Standard Costs and Variance Analysis - CPA Diary



CPA REVIEW SCHOOL OF THE PHILIPPINES

Manila

MANAGEMENT ADVISORY SERVICES

STANDARD COSTING & VARIANCE ANALYSIS

THEORY

1. Which one of the following terms best describes the rate of output which qualified workers can achieve as an average over the working day or shift, without over-exertion, provided they adhere to the specified method of working and are well motivated in their work?

A. Standard time B. Standard hours C. Standard unit D. Standard performance

2. The best characteristics of a standard cost system is

A. standard can pinpoint responsibility and help motivation

B. all variances from standard should be reviewed

C. all significant unfavorable variances should be reviewed

D. standard cost involves cost control which is cost reduction

3. Standard costs are used for all of the following except:

A. income determination C. measuring efficiencies

B. controlling costs D. forming a basis for price setting

4. Standard costs are least useful for

A. Measuring production efficiency C. Job order production systems

B. Simplifying costing procedures D. Determining minimum inventory levels

5. To which of the following is a standard cost nearly like?

A. Estimated cost. B. Budgeted cost. C. Product cost. D. Period cost.

6. A difference between standard costs used for cost control and budgeted costs

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 while budgeted costs represent expected actual costs.

C. Can exist because budgeted costs are historical costs while standard costs are based on engineering studies.

D. Can exist because establishing budgeted costs involves employee participation and standard costs do not.

7. Normal costing and standard costing differ in that

A. the two systems can show different overhead budget variances.

B. only normal costing can be used with absorption costing.

C. the two systems show different volume variances if standard hours do not equal actual hours.

D. normal costing is less appropriate for multiproduct firms

8. When standard costs are used in a process-costing system, how, if at all, are equivalent units of production (EUP) involved or used in the cost report at standard?

A. Equivalent units are not used.

B. Equivalent units are computed using a special approach.

C. The actual equivalent units are multiplied by the standard cost per unit.

D. The standard equivalent units are multiplied by the actual cost per unit.

9. The type of standard that is intended to represent challenging yet attainable results is:

A. theoretical standard D. normal standard

B. flexible budget standard E. expected actual standard

C. controllable cost standard

10. A company using very tight standards in a standard cost system should expect that

A. Most variances will be unfavorable

B. No incentive bonus will be paid

C. Costs will be controlled better than if lower standards were used

D. Employees will be strongly motivated to attain the standard

11. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a predetermined overhead rate is

A. based on an input factor like direct labor hours and a standard cost per unit is based on a unit of output.

B. based on practical capacity and a standard fixed cost can be based on any level of activity.

C. used with variable costing while a standard fixed cost is used with absorption costing.

D. likely to be higher than a standard fixed cost per unit.

12. If a company wishes to establish factory overhead budget system in which estimated costs can be derived directly from estimates of activity levels, it should prepare a

A. Flexible budget. B. Fixed budget. C. Capital budget. D. Discretionary budget.

13. Lanta Restaurant compares monthly operating results with a static budget. When actual sales are less than budget, would Lanta usually report favorable variances on variable food costs and fixed supervisory salaries.

| |A. |B. |C. |D. |

|Variable food costs |Yes |Yes |No |No |

|Fixed supervisory salaries |Yes |No |Yes |No |

14. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a fixed budget:

A. cannot be changed after the period begins; while a variable budget can be changed after the period begins

B. is a plan for a single level of sales (or other measure of activity); while a variable budget consists of several plans, one for each of several levels of sales (or other measure of activity)

C. includes only fixed costs; while variable budget includes only variable costs

D. is concerned only with future acquisitions of fixed assets; while a variable budget is concerned with expenses that vary with sales

15. Which of the following term is best identified with a system of standard cost?

A. Contribution approach. C. Marginal costing.

B. Management by exception. D. Standard accounting system.

16. Which department is typically responsible for a materials price variance?

A. Engineering. B. Production. C. Purchasing. D. Sales.

17. Under a standard cost system, the materials efficiency variance are the responsibility of

A. Production and industrial engineering. C. Purchasing and sales.

B. Purchasing and industrial engineering. D. Sales and industrial engineering.

18. Which of the following people is most likely responsible for an unfavorable variable overhead efficiency variance?

A. production supervisor C. supplier

B. accountant D. purchasing agent

19. Which variance is LEAST likely to be affected by hiring workers with less skill than those already working?

A. Material use variance. C. Material price variance.

B. Labor rate variance. D. Variable overhead efficiency variance.

20. Which of the following standard costing variances would be least controllable by a production supervisor?

A. Overhead volume. B. Materials usage. C. Labor efficiency. D. Overhead efficiency.

21. The variance resulting from obtaining an output different from the one expected on the basis of input is the:

A. mix variance B. usage variance C. yield variance D. efficiency variance

22. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of flour with a quality rating two grades below that which the company normally purchased. This purchase covered about 90% of the flour requirement for the period. As to the material variances, what will be the likely effect?

