
66. ‘Management by exception,’ in relation to standard costing, means
C a. Only large favorable variance need to be investigated
b. Only large unfavorable variance need to be investigated
c. Only large variances, favorable or unfavorable, need to be investigated
d. Only small variances need to be investigated
67. How should a variance that is significant in amount be treated at the end of an accounting period?
B a. Reported as a deferred charge or credit
b. Allocated among work-in-process inventory, finished goods inventory, and cost of goods sold
c. Charged or credited to cost of goods manufactured
d. Allocated among cost of goods manufactured, finished goods inventory, and cost of goods sold
68. What is the normal year-end treatment of immaterial variances recognized in a standard cost system?
C a. Allocated among cost of goods manufactured and ending work in process inventory
b. Reclassified to deferred charges until all related production is sold
c. Closed to cost of goods sold in the period in which they arose
d. Capitalized as cost of ending finished goods inventory
69. Standard costing will produce the same results as actual costing when variances are distributed to
B a. CGS c. Income Summary
b. CGS and inventories d. WIP and finished goods inventory
70. The sum of material price variance and material use variance always equals the difference between
D a. Actual and standard material purchases
b. Actual material purchases and standard material use
c. Standard material purchases and standard material use
d. Actual cost of material use and standard cost of materials allowed for production
71. Which of the following is NOT a quantity variance?
C a. Material use variance c. Fixed overhead budget variance
b. Labor efficiency variance d. Variable overhead efficiency variance
72. Which variance CANNOT arise under a standard variable costing system?
D a. Variable overhead budget variance c. Fixed overhead budget variance
b. Variable overhead efficiency variance d. Fixed overhead volume variance
73. Which item is NOT used to compute the fixed overhead volume variance?
C a. Standard fixed cost per unit c. Actual fixed overhead
b. Budgeted fixed overhead d. Actual quantity produced
74. Which variance is LEAST likely affected by hiring workers with less skill than those already working?
C a. Labor rate variance c. Material price variance
b. Material use variance d. Variable overhead efficiency variance

75. Which variance is MOST likely affected by buying a more expensive material that produces less waste and is easier to
handle?
D a. Labor rate variance c. Fixed overhead budget variance
b. Direct labor efficiency variance d. Variable overhead spending variance
76. The purpose of identifying manufacturing variances and assigning responsibility to a person/department should be to:
A a. Use the knowledge about the variances to promote learning and continuous improvement in the
manufacturing operations
b. Trace the variances to finished goods so that the inventory can be properly valued at year-end
c. Determine the proper cost of the products produced so that selling prices can be adjusted accordingly
d. Pinpoint fault for operating problems in the organization
Kim Company produces and sells cellular phone blaster, a gadget which explodes when activated with a remote
commander. This is used by cell phone owners when their unit is snatched from them or is taken by thieves. The static
master budget and the actual results of operations for the month of June are as follows:
Budget (8,000 units) Actual (9,600 units)
Sales P 800,000 P 1,056,000
Cost of goods sold P 480,000 P 556,800
Gross profit P 320,000 P 499,200
Management wants an explanation of the favorable gross profit variance of P 179,200 (actual gross profit of P 499,200 less
budgeted gross profit of P 320,000).
77. Determine the sales price variance.
A a. P 96,000 favorable c. P 19,200 favorable
78. Determine the sales volume variance.
B a. P 96,000 favorable c. P 19,200 favorable
79. Determine the cost price variance.
80. Determine the cost volume variance.
D a. P 96,000 favorable c. P 19,200 favorable
81. What is the percentage change in sales price?
D a. 20% decrease c. 20% increase
b. 3.33% decrease d. 10% increase
82. What is the percentage change in volume?
C a. 20% decrease c. 20% increase
83. What is the percentage change in cost price?
B a. 20% decrease c. 20% increase
The management of Seymour Corporation asks you to prepare an analysis of the gross profit variance based on their
comparative income statements for 2022 and 2021 (Volume increased by 10% from 2021 to 2022):
2022 2021 Variance
Sales P 990,000 P 800,000 P 190,000 F
Cost of goods sold 760,000 640,000 120,000 U
Gross profit P 230,000 P 160,000 P 70,000 F
84. The sales volume variance is
A a. P 80,000 favorable. c. P 110,000 favorable.
b. P 56,000 unfavorable. d. P 64,000 unfavorable.
85. The sales price variance is
C a. P 80,000 favorable. c. P 110,000 favorable.
86. The percentage change in sales price is
A a. 12.5% increase. c. 10% increase.
b. 12.5% decrease. d. 10% decrease.
87. The cost volume variance is
D a. P 80,000 favorable. c. P 110,000 favorable.
88. The cost price variance is
B a. P 80,000 favorable. c. P 110,000 favorable.
89. The percentage change in cost price is
A a. 7.95% increase. c. 12.5% increase.
b. 7.95% decrease. d. 12.5% decrease.
90. The variance in gross profit due to the change in volume is
C a. P 80,000 favorable. c. P 16,000 favorable.
b. P 64,000 unfavorable. d. P 70,000 favorable.


