STRATEGIC COST MANAGEMENT STANDARD COSTING

SAMPLE PROBLEMS FOR DISCUSSION

STANDARD SETTING (DIRECT MATERIALS)

ZHAIRA CORP. is developing standards for its products. One product requires raw material that is
purchased for P2000 per kilogram from a certain supplier. By paying cash, the company gets a discount of
3% off this purchase price.

Shipping costs from the supplier's warehouse amount to P1.80 per kilogram. Receiving costs are P0.45 per
kilogram. Each unit of output requires 0.90 kilogram of this raw material. The allowance for waste and
spoilage is 0.05 kilogram of this input for each unit of output. The allowance for rejects is 0.03 kilogram of
this input for each unit of output.

REQUIREMENTS:
(a) Determine the standard price per kilogram of raw material.
(b) Determine the standard kilograms of raw material per unit of output.
(c) Compute the standard direct material cost per unit.

STANDARD SETTING (DIRECT LABOR)

GLYDEL CORP. is developing direct labor standards. The basic direct labor wage rate is P12.40 per hour.
Employment taxes are 11% of the basic wage rate. Fringe benefits are P3.51 per hour. A par cular product
requires 0.83 direct labor-hours per unit. The allowance for breaks and personal needs is 0.03 direct labor-
hours per unit. The allowance for cleanup, machine down me, and rejects is 0.10 direct labor-hours per
unit.

REQUIREMENTS:
a) Determine the standard rate per direct labor-hour.
b] Determine the standard direct labor-hours per unit of product.
c) Determine the standard labor cost per unit of product to the nearest cent.

DIRECT MATERIAL VARIANCES (AQ PURCHASED = AQ USED)

MARIELA CORP. is one of the leading high-end les manufacturers in the country. During the current
period, the company purchased and used 12,000 pounds of raw materials cos ng P3 per pound to make
5,000 les.

Based on its standard cost sheet, MARIELA’s standard material cost per le is P7.35 (2.10 pounds of
material required per le x P3.50 price per pound).

REQUIREMENTS:
(a) Compute the direct material price variance.
(b) Compute the direct material quan ty variance.
(c) Compute the total direct material variance

DIRECT MATERIAL VARIANCES (AQ PURCHASED ≠ AQ USED)

DANICA CORP. manufactures a product called CHUBS, which is sold at P100 per unit. The company uses a
standard cos ng system and has established the following price and quan ty standards for direct materials
to produce one CHUBS:

Standard Quan ty 5 pounds per unit

Standard Price P6 per pound

During January of the current year, a total of 10,000 pounds of materials were purchased at a cost of
P62,000, 8,000 pounds of which were used in the produc on of 1,520 units of CHUBS.

REQUIREMENTS:
(a) Compute the direct material price variance.
(b) Compute the direct material quan ty variance.
(c) Compute the total direct material variance.

DIRECT LABOR VARIANCES

LOUISA. CORP. is a manufacturer of aluminum baseball bats sold to various university baseball varsi es.
Based on the standard cost card, the following per unit standard labor costs for each baseball bat were
developed:

Standard rate P2.00 per hour

Standard hours per unit 1/2 hours per unit

During the current year, the company produced 38,000 baseball bats. Direct labor
costs were P36,000 for 20,000 direct labor hours actually worked.

REQUIREMENTS:

(a) Compute the direct labor rate variance

(b) Compute the direct labor efficiency variance
(c) Compute the total direct labor variance

MATERIAL & LABOR VARIANCES WITH JOURNAL ENTRIES

CRES CORP. produces and sells a single product. Standards for materials and labor follow:
  Direct materials: 4.8 ounces @ P3.50 per ounce = P16.80
 Direct labor: 1.4 hours @ P10 per hour = P14.00

The company recognizes the materials price variance at the me materials are purchased. Data rela ng to
produc on for the last month are as follows:
Produc on in units 1,500
Direct materials purchased (10,000 ounces) P38,500
Direct materials used (8,000 ounces) ?
Direct labor cost (2,000 hours) P23,000

REQUIREMENT: Prepare journal entries to record:

(a) The purchase of materials. .
(b) The usage of materials in produc on.
(c) The incurrence of direct labor cost.