| |A. |B. |C. |D. |

|Price variance |Unfavorable |Favorable |No effect |Favorable |

|Usage variance |Favorable |Unfavorable |Unfavorable |Favorable |

23. Using the two-variance method for analyzing overhead, which of the following variances contains both variable and fixed overhead elements?

| |A. |B. |C. |D. |

|Controllable (Budget) Variance |Yes |Yes |Yes |No |

|Volume Variance |Yes |Yes |No |No |

|Efficiency Variance |Yes |No |No |No |

24. Which of the following unfavorable variances is directly affected by the relative position of a production process on a learning curve?

A. Materials mix. B. Materials price. C. Labor rate. D. Labor efficiency.

25. A manager prepared the following table by which to analyze labor costs for the month:

|Actual Hours at |Actual Hours at |Standard Hours at |

|Actual Rate |Standard Rate |Standard Rate |

|$10,000 |$9,800 |$8,820 |

What variance was $980?

A. Labor efficiency variance. C. Volume variance.

B. Labor rate variance. D. Labor spending variance.

26. A credit 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

27. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the number of hours allowed, the labor rate variance and labor efficiency variance will be

| |A. |B. |C. |D. |

|Labor Rate Variance |Favorable |Favorable |Unfavorable |Unfavorable |

|Labor Efficiency Variance |Favorable |Unfavorable |Favorable |Unfavorable |

28. In the analysis of standard cost variances, the item which receives the most diverse treatment in accounting is

A. Direct labor cost C. Direct material cost

B. Factory overhead cost D. Variable cost.

29. When expenses estimated for the capacity attained differ from the actual expenses incurred, the resulting balance is termed the

A. Activity variance. C. Unfavorable variance.

B. Budget variance. D. Volume variance.

30. The total overhead variance is

A. The difference between actual overhead costs and budgeted overhead.

B. Based on actual hours worked for the units produced.

C. The difference between actual overhead costs and applied overhead.

D. The difference between budgeted overhead and applied overhead.

31. Management scrutinizes variances because

A. Management desires to detect such variances to be able to plan for promotions.

B. Management needs to determine the benefits foregone by such variances.

C. It is desirable under conventional knowledge on good management.

D. Management recognizes the need to know why variances happen to be able to make corrective actions and fairly reward good performers.

32. If a company uses a predetermined rate for absorption of manufacturing overhead, the volume variance is

A. The under- or over-applied fixed cost element of overhead.

B. The under- or over-applied variable cost element of overhead.

C. The difference between budgeted cost and actual cost of fixed overhead items.

D. The difference between budgeted cost and actual cost of variable overhead items.

33. The production volume variance occurs when using the

A. Absorption costing approach because of production exceeding the sales.

B. Absorption costing approach because production differs from that used in setting the fixed overhead rate used in applying fixed overhead to production.

C. Variable costing approach because of sales exceeding the production for the period.

D. Variable costing approach because of production exceeding the sales for the period.

34. Henley Company uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours. For the month of January, the fixed manufacturing overhead volume variance was $2,220 favorable. The company uses a fixed manufacturing overhead rate of $1.85 per direct labor hour. During January, the standard direct labor hours allowed for the month's output:

A. exceeded denominator hours by 1,000. C. exceeded denominator hours by 1,200.

B. fell short of denominator hours by 1,000. D. fell short of denominator hour by 1,200.

35. A spending variance for variable factory O/H based on direct labor hours is the difference between actual variable factory O/H and the variable factory O/H that should have been incurred for the actual hours worked. This variance results from

A. Price and quantity differences for overhead costs.

B. Price differences for overhead costs

C. Quantity differences for overhead costs

D. Differences caused by production volume variation

36. Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable efficiency variance?

