ok on Cost Accounting comps 11:4 Cle Lo chapter 12 standard Costing and Variance Analysis ag omectives tend of the chapter, the st classification of standards. ingof standard and standard cost. 1 2, Define the meanit 4. Know the diferent uses of the standard cost 4 5. is adents should be able to: atthe Know the Know the different types of standard. the standard quai and price of mate ‘and rate of labor, an ~ sidard hours anda Know how to determi standard labor hours factory overhead. know the diferent advantages and disadvantages of wsing the sta cost system. ao Compute and prepare journal entries of materials, labor and factory overhead variances. What is Standard? A Standard is @ benchmark set by management .in aid of performance peasurement. It used by the company as a basis for comprehensive and timely Teporting of performance that is used by management to monitor and control the everyday activities of the company. In manufacturing companies, standards are classified as follows: Standard - indicates the quai to produce a unit of product. Thi (e.g. 3 pieces per unit) ry of raw materials, labor time i$ normally expressed per unit B. Cost Standard - indicates what cost of quantity si is normally expressed per unit of input. (e.g. P3.0 What isa Standard Cost? Chartered inst Chartered natn of Management Accountants (CIMA) defines standard cst period. cost of the product, component or service produced in & Standard cost is ‘ ‘systematically predetermined cost of manufacturing a unit or a specific quantity o . ined cost of manufacturing aus specific quantity of product during a particular period of time to be used as 525 mparison with actual cost. It is lished by mani measu; foe, established agement as Te of acceptat + ot Sandarts pertain to what cost shouig, °° rtain e: table in Serpien coms the producti aro set only for the production or manufactur ont ret only for product costs such as mea i division of the supe 828 gat for selling and administrate re gett Pd try cvetet facturing CO8tS- + which are period or oo costs are set for a period of one year and ef ean he standard scoring standard Cost uses of .ce Measurement 1, Performan 4 cost Control and Awareness 43 Price Setting 4, Preparation of budgets 5. Management by Objectives performance Measurement fidathe company has already determined the actual result ofthe production, tay are compare to the standard cost in order to ears the variance fdiference of actual and standard cost) which is investigated, if material, t lire ts cause. Tne variance enables the management toca the Fefomance of the various cost centers, provide eda subordinates {nd investigate areas that needs improvement. Department heads responsible Bene cots will explain why the actual cot significantly different from anda Standard serves as one measure for performance evaluation to be applied personnel being evaluated. It should be understood by all hhould be applied and used as a performance tool in-order hen set standards are attainable and rewards for achieving me rorkers are expected to be motivated to perform their tasks achiev tives that have been defined by the company. Such Perfomance ev ‘Will serve as a tool for promotion and commendation for onnel being evaluated. them are avai 526__"_~_—s—s— cost contol at An at cost conto andcost reduction. The tandag bag 8 T fost to be incurred in producing a product are jot ing + gg the “should be pou ged and an effort is made to improve eliciecy of produit const tantly artiance occurs, management is now aware if they are Receding oat on what only should be incurred in producing the niteady exceed eof deviation from actual costs are studied and immediate comm it ie indertaken at the et 1 determine thése’events that In order to do t tnd deviations from standai person responsible for mn and then take corre In analyzing variances, managers ‘and those that need atte ion of Mans Phe managers will maximize his or her efficiency by is a principle wherein those operational factors which have @ significant concentrating only on deviation from the plan. Price Setting Prices are set by the company to cover all the and sell the product, plus a des! “up oF set selling prices because actus not yet products are completed. Also, -d becat Ehexpected inefficiency or efficiency of production that cannot be