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? . !tandard time ". !tandard hours #. !tandard unit $. !tandard performance %. &he best characteristics of a standard cost system is . standard can pinpoint responsibility and help motivation ". all variances from standard should be reviewed #. all significant unfavorable variances should be reviewed $. standard cost involves cost control which is cost reduction '. !tandard costs are used for all of the following except: . income determination #. measuring efficiencies ". controlling costs $. forming a basis for price setting (. !tandard costs are least useful for . )easuring production efficiency ". !implifying costing procedures #. *ob order production systems $. $etermining minimum inventory levels $. -eriod cost.

+. &o which of the following is a standard cost nearly like? . ,stimated cost. ". "udgeted cost. #. -roduct cost. ..

difference between standard costs used for cost control and budgeted costs . #an exist because standard costs must be determined after the budget is completed. ". #an exist because standard costs represent what costs should be while budgeted costs represent expected actual costs. #. #an exist because budgeted costs are historical costs while standard costs are based on engineering studies. $. #an exist because establishing budgeted costs involves employee participation and standard costs do not.

/. 0ormal costing and standard costing differ in that . the two systems can show different overhead budget variances. ". only normal costing can be used with absorption costing. #. the two systems show different volume variances if standard hours do not equal actual hours. $. normal costing is less appropriate for multiproduct firms 1. When standard costs are used in a process-costing system, how, if at all, are equivalent units of production 2,3-4 involved or used in the cost report at standard? . ,quivalent units are not used. ". ,quivalent units are computed using a special approach. #. &he actual equivalent units are multiplied by the standard cost per unit. $. &he standard equivalent units are multiplied by the actual cost per unit. 5. &he type of standard that is intended to represent challenging yet attainable results is6 . theoretical standard $. normal standard ". flexible budget standard ,. expected actual standard

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#. controllable cost standard

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company using very tight standards in a standard cost system should expect that . )ost variances will be unfavorable ". 0o incentive bonus will be paid #. #osts will be controlled better than if lower standards were used $. ,mployees will be strongly motivated to attain the standard predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a predetermined overhead rate is . based on an input factor like direct labor hours and a standard cost per unit is based on a unit of output. ". based on practical capacity and a standard fixed cost can be based on any level of activity. #. used with variable costing while a standard fixed cost is used with absorption costing. $. likely to be higher than a standard fixed cost per unit.

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1%. 9f 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 . :lexible budget. ". :ixed budget. #. #apital budget. $. $iscretionary budget. 1'. ;anta <estaurant compares monthly operating results with a static budget. When actual sales are less than budget, would ;anta usually report favorable variances on variable food costs and fixed supervisory salaries. . ". #. $. =ariable food costs >es >es 0o 0o :ixed supervisory salaries >es 0o >es 0o 1(. &he primary difference between a fixed 2static4 budget and a variable 2flexible4 budget is that a fixed budget6 . cannot be changed after the period begins? while a variable budget can be changed after the period begins ". is a plan for a single level of sales 2or other measure of activity4? while a variable budget consists of several plans, one for each of several levels of sales 2or other measure of activity4 #. includes only fixed costs? while variable budget includes only variable costs $. is concerned only with future acquisitions of fixed assets? while a variable budget is concerned with expenses that vary with sales 1+. Which of the following term is best identified with a system of standard cost? . #ontribution approach. #. )arginal costing. ". )anagement by exception. $. !tandard accounting system. 1.. Which department is typically responsible for a materials price variance? . ,ngineering. ". -roduction. #. -urchasing. $. !ales. 1/. 3nder a standard cost system, the materials efficiency variance are the responsibility of . -roduction and industrial engineering. #. -urchasing and sales. ". -urchasing and industrial engineering. $. !ales and industrial engineering. 11. Which of the following people is most likely responsible for an unfavorable variable overhead efficiency variance? . production supervisor #. supplier ". accountant $. purchasing agent 15. Which variance is ;, !& likely to be affected by hiring workers with less skill than those already working? . )aterial use variance. #. )aterial price variance. ". ;abor rate variance. $. =ariable overhead efficiency variance.