A. The mix of workers assigned to the particular job was heavily weighted toward the use of higher-paid, experienced individuals.

B. The mix of workers assigned to the particular job was heavily weighted toward the use of new, relatively low-paid unskilled workers.

C. Because of the production schedule, workers from other production areas were assigned to assist in this particular process.

D. Defective materials caused more labor to be used to product a standard unit.

37. The variable factory overhead rate under the normal volume, practical capacity, and expected activity levels would be the

A. Same except for practical capacity C. Same except for normal volume

B. Same except for expected capacity D. Same for all three activity levels

38. A company reported a significant materials efficiency variance for the month of January. All of the following are possible explanations for this variance except

A. Cutting back preventive maintenance.

B. Inadequately training and supervising the labor force.

C. Processing a large number of rush orders.

D. Producing more units than planned for in the master budget.

39. A debit balance in the labor efficiency variance indicates that

A. Standard hours exceed actual hours. C. Standard rate exceeds actual rate.

B. Actual hours exceed standard hours. D. Actual rate exceeds standard rate.

40. What type of direct material variances for price and usage will arise if the actual number of pounds of materials used was less than standard pounds allowed but actual cost exceeds standard cost?

| |A. |B. |C. |D. |

|Usage |Unfavorable |Favorable |Favorable |Unfavorable |

|Price |Favorable |Favorable |Unfavorable |Unfavorable |

41. Which one of the following would not explain an adverse direct labor efficiency variance?

A. Poor scheduling of direct labor hours

B. Setting standard efficiency at a level that is too low

C. Unusually lengthy machine breakdowns

D. A reduction in direct labor training

42. You used predetermined overhead rates and the resulting variances when compared with the results using the actual rates were substantial. Production data indicated that volumes were lower than the plan by a large difference. This situation can be due to

A. Overhead being substantially composed of fixed costs.

B. Overhead being substantially composed of variable costs.

C. Overhead costs being recorded as planned.

D. Products being simultaneously manufactured in single runs.

43. During 1990, a department’s three-variance factory O/H standard costing system reported unfavorable spending and volume variances. The activity level selected for allocating factory O/H to the product was based on 80% of practical capacity. If 100% of practical capacity had been selected instead, how would the reported unfavorable spending and volume variances have been affected?

| |A. |B. |C. |D. |

|Spending Variance |Increased |Increased |Unchanged |Unchanged |

|Volume Variance |Unchanged |Increased |Increased |Unchanged |

44. The journal entry to record the direct materials quantity variance may be recorded

A. Only when direct materials are purchased

B. Only when direct materials are issued to production

C. Either (a) or (b)

D. When inventory is taken at the end of the year.

45. Overapplied factory overhead results when

A. A plant is operated at less than its normal capacity.

B. Factory overhead costs incurred are greater than the costs charged to production.

C. Factory overhead costs incurred are less than the costs charged to production.

D. Factory overhead costs incurred are unreasonably large in relation to the number of units produced.

46. Standard costing will produce the same results as actual or conventional costing when standard cost variances are distributed to

A. Cost of goods sold and inventories C. An income or expense account

B. A balance sheet account D. Cost of goods sold

PROBLEMS

1. KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as follows: Direct materials, P495,000; direct labor, 6,000 hours at P30 per hour; variable overhead, P24 per direct labor hour. By the end of the month, all the required materials have been used at P491,900; labor was 80% complete at 4,650 hours at P30 per hour; and, the variable overhead amounted to P113,700. The total variance for the project as at the end of the month was

A. P7,500 U B. P8,400 U C. P9,000 F D. P9,00 F

2. SUPER Co. at normal capacity, operates at 600,000 labor hours with standard labor rate of P20 per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Four units should be completed in an hour.

Last year, 1,350,000 units were produced using 300,000 labor hours. All labor hours were paid at the standard rate, and actual overhead cost consisted of P3,738,000 for variable items and P3,000,000 fixed items.

The total labor and overhead costs saved, by producing at more than standard, amounted to

A. P450,000 B. P500,000 C. P750,000 D. P1,200,000

3. A defense contractor for a government space project has incurred $2,500,000 in actual design costs to date for a guidance system whose total budgeted design cost is $3,000,000. If the design phase of the project is 60% complete, what is the amount of the contractor's current overrun or savings on this design work?

