Session 4 Answers

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MANAGEMENT SERVICES

SESSION #4: Standard Costing and Variance Analysis


Self-test. Write only the letter of your choice

Use the following information to answer numbers 1 to 4.


Sim Corporation manufactures industrial-size water coolers and uses budgeted machine-hours to allocate variable
manufacturing overhead. The following information pertains to the company’s manufacturing overhead data.
Budgeted output units 15,000 units
Budgeted machine-hours 5,000 hours
Budgeted variable manufacturing overhead costs for 15,000 units P161,250

Actual output units 22,000 hours


Actual machine-hours used 7,200 hours
Actual variable manufacturing overhead costs P242,000

1. What is the budgeted variable overhead cost rate per output unit?
a. P48.40
b. P32.25
c. P11.00
d. P10.75

VOH rate = Budgeted variable MOH costs ÷ Budgeted output units


VOH rate = 161,250 ÷ 15,000
VOH rate = 10.75

2. What is the flexible-budget amount for variable manufacturing overhead?


a. P165,000
b. P236,500
c. P242,000
d. None of the above

Flexible budget = Actual output x Standard rate


Flexible budget = 22,000 x 10.75
Flexible budget = 236,500

3. What is the flexible-budget variance for variable manufacturing overhead?


a. P4,300 favorable
b. P5,500 favorable
c. P5,500 unfavorable
d. None of the above

Flexible budget variance = Actual VOH – Flexible budget VOH


Flexible budget variance = 242,000 – 236,500
Flexible budget variance = 5,500 Unfavorable

4. Variable manufacturing overhead costs were for actual output.


a. Higher than expected
b. Lower than expected
c. The same as expected
d. Unable to determine

Use the following information to answer numbers 5 to 8.


The MM Appliance Corporation manufactures two vacuum cleaners, the Standard and the Super. The following was
gathered about the two products.
Standard Super
Budgeted sales in units 3,200 800
Budgeted selling price P300 P850
Budgeted distribution margin per unit P210 P550
Actual sales in units 3,500 1,500
Actual selling price P325 P840

5. What is the budgeted sales-mix percentage for the Standard and the Super vacuum cleaners, respectively?
a. 0.70 and 0.30
MANAGEMENT SERVICES
SESSION #4: Standard Costing and Variance Analysis
b. 0.80 and 0.20
c. 0.20 and 0.80
d. 0.30 and 0.70

Standard Super
Budgeted units sales 3,200 800
÷ Total budgeted units 4,000 4,000
Sales-mix % 0.80 0.20

6. What is the total sales-volume variance in terms of the contribution margin?


a. P108,000 favorable
b. P108,000 unfavorable
c. P448,000 favorable
d. P278,000 favorable

Actual Budgeted CM per unit Total


Standard (3,500 - 3,200) x 210 = 63,000 F
Super (4,000 - 4,000) x 550 = 385,000 F
448,000 F

7. What is the total sales quantity variance in terms of the contribution margin?
a. P278,000 favorable
b. P110,000 favorable
c. P448,000 favorable
d. P170,000 favorable

Total Total Sales CM per Total


Actual Budgeted mix unit
Standard (5,000 - 4,000) x 80% x 210 = 168,000 F
Super (4,000 - 4,000) x 20% x 550 = 110,000F
278,000 F

8. What is the total sales mix variance in terms of the contribution margin?
a. P448,000 favorable
b. P278,000 favorable
c. P170,000 favorable
d. P110,000 favorable

Standard Super
Actual units sales 3,500 1,500
÷ Total budgeted units 5,000 5,000
Sales-mix % 0.70 0.30

Total Total Actual CM per Total


Actual Budgeted sales unit
Standard (70% - 80%) x 5,000 x 210 = 105,000 U
Super (30% - 20%) x 5,000 X 550 = 275,000 F
170,000 F

9. The sales mix variable will be unfavorable when


a. Actual unit sales are less than budgeted unit sales.
b. The actual sales mix shifts toward the less profitable units.
c. The composite unit for the actual mix is greater than for the budgeted mix.
d. The actual contribution margin is greater than the static budget contribution margin.

Use the following information to answer numbers 10 to 13.


Tin Industries employees a standard cost system in which direct materials inventory is carried at standard cost. Tin
has established the following standards for the prime costs of one unit of product.
MANAGEMENT SERVICES
SESSION #4: Standard Costing and Variance Analysis
Standard quantity Standard price Standard cost
Direct materials 8 pounds P1.80 per pound P14.40
Direct labor 0.25 hour P8.00 per hour 2.00
P16.40

During May, Tin purchased 160,000 pounds of direct material at a total cost of P304,000. The total factory wages for
May were P42,000, 90 percent of which were for direct labor. Tin manufactured P19,000 units of product during May
using 142,500 pounds of direct materials and 5,000 direct labor hours.

