MANAGEMENT ADVISORY SERVICES

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

Basic concepts C. the two systems can show different overhead budget variances.
1. The best characteristics of a standard cost system is D. the two systems show different volume variances if standard hours do not equal actual
A. all variances from standard should be reviewed hours.
B. standard can pinpoint responsibility and help motivation
C. all significant unfavorable variances should be reviewed 7. If a company wishes to establish factory overhead budget system in which estimated costs
D. standard cost involves cost control which is cost reduction can be derived directly from estimates of activity levels, it should prepare a
A. Capital budget. C. Fixed budget.
2. Standard costs are used for all of the following except: B. Discretionary budget. D. Flexible budget.
A. controlling costs C. income determination
B. forming a basis for price setting D. measuring efficiencies 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
3. Standard costs are least useful for and fixed supervisory salaries.
A. Determining minimum inventory levels C. Measuring production efficiency A. B. C. D.
B. Job order production systems D. Simplifying costing procedures Variable food costs Yes Yes No No
Fixed supervisory salaries Yes No Yes No
4. To which of the following is a standard cost nearly like?
A. Budgeted cost. C. Period cost. 9. The primary difference between a fixed (static) budget and a variable (flexible) budget is that a
B. Estimated cost. D. Product cost. fixed budget:
A. includes only fixed costs; while variable budget includes only variable costs
5. A difference between standard costs used for cost control and budgeted costs B. cannot be changed after the period begins; while a variable budget can be changed after
A. Can exist because standard costs must be determined after the budget is completed. the period begins
B. Can exist because budgeted costs are historical costs while standard costs are based on C. is concerned only with future acquisitions of fixed assets; while a variable budget is
engineering studies. concerned with expenses that vary with sales
C. Can exist because establishing budgeted costs involves employee participation and D. is a plan for a single level of sales (or other measure of activity); while a variable budget
standard costs do not. consists of several plans, one for each of several levels of sales (or other measure of
D. Can exist because standard costs represent what costs should be while budgeted costs activity)
represent expected actual costs.
10. Standard costing will produce the same results as actual or conventional costing when
6. Normal costing and standard costing differ in that standard cost variances are distributed to
A. normal costing is less appropriate for multiproduct firms A. A balance sheet account C. Cost of goods sold
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 1 of 13
MANAGEMENT ADVISORY SERVICES

B. An income or expense account D. Cost of goods sold and inventories 16. A predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in that a
predetermined overhead rate is
11. Which of the following term is best identified with a system of standard cost? A. likely to be higher than a standard fixed cost per unit.
A. Contribution approach. C. Marginal costing. B. used with variable costing while a standard fixed cost is used with absorption costing.
B. Management by exception. D. Standard accounting system. C. based on practical capacity and a standard fixed cost can be based on any level of
activity.
Standard setting D. based on an input factor like direct labor hours and a standard cost per unit is based on a
12. Which one of the following terms best describes the rate of output which qualified workers can unit of output.
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? 17. The variable factory overhead rate under the normal volume, practical capacity, and expected
A. Standard hours C. Standard time activity levels would be the
B. Standard performance D. Standard unit 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
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? Materials & labor variances
A. Equivalent units are not used. 18. For the doughnuts of McDonut Co. the Purchasing Manager decided to buy 65,000 bags of
B. Equivalent units are computed using a special approach. flour with a quality rating two grades below that which the company normally purchased. This
C. The standard equivalent units are multiplied by the actual cost per unit. purchase covered about 90% of the flour requirement for the period. As to the material
D. The actual equivalent units are multiplied by the standard cost per unit. variances, what will be the likely effect?
A. B. C. D.
14. The type of standard that is intended to represent challenging yet attainable results is: Price variance Favorable Favorable Unfavorable No effect
A. controllable cost standard D. normal standard Usage Favorable Unfavorable Favorable Unfavorable
B. expected actual standard E. theoretical standard variance
C. flexible budget standard
19. What type of direct material variances for price and usage will arise if the actual number of
15. A company using very tight standards in a standard cost system should expect that pounds of materials used was less than standard pounds allowed but actual cost exceeds
A. No incentive bonus will be paid standard cost?
B. Most variances will be unfavorable A. B. C. D.
C. Employees will be strongly motivated to attain the standard
Usage Favorable Favorable Unfavorable Unfavorable
D. Costs will be controlled better than if lower standards were used
Price Favorable Unfavorable Favorable Unfavorable