A. $300,000 savings. C. $500,000 savings.

B. $500,000 overrun. D. $700,000 overrun.

4. Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and marketing data are indicated below:

Cost per yard of cloth P36.00

Allowance for rejected scarf 5% of production

Yards of cloth needed per scarf 0.475 yard

Airfreight from supplier P0.60/yard

Motor freight to customers P0.90 /scarf

Purchase discounts from supplier 3%

Sales discount to customers 2%

The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have no market value. Materials are used at the start of production.

Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in its cost sheets.

A. P16.87 B. P17.76 C. P18.21 D. P17.30

5. ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May, 19x7 are summarize below:

|Standard unit price |P90.00 |

|Actual units purchased |40,000 |

|Standard units allowed for actual production |36,250 |

|Materials price variance- favorable |P6,000 |

What was the actual purchase price per unit?

A. P75.00 B. P85.89 C. P88.50 D. P89.85

6. ChemKing uses a standard costing system in the manufacture of its single product. The 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw material 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 $60,000, and there was an unfavorable quantity variance of $2,500. The materials price variance for the units used in November was

A. $2,500 U B. $11,000 U C. $12,500 U D. $3,500 F

7. The Porter Company has a standard cost system. In July the company purchased and used 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance was $1,875 Unfavorable; and the standard quantity of materials allowed for July production was 21,750 pounds. The materials price variance for July was:

A. $2,725 F. B. $2,725 U. C. $3,250 F. D. $3,250 U.

8. Cox Company's direct material costs for the month of January were as follows:

|Actual quantity purchased |18,000 kilograms |

|Actual unit purchase price |$ 3.60 per kilogram |

|Materials price variance – unfavorable (based on purchases) |$ 3,600 |

|Standard quantity allowed for actual production |16,000 kilograms |

|Actual quantity used |15,000 kilograms |

For January there was a favorable direct material quantity variance of

A. $3,360. B. $3,375. C. $3,400. D. $3,800.

9. JKL Company has a standard of 15 parts of component X costing P1.50 each. JKL purchased 14,910 units of component X for P22,145. JKL generated a P220 favorable price variance and a P3,735 favorable quantity variance. If there were no changes in the component inventory, how many units of finished product were produced?

A. 994 units. B. 1,090 units. C. 1,000 units D. 1,160 units

10. The following direct labor information pertains to the manufacture of product Glu:

Time required to make one unit 2 direct labor hours

Number of direct workers 50

Number of productive hours per week, per worker 40

Weekly wages per worker $500

Workers’ benefits treated as direct labor costs 20% of wages

What is the standard direct labor cost per unit of product Glu?

A. $30. B. $24. C. $15. D. $12.

11. ACE Company’s operations for the month just ended originally set up a 60,000 direct labor hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and that the unfavorable variable overhead variance was P40,000. Labor trouble caused an unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates resulted in an actual average wage rate of P16.40 per hour. The total number of standard direct labor hours allowed for the actual units produced is

A. P52,500 B. P60,000 C. P62,500 D. P70,000

12. Pane Company's direct labor costs for April are as follows:

Standard direct labor hours 42,000

Actual direct labor hours 41,200

Total direct labor payroll $247,200

Direct labor efficiency variance – favorable $3,840

What is Pane's direct labor rate variance?

A. $44,496 U B. $49,440 U C. $49,440 F D. $50,400 F

13. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done. During last month’s labor strike, certain recorded were lost. The actual input of direct labor hours was 1,000, and the resulting direct labor budget variance was a favorable P3,400. The standard direct labor rate was P28.00 per hour, but an unexpected labor shortage necessitated the hiring of higher-paid workers for some jobs and had resulted in a rate variance of P800. The actual direct labor rate was

A. P27.20 per hour B. P28.80 per hour C. P30.25 per hour D. P31.40 per hour

14. To improve productivity, ST. MICHAEL Corp. instituted a bonus plan where employees are paid 75% of the time saved when production performance exceeds the standard level of production. The company computes the bonus on the basis of four-week periods. The standard production is set at 3 units per hour. Each employee works 37 hours per week, and the wage rate is P24 per hour. Below are data for one 4-week period:

| |Weekly Production (Units) |

|Employee |1st |2nd |3rd |4th |Total |

|ALAN |107 |100 |110 |108 |425 |

|JOEL |104 |110 |115 |115 |444 |

|ROMY |108 |112 |112 |133 |465 |

|TONY |123 |120 |119 |124 |486 |

The employee who had the inconsistent performance (sometimes performing below standard) but got a bonus is