10. The direct material purchase price variance for May is


a. P16,000 favorable
b. P14,250 favorable
c. P16,000 unfavorable
d. P14,250 unfavorable

Spending variance = (Actual price – Standard price) x Actual Quantity


= [(304,000 ÷ 160,000) – 1.80] x 160,000 lbs.
= 16,000 U

11. The direct material usage (quantity) variance for May is


a. P1,100 favorable
b. P14,400 unfavorable
c. P17,100 unfavorable
d. P17,100 favorable

Quantity variance = (Actual quantity – Standard quantity) x Standard price


= [142,500 – (19,000 x 8)] x 1.80
= 17,100 F

12. The direct labor price (rate) variance for May is


a. P2,000 unfavorable
b. P2,200 favorable
c. P1,900 unfavorable
d. P2,090 favorable

Spending variance = (Actual rate – Standard rate) x Actual hours


= {[(42,000 x 90%)/5,000] – 8.00]} x 5,000.
= 2,200 F

13. The direct labor usage (efficiency) variance for May is


a. P1,800 unfavorable
b. P2,000 favorable
c. P2,000 unfavorable
d. P2,200 favorable

Efficiency variance = (Actual hours – Standard hours) x Standard rate


= [5,000 – (19,000 x 0.25)] x 8.00
= 2,000 U

14. GB Castings is a job order shop that uses a full absorption, standard cost system to account for its production
costs. The overhead costs are applied on a direct labor hour basis. A production volume variance will exist for
GB in a month where
a. Production volume differs from sales volume
b. There is a budget variance in fixed factory overhead costs
c. Actual direct labor hours differ from standard allowed direct labor hours
d. The fixed factory overhead applied on the basis of standard allowed direct labor hours differs from the
budgeted fixed factory overhead

15. Which of the following is not an advantage of using a standard cost system?
MANAGEMENT SERVICES
SESSION #4: Standard Costing and Variance Analysis
a. Helps management control costs
b. Eliminates the needs for analysis of variances
c. Requires analysis of all aspects of operations
d. Facilitates establishing an effective system of responsibility accounting

16. An important advantage of a standard cost system is that standard costs:


a. Focus attention on trouble spots and facilitate prompt corrective action
b. Cause a lower net income resulting in lower income taxes
c. Can be determined with great precision so that inventories are valued with complete accuracy
d. Cause financial statements to be more comparable because different companies cost their inventories in the
same manner

17. The L Company has a standard costing system. The following data are available for September:
i. Actual quantity of direct materials purchased: 25,000 lbs.
ii. Standard price of direct materials: P2 per pound
iii. Materials price variance: P2,500 unfavorable

The actual price per pound of direct materials purchased in September is


a. P2.15
b. P2.10
c. P2.00
d. P1.85

2,500 U = (AP – 2) x 25,000


2,500 U = 25,000AP – 50,000
25,000 AP = 52,500
AP = 2.10

18. The V Company uses a standard costing. The following data are available for October:
i. Actual quantity of direct materials used: 23,500 lbs.
ii. Standard price of direct materials: P2 per pound
iii. Materials quantity variance: P1,000 favorable

The standard quantity of material allowed for October production is:


a. 23,000 lbs.
b. 24,000 lbs.
c. 24,500 lbs.
d. Impossible to determine from the data given

1,000 F = (23,500 – SQ) x 2


1,000 F = 47,000 – 2SQ
2SQ = 48,000
SQ = 24,000

Use the following information to answer question 19 to 20


The P Company has a standard costing system. The following data are available for January:
i. Actual variable manufacturing overhead: P25,500
ii. Actual direct labor hours worked: 5,800
iii. Variable overhead spending variance: P600 favorable
iv. Variable overhead efficiency variance: P2,475 unfavorable
v. Variable overhead is assigned to production on the basis of direct labor hours.

19. The total variable overhead variance for January is


a. P1,875 unfavorable
b. P1,875 favorable
c. P3,075 unfavorable
d. P3,075 favorable

VOH spending variance 600 F


VOH efficiency variance 2,475 U
MANAGEMENT SERVICES
SESSION #4: Standard Costing and Variance Analysis
Total VOH variance 1,857 U

20. The standard hours allowed for January production is


a. 5,425
b. 5,975
c. 5,250
d. 5,800

600 F = 25,500 – (5,800 x SR)


5,800SR = 25,500 + 600
SR = 4.5

2,475 U = (5,800 x 4.5) – (SH x 4.5)


= 26,100 – 4.5SH
4.5SH = 23,625
SH = 5,250

21. Which of the following is least likely to be involved in establishing standard costs for evaluation purposes?
a. Top management
b. Industrial engineers
c. Quality control personnel
d. Budgetary accountants

22. A difference between standard costs used for cost control and budgeted costs
a. Cannot exist because they should be the same amounts.
b. Can exist because standard costs must be determined after the budget is completed.
c. Can exist because budgeted costs are historical costs, whereas standard costs are based on engineering
studies.
d. Can exist because standard costs represent what costs should be, whereas budgeted costs represent
expected actual costs.

23. A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost
per unit of P4 and a fixed cost per unit of P2. The firm fell short of its goal and only manufactured 80,000 units at
a total incurred cost of P515,000. The firm’s manufacturing cost variance is
a. P5,000 unfavorable
b. P5,000 favorable
c. P35,000 unfavorable
d. P85,000 favorable

Actual 515,000
Budgeted [(80,000 x 4) + (100,000 x 2)] 520,000
Total VOH variance 5,000 F

24. Which one of the following statements about ideal standards is incorrect?
a. Ideal standards can be used for cash budgeting or product costing.
b. Ideal standards are also called theoretical or maximum-efficiency standards.
c. Ideal standards make no allowance for waste, spoilage, and machine breakdowns.
d. Ideal standards do not make provisions for workers with different degrees of experience and skill levels.

25. In a standard cost system, the investigation of an unfavorable material usage variance should begin with the
a. Plant controller only
b. Production manager only
c. Purchasing manager only
d. Production manager or the purchasing manager

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