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 2 of 13

MANAGEMENT ADVISORY SERVICES

20. The journal entry to record the direct materials quantity variance may be recorded input is the:
A. Only when direct materials are purchased A. efficiency variance C. usage variance
B. When inventory is taken at the end of the year. B. mix variance D. yield variance
C. Only when direct materials are issued to production
D. Either (A) or (C) Overhead variances
26. In the analysis of standard cost variances, the item which receives the most diverse treatment
21. A manager prepared the following table by which to analyze labor costs for the month: in accounting is
Actual Hours at Actual Hours at Standard Hours at A. Direct labor cost C. Factory overhead cost
Actual Rate Standard Rate Standard Rate B. Direct material cost D. Variable cost.
$10,000 $9,800 $8,820
What variance was $980? 27. The total overhead variance is
A. Labor efficiency variance. C. Labor spending variance. A. Based on actual hours worked for the units produced.
B. Labor rate variance. D. Volume variance. B. The difference between budgeted overhead and applied overhead.
C. The difference between actual overhead costs and applied overhead.
22. A credit balance in the labor efficiency variance indicates that: D. The difference between actual overhead costs and budgeted overhead.
A. actual hours exceed standard hours
B. standard hours exceed actual hours 28. When expenses estimated for the capacity attained differ from the actual expenses incurred,
C. actual rate and actual hours exceed standard rate and standard hours the resulting balance is termed the
D. standard rate and standard hours exceed actual rate and actual hours A. Activity variance. C. Unfavorable variance.
B. Budget variance. D. Volume variance.
23. A debit balance in the labor efficiency variance indicates that
A. Actual hours exceed standard hours. C. Standard hours exceed actual hours. 29. If a company uses a predetermined rate for absorption of manufacturing overhead, the volume
B. Actual rate exceeds standard rate. D. Standard rate exceeds actual rate. variance is
A. The under- or over-applied fixed cost element of overhead.
24. If the actual labor rate exceeds the standard labor rate and the actual labor hours exceed the B. The under- or over-applied variable cost element of overhead.
number of hours allowed, the labor rate variance and labor efficiency variance will be C. The difference between budgeted cost and actual cost of fixed overhead items.
A. B. C. D. D. The difference between budgeted cost and actual cost of variable overhead items.
Labor Rate Variance Favorable Favorable Unfavorable Unfavorable
30. The production volume variance occurs when using the
Labor Efficiency Variance Favorable Unfavorable Favorable Unfavorable
A. Absorption costing approach because of production exceeding the sales.
B. Variable costing approach because of sales exceeding the production for the period.
25. The variance resulting from obtaining an output different from the one expected on the basis of
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 3 of 13
MANAGEMENT ADVISORY SERVICES

C. Variable costing approach because of production exceeding the sales for the period. A. Price differences for overhead costs
D. Absorption costing approach because production differs from that used in setting the fixed B. Quantity differences for overhead costs
overhead rate used in applying fixed overhead to production. C. Price and quantity differences for overhead costs.
D. Differences caused by production volume variation
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 Responsibility for variances
manufacturing overhead volume variance was $2,220 favorable. The company uses a fixed 35. Which department is typically responsible for a materials price variance?
manufacturing overhead rate of $1.85 per direct labor hour. During January, the standard A. Engineering. C. Purchasing.
direct labor hours allowed for the month's output: B. Production. D. Sales.
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. 36. Under a standard cost system, the materials efficiency variance are the responsibility of
A. Production and industrial engineering. C. Purchasing and sales.
32. Using the two-variance method for analyzing overhead, which of the following variances B. Purchasing and industrial engineering. D. Sales and industrial engineering.
contains both variable and fixed overhead elements?
A. B. C. D. 37. Which of the following people is most likely responsible for an unfavorable variable overhead
Controllable (Budget) Variance Yes Yes Yes No efficiency variance?
Volume Variance Yes Yes No No A. accountant C. purchasing agent
Efficiency Variance Yes No No No B. production supervisor D. supplier