A. Alan = P36 bonus. C. Romy = P126 bonus.

B. Joel = P54 bonus. D. Tony = P252 bonus.

15. PALOS Manufacturing Co. has an expected production level of 175,000 product units for 19x7. Fixed factory overhead is P450,000 and the company applies factory overhead on the basis of expected production level at the rate of P5.20 per unit. The variable overhead cost per unit is

A. P2.57 B. P2.63 C. P2.93 D. P3.02

16. The following were among Gage Co.’s 2000 costs:

Normal spoilage $ 5,000

Freight out 10,000

Excess of actual manufacturing costs over standard costs 20,000

Standard manufacturing costs 100,000

Actual prime manufacturing costs 80,000

Gage’s 2000 actual manufacturing overhead was

A. $40,000 B. $45,000 C. $55,000 D. $120,000

17. Nil Co. uses a predetermined factory O/H application rate based on direct labor cost. For the year ended December 31, Nil’s budgeted factory O/H was $600,000, based on a budgeted volume of 50,000 direct labor hours, at a standard direct labor rate of $6 per hour. Actual factory O/H amounted to $620,000, with actual direct labor cost of $325,000. For the year, over-applied factory O/H was

A. $20,000 B. $25,000 C. $30,000 D. $50,000

18. Peters Company uses a flexible budget system and prepared the following information for the year

| |Percentage of total capacity |

| |80% |90% |

|Direct labor hours |24,000 |27,000 |

|Variable factory O/H |$48,000 |$54,000 |

|Fixed factory O/H |$108,000 |$108,000 |

|Total factory O/H rate per DLH |$6.50 |$6.00 |

Peters operated at 80% capacity during the year but applied factory overhead based on the 90% capacity level. Assuming that actual factory O/H was equal to the budgeted amount for the attained capacity, what is the amount of O/H variance for the year?

A. $6,000 over-absorbed. C. $12,000 over-absorbed.

B. $6,000 under-absorbed. D. $12,000 under-absorbed.

19. MNO Company applies overhead at P5 per direct labor hour. In March 2001, MNO incurred overhead of P120,000. Under applied overhead was P5,000. How many direct labor hours did MNO work?

A. 25,000 B. 22,000 C. 24,000 D. 23,000

20. At the beginning of the year, Smith Inc. budgeted the following:

Units 10,000

Sales $100,000

Minus:

Total variable expenses 60,000

Total fixed expenses 20,000

Net income $ 20,000

Factory overhead:

Variable $ 30,000

Fixed 10,000

There were no beginning inventories. At the end of the year, no work was in process, total factory overhead incurred was $39,500, and underapplied factory overhead was $1,500. Factory overhead was applied on the basis of budgeted unit production. How many units were produced this year?

A. 10,250. B. 10,000. C. 9,875. D. 9,500.

21. Premised on past experience, Mayo Corp. adopted the following budgeted formula for estimating shipping expenses. The company’s shipments average 12 kilos per shipment.

Shipping costs = P8,000 + (0.25 x kgs. shipped)

| |Planned |Actual |

|Sales order |800 |780 |

|Shipments |800 |820 |

|Units shipped |8,000 |9,000 |

|Sales |240,000 |288,000 |

|Total kilograms shipped |9,600 |12,300 |

The actual shipping costs for the month amounted to P10,500. The appropriate monthly flexible budget allowance for shipping costs for purposes of performance evaluation would be

A. P10,250 B. P11,075 C. P10,340 D. P10,400

22. Universal Company uses a standard cost system and prepared the following budget at normal capacity for the month of January:

Direct labor hours 24,000

Variable factory O/H $48,000

Fixed factory O/H $108,000

Total factory O/H per DLH $6.50

Actual data for January were as follows:

Direct labor hours worked 22,000

Total factory O/H $147,000

Standard DLH allowed for capacity attained 21,000

Using the two-way analysis of O/H variances, what is the budget (controllable) variance for January?

A. $3,000 F. B. $13,500 U. C. $9,000 F. D. $10,500 U.

23. ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget manufacturing overhead. ABC has budgeted 125,000 direct labor hours for the year. Actual results were 110,000 direct labor hours, P297,000 fixed overhead, and P194,500 variable overhead. What is the fixed overhead volume variance for the year?

