ACTIVITY ON STANDARD COSTING AND VARIANCE ANALYSIS
PROBLEM 1. In an overseas location, Charlie Inc manufactures ladies' blouses of one quality, produced in lots to fill each special
order. Its customers are department stores located in various cities. Charlie sews the particular store's label in the blouses. The
standard cost for a dozen blouses is:
Direct material 24 yards at P1.20
Direct labor 4 hours at P4.90
Factory overhead 4 hours at P4.00
During June, Charlie worked on three orders, for which the month’s job cost records disclose the following:
Lot No Units in Lot (dozen) Materials used (yard) Hours worked
22 1,200 25,100 2,890
23 1,500 44,040 5,310
24 1,600 28,825 2,980
The following information is also available:
a. Charlie purchased 98,000 yards of material during June at a cost of P112,700. The material price variance is recorded when
goods are purchased. All inventories are carried at standard cost.
b. Direct labor during June amounted to P55,000. According to the payroll records, production employees were paid P5.00 per
hour (the legal minimum wage in this location is P4.50 per hour)
c. Factory overhead during June amounted to P54,600.
d. A total of P567,000 was budgeted for factory overhead for the year based on estimated production at the plant’s normal capacity
of 45,000 dozen blouses annually. Factory overhead at this level of production is 40% fixed and 60% variable. Factory overhea d
is applied based on direct labor hours.
e. There was no work in process on June 1. During June, Lots 22 and 23 were completed. All material was issued for Lot 24, which
was 85% completed as to direct labor.
1.1. Compute the standard costs of Lot 24.
1.2. Compute the material quantity variance for Lot 22 (Indicate if F or UF).
1.3. Compute the labor efficiency variance of lot 23 (Indicate if F or UF).
1.4. Compute the Volume Variance (Indicate if F or UF).
PROBLEM 2 The chocolate manufacturing operations of Echo Company require close control of daily production and cost data.
The computer printout for a batch of one ton of cocoa powder indicates the following material standards:
Ingredients Standard Quantity Standard
(pounds) Batch Cost
Cocoa beans 800 496
Milk 3,700 1,850
Sugar 500 195
On July 26, the company’s commodity accounting analysis section reported the following production and cost data for the July 25
operations:
Ingredients Standard Quantity Standard
(pounds) Batch Cost
Cocoa beans 325,000 195,000
Milk 1,425,000 684,000
Sugar 250,000 100,000
Cocoa powder transferred to finished goods inventory totaled 385 tons. There was no work in process inventory.
2.1. Compute for the yield variance
2.2. Mix variance
2.3. Total material variance
PROBLEM 3 The following information summarizes the standard cost for producing one metal tennis racket frame. In addition, the
variances for one month’s production are given. Assume that all inventory accounts have zero balances at the beginning of the
month:
Standard cost/ unit Standard monthly costs
Materials 4.00 8,400
Direct labor (2 hours at P2.60) 5.20 10,920
Factory overhead:
Variable 1.80 3,780
Fixed 5.00 10,500
Variances:
Material price 244.75 unfavorable
Material quantity 500 unfavorable
Labor rate 520 unfavorable
Labor efficiency 2,080 unfavorable
3.1. Compute the actual direct labor hours worked during the month.
3.2. Identify the actual labor rate during the month.
3.3. Compute the actual labor cost.
PROBLEM 4. For 2010, Rogelio Inc set predetermined variable and fixed overhead rates of P6.50 and P9.35, respectively, based
on an expected monthly capacity of 4,000 machine hours. Each unit of product requires 1.25 machine hours.
During August, the company produced 3,360 units and incurred P27,000 variable overhead costs and P41,400 of fixed overhead
costs. The firm used 4,100 machine hours during August.
Requirement: Calculate the variances using 4- way analysis
PROBLEM 5. The IPASA Company’s factory overhead rate is 3 per hour. Budgeted overhead for 3,000 per month is 16,000 and
7,000 hours is 24,000. Actual factory overhead for the month is 18,000 and actual volume is 5,000 hours.
Compute for:
5.1. Spending Variance
5.2. Idle capacity variance