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%8. Which of the following standard costing variances would be least controllable by a production supervisor? . @verhead volume. ". )aterials usage. #. ;abor efficiency. $. @verhead efficiency. %1. &he variance resulting from obtaining an output different from the one expected on the basis of input is the6 . mix variance ". usage variance #. yield variance $. efficiency variance %%. :or the doughnuts of )c$onut #o. the -urchasing )anager decided to buy .+,888 bags of flour with a quality rating two grades below that which the company normally purchased. &his purchase covered about 58A of the flour requirement for the period. s to the material variances, what will be the likely effect? . ". #. $. -rice variance 3nfavorable :avorable 0o effect :avorable 3sage variance :avorable 3nfavorable 3nfavorable :avorable %'. 3sing the two-variance method for analyBing overhead, which of the following contains both variable and fixed overhead elements? . ". #. #ontrollable 2"udget4 =ariance >es >es >es =olume =ariance >es >es 0o ,fficiency =ariance >es 0o 0o variances $. 0o 0o 0o

%(. Which of the following unfavorable variances is directly affected by the relative position of a production process on a learning curve? . )aterials mix. ". )aterials price. #. ;abor rate. $. ;abor efficiency. %+. manager prepared the following table by which to analyBe labor costs for the month6 ctual Cours at ctual Cours at !tandard Cours at ctual <ate !tandard <ate !tandard <ate D18,888 D5,188 D1,1%8 What variance was D518? . ;abor efficiency variance. #. =olume variance. ". ;abor rate variance. $. ;abor spending variance. . ". #. $. credit balance in the labor efficiency variance indicates that6 standard hours exceed actual hours actual hours exceed standard hours standard rate and standard hours exceed actual rate and actual hours actual rate and actual hours exceed standard rate and standard hours

%..

%/. 9f 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 . ". #. $. ;abor <ate =ariance :avorable :avorable 3nfavorable 3nfavorable ;abor ,fficiency =ariance :avorable 3nfavorable :avorable 3nfavorable %1. 9n the analysis of standard cost variances, the item which receives the most diverse treatment in accounting is . $irect labor cost #. $irect material cost ". :actory overhead cost $. =ariable cost. %5. When expenses estimated for the capacity attained differ from the actual expenses incurred, the resulting balance is termed the . ctivity variance. #. 3nfavorable variance. ". "udget variance. $. =olume variance.

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'8. &he total overhead variance is . &he difference between actual overhead costs and budgeted overhead. ". "ased on actual hours worked for the units produced. #. &he difference between actual overhead costs and applied overhead. $. &he difference between budgeted overhead and applied overhead. '1. )anagement scrutiniBes variances because . )anagement desires to detect such variances to be able to plan for promotions. ". )anagement needs to determine the benefits foregone by such variances. #. 9t is desirable under conventional knowledge on good management. $. )anagement recogniBes the need to know why variances happen to be able to make corrective actions and fairly reward good performers. '%. 9f a company uses a predetermined rate for absorption of manufacturing overhead, the volume variance is . &he under- or over-applied fixed cost element of overhead. ". &he under- or over-applied variable cost element of overhead. #. &he difference between budgeted cost and actual cost of fixed overhead items. $. &he difference between budgeted cost and actual cost of variable overhead items. ''. &he production volume variance occurs when using the . bsorption costing approach because of production exceeding the sales. ". bsorption costing approach because production differs from that used in setting the fixed overhead rate used in applying fixed overhead to production. #. =ariable costing approach because of sales exceeding the production for the period. $. =ariable costing approach because of production exceeding the sales for the period. '(. Cenley #ompany uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours. :or the month of *anuary, the fixed manufacturing overhead volume variance was D%,%%8 favorable. &he company uses a fixed manufacturing overhead rate of D1.1+ per direct labor hour. $uring *anuary, the standard direct labor hours allowed for the monthEs output6 . exceeded denominator hours by 1,888. #. exceeded denominator hours by 1,%88. ". fell short of denominator hours by 1,888.$. fell short of denominator hour by 1,%88. '+. spending variance for variable factory @FC based on direct labor hours is the difference between actual variable factory @FC and the variable factory @FC that should have been incurred for the actual hours worked. &his variance results from . -rice and quantity differences for overhead costs. ". -rice differences for overhead costs #. 7uantity differences for overhead costs $. $ifferences caused by production volume variation