anticipated at the time'the selling price is set. Preparation of Budgets suse it is used to estimate ‘Standard costs helps in establishing the budgets becat the cost of production expected to be incurred for the budget period. ‘Management bu Objectives (MBO) [tisa management model that aims to improve performance of [Link] hhingthe specific objectives for each business activity and manaeers that are agreed by both management and et rain the goal setting and ‘commitment among emplove: organization. MBO improves employee motivation and commit ensures better communication between management and employees: 527 cg cost system facilitates MBO be andar ting differe a tie fing and TePorine nces betwen em standard os of SUN of Standards 2 {standard Cee ‘machine breaktiown, electricity outage ‘worker shortage, ete. ‘standard performance. 1g variances arising from the difle performance. * fieant variances and taking appropiate us ts. ed to estimate the m 528i Bo intieg eesdaiady os aaaee masses ae tobe manicure I ay help specfeaal and monetary factors needed to compute the mat bec? ‘overhead costs. Ption determine terial, labor and factory eee petermining the standard quantity and price for direct materiats sample, et US MOS ‘at based on the time and mo porexh ars to produce one unit of @ product Motion st ‘he standard quantity of direct materials represents the, materials requ onda HOTid at an hourly rate of Pap, Meet fe 10 hae te Tloduee one unit of product and it includes an allowance for wag ole os and abr cat mane Proilage. It is prepared by those who are directly involved in the produ oot the product. These are drawn by production engineers of the compan! Labor Cost = Standard hours x Standard Rat the Prom engineers. determine. the specification of materials: nesta” sundae “10 hour perunite Pa produce a unit of product. Also, companies used historical production data ty = P200 per unit determine the quantities used in the past and use it as a basis to serine standard quantities for the future. ‘the standard hours and rate fo patent res tanard for factory overhead inna oetteed i not as easy composed of different costitems vin teria than the direct materiale sad titles acon pope ant ex ch as light naterand tpn ‘The standard price for direct materials can be established by determi prevailing market price of the materials. The purchasing department different suppliers. Also, .s stable in the market. ‘The standard price for direct materials represents the final delivered cost ofthe materials and includes items such as shipping and insurance. The standard price for materials comes from the purchase contract negotiated with the Company's supplier. As an alternative to this approach, companies might use historical data or look at price trends in the marketplace. tablish because factory overhead i compose of ar ke direct materials and diet ler tisha ney se direct labor hours or machine hours to measure the nurs required to produce on unit of rod) fr varie For example, let us assume that base on ‘the specification given by the paapotiead production department, it requires 3 pes of plywood to produce one unit of ‘The standard rate for variable manufacturing overhead represents the variable product. The standard price of materials was set at P250. portion of the predetermined overhead rate used to allocate overhead costs to products, Standard Material Cost = Standard quantity x Standard! price For example, let is assume that standard hour of factory oad is 150% of = 3 per unit x P250 ree f¢ standard direct labor hours afe 10 hours to complete = P750 per unit of product one unit. The predetermine factory overhead rate is F2 Determining the standard hours and rate for direct Labor Standard Factory Overhead Cost = Standard hours x Standard Overhead Roe ‘The standard hours for direct labor represents the direct labor time required f¢ ts Standard Noo abr hows per un) PZ produce one good unit of product and it includes an allowance for breaks and = mee Preduction inefficiencies such as machine breallowm. The standard hou 2? 