Standard Costing
1. Which of the following statements regarding standard cost systems is true?
a. Favorable variances are not necessarily good variances.
b. Managers will investigate all variances from standard.
c. The production supervisor is generally responsible for material price variances.
d. Standard costs cannot be used for planning purposes since costs normally change in the future.
2. In a standard cost system, Work in Process Inventory is ordinarily debited with
a. actual costs of material and labor and a predetermined overhead cost for overhead.
b. standard costs based on the level of input activity (such as direct labor hours worked).
c. standard costs based on production output.
d. actual costs of material, labor, and overhead.
3. A standard cost system may be used in
a. job order costing, but not process costing.
b. process costing, but not job order costing.
c. either job order costing or process costing.
d. neither job order costing nor process costing.
4. The term standard hours allowed measures
a. budgeted output at actual hours.
b. budgeted output at standard hours.
c. actual output at standard hours.
d. actual output at actual hours.
5. A variable overhead spending variance is caused by
a. using more or fewer actual hours than the standard hours allowed for the production achieved.
b. paying a higher/lower average actual overhead price per unit of the activity base than the
standard price allowed per unit of the activity base.
c. larger/smaller waste and shrinkage associated with the resources involved than expected.
d. both b and c are causes.
6. In analyzing manufacturing overhead variances, the volume variance is the difference between the
a. amount shown in the flexible budget and the amount shown in debit side of the overhead
control account.
b. predetermined overhead application rate and the flexible budget application rate times
actual hours worked.
c. budget allowance based on standard hours allowed for actual production for the
period and the amount budgeted to be applied during the period.
d. actual amount spent for overhead items during the period and the overhead amount applied
to production during the period.
7. Variances are computed by taking the difference between which of the following?
A. Product cost and period cost.
B. Actual cost and differential cost.
C. Price factors and rate factors.
D. Actual cost and standard cost.
E. Product cost and standard cost.
8. Whole Corporation recently purchased 25,000 gallons of direct material at P5.60 per gallon. Usage
by the end of the period amounted to 23,000 gallons. If the standard cost is P6.00 per gallon and
the company believes in computing variances at the earliest point possible, the direct-material
price variance would be calculated as:
= 25,000 x (P6.00 – P5.60) = 10K favorable
9. The following data relate to product no. 89 of Des Moines Corporation: A) Direct material standard:
3 square feet at P2.50 per square foot; B) Direct material purchases: 30,000 square feet at P2.60
per square foot; C) Direct material consumed: 29,200 square feet; D) Manufacturing activity,
product no. 89: 9,600 units completed. The direct-material quantity variance is:
= (Actual units used – Standards) x Standard rate
= (29,200 – (9,600 units x 3) x 2.50
= (29,200 – 28,800) x 2.50 = 1,000
10. Items A to D are based on the following information:
Cost standard for a product:
Direct material 3 pounds at P2.50 per pound P7.50
Direct labor 5 hours at P7.50 per hour P37.50
Actual Results:
Units produced 7,800 units
Direct Materials purchased 26,000 pounds P70,200
Direct Materials used 23,100 pounds 62,370
Direct labor 40,100 hours 292,730
A. What is the direct- material quantity variance? _____________
Solution: Standard DM quantity (7,800 x 3) = 23,400
Actual materials used 23,100
Favorable variance 300 x P2.50 = 750 F
B. What is the direct- material Price variance? ___________________
Solution: actual units purchased x diff in price
26,000 x (2.50 – 2.70) = P5,200 Unf
C. What is the total standard hours allowed for the work performed?: ______________
Solution: 7,800 x 5 = 39,000
D. What is the direct-labor efficiency variance? _______________
Solution: Standard total Direct labor hours (7,800 x 5) = 39,000
Less actual direct labor hours 40,100
Variance – unfavorable 1,100 hrs x P7.50 = P8,250
E. What is the direct- labor rate variance? ____________
Solution: Actual hrs x (diff in rate)
40,100 x (P7.50 – P7.30) = 8,020 Fav
11. The following data are the actual results for Wow Company for the month of May:
Actual output 4,500 units
Actual variable overhead P86,800
Actual fixed overhead P62,000
Actual machine time 14,000 MH
Standard cost and budget information for Wow Company follows:
Standard variable overhead rate P6.00 per MH
Standard quantity of machine hours 3 hours per unit
Budgeted fixed overhead P777,600 per year
Budgeted output 4,800 units per month
REQUIRED:
1. Compute the total, price, and quantity variances for manufacturing overhead using
1. Two-way
2. Three-way
3. Four – way
Total variance
Actual overhead 148,800
Applied overhead (3hrs x 4,500 x (6+4.50)) 141,750
Total variance 7,050 Unf
1. Two-Way
Controllable:
Actual overhead 148,800
Less: Budget allowed on standard Hours (BASH):
Fixed – normal capacity 64,800
Variable (3 x 4,500 x 6) 81,000 145,800
Variance 3,000 Unfav
Volume/Capacity:
BASH 145,800
Less Standard/ Overhead Applied (OA)=(3 x 4,500 x 10.50) 141,750
Variance 4,050 Unf
2. Three-way
Spending Variance
Actual Manufacturing overhead 148,800
Less: Budget allowed on actual hours (BAAH):
Fixed (at normal capacity) 64,800
Variable (14,000 hrs x 6) 84,000 148,800
Variance 0 Fav
Variable – Efficiency Variance
Budget allowed on actual hours (BAAH) 148,800
Less: Budget allowed on Standard hours (BASH)
Fixed (at normal capacity) 64,800
Variable (4,500 units x 3 hours x 6) 81,000 145,800
Variance 3,000 Unf
Volume variance
Budget Allowed on Standard Hours (BASH) 145,800
Less: Standard/ (Applied) (OA) 141,750
Variance 4,050 Unf
3. Four-Way
Spending Variance
Actual Manufacturing overhead 148,800
Less: Budget allowed on actual hours (BAAH):
Fixed (at normal capacity) 64,800
Variable (14,000 hrs x 6) 84,000 148,800
Variance 0 Fav
Variable – Efficiency Variance
Budget allowed on actual hours (BAAH) 148,800
Less: Budget allowed on Standard hours (BASH)
Fixed (at normal capacity) 64,800
Variable (4,500 units x 3 hours x 6) 81,000 145,800
Variance 3,000 Unf
Efficiency or Effectiveness Variance
(Actual Hours – Standard hours) x Fixed Overhead Rate
(14,000 – 13,500) x 4.50 = 2,250 Unf
Idle Capacity Variance
Normal Capacity Hours – Actual hours x FOR
(14,400 – 14,00) x 4.50 = 1,800 Unf
