THEORY

Basic concepts
1. The best characteristics of a standard cost system is
A. all variances from standard should be reviewed
B. standard can pinpoint responsibility and help motivation
C. all significant unfavorable variances should be reviewed
D. standard cost involves cost control which is cost reduction

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

A. controlling costs C. income determination
B. forming a basis for price setting D. measuring efficiencies

3. Standard costs are least useful for

A. Determining minimum inventory levels C. Measuring production efficiency
B. Job order production systems D. Simplifying costing procedures

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

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

5. 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 budgeted costs are historical costs while standard costs are
based on engineering studies.
C. Can exist because establishing budgeted costs involves employee participation
and standard costs do not.
D. Can exist because standard costs represent what costs should be while
budgeted costs represent expected actual costs.

6. Normal costing and standard costing differ in that

A. normal costing is less appropriate for multiproduct firms
B. only normal costing can be used with absorption costing.
C. the two systems can show different overhead budget variances.
D. the two systems show different volume variances if standard hours do not equal
actual hours.

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

8. 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 Yes No Yes No
salaries

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9. The primary difference between a fixed (static) budget and a variable (flexible)
budget is that a fixed budget:
A. includes only fixed costs; while variable budget includes only variable costs
B. cannot be changed after the period begins; while a variable budget can be
changed after the period begins
C. is concerned only with future acquisitions of fixed assets; while a variable budget
is concerned with expenses that vary with sales
D. 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)

10. Standard costing will produce the same results as actual or conventional costing
when standard cost variances are distributed to
A. A balance sheet account C. Cost of goods sold
B. An income or expense account D. Cost of goods sold and inventories

11. 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.

Standard setting
12. 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 hours C. Standard time
B. Standard performance D. Standard unit

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

14. The type of standard that is intended to represent challenging yet attainable results
is:
A. controllable cost standard D. normal standard
B. expected actual standard E. theoretical standard
C. flexible budget standard

15. A company using very tight standards in a standard cost system should expect that
A. No incentive bonus will be paid
B. Most variances will be unfavorable
C. Employees will be strongly motivated to attain the standard
D. Costs will be controlled better than if lower standards were used

16. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit

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 in that a predetermined overhead rate is
A. likely to be higher than a standard fixed cost per unit.
B. used with variable costing while a standard fixed cost is used with absorption
costing.
C. based on practical capacity and a standard fixed cost can be based on any level
of activity.
D. based on an input factor like direct labor hours and a standard cost per unit is
based on a unit of output.

17. The variable factory overhead rate under the normal volume, practical capacity, and
expected activity levels would be the
A. Same except for expected capacity C. Same except for practical capacity
B. Same except for normal volume D. Same for all three activity levels

Materials & labor variances

18. 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 Favorable Favorable Unfavorable No effect
variance
Usage Favorable Unfavorable Favorable Unfavorable
variance

19. 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 Favorable Favorable Unfavorable Unfavorable
Price Favorable Unfavorable Favorable Unfavorable

20. The journal entry to record the direct materials quantity variance may be recorded
A. Only when direct materials are purchased
B. When inventory is taken at the end of the year.
C. Only when direct materials are issued to production
D. Either (A) or (C)

21. 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. Labor spending variance.
B. Labor rate variance. D. Volume variance.

22. A credit balance in the labor efficiency variance indicates that:

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 A. actual hours exceed standard hours
B. standard hours exceed actual hours
C. actual rate and actual hours exceed standard rate and standard hours
D. standard rate and standard hours exceed actual rate and actual hours

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

A. Actual hours exceed standard hours. C. Standard hours exceed actual hours.
B. Actual rate exceeds standard rate. D. Standard rate exceeds actual rate.

24. 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 Favorabl Favorable Unfavorable Unfavorable
e
Labor Efficiency Favorabl Unfavorable Favorable Unfavorable
Variance e

25. The variance resulting from obtaining an output different from the one expected on
the basis of input is the:
A. efficiency variance C. usage variance
B. mix variance D. yield variance

Overhead variances
26. In the analysis of standard cost variances, the item which receives the most diverse
treatment in accounting is
A. Direct labor cost C. Factory overhead cost
B. Direct material cost D. Variable cost.