'.. Which of the following is the most probable reason a company would experience an unfavorable labor rate variance and a favorable efficiency variance? . &he mix of workers assigned to the particular Gob was heavily weighted toward the use of higher-paid, experienced individuals. ". &he mix of workers assigned to the particular Gob was heavily weighted toward the use of new, relatively low-paid unskilled workers. #. "ecause of the production schedule, workers from other production areas were assigned to assist in this particular process. $. $efective materials caused more labor to be used to product a standard unit. '/. &he variable factory overhead rate under the normal volume, practical capacity, and expected activity levels would be the . !ame except for practical capacity #. !ame except for normal volume ". !ame except for expected capacity $. !ame for all three activity levels

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company reported a significant materials efficiency variance for the month of *anuary. of the following are possible explanations for this variance except . #utting back preventive maintenance. ". 9nadequately training and supervising the labor force. #. -rocessing a large number of rush orders. $. -roducing more units than planned for in the master budget. debit balance in the labor efficiency variance indicates that . !tandard hours exceed actual hours. #. !tandard rate exceeds actual rate. ". ctual hours exceed standard hours. $. ctual rate exceeds standard rate.

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(8. 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? . ". #. $. 3sage 3nfavorable :avorable :avorable 3nfavorable -rice :avorable :avorable 3nfavorable 3nfavorable (1. Which one of the following would not explain an adverse direct labor efficiency variance? . -oor scheduling of direct labor hours ". !etting standard efficiency at a level that is too low #. 3nusually lengthy machine breakdowns $. reduction in direct labor training (%. >ou used predetermined overhead rates and the resulting variances when compared with the results using the actual rates were substantial. -roduction data indicated that volumes were lower than the plan by a large difference. &his situation can be due to . @verhead being substantially composed of fixed costs. ". @verhead being substantially composed of variable costs. #. @verhead costs being recorded as planned. $. -roducts being simultaneously manufactured in single runs. ('. $uring 1558, a departmentHs three-variance factory @FC standard costing system reported unfavorable spending and volume variances. &he activity level selected for allocating factory @FC to the product was based on 18A of practical capacity. 9f 188A of practical capacity had been selected instead, how would the reported unfavorable spending and volume variances have been affected? . ". #. $. !pending =ariance 9ncreased 9ncreased 3nchanged 3nchanged =olume =ariance 3nchanged 9ncreased 9ncreased 3nchanged ((. &he Gournal entry to record the direct materials quantity variance may be recorded . @nly when direct materials are purchased ". @nly when direct materials are issued to production #. ,ither 2a4 or 2b4 $. When inventory is taken at the end of the year. (+. @verapplied factory overhead results when . plant is operated at less than its normal capacity. ". :actory overhead costs incurred are greater than the costs charged to production. #. :actory overhead costs incurred are less than the costs charged to production. $. :actory overhead costs incurred are unreasonably large in relation to the number of units produced. (.. !tandard costing will produce the same results as actual or conventional costing when standard cost variances are distributed to . #ost of goods sold and inventories #. n income or expense account ". balance sheet account $. #ost of goods sold