33. During 1990, a department’s three-variance factory O/H standard costing system reported 38. Which of the following standard costing variances would be least controllable by a production
unfavorable spending and volume variances. The activity level selected for allocating factory supervisor?
O/H to the product was based on 80% of practical capacity. If 100% of practical capacity had A. Labor efficiency. C. Overhead efficiency.
been selected instead, how would the reported unfavorable spending and volume variances B. Materials usage. D. Overhead volume.
have been affected?
A. B. C. D. Investigating variances
39. Management scrutinizes variances because
Spending Variance Increased Increased Unchanged Unchanged
A. It is desirable under conventional knowledge on good management.
Volume Variance Increased Unchanged Increased Unchanged
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.
34. A spending variance for variable factory O/H based on direct labor hours is the difference D. Management recognizes the need to know why variances happen to be able to make
between actual variable factory O/H and the variable factory O/H that should have been corrective actions and fairly reward good performers.
incurred for the actual hours worked. This variance results from
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 4 of 13
MANAGEMENT ADVISORY SERVICES

D. The mix of workers assigned to the particular job was heavily weighted toward the use of
40. A company reported a significant materials efficiency variance for the month of January. All of new, relatively low-paid unskilled workers.
the following are possible explanations for this variance except
A. Cutting back preventive maintenance. 45. You used predetermined overhead rates and the resulting variances when compared with the
B. Processing a large number of rush orders. results using the actual rates were substantial. Production data indicated that volumes were
C. Inadequately training and supervising the labor force. lower than the plan by a large difference. This situation can be due to
D. Producing more units than planned for in the master budget. A. Overhead costs being recorded as planned.
B. Overhead being substantially composed of fixed costs.
41. Which variance is LEAST likely to be affected by hiring workers with less skill than those C. Overhead being substantially composed of variable costs.
already working? D. Products being simultaneously manufactured in single runs.
A. Labor rate variance. C. Material use variance.
B. Material price variance. D. Variable overhead efficiency variance. 46. Overapplied factory overhead results when
A. A plant is operated at less than its normal capacity.
42. Which of the following unfavorable variances is directly affected by the relative position of a B. Factory overhead costs incurred are less than the costs charged to production.
production process on a learning curve? C. Factory overhead costs incurred are greater than the costs charged to production.
A. Materials mix. C. Labor efficiency. D. Factory overhead costs incurred are unreasonably large in relation to the number of units
B. Materials price. D. Labor rate. produced.

43. Which one of the following would not explain an adverse direct labor efficiency variance?
A. A reduction in direct labor training PROBLEMS
B. Poor scheduling of direct labor hours Flexible budget
C. Unusually lengthy machine breakdowns 1. Premised on past experience, Mayo Corp. adopted the following budgeted formula for
D. Setting standard efficiency at a level that is too low estimating shipping expenses. The company’s shipments average 12 kilos per shipment.
Shipping costs = P8,000 + (0.25 x kgs. shipped)
44. Which of the following is the most probable reason a company would experience an Planned Actual
unfavorable labor rate variance and a favorable efficiency variance? Sales order 800 780
A. Defective materials caused more labor to be used to product a standard unit. Shipments 800 820
B. Because of the production schedule, workers from other production areas were assigned Units shipped 8,000 9,000
to assist in this particular process. Sales 240,000 288,000
C. The mix of workers assigned to the particular job was heavily weighted toward the use of Total kilograms shipped 9,600 12,300
higher-paid, experienced individuals. The actual shipping costs for the month amounted to P10,500. The appropriate monthly
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 5 of 13
MANAGEMENT ADVISORY SERVICES