27. The total overhead variance is

A. Based on actual hours worked for the units produced.
B. The difference between budgeted overhead and applied overhead.
C. The difference between actual overhead costs and applied overhead.
D. The difference between actual overhead costs and budgeted overhead.

28. 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.

29. 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.

30. The production volume variance occurs when using the

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 A. Absorption costing approach because of production exceeding the sales.
B. Variable costing approach because of sales exceeding the production for the
period.
C. Variable costing approach because of production exceeding the sales for the
period.
D. Absorption costing approach because production differs from that used in setting
the fixed overhead rate used in applying fixed overhead to production.

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

32. 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) Yes Yes Yes No
Variance
Volume Variance Yes Yes No No
Efficiency Variance Yes No No No

33. 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 Increased Increased Unchanged Unchanged
Variance
Volume Increased Unchanged Increased Unchanged
Variance

34. 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 differences for overhead costs
B. Quantity differences for overhead costs
C. Price and quantity differences for overhead costs.
D. Differences caused by production volume variation

Responsibility for variances

35. Which department is typically responsible for a materials price variance?
A. Engineering. C. Purchasing.

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 B. Production. D. Sales.

36. 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.

37. Which of the following people is most likely responsible for an unfavorable variable
overhead efficiency variance?
A. accountant C. purchasing agent
B. production supervisor D. supplier

38. Which of the following standard costing variances would be least controllable by a
production supervisor?
A. Labor efficiency. C. Overhead efficiency.
B. Materials usage. D. Overhead volume.

Investigating variances
39. Management scrutinizes variances because
A. It is desirable under conventional knowledge on good management.
B. Management needs to determine the benefits foregone by such variances.
C. Management desires to detect such variances to be able to plan for promotions.
D. Management recognizes the need to know why variances happen to be able to
make corrective actions and fairly reward good performers.

40. 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. Processing a large number of rush orders.
C. Inadequately training and supervising the labor force.
D. Producing more units than planned for in the master budget.

41. Which variance is LEAST likely to be affected by hiring workers with less skill than
those already working?
A. Labor rate variance. C. Material use variance.
B. Material price variance. D. Variable overhead efficiency variance.

42. Which of the following unfavorable variances is directly affected by the relative
position of a production process on a learning curve?
A. Materials mix. C. Labor efficiency.
B. Materials price. D. Labor rate.

43. Which one of the following would not explain an adverse direct labor efficiency
variance?
A. A reduction in direct labor training
B. Poor scheduling of direct labor hours
C. Unusually lengthy machine breakdowns
D. Setting standard efficiency at a level that is too low

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44. Which of the following is the most probable reason a company would experience an
unfavorable labor rate variance and a favorable efficiency variance?
A. Defective materials caused more labor to be used to product a standard unit.
B. Because of the production schedule, workers from other production areas were
assigned to assist in this particular process.
C. The mix of workers assigned to the particular job was heavily weighted toward
the use of higher-paid, experienced individuals.
D. The mix of workers assigned to the particular job was heavily weighted toward
the use of new, relatively low-paid unskilled workers.

45. 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 costs being recorded as planned.
B. Overhead being substantially composed of fixed costs.
C. Overhead being substantially composed of variable costs.
D. Products being simultaneously manufactured in single runs.

46. Overapplied factory overhead results when

A. A plant is operated at less than its normal capacity.
B. Factory overhead costs incurred are less than the costs charged to production.
C. Factory overhead costs incurred are greater than the costs charged to
production.
D. Factory overhead costs incurred are unreasonably large in relation to the number
of units produced.

PROBLEMS
Flexible budget
1. 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 C. P10,400
B. P10,340 D. P11,075

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

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 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 C. P17.76
B. P17.30 D. P18.21

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

4. 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 C. P2.93
B. P2.63 D. P3.02

Materials variances
5. 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 C. $11,000 U
B. $3,500 F D. $12,500 U

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

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7. 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  $ 3,600
purchases)
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. C. $3,400.
B. $3,375. D. $3,800.