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PROBLEMS 1. I0@&&>, 9nc. estimated the cost of a proGect it started in @ctober 15x( as follows6 $irect materials, -(5+,888? direct labor, .,888 hours at -'8 per hour? variable overhead, -%( per direct labor hour. "y the end of the month, all the required materials have been used at -(51,588? labor was 18A complete at (,.+8 hours at -'8 per hour? and, the variable overhead amounted to -11',/88. &he total variance for the proGect as at the end of the month was . -/,+88 3 ". -1,(88 3 #. -5,888 : $. -5,88 : %. !3-,< #o. at normal capacity, operates at .88,888 labor hours with standard labor rate of -%8 per hour. =ariable factory overhead is applied at the rate of -1% per labor hour. :our units should be completed in an hour. ;ast year, 1,'+8,888 units were produced using '88,888 labor hours. ll labor hours were paid at the standard rate, and actual overhead cost consisted of -',/'1,888 for variable items and -',888,888 fixed items. &he total labor and overhead costs saved, by producing at more than standard, amounted to . -(+8,888 ". -+88,888 #. -/+8,888 $. -1,%88,888 '. defense contractor for a government space proGect has incurred D%,+88,888 in actual design costs to date for a guidance system whose total budgeted design cost is D',888,888. 9f the design phase of the proGect is .8A complete, what is the amount of the contractorEs current overrun or savings on this design work? . D'88,888 savings. #. D+88,888 savings. ". D+88,888 overrun. $. D/88,888 overrun.

(. Cankies 3nlimited has a signature scarf for ladies that is very popular. #ertain production and marketing data are indicated below6 #ost per yard of cloth -'..88 llowance for reGected scarf +A of production >ards of cloth needed per scarf 8.(/+ yard irfreight from supplier -8..8Fyard )otor freight to customers -8.58 Fscarf -urchase discounts from supplier 'A !ales discount to customers %A &he allowance for reGected scarf is not part of the 8.(/+ yard of cloth per scarf. <eGects have no market value. )aterials are used at the start of production. #alculate the standard cost of cloth per scarf that Cankies 3nlimited should use in its cost sheets. . -1..1/ ". -1/./. #. -11.%1 $. -1/.'8 +. ;-C #o. uses a standard cost system. $irect materials statistics for the month of )ay, 15x/ are summariBe below6 !tandard unit price -58.88 ctual units purchased (8,888 !tandard units allowed for actual production '.,%+8 )aterials price variance- favorable -.,888 What was the actual purchase price per unit? . -/+.88 ". -1+.15 #. -11.+8 $. -15.1+

.. #hemIing uses a standard costing system in the manufacture of its single product. &he '+,888 units of raw material in inventory were purchased for D18+,888, and two units of raw material are required to produce one unit of final product. 9n 0ovember, the company produced 1%,888 units of product. &he standard allowed for material was D.8,888, and there was an unfavorable quantity variance of D%,+88. &he materials price variance for the units used in 0ovember was . D%,+88 3 ". D11,888 3 #. D1%,+88 3 $. D',+88 :

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/. &he -orter #ompany has a standard cost system. 9n *uly the company purchased and used %%,+88 pounds of direct material at an actual cost of D+',888? the materials quantity variance was D1,1/+ 3nfavorable? and the standard quantity of materials allowed for *uly production was %1,/+8 pounds. &he materials price variance for *uly was6 . D%,/%+ :. ". D%,/%+ 3. #. D',%+8 :. $. D',%+8 3. 1. #ox #ompanyEs direct material costs for the month of *anuary were as follows6 ctual quantity purchased 11,888 kilograms ctual unit purchase price D '..8 per kilogram )aterials price variance J unfavorable 2based on purchases4 D ',.88 !tandard quantity allowed for actual production 1.,888 kilograms ctual quantity used 1+,888 kilograms :or *anuary there was a favorable direct material quantity variance of . D','.8. ". D','/+. #. D',(88. $. D',188. 5. *I; #ompany has a standard of 1+ parts of component K costing -1.+8 each. *I; purchased 1(,518 units of component K for -%%,1(+. *I; generated a -%%8 favorable price variance and a -',/'+ favorable quantity variance. 9f there were no changes in the component inventory, how many units of finished product were produced? . 55( units. ". 1,858 units. #. 1,888 units $. 1,1.8 units 18. &he following direct labor information pertains to the manufacture of product Llu6 &ime required to make one unit % direct labor hours 0umber of direct workers +8 0umber of productive hours per week, per worker (8 Weekly wages per worker D+88 WorkersH benefits treated as direct labor costs %8A of wages What is the standard direct labor cost per unit of product Llu? . D'8. ". D%(. #. D1+. $. D1%. 11. #, #ompanyHs operations for the month Gust ended originally set up a .8,888 direct labor hour level, with budgeted direct labor of -5.8,888 and budgeted variable overhead of -%(8,888. &he actual results revealed that direct labor incurred amounted to -1,1(1,888 and that the unfavorable variable overhead variance was -(8,888. ;abor trouble caused an unfavorable labor efficiency variance of -1%8,888, and new employees hired at higher rates resulted in an actual average wage rate of -1..(8 per hour. &he total number of standard direct labor hours allowed for the actual units produced is . -+%,+88 ". -.8,888 #. -.%,+88 $. -/8,888 1%. -ane #ompanyEs direct labor costs for pril are as follows6 !tandard direct labor hours ctual direct labor hours &otal direct labor payroll $irect labor efficiency variance J favorable What is -aneEs direct labor rate variance? . D((,(5. 3 ". D(5,((8 3 #. D(5,((8 : (%,888 (1,%88 D%(/,%88 D',1(8 $. D+8,(88 :