MATERIAL PRICE, MIX, and YIELD VARIANCES

KYLE MANUFACTURING CORP. implements a standard cost system. It manufactures its product by mixing
three types of materials. The material standards for the produc on of 10,000 units of output are:

Standard Quantity Standard Price Total

Material X 600 kilos P 5 P 3,000
Material Y 360 kilos 4 1,440
Material Z 240 kilos 3 720
1200 kilos 5,160

During February, the company produced 12,000 units of its product with the following material costs:

Material X (750 kilos x P430) P 3,456

Material Y (400 kilos x P420) 1,680
Material Z (260 kilos x P350] 910
6,046

REQUIREMENT: Compute for the direct material price, mix and yield variances.
FACTORY OVERHEAD VARIANCES (TWO-WAY, THREE-WAY & FOUR-WAY ANALYSES)

The following informa on relates to manufacturing overhead for the YENDY MANUFACTURING CORP:

Standards:
Total budgeted variable factory overhead P 175,000
Total budgeted fixed factory overhead P 450,000
Estimated Production 25,000 units
Standard hours allowed per unit produced 2
Fixed overhead rate P 9 per machine hour
Variable overhead rate P 3.50 per machine hour

Actual:
Fixed factory overhead P 460,000
Production 24,000 units
Mchiane hours used 50,000 hours
Variable overhead P 170,000

Overhead rates are based on machine hours.

REQUIREMENTS:

(a) Compute overhead variances using a two-variance approach.

(b) Compute overhead variances using a three-variance approach.
(c) Compute overhead variances using a four-variance approach.
 SEATWORK NO. 1

PROBLEM 1
JOVAN COMPANY manufactures a powerful cleaning solvent. The main ingredient in the solvent is a raw
material called Echol. Informa on on the purchase and Use of Echol follows:

Purchase of Echol: Echol is purchased in 15-gallon container at a cost of P115 per container. A discount of
2% is offered by the supplier for payment within 10 days, JOVAN takes all discounts. Shipping costs, which
JOVAN must pay, amount to P130 for an average shipment of 100 15-gallon containers of Echol.

Use at Echol: The bill of materials calls for 7.6 quarts of Echol per bo le of cleaning solvent. (There are
four quarts in a gallon.) About 5% of all Echol used is lost through spillage or evapora on (the 7.6 quarts
above is the actual content per bo le). In addi on, sta s cal analysis has shown that every 41st bo le is
rejected at final inspec on because of contamina on.

REQUIREMENTS:
(a) Compute the standard purchase price for one quart of Echol.
(b) Compute the standard quan ty of Echol (in quarts) per salable bo le of cleaning solvent.
(c) Using the data from (a) and (b) above, prepare a standard cost card showing the standard cost of Echol
per bo le of cleaning solvent.

PROBLEM 2
During the current month. YENDY COMPANY produced 12,000 units of its product called YENDYSIRES, a
famous and alluring perfume for women. In achieving such level of produc on, the company purchased
and used 40,000 liters of raw materials for a total price of P88,000. Unfortunately, a fire destroyed the
accoun ng records of the company, but it managed to retrieve the following informa on:

Direct material price variance P10.000 F

Standard quan ty per unit 3 liters

REQUIREMENTS: .
(a) Determine the standard price per liter of raw material.
(b) Compute the direct material quan ty variance.

PROBLEM 3
MARTIN CORP. has the following direct labor informa on available for the current year:

Standards:
0.50 direct labor hours @ P10.00 per unit

Actual:
Labor cost incurred is P83,600 for 8,400 hours of work.
During the current period, the cost accountant reported an unfavorable direct labor efficiency variance of
P2,000.

REQUIREMENTS:
(a) Compute the direct labor rate variance
(b) Compute for the standard hours for produc on achieved
(c) Determine the actual produc on during the current period.

PROBLEM 4
LYRA CORPORATION manufactures its product by using two different types of labor, the mixing and
finishing. The following standards relate to the company's labor requirements in order to produce 4,000
units of produc on:

Labor Type Standard Hours Standard Unit Price Standard Cost

Mixing 500 hours P 10 P 5,000
Finishing 250 hours 5 1,250
Total 750 hours 6,250

During January, the following actual produc on informa on was provided:

Labor Type Actual Mix

Mixing 4,500 hours
Finishing 3,000 hours
Yield 36,000 units

The actual rates for mixing and finishing are P12 and P4, respec vely.

REQUIREMENT: Compute for the direct labor rate, mix and yield variances.

PROBLEM 5
The following informa on is for the standard and actual costs for the ALYSSA MANUFACTURING CORP.

Standards:
Budgeted units of production 16,000 units (80% of capacity)
Standard labor hours pr unit 4
Standard labor rate P 26 per hour
Standard material per unit 8 lbs
Standard material price P 12 per lb.
Budgeted fixed overhead P 640,000
Budgeted variable overhead rate P 15 per labor hour
Fixed overhead rate is based on budgeted labor hours at 80% capacity.

Actual:
Actual production 16,500 units
Actual fixed overhead P 640,000
Actual variable overhead P 1,000,000
Actual labor (based on 65,000 hours) P 1,700,000
Actual cost of material purchased and used (based on 130,000 lbs) P 1,600,000
Actual variable overhead P 1,000,000

REQUIREMENTS:

(a) Determine the quan ty variance, price variance, and total direct materials cost variance;
(b) Determine the me variance, rate variance, and total direct labor cost variance; and
(c) Determine the volume variance and controllable variance,
(d) Determine the conversion cost variance