flexible budget allowance for shipping costs for purposes of performance evaluation would be 4. PALOS Manufacturing Co. has an expected production level of 175,000 product units for 19x7.
A. P10,250 C. P10,400 Fixed factory overhead is P450,000 and the company applies factory overhead on the basis of
B. P10,340 D. P11,075 expected production level at the rate of P5.20 per unit. The variable overhead cost per unit is
A. P2.57 C. P2.93
Standard setting B. P2.63 D. P3.02
2. Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and
marketing data are indicated below: Materials variances
Cost per yard of cloth P36.00 5. ChemKing uses a standard costing system in the manufacture of its single product. The
Allowance for rejected scarf 5% of production 35,000 units of raw material in inventory were purchased for $105,000, and two units of raw
Yards of cloth needed per scarf 0.475 yard material are required to produce one unit of final product. In November, the company
Airfreight from supplier P0.60/yard produced 12,000 units of product. The standard allowed for material was $60,000, and there
Motor freight to customers P0.90 /scarf was an unfavorable quantity variance of $2,500. The materials price variance for the units
Purchase discounts from supplier 3% used in November was
Sales discount to customers 2% A. $2,500 U C. $11,000 U
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have B. $3,500 F D. $12,500 U
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 6. The Porter Company has a standard cost system. In July the company purchased and used
sheets. 22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance
A. P16.87 C. P17.76 was $1,875 Unfavorable; and the standard quantity of materials allowed for July production
B. P17.30 D. P18.21 was 21,750 pounds. The materials price variance for July was:
A. $2,725 F. C. $3,250 F.
3. The following direct labor information pertains to the manufacture of product Glu: B. $2,725 U. D. $3,250 U.
Time required to make one unit 2 direct labor hours
Number of direct workers 50 7. Cox Company's direct material costs for the month of January were as follows:
Number of productive hours per week, per worker 40 Actual quantity purchased 18,000 kilograms
Weekly wages per worker $500 Actual unit purchase price $ 3.60 per kilogram
Workers’ benefits treated as direct labor costs 20% of wages Materials price variance – unfavorable (based on purchases) $ 3,600
What is the standard direct labor cost per unit of product Glu? Standard quantity allowed for actual production 16,000 kilograms
A. $12. C. $24. Actual quantity used 15,000 kilograms
B. $15. D. $30. For January there was a favorable direct material quantity variance of
A. $3,360. C. $3,400.

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 6 of 13

MANAGEMENT ADVISORY SERVICES

B. $3,375. D. $3,800. B. P2,791,25 U D. P13,781.25 U

8. ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May, 11. The total materials quantity variance is
19x7 are summarize below: A. P7,656.25 F C. P13,781.25 F
Standard unit price P90.00 B. P7,656.25 U D. P13,781.25 U
Actual units purchased 40,000
Standard units allowed for actual production 36,250 Labor variances
Materials price variance- favorable P6,000 12. Pane Company's direct labor costs for April are as follows:
What was the actual purchase price per unit? Standard direct labor hours 42,000
A. P75.00 C. P88.50 Actual direct labor hours 41,200
B. P85.89 D. P89.85 Total direct labor payroll $247,200
Direct labor efficiency variance – favorable $3,840
9. JKL Company has a standard of 15 parts of component X costing P1.50 each. JKL purchased What is Pane's direct labor rate variance?
14,910 units of component X for P22,145. JKL generated a P220 favorable price variance and A. $44,496 U C. $49,440 F
a P3,735 favorable quantity variance. If there were no changes in the component inventory, B. $49,440 U D. $50,400 F
how many units of finished product were produced?
A. 994 units. C. 1,090 units. 13. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done. During
B. 1,000 units D. 1,160 units 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
Questions 10 and 11 are based on the following information. direct labor rate was P28.00 per hour, but an unexpected labor shortage necessitated the
Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for Material D and P12.25 per unit hiring of higher-paid workers for some jobs and had resulted in a rate variance of P800. The
for Material E. In June, Valenzuela bought 17,500 units of Material D and 8,750 units of Material E. actual direct labor rate was
All Material D, except 1,400 units were bought at the standard unit cost. The 1,400 units had a unit A. P27.20 per hour C. P30.25 per hour
cost of P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875 units at a unit B. P28.80 per hour D. P31.40 per hour
cost of P14.
In accordance with the standard two units of Material D and one unit of Material E should be used 14. ACE Company’s operations for the month just ended originally set up a 60,000 direct labor
to make each unit of Product F. In January, 7,000 units of Product F were made and 15,050 units hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of
of Material D were used and 7,175 units of Material E were used. 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
10. The total materials price variance is unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates
A. P2,791.25 F C. P13,781.25 F resulted in an actual average wage rate of P16.40 per hour. The total number of standard