1'. & ) < W, 9nc. has a maintenance shop where repairs to its motor vehicles are done. $uring last monthHs labor strike, certain recorded were lost. &he actual input of direct labor hours was 1,888, and the resulting direct labor budget variance was a favorable -',(88. &he standard direct labor rate was -%1.88 per hour, but an unexpected labor shortage necessitated the hiring of higher-paid workers for some Gobs and had resulted in a rate variance of -188. &he actual direct labor rate was . -%/.%8 per hour ". -%1.18 per hour #. -'8.%+ per hour $. -'1.(8 per hour 1(. &o improve productivity, !&. )9#C ,; #orp. instituted a bonus plan where employees are paid /+A of the time saved when production performance exceeds the standard level of

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production. &he company computes the bonus on the basis of four-week periods. &he standard production is set at ' units per hour. ,ach employee works '/ hours per week, and the wage rate is -%( per hour. "elow are data for one (-week period6 Weekly -roduction 23nits4 ,mployee 1st %nd 'rd (th &otal ; 0 18/ 188 118 181 (%+ *@,; 18( 118 11+ 11+ ((( <@)> 181 11% 11% 1'' (.+ &@0> 1%' 1%8 115 1%( (1. &he employee who had the inconsistent performance 2sometimes performing below standard4 but got a bonus is . lan M -'. bonus. #. <omy M -1%. bonus. ". *oel M -+( bonus. $. &ony M -%+% bonus. 1+. - ;@! )anufacturing #o. has an expected production level of 1/+,888 product units for 15x/. :ixed factory overhead is -(+8,888 and the company applies factory overhead on the basis of expected production level at the rate of -+.%8 per unit. &he variable overhead cost per unit is . -%.+/ ". -%..' #. -%.5' $. -'.8% 1.. &he following were among Lage #o.Hs %888 costs6 0ormal spoilage :reight out ,xcess of actual manufacturing costs over standard costs !tandard manufacturing costs ctual prime manufacturing costs LageHs %888 actual manufacturing overhead was . D(8,888 ". D(+,888 #. D++,888 D +,888 18,888 %8,888 188,888 18,888

$. D1%8,888

1/. 0il #o. uses a predetermined factory @FC application rate based on direct labor cost. :or the year ended $ecember '1, 0ilHs budgeted factory @FC was D.88,888, based on a budgeted volume of +8,888 direct labor hours, at a standard direct labor rate of D. per hour. ctual factory @FC amounted to D.%8,888, with actual direct labor cost of D'%+,888. :or the year, over-applied factory @FC was . D%8,888 ". D%+,888 #. D'8,888 $. D+8,888 11. -eters #ompany uses a flexible budget system and prepared the following information for the year -ercentage of total capacity 18A 58A $irect labor hours %(,888 %/,888 =ariable factory @FC D(1,888 D+(,888 :ixed factory @FC D181,888 D181,888 &otal factory @FC rate per $;C D..+8 D..88 -eters operated at 18A capacity during the year but applied factory overhead based on the 58A capacity level. ssuming that actual factory @FC was equal to the budgeted amount for the attained capacity, what is the amount of @FC variance for the year? . D.,888 over-absorbed. #. D1%,888 over-absorbed. ". D.,888 under-absorbed. $. D1%,888 under-absorbed. 15. )0@ #ompany applies overhead at -+ per direct labor hour. 9n )arch %881, )0@ incurred overhead of -1%8,888. 3nder applied overhead was -+,888. Cow many direct labor hours did )0@ work? . %+,888 ". %%,888 #. %(,888 $. %',888