A. P35,000 U. B. P36,000 U. C. P2,000 F D. P3,000 F

24. JKL Co. has total budgeted fixed costs of P75,000. Actual production of 19,500 units resulted in a $3,000 favorable volume variance. What normal capacity was used to determine the fixed overhead rate?

A. 18,750 B. 20,313 C. 17,590 D. 16,500

25. TYD, Inc. reported the following data for 1996:

Actual hours 120,000

Denominator hours 150,000

Standard hours allowed for output 140,000

Fixed predetermined overhead rate P6 per hour

Variable predetermined overhead rate P4 per hour

TYD’s 1996 volume variance was

a. P60,000 which is neither favorable nor under-applied.

b. P60,000 favorable.

c. No volume variance.

d. P60,000 under-applied.

26. Patridge 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 is taken from the company's flexible budget for manufacturing overhead:

|Percent of capacity |70% |80% |90% |

|Direct labor hours |21,000 |24,000 |27,000 |

|Variable overhead |$ 42,000 |$ 48,000 |$ 54,000 |

|Fixed overhead |108,000 |108,000 |108,000 |

|Total overhead |$150,000 |$156,000 |$162,000 |

During the year, the company operated at exactly 80% of capacity, but applied manufacturing overhead to products based on the 90% level. The company's fixed overhead volume variance for the year was:

A. $6,000 U. B. $6,000 F. C. $12,000 U D. $12,000 F.

27. Margolos, Inc. ends the month with a volume variance of $6,360 unfavorable. If budgeted fixed factory O/H was $480,000, O/H was applied on the basis of 32,000 budgeted machine hours, and budgeted variable factory O/H was $170,000, what were the actual machine hours (AH) for the month?

A. 32,424 B. 32,000 C. 31,687 D. 31,576

28. Web Company uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of machine hours. During February, the company used a denominator activity of 80,000 machine hours in computing its predetermined overhead rate. However, only 75,000 standard machine hours were allowed for the month's actual production. If the fixed overhead volume variance for February was $6,400 unfavorable, then the total budgeted fixed overhead cost for the month was:

A. $96,000. B. $102,400. C. $100,000. D. $98,600.

29. The following information is available from the Tyro Company:

Actual factory O/H $15,000

Fixed O/H expenses, actual $7,200

Fixed O/H expenses, budgeted $7,000

Actual hours 3,500

Standard hours 3,800

Variable O/H rate per DLH $2.50

Assuming that Tyro uses a three-way analysis of O/H variances, what is the spending variance?

A. $750 F. B. $750 U. C. $950 F D. $200 U

30. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with machine-hours. The performance report for July showed that actual maintenance costs totaled $9,800 and that the associated spending variance was $200 unfavorable. If 8,000 machine-hours were actually worked during July, the budgeted maintenance cost per machine-hour was:

A. $1.20. B. $1.25. C. $1.275. D. $1.225.

31. Given for the variable factory overhead of GHI Products, Inc.: P39,500 actual input at budgeted rate, P41,500 flexible budget based on standard input allowed for actual output, P2,500 favorable flexible budget variance. Compute the spending variance.

A. P500 unfavorable. C. P500 favorable.

B. P2,000 favorable. D. P2,000 unfavorable.

32. Daly had a $18,000 favorable volume variance, a $15,000 unfavorable variable overhead spending variance, and $12,000 total over-applied overhead. The fixed overhead budget variance was

A. $9,000 F. B. $16,000 F. C. 49,000 U. D. $16,000 U.

Problems 33 and 34 are based on the following information.

The MABINI CANDY FACTORY has the following budgeted factory overhead costs:

|Budgeted fixed monthly factory overhead costs |P85,000 |

|Variable factory overhead |P4.00 per direct labor hour |

For the month of January, the standard direct labor hours allowed were 25,000. An analysis of the factory overhead shows that in January, the factory had an unfavorable budget (controllable) variance of P3,500 and a favorable volume variance of P1,200. The factory uses a two-way analysis of factory overhead variances.

33. The actual factory overhead incurred in January was

A. P186,200 B. P188,500 C. P181,500 D. P103,500

34. The applied factory overhead in January was

A. P188,500 B. P183,800 C. P186,200 D. P103,500

Questions 35 & 36 are based on the following information.