The management of Marvel Company asked you to submit an analysis of the increase in the gross profit in 2022 based
on the past two-year comparative income statements, which are shown below:
2022 2021
Net Sales P 1,237,500 P 1,000,000
Cost of Sales 950,000 800,000
Gross Profit P 287,500 P 200,000
The selling price increased by 12.5% beginning January 1, 2022.
91. What is the increase in gross profit due to increase in volume? (VOLUME FACTOR)
A a. P 20,000 c. P 50,000
b. P 35,000 d. P 100,000
92. How much is the gross profit decline due to increase in cost? (COST FACTOR)
A a. P 70,000 c. P 88,000
b. P 80,000 d. P 97,500
93. The increase in sales prices caused an increase in gross profit by (PRICE FACTOR)
C a. P 100,000 c. P 137,500
b. P 110,000 d. P 237,500
94. What is the percentage change in volume?
B a. 9% c. 11%
b. 10% d. 12.75%
95. What is the percentage change in cost?
D a. 10.8% c. 8.675%
b. 10% d. 7.95%
Clarifications/Solutions to Selected Self-Test Questions

8. If silent, the Material Price Variance (MPV) is preferably based on Material Purchase Price Variance (MPPV)
since the variance is usually computed at the date of purchase during which the entity has no knowledge of
the actual quantity to use: MPV → MPPV = AQ purchased (AP – SP)
In the final analysis, however, since the production costs are based on the actual quantity of materials used,
the material price usage variance (MPUV) will be eventually closed to the costs of goods sold.
MPUV = AQ used (AP – SP)
Total DM Variance
MQV = (AQ used – SQ) SP
18. Flexible budget for part X usage refers to the standard cost: (3,000 x 3) x P 2.90 = P 26,100
21. LRV = AH x ∆R = 8,400 F = 40,000 (AR – 6.50) AR = 6.29 (AR < SR)
Payroll = Actual direct labor cost = AH x AR = 40,000 (6.29) = P 251,600
35. 3 ways to compute the volume or capacity variance:
 Input-based: BASH – SHSR
 Input-based (fixed): BASH (F) – SHSR (F) = (BH – SH) FR → (300 – 360) 3 = P 180 favorable
 Output-based: (Normal Production – Actual Production) unit FFOH (Refer to MAS-42D, wrap-up item 7)
39. Output-based computation of volume variance (see no. 35):
(15,000 – 16,000) x (64,000/16,000) = P 4,000 unfavorable (AP < NP)
41. Output-based computation of volume variance (see no. 35): 6,000 F = (39,000 – NP) x (150,000/NP)
55. In standard costing, applied FOH is the standard FOH.
➢ If applied FOH (SFOH) >AFOH, then FOH is over-applied (favorable/credit)
➢ If AFOH > applied FOH (SFOH), then FOH is under-applied (unfavorable/debit).
56. Labor yield variance: (AQ – SQ) SP = (1,575 – 1,500) (20/3) = P 500
57. Labor mix variance: (Computation is based on LEV formula, where SH is based on Standard Labor Mix)
(AH - SH) SR Mix Variance
Engineering: (550 - 525) 8 = 200 U
Carpentry: (650 - 525) 7 = 875 U
Masonry: (375 - 525) . 5 =. 750 F .
1,575 1,575 P 325 U
Suggested Answers to Item 7 on Page 3

Materials, Labor and Overhead Variances (Comprehensive Problem, Reconstruction)
 Standard variable costs per unit:
A) Materials: 4 pounds @ (1) P 1.875 (2) P 7.50
B) Direct Labor: (3) 0.5 hours @ P 12.00 P 6.00
C) Variable overhead: P 8 per direct labor hour (4) P 4.00
 Production 8,000 units
 Materials purchases, 32,000 pounds P 62,000
 Materials used at standard prices, 31,200 pounds (5) P 58,500
 Direct labor (actual): (6) 4,100 hours P 47,200
 Material purchase price variance P 2,000 adverse
 Material use variance (7) P 1,500 F
 Direct labor rate variance P 2,000 favorable
 Direct labor efficiency variance (8) P 1,200 U
 Variable overhead spending variance P 1,500 credit
 Variable overhead efficiency variance (9) P 800 U
 Actual variable overhead cost (10) P 31,300

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ReSA - THE REVIEW SCHOOL OF ACCOUNTANCY

CPA Review Batch 43  May 2022 CPA Licensure Examination  Weeks 6 - 7

MANAGEMENT ADVISORY SERVICES C. LEE  E. ARAÑAS  K. MANUEL

MAS-07: STANDARD COSTING WITH GP VARIANCE ANALYSIS

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VARIANCE ANALYSIS: FACTORY OVERHEAD (FOH) COSTS

 IMPORTANT NOTES on FACTORY OVERHEAD VARIANCE ANALYSIS

Gross Profit (GP) variance = GP (Actual/Current) – GP (Budget/Previous)

Favorable: If actual (current) GP is greater than budgeted (previous) GP.

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EXERCISES: STANDARD COSTING with GROSS PROFIT VARIANCE ANALYSIS

2. Materials Price, Mix and Yield Variances

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3. Factory Overhead Budget

4. 2-way Factory Overhead Variance Analysis

5. 2-way, 3-way and 4-way Factory Overhead Variance Analysis

6. Factory Overhead Variance Analysis - Budget, Variable & Fixed Variances

7. Materials, Labor and Overhead Variances (Comprehensive Problem, Reconstruction)

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8. GP Variance Analysis with Complete Information

2021 GROWTH PRICE-RECOVERY PRODUCTIVITY 2022

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SELF-TEST QUESTIONS - with suggested answers

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34. Queen Company has standard variable costs as follows:

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59. Setting standards

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Items 91 to 95 are based on the following information

Clarifications/Solutions to Selected Self-Test Questions

Suggested Answers to Item 7 on Page 3

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