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 7 of 13

MANAGEMENT ADVISORY SERVICES

direct labor hours allowed for the actual units produced is

A. P52,500 C. P62,500 17. At the beginning of the year, Smith Inc. budgeted the following:
B. P60,000 D. P70,000 Units 10,000
Sales $100,000
15. To improve productivity, ST. MICHAEL Corp. instituted a bonus plan where employees are Minus:
paid 75% of the time saved when production performance exceeds the standard level of Total variable expenses 60,000
production. The company computes the bonus on the basis of four-week periods. The Total fixed expenses 20,000
standard production is set at 3 units per hour. Each employee works 37 hours per week, and Net income $ 20,000
the wage rate is P24 per hour. Below are data for one 4-week period:
Weekly Production (Units) Factory overhead:
Employee 1st 2nd 3rd 4th Total Variable $ 30,000
ALAN 107 100 110 108 425 Fixed 10,000
JOEL 104 110 115 115 444 There were no beginning inventories. At the end of the year, no work was in process, total
ROMY 108 112 112 133 465 factory overhead incurred was $39,500, and underapplied factory overhead was $1,500.
TONY 123 120 119 124 486 Factory overhead was applied on the basis of budgeted unit production. How many units were
produced this year?
The employee who had the inconsistent performance (sometimes performing below standard) A. 9,500. C. 10,000.
but got a bonus is B. 9,875. D. 10,250.
A. Alan = P36 bonus. C. Romy = P126 bonus.
B. Joel = P54 bonus. D. Tony = P252 bonus. 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
Overhead variances variance was
16. The following were among Gage Co.’s 2000 costs: A. $9,000 F. C. $16,000 U.
Normal spoilage $ 5,000 B. $16,000 F. D. 49,000 U.
Freight out 10,000
Excess of actual manufacturing costs over standard costs 20,000 19. Universal Company uses a standard cost system and prepared the following budget at normal
Standard manufacturing costs 100,000 capacity for the month of January:
Actual prime manufacturing costs 80,000 Direct labor hours 24,000
Gage’s 2000 actual manufacturing overhead was Variable factory O/H $48,000
A. $40,000 C. $55,000 Fixed factory O/H $108,000
B. $45,000 D. $120,000 Total factory O/H per DLH $6.50

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 8 of 13

MANAGEMENT ADVISORY SERVICES

80% 90%
Actual data for January were as follows: Direct labor hours 24,000 27,000
Direct labor hours worked 22,000 Variable factory O/H $48,000 $54,000
Total factory O/H $147,000 Fixed factory O/H $108,000 $108,000
Standard DLH allowed for capacity attained 21,000 Total factory O/H rate per DLH $6.50 $6.00
Using the two-way analysis of O/H variances, what is the budget (controllable) variance for Peters operated at 80% capacity during the year but applied factory overhead based on the
January? 90% capacity level. Assuming that actual factory O/H was equal to the budgeted amount for
A. $3,000 F. C. $10,500 U. the attained capacity, what is the amount of O/H variance for the year?
B. $9,000 F. D. $13,500 U. A. $6,000 over-absorbed. C. $6,000 under-absorbed.
B. $12,000 over-absorbed. D. $12,000 under-absorbed.
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 23. Patridge Company uses a standard cost system in which it applies manufacturing overhead to
overhead rate? units of product on the basis of direct labor hours. The information below is taken from the
A. 16,500 C. 18,750 company's flexible budget for manufacturing overhead:
B. 17,590 D. 20,313 Percent of capacity 70% 80% 90%
Direct labor hours 21,000 24,000 27,000
21. TYD, Inc. reported the following data for 1996: Variable overhead $ 42,000 $ 48,000 $ 54,000
Actual hours 120,000 Fixed overhead 108,000 108,000 108,000
Denominator hours 150,000 Total overhead $150,000 $156,000 $162,000
Standard hours allowed for output 140,000
During the year, the company operated at exactly 80% of capacity, but applied manufacturing
Fixed predetermined overhead rate P6 per hour
overhead to products based on the 90% level. The company's fixed overhead volume variance
Variable predetermined overhead rate P4 per hour
for the year was:
TYD’s 1996 volume variance was
A. $6,000 F. C. $12,000 F.
A. P60,000 favorable.
B. $6,000 U. D. $12,000 U
B. No volume variance.
C. P60,000 under-applied.
Problems 24 and 25 are based on the following information.
D. P60,000 which is neither favorable nor under-applied.
The MABINI CANDY FACTORY has the following budgeted factory overhead costs:
22. Peters Company uses a flexible budget system and prepared the following information for the Budgeted fixed monthly factory overhead costs P85,000
year Variable factory overhead P4.00 per direct labor hour
Percentage of total capacity 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)
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 9 of 13
MANAGEMENT ADVISORY SERVICES