Raff Co. has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor hours (DLHs). The following standards are based on 100,000 direct labor hours:

Variable overhead 2 DLHs @ $3 per DLH = $6 per unit

Fixed overhead 2 DLHs @ $4 per DLH = $8 per unit

The following information pertains operations during March:

Units actually produced 38,000

Actual direct labor hours worked 80,000

Actual manufacturing overhead incurred:

Variable overhead $250,000

Fixed overhead $384,000

35. For March, the variable overhead spending variance was:

A. $6,000 F. B. $10,000 U. C. $12,000 U. D. $22,000 F.

36. For March, the fixed overhead volume variance was:

A. $96,000 U. B. $96,000 F. C. $80,000 U. D. $80,000 F.

Questions 37 thru 39 are based on the following information.

The Murray Company makes and sells a single product. The company recorded the following activity and cost data for May:

Number of units completed 45,000 units

Standard direct labor-hours allowed per unit of product 1.5 DLHS

Budgeted direct labor-hours (denominator activity) 72,000 DLHS

Actual fixed overhead costs incurred $66,000

Volume variance $4,275 U

The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour.

37. The amount of fixed overhead contained in the company's overhead flexible budget for May was:

A. $64,125. B. $67,500. C. $68,400. D. $70,275.

38. The amount of fixed manufacturing overhead cost applied to work in process during May was:

A. $61,725. B. $62,700. C. $42,750. D. $64,125.

39. The fixed overhead budget variance for May was:

A. $2,400 U. B. $2,400 F. C. $6,000 U. D. $6,000 F.

Questions 40 and 41 are based on the following information.

Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for Material D and P12.25 per unit for Material E. In June, Valenzuela bought 17,500 units of Material D and 8,750 units of Material E. All Material D, except 1,400 units were bought at the standard unit cost. The 1,400 units had a unit cost of P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875 units at a unit cost of P14.

In accordance with the standard two units of Material D and one unit of Material E should be used to make each unit of Product F. In January, 7,000 units of Product F were made and 15,050 units of Material D were used and 7,175 units of Material E were used.

40. The total materials price variance is

A. P2,791.25 F B. P2,791,25 U C. P13,781.25 F D. P13,781.25 U

41. The total materials quantity variance is

A. P7,656.25 F B. P7,656.25 U C. P13,781.25 F D. P13,781.25 U

Questions 42 and 43 are based on the following information.

Based on normal capacity operations, Sta. Ana Company employs 25 workers in its Refining Department, working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal capacity, production in the department is 5,000 units per month. Indirect materials average P0.25 per direct labor hour; indirect labor cost is 12½% of direct labor cost; and other overhead are P0.15 per direct labor hour.

The flexible budget at the normal capacity activity level follows:

|Direct materials |P 4,000 |

|Direct labor |24,000 |

|Fixed factory overhead |1,200 |

|Indirect materials |1,000 |

|Indirect labor |3,000 |

|Other overhead |600 |

|Total |P 33,800 |

|Cost per unit |P 6.76 |

42. The cost per unit at 60% capacity is

A. P6.00 B. P6.50 C. P6.82 D. P6.92

43. The total production cost for one month at 80% capacity is

A. P20,760 B. P21,500 C. P27,280 D. P30,160

ANSWER KEY

|Theory | |Problem | |

|1. D |26. A |1. D |26. C |

|2. A |27. D |2. D |27. D |

|3. A |28. B |3. D |28. B |

|4. D |29. B |4. B |29. A |

|5. B |30. C |5. D |30. A |

|6. B |31. D |6. C |31. C |

|7. C |32. A |7. C |32. A |

|8. C |33. B |8. C |33. B |

|9. D |34. C |9. D |34. C |

|10. A |35. A |10. A |35. B |

|11. A |36. A |11. C |36. A |

|12. A |37. D |12. B |37. C |

|13. B |38. D |13. B |38. D |

|14. B |39. B |14. C |39. B |

|15. B |40. C |15. B |40. B |

|16. C |41. B |16. A |41. B |

|17. A |42. A |17. C |42. D |

|18. A |43. C |18. D |43. C |

|19. C |44. B |19. D | |

|20. A |45. C |20. D | |

|21. C |46. A |21. B | |

|22. B | |22. A | |

|23. C | |23. B | |

|24. D | |24. A | |

|25. A | |25. D | |

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