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%8. t the beginning of the year, !mith 9nc. budgeted the following6 3nits !ales )inus6 &otal variable expenses &otal fixed expenses 0et income

18,888 D188,888 .8,888 %8,888 D %8,888

:actory overhead6 =ariable D '8,888 :ixed 18,888 &here were no beginning inventories. t the end of the year, no work was in process, total factory overhead incurred was D'5,+88, and underapplied factory overhead was D1,+88. :actory overhead was applied on the basis of budgeted unit production. Cow many units were produced this year? . 18,%+8. B. 10,000. #. 5,1/+. D. 9,500. %1. -remised on past experience, )ayo #orp. adopted the following budgeted formula for estimating shipping expenses. &he companyHs shipments average 1% kilos per shipment. !hipping costs M -1,888 N 28.%+ x kgs. shipped4 -lanned ctual !ales order 188 /18 !hipments 188 1%8 3nits shipped 1,888 5,888 !ales %(8,888 %11,888 &otal kilograms shipped 5,.88 1%,'88 &he actual shipping costs for the month amounted to -18,+88. &he appropriate monthly flexible budget allowance for shipping costs for purposes of performance evaluation would be . -18,%+8 ". -11,8/+ #. -18,'(8 $. -18,(88 %%. 3niversal #ompany uses a standard cost system and prepared the following budget at normal capacity for the month of *anuary6 $irect labor hours %(,888 =ariable factory @FC D(1,888 :ixed factory @FC D181,888 &otal factory @FC per $;C D..+8 ctual data for *anuary were as follows6 $irect labor hours worked %%,888 &otal factory @FC D1(/,888 !tandard $;C allowed for capacity attained %1,888 3sing the two-way analysis of @FC variances, what is the budget 2controllable4 variance for *anuary? . D',888 :. ". D1',+88 3. #. D5,888 :. $. D18,+88 3. %'. "# #ompany uses the equation -'88,888 N -1./+ per direct labor hour to budget manufacturing overhead. "# has budgeted 1%+,888 direct labor hours for the year. ctual results were 118,888 direct labor hours, -%5/,888 fixed overhead, and -15(,+88 variable overhead. What is the fixed overhead volume variance for the year? . -'+,888 3. ". -'.,888 3. #. -%,888 : $. -',888 : %(. *I; #o. has total budgeted fixed costs of -/+,888. ctual production of 15,+88 units resulted in a D',888 favorable volume variance. What normal capacity was used to determine the fixed overhead rate? . 11,/+8 ". %8,'1' #. 1/,+58 $. 1.,+88

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%+. &>$, 9nc. reported the following data for 155.6 ctual hours $enominator hours !tandard hours allowed for output :ixed predetermined overhead rate =ariable predetermined overhead rate &>$Hs 155. volume variance was a. -.8,888 which is neither favorable nor under-applied. b. -.8,888 favorable. c. 0o volume variance. d. -.8,888 under-applied.