2152P2 be established by conducting time and motion study performed by produces Pol Ee Ba ‘engineers who then observe and analyzed the production workers how The standard fixed ove is not dependent on the changes in Betty oe texpend time to perform production activities. Companies. may also use Ft tein unchasa io te chon tom over a ide agro 22F0. TH Wo data as 4 basis for processing the same product. four are used for machine related overheads (examble: ea 't labor hours for labor related overea 529 530aper 11:A Closer Look on Cost Accounting Cpe A Co tard rate (predetermined factory overhead rate werhead. The stand i eae ‘bor or machine hour per unit to determine the “4° apoiegig overhead cost. rd eg 5 the Standards? ‘Who Set ished by the management or the dul; ves the combined efforts of theses sho are involved in producing the product, this includes the ene t®he department, purchasing agent, accounting department ete... These ee srovide information to top management so that standard may be yft"P= approved to make it enforceable and acceptable to all. Set and Advantages of Using Standard Costing used for planning and budgeting costs. ‘used to control costs of producing the product because it serves as tick against which actual costs are compared to ascertain effciens, and inefficiency of actual performance. 3, Italso helps make the employees aware and be cost conscious in producing the product. 4. Used to measure inventory. 5. It serves as a guide to the management in the setting up prices. 6. A proper developed standard costing system creates coordination and ‘communication among various departments. bles decision makers to employ management by exception inimizes wastages by detecting variance and suggesting comectv 9. Itprovides a means of performance evaluation and rewards for employees, Disadvantages of using Standard Costing ms is too costly and requires a high degree of skills to establis may not be very useful in the industries which prociuce non-standarizeé products which changes according to customer's specifications. 3, It is very difficult to establish. An inaccurate standard may cause mer problems to a company. 4. Cooperation in diferent department is required which may not sometimes happened because of interdepartmental rivalry det ined by multiplying Autput by the standard quantity allowed 532Chapter 11:A Closer Look on Cost Accounting care produced a viandall quanti Tone of botled water Are po cuantityots ten5 as ee been ured to manufacture ton gallon oa eal Hed water ifthe variance is unfavorable (U) it means that th eater than the standard price or quantity a: Ce ee aera ee or quantity the variance is favorable (F) and it ha: Note: 1, Favorable variance is not necessarily associated ag « unfavorable variance as “bad” result. The determination of must be made aft od", f 800d oF bad fyingand analyzing the cause of and its effect to other cost elements. ‘Se varance 2 Any vatiance, whether favorable oF unfavorable, a8 long as ij significant in amount, should be investigated. COMPUTATION OF DIRECT MATERIAL VARIANCE Direct Material Variance is computed based on the difference between the Actual Cost and the Standard Cost of direct materials. The direct meres variance is subdivided into two types, the material price variance and quantity variance Age ar soxsP soxse | Material Quantiy Variance ‘Waterial Price Variance Where: AQ = Actual Quantity AP = Actual Price SQ = Standard Quantity SP = Standard Price ‘MATERIALS PRICE VARIANCE ‘The Materials Price Variance (MPV) is the portion of the total direct material cost variance cause by the difference between the actual price and standard price that should have been paid for the quantity of direct materials actually Purchased or used. The purchasing agent is generally responsible for the pice variance because he has the control over the price paid for the aoquisition of the materials. However, other factors must be considered which influ result of variance. For example, if the production department requests for immediate or unscheduled purchase of materials this event may lead (0 533 Saale jing the Te tas the higher amount of fay ie peld responsible forthe pr MUPV = (AQ X AP) - (40 x sp formula =(AP -SP}xaQ Wher terials Usage Price Variance wut etual Quantity 107 pt Pice 8 Sandard Price Material Purchase Price Variance - the the actual quantity purchased and ‘the formula for the comput a ‘Material price vari corded at the 10th mates ce rmputed earlier, but the quantity would be based computed the actual quantity fomule: MPPV = (AQP x AP) - (AQP.x