Theory
It refers to the combination of variable overhead spending variance, fixed overhead spending variance and variable overhead efficiency variance.
Budget/Controllable variance
PQR Company manufactures a line of products distributed nationally through wholesalers. Presented below are planned manufacturing data for the year and actual data for November of the current year. The company applies overhead based on planned machine hours using a predetermined annual rate.
Planning Data
Annual November
Fixed overhead P1,200,000 P100,000
Variable overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000
The predetermined overhead application rate for PQR Company is:
XYZ Company uses a standard cost system. The following information pertains to direct labor for Product A for the month of March:
Standard rate per hour P12.00
Standard hours allowed for actual production 3,000 hours
Actual rate per hour P12.60
Labor efficiency variance - unfavorable P2,400
What were the actual hours worked?
3,200 hours
ABC Corporation has a total overapplied overhead of P5,000. Additional information is as follows:
Variable overhead Fixed overhead
Applied based on standard direct labor hours allowed P33,600 P24,000
Budgeted based on standard direct labor hours allowed 30,400 21,600
What is the actual total overhead incurred?
P52,600
Palmas Company, which has a standard cost system, had 500 units of raw material X in its inventory at June 1, purchased in May for P1.20 per unit and carried at a standard cost of P1.00. The following information pertains to raw material X for the month of June:
Actual number of units purchased 1,400
Actual number of units used 1,500
Standard number of units allowed for actual production 1,300
Materials quantity variance 200 unfavorable
Actual cost per unit P1.10
The unfavorable materials purchase price variance for raw material X for June was:
A. P 0 C. P140
B. P130 D. P150
C. P140
The materials efficiency variance is the difference between actual and standard quantities used in production, multiplied by the standard price. This variance is most likely the responsibility of:
A. Purchasing department
B. Sales department
C. Production department
D. Personnel department
C. Production department
JKL Company produces "one-size-fits-all" rubber gloves and uses standard costing to account for its costs. Each unit (a pair) of finished product contains 0.50 meters of direct material. However, a 20% direct material spoilage calculated on input quantities normally occurs during the production process. The cost of direct materials is P10 per meter.
How much is the standard direct materials cost per unit of the finished product?
P6.25
Information on PQR Company's material costs for October 20X1 is as follows:
Actual cost of direct materials P126,000
Actual quantity of direct materials purchased and used 45,000 pieces
Standard quantity of direct materials allowed for October production 43,500 pieces
Direct materials efficiency variance 4,500 unfavorable
What is PQR's direct materials spending variance for the month of October?
P9,000F
XYZ Corporation's standard cost system contains the following overhead costs, computed based on a monthly normal volume of 25,000 units or 50,000 direct labor hours:
Variable factory overhead P12 per unit
Fixed factory overhead 8 per unit
Total 20 per unit
The following information pertains to the month of April 20X1:
Actual FOH costs incurred:
Variable P316,680
Fixed 225,000
Actual production 26,000 units
Actual direct labor hours worked 54,600 hours
What is the fixed overhead volume variance?
P8,000F
The flexible budget of Popsicle Co. for the month of May 2002 was for 9,000 units with direct material at P15 per unit. Direct labor was budgeted at 45 minutes per unit for a total of P81,000. Actual output for the month was 8,500 units with P127,500 in direct material and P77,775 in direct labor expense. Direct labor hours of 6,375 were actually worked during the month.
Variance analysis of the performance for the month of May would show a(n)
A. favorable material quantity variance of P7,500
B. unfavorable direct labor efficiency variance of P1,275
C. unfavorable material quantity variance of P7,500
D. unfavorable direct labor rate variance of P1,275
D. unfavorable direct labor rate variance of P1,275
Variance analysis should be primarily used:
A. as the only source of information for performance evaluation.
B. to understand why variance arise.
C. to encourage employees to focus on meeting standards.
D. to administer appropriate disciplinary action to employees that do not meet standards.
B. to understand why variance arise.
The following direct labor information pertains to the production of Product A:
Standard time per unit 4 direct labor hours
Number of direct factory workers 40 workers
Number of productive hours per month per worker 240 hours
Worker's benefits treated as direct labor cost 10% of wages
Standard direct labor cost per unit of Product A P154/unit
How much is the monthly wages per worker?
P8,400
For the month of June, ABC Company's records disclosed the following data relating to direct labor:
Actual cost P25,000
Spending variance 2,500 favorable
Efficiency variance 3,750 unfavorable
Standard cost P23,750
The actual direct labor hours used during June was 5,000 hours.
How much was the company's standard direct labor rate per hour?
P5.50/hour
DEF Corporation has a standard absorption and flexible budgeting system. Information about the factory overhead costs for the company's February production activity follows:
Standard variable overhead rate per direct labor hour P24
Standard fixed overhead rate per direct labor hour 12
36
Standard direct labor hours allowed for actual production 6,000 hours
Budgeted fixed factory overhead cost P75,000
Actual total factory overhead cost incurred 220,000
The actual fixed overhead cost incurred was in agreement with the budget.
What is the controllable variance?