1%8,888 1+8,888 1(8,888 -. per hour -( per hour

%.. -atridge #ompany uses a standard cost system in which it applies manufacturing overhead to units of product on the basis of direct labor hours. &he information below is taken from the companyEs flexible budget for manufacturing overhead6 -ercent of capacity /8A 18A 58A $irect labor hours %1,888 %(,888 %/,888 =ariable overhead D (%,888 D (1,888 D +(,888 :ixed overhead 181,888 181,888 181,888 &otal overhead D1+8,888 D1+.,888 D1.%,888 $uring the year, the company operated at exactly 18A of capacity, but applied manufacturing overhead to products based on the 58A level. &he companyEs fixed overhead volume variance for the year was6 . D.,888 3. ". D.,888 :. #. D1%,888 3 $. D1%,888 :. %/. )argolos, 9nc. ends the month with a volume variance of D.,'.8 unfavorable. 9f budgeted fixed factory @FC was D(18,888, @FC was applied on the basis of '%,888 budgeted machine hours, and budgeted variable factory @FC was D1/8,888, what were the actual machine hours 2 C4 for the month? . '%,(%( ". '%,888 #. '1,.1/ $. '1,+/. %1. Web #ompany uses a standard cost system in which manufacturing overhead is applied to units of product on the basis of machine hours. $uring :ebruary, the company used a denominator activity of 18,888 machine hours in computing its predetermined overhead rate. Cowever, only /+,888 standard machine hours were allowed for the monthEs actual production. 9f the fixed overhead volume variance for :ebruary was D.,(88 unfavorable, then the total budgeted fixed overhead cost for the month was6 . D5.,888. ". D18%,(88. #. D188,888. $. D51,.88. %5. &he following information is available from the &yro #ompany6 ctual factory @FC D1+,888 :ixed @FC expenses, actual D/,%88 :ixed @FC expenses, budgeted D/,888 ctual hours ',+88 !tandard hours ',188 =ariable @FC rate per $;C D%.+8 ssuming that &yro uses a three-way analysis of @FC variances, what is the spending variance? . D/+8 :. ". D/+8 3. #. D5+8 : $. D%88 3 '8. t @verland #ompany, maintenance cost is exclusively a variable cost that varies directly with machine-hours. &he performance report for *uly showed that actual maintenance costs totaled D5,188 and that the associated spending variance was D%88 unfavorable. 9f 1,888 machine-hours were actually worked during *uly, the budgeted maintenance cost per machine-hour was6 . D1.%8. ". D1.%+. #. D1.%/+. $. D1.%%+.

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'1. Liven for the variable factory overhead of LC9 -roducts, 9nc.6 -'5,+88 actual input at budgeted rate, -(1,+88 flexible budget based on standard input allowed for actual output, -%,+88 favorable flexible budget variance. #ompute the spending variance. . -+88 unfavorable. #. -+88 favorable. ". -%,888 favorable. $. -%,888 unfavorable. '%. $aly had a D11,888 favorable volume variance, a D1+,888 unfavorable variable overhead spending variance, and D1%,888 total over-applied overhead. &he fixed overhead budget variance was . D5,888 :. ". D1.,888 :. #. (5,888 3. $. D1.,888 3. -roblems '' and '( are based on the following information. &he ) "909 # 0$> : #&@<> has the following budgeted factory overhead costs6 "udgeted fixed monthly factory overhead costs -1+,888 =ariable factory overhead -(.88 per direct labor hour :or the month of *anuary, the standard direct labor hours allowed were %+,888. n analysis of the factory overhead shows that in *anuary, the factory had an unfavorable budget 2controllable4 variance of -',+88 and a favorable volume variance of -1,%88. &he factory uses a two-way analysis of factory overhead variances. ''. &he actual factory overhead incurred in *anuary was . -11.,%88 ". -111,+88 #. -111,+88 '(. &he applied factory overhead in *anuary was . -111,+88 ". -11',188 #. -11.,%88 $. -18',+88 $. -18',+88

7uestions '+ O '. are based on the following information. <aff #o. has a standard cost system in which manufacturing overhead is applied to units of product on the basis of direct labor hours 2$;Cs4. &he following standards are based on 188,888 direct labor hours6 =ariable overhead % $;Cs P D' per $;C M D. per unit :ixed overhead % $;Cs P D( per $;C M D1 per unit &he following information pertains operations during )arch6 3nits actually produced '1,888 ctual direct labor hours worked 18,888 ctual manufacturing overhead incurred6 =ariable overhead D%+8,888 :ixed overhead D'1(,888 '+. :or )arch, the variable overhead spending variance was6 . D.,888 :. ". D18,888 3. #. D1%,888 3. '.. :or )arch, the fixed overhead volume variance was6 . D5.,888 3. ". D5.,888 :. #. D18,888 3. $. D%%,888 :. $. D18,888 :.