SP) = (AP - SP) x AQP Where: PPV = Materials Purchase Price Variance AQP= Actual Quantity Purchase iP = Actual Price 8? = Standard Price ‘ses of Material Price Variance vee ‘crials purchased in bulkcor large quantities may re ier discounts on large and bulk orders. This may lead to favorable price, variance, the increase in the mart price lve of 3 selling price of the suppliers. This Inay lead to unfavorable price variance. on department, Rush Purchase ~ unscheduled requisition ofthe preduction n that resulted in a rush acquisition of materials by purchasing PE hnay lead to an increase in the purchase prise with the purchase, Increase of Prices in the market 534 ——————sChapter 11: A Closer Look on Cost Accounting 2 gyorg to ay i res ame iment and eg rte ult PM the standng 6. Carrying costs ~ changes in the transportation costs because of the cost of materials. itis the par MATERIALS QUANTITY VARIANCE ‘The Materials Quantity Variance (MQV) is the portion of the total material cost variance cause by the difference between the actual quanti standard quantity allowed for actual production. The production manage! generally responsible for the quantity variance because he has the con the use of the materials. However, if the purchasing agent aay substandard orlow quality materials to get a favorable material price vanes’ the purchasing agent would be considered responsible for the variance. Formula: MQV= (AQ x SP) ~ (SQ x SP) = (AQ SQ) x SP Where: MQV = Materials Quantity Variance AQ = Actual Quantity SP = Standard Price SQ = Standard Quantity ‘Some Possible Causes of Material Quantity/Usage Variance 1, Experience and Skills of workers ~ Inexperience workers put into the job may cause wastage, spoilage or defects. 2. Pilferage Case - some workers steal from the factory for personal consumption. 3, The use of outdated equipment and machine bre: 4, The purchase of low quality or substandard materi 5. Brownouts or power interruption JOURNAL ENTRIES FOR DIRECT MATERIAL VARIANCE A. If Price Variance is determined at the time of Purchase ‘The joumal entry for the purchase of direct material under standard cos! ‘ ce of system will be a DEBIT to Raw Materials Inventory using the standard price ¢ st ls Inventory using the standard PAC the actual quantity purchased and CREDIT Accounts Payable fo 535 Spe quantity purchased. Then ppm Ce Steril tess pce aan an entry fF tHE ULE of det 3 jounel ntory wsing the standard price of Press ine Materials Inventory forthe stander, Sanda CHET reduction. Then DEBIT (Unfavorable i 6 quantity variance sumoTF o1ANCE DETERMINED AT THE TIME op PURCHASE ‘TIME OF PURCHASE terials Inventory (Actual Qty. PURCHASE x Srp, py et unfeoorable : uP coy Sracoreble Mats Payable (Actual Qty. Purchase x ACTUAL Peg materials will be» y BIT Work in uantity used and price of actual, or RED | Auantity used favorable) the aH ‘TIME OF USAGE work in Process Inventory (STD. Qty. XSTD. Pc OV -unfaworadle NOV - favorable Raw Materials Inventory (Actual Qty. USEDX STD. Price ae RR [Link] Variance is determined at the time of usage ‘he journal entry to record the purchase of direct materials will be DEBIT to Raw Materials Inventory account using the actual price ofthe actul quantity purchased and CREDIT Accounts Payable account for the actual pice ofthe ‘quantity purchased .d quantity variance will be recorded atthe time when the ly used in the production. The journal entry would te to 's8 Inventory account at standard cost and CREDIT Raw ‘account at the actual price of the quantity used. Then ‘material price and quantity variance or. CREDIT rice and quantity variance ‘The material pri naterials are ac ‘Summary: PRICE VARIANCE DETERMINED AT THE TIME OF USAGE ‘TIME OF PURCHASE | pcrASED) x Rew Materials Inventory (Actual Price X Actual Ot ATES ’ - Accounts Payable (Actual Price X Actue Ot. FU ‘TIME OF USAGE x Workin Process Inventory STD. ree S72.) ellRaw Materials Inventory (Actual Price X Actual Qty, USED) Illustration: Marie Corp produces liquid dishwashin, direct materials for one unit of Linis are as follows: Standard Quantity Standard Price Direct Materials S liters PAS per liter FOOD Ln. Standard Cog, P75, ‘The following are activities during the month. 