variance of P3,500 and a favorable volume variance of P1,200. The factory uses a two-way A. $2,400 F. C. $6,000 F.
analysis of factory overhead variances. B. $2,400 U. D. $6,000 U.

24. The actual factory overhead incurred in January was 29. Web Company uses a standard cost system in which manufacturing overhead is applied to
A. P103,500 C. P186,200 units of product on the basis of machine hours. During February, the company used a
B. P181,500 D. P188,500 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.
25. The applied factory overhead in January was If the fixed overhead volume variance for February was $6,400 unfavorable, then the total
A. P103,500 C. P186,200 budgeted fixed overhead cost for the month was:
B. P183,800 D. P188,500 A. $96,000. C. $100,000.
B. $98,600. D. $102,400.
Questions 26 thru 28 are based on the following information.
The Murray Company makes and sells a single product. The company recorded the following 30. Given for the variable factory overhead of GHI Products, Inc.: P39,500 actual input at
activity and cost data for May: budgeted rate, P41,500 flexible budget based on standard input allowed for actual output,
Number of units completed 45,000 units P2,500 favorable flexible budget variance. Compute the spending variance.
Standard direct labor-hours allowed per unit of product 1.5 DLHS A. P500 favorable. C. P2,000 favorable.
Budgeted direct labor-hours (denominator activity) 72,000 DLHS B. P500 unfavorable. D. P2,000 unfavorable.
Actual fixed overhead costs incurred $66,000
Volume variance $4,275 U 31. The following information is available from the Tyro Company:
The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour. Actual factory O/H $15,000
Fixed O/H expenses, actual $7,200
26. The amount of fixed overhead contained in the company's overhead flexible budget for May Fixed O/H expenses, budgeted $7,000
was: Actual hours 3,500
A. $64,125. C. $68,400. Standard hours 3,800
B. $67,500. D. $70,275. Variable O/H rate per DLH $2.50
Assuming that Tyro uses a three-way analysis of O/H variances, what is the spending
27. The amount of fixed manufacturing overhead cost applied to work in process during May was: variance?
A. $42,750. C. $62,700. A. $200 U C. $750 U.
B. $61,725. D. $64,125. B. $750 F. D. $950 F

28. The fixed overhead budget variance for May was: 32. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 10 of 13

MANAGEMENT ADVISORY SERVICES

machine-hours. The performance report for July showed that actual maintenance costs totaled direct labor hour. By the end of the month, all the required materials have been used at
$9,800 and that the associated spending variance was $200 unfavorable. If 8,000 machine- P491,900; labor was 80% complete at 4,650 hours at P30 per hour; and, the variable
hours were actually worked during July, the budgeted maintenance cost per machine-hour overhead amounted to P113,700. The total variance for the project as at the end of the month
was: was
A. $1.20. C. $1.25. A. P7,500 U C. P9,000 F
B. $1.225. D. $1.275. B. P8,400 U D. P9,100 F