7uestions '/ thru '5 are based on the following information. &he )urray #ompany makes and sells a single product. &he company recorded the following activity and cost data for )ay6 0umber of units completed (+,888 units !tandard direct labor-hours allowed per unit of product 1.+ $;C! "udgeted direct labor-hours 2denominator activity4 /%,888 $;C! ctual fixed overhead costs incurred D..,888 =olume variance D(,%/+ 3 &he fixed portion of the predetermined overhead rate is D8.5+ per direct labor-hour.

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'/. &he amount of fixed overhead contained in the companyEs overhead flexible budget for )ay was6 . D.(,1%+. ". D./,+88. #. D.1,(88. $. D/8,%/+. '1. &he amount of fixed manufacturing overhead cost applied to work in process during )ay was6 . D.1,/%+. ". D.%,/88. #. D(%,/+8. $. D.(,1%+. '5. &he fixed overhead budget variance for )ay was6 . D%,(88 3. ". D%,(88 :. #. D.,888 3. $. D.,888 :.

7uestions (8 and (1 are based on the following information. =alenBuela -lastics 9nc. has set a standard cost, -+.%+ per unit for )aterial $ and -1%.%+ per unit for )aterial ,. 9n *une, =alenBuela bought 1/,+88 units of )aterial $ and 1,/+8 units of )aterial ,. ll )aterial $, except 1,(88 units were bought at the standard unit cost. &he 1,(88 units had a unit cost of -..1+. =alenBuela bought /,1/+ units of )aterial , at standard cost and 1/+ units at a unit cost of -1(. 9n accordance with the standard two units of )aterial $ and one unit of )aterial , should be used to make each unit of -roduct :. 9n *anuary, /,888 units of -roduct : were made and 1+,8+8 units of )aterial $ were used and /,1/+ units of )aterial , were used. (8. &he total materials price variance is . -%,/51.%+ : ". -%,/51,%+ 3 (1. &he total materials quantity variance is . -/,.+..%+ : ". -/,.+..%+ 3 #. -1',/11.%+ : #. -1',/11.%+ : $. -1',/11.%+ 3 $. -1',/11.%+ 3

7uestions (% and (' are based on the following information. "ased on normal capacity operations, !ta. na #ompany employs %+ workers in its <efining $epartment, working 1 hours a day, %8 days per month at a wage rate of -. per hour. t normal capacity, production in the department is +,888 units per month. 9ndirect materials average -8.%+ per direct labor hour? indirect labor cost is 1%QA of direct labor cost? and other overhead are -8.1+ per direct labor hour. &he flexible budget at the normal capacity activity level follows6 $irect materials - (,888 $irect labor %(,888 :ixed factory overhead 1,%88 9ndirect materials 1,888 9ndirect labor ',888 @ther overhead .88 &otal - '',188 #ost per unit - ../. (%. &he cost per unit at .8A capacity is . -..88 ". -..+8 #. -..1% $. -..5% $. -'8,1.8

('. &he total production cost for one month at 18A capacity is . -%8,/.8 ". -%1,+88 #. -%/,%18

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ANSWER KEY Theor 1. $ %. '. (. $ +. " .. " /. # 1. # 5. $ 18. 11. 1%. 1'. " 1(. " 1+. " 1.. # 1/. 11. 15. # %8. %1. # %%. " %'. # %(. $ %+.

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Pro!le" 1. $ %. $ '. $ (. " +. $ .. # /. # 1. # 5. $ 18. 11. # 1%. " 1'. " 1(. # 1+. " 1.. 1/. # 11. $ 15. $ %8. $ %1. " %%. %'. " %(. %+. $

%.. %/. %1. %5. '8. '1. '%. ''. '(. '+. '.. '/. '1. '5. (8. (1. (%. ('.

# $ " # " # " # $ " " " $ #

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