1, Twelve thousand liters of direct materials were 15.50 per liter. thousand five hundred liters of direct m: 2,000 units of Linis. Purchased at a cost oy terials are used tg Required: 1, Determine the direct 2. Determine the direct 3. Prepare the journal ial usage price and quantity variance. ial purchase price and quantity variance, price variance of P4,750 unfavorable. The Marie Company spent PO.50 more for each liter of material purchased. MPV =(AP-SP) xAQ = (P15.50 - P15.00) x 9,500 liters = PO.50 U x 9,500 liters + P4,750 U Marie has 10,000 liters standard quantity for 2,000 units of Linis sine each unit of product requ 10,000). the actual jotal quantity because Marie used 500 variance of P7,500 favorable. The liters less direct materials. - SQ) x SP yo $00 10,000) x pis Gow x P15 27,500 F oon Material Price Variance ‘s determined a tig time og ate Pl Vans een ti peel? parr) 147250 F usage Journal Entries: PRICE VARIANCE DETERMINED AT THE TIME OF USAGE TIME OF PURCHASE Raw Materials Inventory (P15.50 X 12,000 liters) 186,000 ‘Accounts Payable (P15.50 X 12,000 ters) 186,000 ‘TIME OF USAGE Work In Process Inventory (P15.00 X 10,000) MUPY - unfavorab) 0 MOV - favorable ki Raw Nateri Le on the actus proton Tote: The standard quantity is computed based on the actual prod output 2 is P6000 material purchase prie variance Pte material guantcy variance, putation for material. purchase Bi - ——O———————————S—‘ié~™'Chapter 11: A Closer Look on Cost Accounting oa summary: Material Price Variance is determined at the time of ure el : jc ‘HQ Parhasedx HQ Purkased |] [AQUsaxS? ae ° (escox (12,000 P18 50) (120002015) P1500) 185000 ‘1,000 142500 aed | Purchase rice Variance 600 0 Journal Entries: PRICE VARIANCE DETERMINED AT THE TIME OF PURCHASE ‘TIME OF PURCHASE Raw Materials Inventory (12,000 X P15) 180,000 MPV -unfavorable 6,000 ‘Accounts Payable (12,000 x P15.50) 186,000 ‘TIME OF USAGE Work In Process Inventory (10,000 X P15) 150,000 -MQV -unfavorable 7,500 Raw Materials Inventory (9,500 X P15) 142,500 COMPUTATION OF DIRECT LABOR VARIANCE Direct Labor Variance is computed based on the difference between the Actual Cost and the Standard Cost of labor. The labor variance is subdivided into two types, the labor rate variance and labor efficiency variance. 539 Pg eh Sake ea is agoR RATE VARIANCE ‘he Labor Rate Variance (LRV) is the portion ofthe total dire abr en difference be! etal ate and standart rate fr actual hours worked. tis aresutfpysgnon er of labor. Since the labor rate variances gene used, the production managertears respons tecing that labor price variance are kept under control formula: LRV = (ATx AR) ~ (ATx SR) = (AR~SR) x AT SR Standard Rate fome Possible Causes of Rate of Variance |. Inappropriate use of labor by production supervisor if the tasks that are Rot 80 complicated are assigned to a highly skilled and experience workers, am unfavorable rate variance will occur because high al experienced workers are paid high wages. On the hand, a that require a high level of expertise and skill to inewpeCapter 11: A Closer Look on Cost Accounting trained workers will result favorable rate variance because j workers are paid low wages MNP Heng Changes in wage rate due to company’s policy or government ei Pay Premiums - Unanticipated overtime of workers ext differentials. extra payment LABOR EFFICIENCY VARIANCE ‘The Labor Efficiency Variance (LEV) is the portion of the tot cost variances cause by the difference betwee: hours of labor multiplied by the standard less labor hours than the standard hours production manager is generally respor purchasing agent could be held responsibl substandard or low quality materials re producing the product. Formula: LEV = (AT x SR) - (ST x SR) Where: = (AT ~ 81) x SR LBV = Labor Bificiency Variance AT = Actual Time ST = Standard Time SR = Standard Rate ‘Some Possible Causes of Rate of Variance 1. Familiarity of work - Improvement in worker’s efficiency by having them more familiar with the task which enables them to use less time in producing the product. Faulty equipment ~ having an old and xducing the product. equipment consumed rorkers to tasks that requires a Purchased of low or substandard quality of materials Poorly trained workers Poor supervision of workers oer JOURNAL ENTRIES FOR DIRECT LABOR VARIANCE ‘The journal entry to record the direct labor cost under standard cost S352 ‘will be @ DEBIT Work in Process Inventory