8. 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 C. P88.50
B. P85.89 D. P89.85

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

Questions 10 and 11 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.

10. The total materials price variance is

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

11. The total materials quantity variance is

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

Labor variances

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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 C. $49,440 F
B. $49,440 U 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 C. P30.25 per hour
B. P28.80 per hour D. P31.40 per hour

14. 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. 52,500 C. 62,500
B. 60,000 D. 70,000

15. 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.

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

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 Normal spoilage $ 5,000
Freight out 10,000
Excess of actual manufacturing costs over standard costs20,000
Standard manufacturing costs 100,000
Actual prime manufacturing costs 80,000
Gage’s 2000 actual manufacturing overhead was
A. $40,000 C. $55,000
B. $45,000 D. $120,000

17. 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. 9,500. C. 10,000.
B. 9,875. D. 10,250.

18. 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. C. $16,000 U.
B. $16,000 F. D. 49,000 U.

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

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

21. 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 favorable.
B. No volume variance.
C. P60,000 under-applied.
D. P60,000 which is neither favorable nor under-applied.

22. 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. $6,000 under-absorbed.
B. $12,000 over-absorbed. D. $12,000 under-absorbed.

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

Problems 24 and 25 are based on the following information.

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The MABINI CANDY FACTORY has the following budgeted factory overhead costs:
Budgeted fixed monthly factory overhead P85,000
costs
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.

24. The actual factory overhead incurred in January was

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

25. The applied factory overhead in January was

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

Questions 26 thru 28 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.

26. The amount of fixed overhead contained in the company's overhead flexible budget
for May was:
A. $64,125. C. $68,400.
B. $67,500. D. $70,275.

27. The amount of fixed manufacturing overhead cost applied to work in process during
May was:
A. $42,750. C. $62,700.
B. $61,725. D. $64,125.

28. The fixed overhead budget variance for May was:

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

29. 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. C. $100,000.

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 B. $98,600. D. $102,400.

30. 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 favorable. C. P2,000 favorable.
B. P500 unfavorable. D. P2,000 unfavorable.

31. 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. $200 U C. $750 U.
B. $750 F. D. $950 F

32. 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. C. $1.25.
B. $1.225. D. $1.275.

Questions 33 & 34 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

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

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

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

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

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Total variance
35. 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 C. P9,000 F
B. P8,400 U D. P9,100 F

36. 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.

37. 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 C. P750,000
B. P500,000 D. P1,200,000

Normal costing
38. 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 C. $30,000
B. $25,000 D. $50,000

39. 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 C. 24,000
B. 22,000 D. 23,000

40. 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. 31,576 C. 32,000
B. 31,687 D. 32,424

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

Comprehensive
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 C. P6.82
B. P6.50 D. P6.92

43. The total production cost for one month at 80% capacity is
A. P20,760 C. P27,280
B. P21,500 D. P30,160

ANSWER KEY
Theory Problem
1. B 26. C 1. D 26. C
2. C 27. C 2. C 27. D
3. A 28. B 3. D 28. A
4. A 29. A 4. B 29. D
5. D 30. D 5. D 30. A
6. D 31. B 6. C 31. B
7. D 32. C 7. C 32. A
8. B 33. C 8. D 33. B
9. D 34. C 9. D 34. D
10. D 35. C 10. B 35. D
11. B 36. A 11. B 36. D

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12. B 37. B 12. B 37. D
13. D 38. D 13. B 38. C
14. D 39. D 14. C 39. D
15. B 40. D 15. C 40. A
16. D 41. B 16. A 41. D
17. D 42. C 17. A 42. D
18. B 43. D 18. A 43. C
19. B 44. C 19. A
20. C 45. B 20. C
21. A 46. B 21. C
22. B 22. D
23. A 23. D
24. D 24. D
25. D 25. C

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