P1,000U
The following data are the actual results, standard cost, and budget information for Wow Company for the month of May:
Actual output 4,500 units
Actual variable overhead P360,000
Actual fixed overhead P108,000
Actual machine time 14,000 MH
Standard variable overhead rate P6.00 per MH
Standard quantity of machine hours 3 hours per unit
Budgeted fixed overhead P777,600 per year
Budgeted output 4,800 units per month
The overhead efficiency variance is:
A. P3,000 Favorable C. P3,000 Unfavorable
B. P5,400 Favorable D. P5,400 Unfavorable
C. P3,000 Unfavorable
An unfavorable materials spending variance coupled with a favorable materials efficiency variance would most likely result from:
A. the purchase and use of higher than standard quality materials.
B. the mix of workers assigned being heavily weighted towards the use of new, relatively low-paid, unskilled workers.
C. problems involving machine efficiency.
D. changes in product mix.
A. the purchase and use of higher than standard quality materials.
The following relates to the production of Product B:
Cost per gram of input X P50
Airfreight from supplier per gram of input X P0.75
Motor freight to customers per unit of Product B P1.20
Purchase discounts from supplier 2%
Sales discounts to customers 3%
Standard cost of input X per unit of Product B P995
The allowance for rejected input X of 5% is considered normal in the production process. Rejects have no market value.
Calculate the grams of input X needed per unit of Product B before considering the allowance for reject.
19 grams
MNO Company manufactures a cleaning solvent. To produce one 55-gallon drum of solvent requires the company to employ both skilled and unskilled workers. The standard and actual labor information is presented below:
Standard:
Skilled Labor: 4 hours @ P12 per hour
Unskilled Labor: 2 hours @ P 7 per hour
Actual:
Skilled Labor: 1,950 hours @ P11.90 per hour
Unskilled Labor: 1,300 hours @ P7.15 per hour
During the current month, the company manufactured 500 55-gallon drums.
Round all answers to the nearest whole peso.
What is the labor yield variance?
P2,583U
The following are data about JKL Corporation's fixed and variable overhead for the month of May:
Actual Flexible Applied
Fixed overhead P120,000 ? P125,000
Variable overhead 80,000 90,000 ?
Variable overhead rate variance P2,000U
Volume variance P5,000F
Standard variable overhead rate per hour P20
How many hours is JKL Corporation efficient or inefficient in terms of using direct labor hours?
600 hours
The Virgin Island Company has standard variable costs as follows:
Materials, 3 pounds at P4.00 per pound P12.00
Labor, 2 hours P10.00 per hour 20.00
Variable overhead, P7.50 per labor hour 15.00
Total P47.00
During September, Virgin Island produced 6,000 units, using 11,560 labor hours at a total wage of P113,870 and incurring P88,600 in variable overhead. The variable overhead variances are:
A. B. C. D.
Spending P1,900 favorable P1,900 unfavorable P1,400 favorable P1,400 unfavorable
Efficiency P3,300 unfavorable P3,300 favorable P1,900 favorable P1,900 favorable
B. Spending P1,900 unfavorable Efficiency P3,300 favorable
A variance shows a deviation of actual results from standard or budgeted results. In deciding whether to investigate a variance or not, management will most likely consider the following factors, except:
A. the amount of variance and the cost of investigation.
B. whether the variance is favorable or unfavorable.
C. the possibility that investigation will eliminate future occurences of the variance.
D. the trend of the variances over time.
B. whether the variance is favorable or unfavorable.
GHI Company is a chemical manufacturer that supplies various products to industrial users. The company plans to introduce a new chemical solution called Bysap, for which it needs to develop a standard product cost. The following labor information is available on the production of Bysap.
• The product, which is bottled in 10-liter containers, is primarily a mixture of Byclyn, Salex, and Protet.
• The finished product is highly unstable, and one 10-liter batch out of six is rejected at the final inspection. Rejected batches have no commercial value and are thrown out.
• It takes a worker 35 minutes to process one 10-liter batch of Bysap. Employees work eight-hour shifts a day, including one hour per day for rest break and cleanup.
What is the standard labor time (including rest break and cleanup) in minutes to produce one 10-liter batch of Bysap?
48 minutes
DEF Company produces four-season drinks by mixing juices of four fruits in season. The standard costs and input for a 50-liter batch of the juice are as follows:
Fruits Standard Input Quantity in Liters Standard Cost per Liter
Santol 20 P10
Mango 10 P21.25
Pineapple 25 P7.50
Tamarind 5 P15
The quantities purchased and used during the current month are shown below. A total of 14 batches were produced during the month.
Fruits Quantity Purchased in Liters Purchase Price per Liter Quantity Used in Liters
Santol 300 P9.50 290
Mango 150 P22 130
Pineapple 350 P7.20 350
Tamarind 80 P15.40 75
The materials mix variance is:
P93.75F
MNO Corporation uses a flexible budget system and prepared the following information for 20X1:
Percent of capacity 80% 100%
Direct labor hours 24,000 30,000
Variable factory overhead P48,000 P60,000
Fixed factory overhead P108,000 P108,000
Total factory overhead rate per direct labor hour P6.50 P5.60
MNO Corporation operated at 80% of capacity during 20X1, but applied FOH based on the 90% capacity level. Actual FOH was equal to the budgeted amount for the attained capacity.
How much was the total overhead variance for the year?
P12,000U
Richard Company employs a standard absorption system for product costing. The standard cost of its product is as follows: Raw materials - P14.50; Direct labor (2 DLH x P8) - P16.00; Manufacturing overhead (2 DLH x P11) - P22.00.
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Richard planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is variable cost of P3,600,000 and fixed cost of P3,000,000.
During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in November at a cost of P433,350. Actual manufacturing overhead for the month was P260,000 fixed and P315,000 variable. The total manufacturing overhead applied during November was P572,000.
The fixed manufacturing overhead volume variance for November is:
A. P10,000 favorable C. P10,000 unfavorable
B. P3,000 unfavorable D. P22,000 favorable
A. P10,000 favorable