account at standard Mt) ‘multiplied by the standard wage rate and CREDIT Wages Payable for the amount of direct labor cost during the period. Then DEBIT (unf Sal ble) labor Standard ¢ 0 ing and Variance si egiciency variance oF CREDIT (avert) Ki, ae TOs and eficeney eam sagen and EFFICIENCY VARIANCE in process Inventory (STD. Hours X STD, Pig a vrgevorable Ps : le x Bebe Pe gv favorable J Payable (Actual Hours x ACTUAL Rate = wate! = : Marie Corp produces liquid dishwashing aerate for one unit of Linis are as follow: =? '°¥" #8 iis. Te Standard Hours Standard 2 hours ‘wi Standard Cos pireet Labor P20 per hour ag ‘ne following are ies during the month, 1. two thousand of Linis were produced. ¢ hundred hours were recorded ata total Iabor cost of labor rate and efficiency variance. Marie used 3,900 hours of direct labor ata total cost of ‘should have a cost of, variance of P. Company spent P1,00 per hour more for each product produced, UW = (AR - SR) x AT = (P21 ~ P20) x 3,900 hours =PLU x 3,900 = P3,900 U : wot Mae nas 4,000 standard hour for 200 uns f tunis la Ah Product requires 2 hours of direct labor (2,000 2= 8.000 Np se of the Fouts used in the production ie 3,99 hous of Ae fe BR ice eeaoe upter 11: Closer Look 0” Cost Accounting hsp cp nos treed 04a oe of 200 ene Marc cd ae x Note: The standard hour is computed based on the actual production output Journal Entry: Work in Process Inventory (2,000 x 2hrs x P20) £80,000 LRV~ unfavorable 3,906 LBV - favorable 2,000 ‘Wages Payable (3,900hrs x P21) 81,900 Notes: 1 Material price variance is also known as material spending, material rate 2. Material Quantity variance is also known as material usage, material efficiency variance Material usage variance is a quantity variance while material price use variance is a price variance 4. Labor rate variance is also mown as labor price, labor spending, labor money variance 543 ae | “ae Star tr dard Costing and Variance hake jency variance is also Bien own a labor ho "is labor usage, and on OF FACTORY OVERHEAD VARIANCE cos ATH fad Variance is computed based on the dite po ete t ne Standard Cost of factor orien ee ten the Fal Cost hgivided into controllable and volume Ino ctor overhead Monee © $M alysis. Spending, efficiency and volume vananec pane i way, She 7 spending, variable spending ef rarance under 3. de a fix ng, efficiency and way cna Analysis mae heme Yekect pwav ANALYSIS conTROLLABLE VARIANCE variance is the difference be atroilable var tween total actual factory esteg east incurred and the budget allowance bse on stand! hur efor work performed. This variance may te favoabie or unio srive actual factory overhead is more than the budget allowance bused on vgedard hours allowed for work performed, the variance is called uyfaorabie fentrllable variance. Ifthe actual factory overhead is less than the budget allowance based on standard hours allowed for work performed, the variance is called fnorable cantrollable variance. .ce is the responsibility of the production department chat they can exercise control over the costs to which the variances relate. Formula: ‘Actual Factory Overhead Fixed FOH = Variable FOH ml om less: Budgeted Allowance based on Standard hous Taxed FOH budget (normal capacity x Std. Fixed Rate) x Standard Variable FOH (Std. Hrs. x Std. Variable Rate) _# CONTROLLABLE VARIANCE xs eg‘er 11: Closer Look on Cost Accounting Que UA ‘VOLUME VARIANCE re Volume variance represents the difference between the ‘he Mipce based on standard hours allowed for worked performeg wed standard cost charged to work in process. 804 the 1f budget allowance is more than the standard cost charged to produc variance is called unfavorable volume variance. HON, the 11 budget allowance is less than the standard cost charged to pro variance is called feworable wlume variance, Uetion the ‘The overhead volume variance indi cost of capacity availabe, ntly during but not uulized efficiently during the period and is considered the responsi grat and departmental, management. Budgeted Allowance based on Standard hours Fixed FOH budget (normal capacity x Std. Fixed Rate} x Standard Variable FOH (Sta, Hrs. x Std. Variable Rate) ae Less: Standard FOH Costs Ton Standard Fixed FOH (Std. Hrs. x Std, Fixed Rate) xx Standard Variable FOH (Std. Hrs. x Std.