PAMANTASAN NG LUNGSOD NG VALENZUELA

College of Business and Accountancy

Department of Accountancy

MAS Review
Lecture: STANDARD COSTING AND VARIANCE ANALYSIS

EXERCISES.
1. During March, Telahan Corporation manufactured 1,000 units of a special multiplayer fabric with the trade name
Kurduroy. The following information from the Kurduroy production department also pertains to March.

Direct materials purchased: 36,000 yards at P1.38 per yard P 49,680

Direct materials used: 19,000 yards at P1.38 per yard 26,220
Direct labor: 4,200 hours at P9.15 per hour 38,430

The standard prime costs for one unit of Kurduroy are as follows:

Direct materials: 20 yards at P1.35 per yard P 27

Direct labor: 4 hours at P9.00 per hour 36
Total standard prime cost per unit of output P 63

Required:
Compute the following variances for the month of March, indicating whether each variance is favorable or
unfavorable
a. Direct materials spending variance
b. Direct materials efficiency variance
c. Direct materials purchase price variance
d. Direct labor rate variance
e. Direct labor efficiency variance

2. Stonehead Staturay manufactures bust statues of famous historical figures. All statues are the same size. Each unit
requires the same amount of resources. The following information is from the static budget for 2016:

Expected production and sales 6,000 units

Direct materials 72,000 pounds
Direct manufacturing labor 21,000 hours
Total fixed costs P 1,200,000
Standard quantities, standard prices and standard unit costs follow for direct materials and direct manufacturing labor:

Quantity Price Unit Cost

Direct materials 12.0 pounds P10 per pound P120
Direct manufacturing labor 3.5 hours P50 per pound P175

During 2016, the actual number of units produced and sold was 5,500. Actual cost of direct materials used was
P668,800, based on 70,400 pounds purchased at P9.50 per pound. Direct manufacturing labor hours actually used
were P18,500, at the rate of P51.50 per hour. As a result, actual direct manufacturing labor costs were P952,750.
Actual fixed costs were P1,180,000. There were no beginning or ending inventories.

Required: Compute price and efficiency variances for direct materials and direct manufacturing labor.

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3. Mankato Control Company, which manufactures electrical switches uses a standard-costing system.

The standard production overhead costs per switch are based on direct-labor hours are as follows:
Variable overhead (5 direct-labor hours @ P12.00 per hour) P 60
Fixed overhead (5 direct-labor hours @ P18.00 per hour)* 90
Total overhead P 150

*Based on normal capacity of P100,000 direct-labor hours per month

The following information is available for the month of October.

• Variable overhead costs were P3,510,000.
• Fixed overhead costs were P5,625,000.
• 56,000 switches were produced, although 60,000 switches were scheduled to be produced.
• 275,000 direct labor hours were worked at a total cost of P3,825,000.

Required: Compute and analyze the factory overhead variances.

4. Krug Company set the following standard unit costs for its single product.
Direct materials (5 lbs. @ P2 per lb.) P 10.00
Direct labor (0.3 hrs. @ P15 per hr.) 4.50
Factory overhead – variable (0.3 hrs. @ P10 per hr.) 3.00
Factory overhead – fixed (0.3 hrs. @ P14 per hr.) 4.20
Total standard cost P 21.70

The predetermined overhead rate is based on a planned operating level of 80% of the productive capacity of 600,000
per quarter. The following budget information is available.
Operating Levels
70% 80% 90%
Production in units 420,000 480,000 540,000
Standard direct labor hours 126,000 144,000 162,000
Budgeted overhead:
Fixed factory overhead P 2,016,000 P 2,016,000 P 2,016,000
Variable factory overhead 1,260,000 1,440,0001 1,620,000

During the current quarter, the company operated at 70% of capacity and produced 420,000 units of product; direct
labor hours worked were 125,000. Units produced were assigned the following standard costs:
Direct materials (2,100,000 lbs. @ P2 per lb.) P 4,200,000
Direct labor (126,000 hrs. @ P15 per hr.) 1,890,000
Factory overhead (126,000 hrs. @ P24 per hr.) 3,024,000
Total standard cost P 9,114,000

Actual costs incurred during the current quarter follow:

Direct materials (2,000,000 lbs. @ P2.15) P 4,300,000
Direct labor (125,000 hrs. @ P15.50) 1,937,500
Fixed factory overhead costs 1,960,000
Variable factory overhead costs 1,200,000
Total actual costs P 9,397,500

Required:
1. Compute the direct materials cost variance, including its price and quantity variances.
2. Compute the direct labor variance, including its rate and efficiency variances.
3. Compute the total variable overhead and total fixed overhead variances.
4. Compute these variances: (a) variable overhead spending and efficiency, (b) fixed overhead spending and
volume.

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5. Almusal Company manufactures breakfast cereal using the following proportion of ingredients for 200 kilos of
output:
Standard Quantity Standard Price Standard Cost
Wheat germ 25 kgs. P 2.00 per kg. P 50
Barley 100 kgs. 1.00 per kg. 100
Oats 125 kgs. 0.80 per kg. 100

During June, the following materials were used in producing 70,000 kilos of breakfast cereal:
Wheat germ 8,800 kilos at P2.05 per kilo
Barley 34,700 kilos at P1.10 per kilo
Oats 42,000 kilos at P0.75 per kilo

Required: Calculate the materials price, mix and yield variances.

6. Norris Company produces telephones. To help control costs, Norris employs a standard costing system and uses a
flexible budget to predict overhead costs at various levels of activity. For the most recent year, Norris used a standard
overhead rate of P18 per direct labor hour. The rate was computed using practical activity. Budgeted overhead costs
are P792,000 for 36,000 direct labor hours and P1,080,000 for 60,000 direct labor hours. During the past year, Norris
generated the following data:
a. Actual production: 100,000 units d. Actual fixed overhead costs: P380,000
b. Fixed overhead volume variance: P36,000 U e. Actual variable overhead costs: P620,000
c. Variable overhead efficiency variance:
P24,000 F

Required:
1. Calculate the fixed overhead rate.
2. Determine the fixed overhead spending variance.
3. Determine the variable overhead spending variance.
4. Determine the standard hours allowed per unit of product.
5. Assuming the standard labor rate is P13 per hour, compute the labor efficiency variance.

7. Golpol had recently acquired Jess, Inc., a small manufacturing firm located in the Batangas. Unfortunately, Jess had
very poor internal controls, and a master disk with some fundamental cost data for the past year was accidentally
erased. No backup existed. Mickey, an internal auditor for Golpol, was assigned to Jess and given the task of
reconstructing some of the cost records. At first, she was discouraged with the assignment, but she became excited
when she disovered part of a computer printout containing some information about last year’s operations.

The information, pertaining to Jess’ cost accounting system, follows:

Selected actual results:
Direct materials: 10,000 pounds purchased and used, costing P51,000
Production: 20,000 units
Labor cost: 4,400 hours, cost P34,320
Fixed overhead cost: P23,000
Variable overhead cost: P46,000

Variances:
Materials price variance – P1,000U
Labor efficiency variance – P3,200U
Variable overhead spending – P2,000U
Volume variance – P4,000U
Materials usage variance – P10,000F
Variable overhead efficiency – P4,000U
Underapplied fixed overhead – P3,000U

Required:
1. Prepare a standard cost sheet in good form. Show fixed and variable overhead as separate items.
2. Compute the fixed overhead spending variance.
3. Compute the labor rate variance.
4. Determine the expected actual activity used to compute the predetermined fixed overhead rate.

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