Questions 33 & 34 are based on the following information. 36. A defense contractor for a government space project has incurred $2,500,000 in actual design
Raff Co. has a standard cost system in which manufacturing overhead is applied to units of product costs to date for a guidance system whose total budgeted design cost is $3,000,000. If the
on the basis of direct labor hours (DLHs). The following standards are based on 100,000 direct design phase of the project is 60% complete, what is the amount of the contractor's current
labor hours: overrun or savings on this design work?
Variable overhead 2 DLHs @ $3 per DLH = $6 per unit A. $300,000 savings. C. $500,000 savings.
Fixed overhead 2 DLHs @ $4 per DLH = $8 per unit B. $500,000 overrun. D. $700,000 overrun.
The following information pertains operations during March:
Units actually produced 38,000 37. SUPER Co. at normal capacity, operates at 600,000 labor hours with standard labor rate of
Actual direct labor hours worked 80,000 P20 per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Four
Actual manufacturing overhead incurred: units should be completed in an hour.
Variable overhead $250,000 Last year, 1,350,000 units were produced using 300,000 labor hours. All labor hours were
Fixed overhead $384,000 paid at the standard rate, and actual overhead cost consisted of P3,738,000 for variable items
and P3,000,000 fixed items.
33. For March, the variable overhead spending variance was: The total labor and overhead costs saved, by producing at more than standard, amounted to
A. $6,000 F. C. $12,000 U. A. P450,000 C. P750,000
B. $10,000 U. D. $22,000 F. B. P500,000 D. P1,200,000

34. For March, the fixed overhead volume variance was: Normal costing
A. $80,000 F. C. $96,000 F. 38. Nil Co. uses a predetermined factory O/H application rate based on direct labor cost. For the
B. $80,000 U. D. $96,000 U. 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
Total variance factory O/H amounted to $620,000, with actual direct labor cost of $325,000. For the year,
35. KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as follows: Direct over-applied factory O/H was
materials, P495,000; direct labor, 6,000 hours at P30 per hour; variable overhead, P24 per A. $20,000 C. $30,000

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 11 of 13

MANAGEMENT ADVISORY SERVICES

B. $25,000 D. $50,000 Direct labor 24,000

Fixed factory overhead 1,200
39. MNO Company applies overhead at P5 per direct labor hour. In March 2001, MNO incurred Indirect materials 1,000
overhead of P120,000. Under applied overhead was P5,000. How many direct labor hours Indirect labor 3,000
did MNO work? Other overhead 600
A. 25,000 C. 24,000 Total P 33,800
B. 22,000 D. 23,000 Cost per unit P 6.76

40. Margolos, Inc. ends the month with a volume variance of $6,360 unfavorable. If budgeted 42. The cost per unit at 60% capacity is
fixed factory O/H was $480,000, O/H was applied on the basis of 32,000 budgeted machine A. P6.00 C. P6.82
hours, and budgeted variable factory O/H was $170,000, what were the actual machine hours B. P6.50 D. P6.92
(AH) for the month?
A. 31,576 C. 32,000 43. The total production cost for one month at 80% capacity is
B. 31,687 D. 32,424 A. P20,760 C. P27,280
B. P21,500 D. P30,160
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 ANSWER KEY
overhead. What is the fixed overhead volume variance for the year? Theory Problem
A. P2,000 F C. P35,000 U. 1. B 26. C 1. D 26. C
B. P3,000 F D. P36,000 U. 2. C 27. C 2. C 27. D
3. A 28. B 3. D 28. A
Comprehensive 4. A 29. A 4. B 29. D
Questions 42 and 43 are based on the following information. 5. D 30. D 5. D 30. A
Based on normal capacity operations, Sta. Ana Company employs 25 workers in its Refining
6. D 31. B 6. C 31. B
Department, working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal
7. D 32. C 7. C 32. A
capacity, production in the department is 5,000 units per month. Indirect materials average P0.25
8. B 33. C 8. D 33. B
per direct labor hour; indirect labor cost is 12½% of direct labor cost; and other overhead are P0.15
per direct labor hour. 9. D 34. C 9. D 34. D
The flexible budget at the normal capacity activity level follows: 10. D 35. C 10. B 35. D
11. B 36. A 11. B 36. D
Direct materials P 4,000
12. B 37. B 12. B 37. D
MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 12 of 13
MANAGEMENT ADVISORY SERVICES

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

MSQ-03 – STANDARD COSTING & VARIANCE ANALYSIS Page 13 of 13