-Variable Rate) xg VOLUME VARIANCE ae S:WAY ANALYSIS FOH SPENDING VARIANCE Overhead spending variance is the difference betwe: factory overhead costs incurred and the budgeted allowance based hours used for actual production. factual factory overhead costs incurred are moze budgeted allowance based on actual hours used for actual production, an unfavorable spending Ifactual factoty overhead costs incurred are less than the budgeted allowance based on actual hours used for actual production, a fouorable spering variance occurs. ance just like th Gpnavriance justlike the contaye ‘eePMceion department manager, yaaa ope ee mPected, ‘i 1 resp tokeep a porte sory Overhead wedtOH able Varageted Allowance based on Actual Hours we: pg budget (normal apacy 2 Seen d Evrae OW isa to ee yon EFFICIENCY VARIANCE mead efficiency variance is the diferene betes oven at standard rate and standard hours aoe n the actual hours dard rate Actual produton at ye actual hours worked are more than the eon multiplied by standard rate Standard hours changed to Pranoe occurs. an unfacratie efieey diferent types Formula: Budgeted Allowance based on Actual Hours Fixed FOH budget (normal capacity x Std, Fixed Rate) Standard Variable FOH (Actual Hrs. x Std. Variable Rate) x ed on Standard Hours smal capacity x Std. Fixed Rate) a (Std. Hrs. x Std. Variable Rate) BFFIGIENCY VARIANCE = Ki lew VOLUME VARIANCE The Volume variance represents the sdillerence between the budgeted standard hours allowed for worked performed and the work in11: A Closer Look on Cost Accounting Chapter fowance is more than the standard cost charged to vdeet la called unfavorable volume variance. Production a lowance is less than the standard cost charged to If budget variance is called favorable volume variance. Production, 1, ‘Te overhead volume variance indicates the cost of capacity availa utilized efficiently during the period and is considered the respons executive and departmental management. Formula: Budgeted Allowance based on Standard hours Fixed FOH budget (normal capacity x Std. Fixed Rate) Standard Variable FOH (Std, Hrs. x Std. Variable Rate) 3 Less: Standard FOH Costs aes. Standard Fixed FOH (Std. Hrs. x Std, Fixed Rate) Standard Variable FOH (Std. irs. x Std. Variable Rate) VOLUME VARIANCE [Link] ANALYSIS ‘The four way approach is merely an expansion of the three way approach. The spending variance is broken down into Fixed Spending Variance and Vatiable Spending Variance. The overhead efficiency and volume variance is similar to the three way variance approach. FIXED SPENDING VARIANCE If actual fixed factory overhead costs incurred are allowance based on actual hours used for actual multiplied by standard fixed rate), an unfavor ‘occurs. than the budgeted If actual fixed factory overhead costs incurred ar allowance based on actual hours used for ac’ VARIABLE SPENDING VARIANCE the budgeted lction (Actual hours spending varince ce based on actual hours used for actual d by standard fixed rate), an unfavorable curred are le, Yate Amini ‘ual production (ce a” Oidetted al Peng wre a YN mip ‘hej ied standard input alone 9 Auction us wed. Thea sing the wetippD to Work in Process Inventory aconint ant gages Oetead petpead control anc Variable Overhead Contr agang POTTED 10 Fed ‘pen DEBIT (unfavorable) variance of CREDIT (ori | | |Chapter 11: A Closer Look on Cost Accounting summary of Factory Overhead Variance ey__— Ae Factory Ovehend a Wag, Find FO ® Vaile FO gh Seaiog | Fay [eos Budgeted llores based on etal Hours c Tit pe Fad Fitba nal capex kl Fda) ae Standard Vere POH At fis Sed Vaile) a Vasa a ‘oa Budgeted llwnce bated on Stand Hore Fed FOH bud froma cpap x Sel Finda) Vane Sond Vel FOH Ge Hr xk Vested) ae ea Standard FO Cats Surdrd Fond FOH So Hrs xStd Fed Rat =m |_Sarah POH Su Hes. Sd Varies) ae x . If BFOH is adj standard POH (SFOH) = Std Hs. x Sta POH ra costing SFOH is likewise referred to as coos standard 1H is more than SFOH, then ‘the term capacity variance is also used to mean v Budget Variance = Actual Cost ~ Budgeted Cos pudgeted FOH (BFO! ed based on standard hours (24 sdgeted variance is controllable variance. 'BFOH is adjusted basedon actual hours (BAAH), then the budgeted ce is spending variance. Volume variance is actualy the fied volume variance, there is 20 ing as a variable volume or variable capacity variance. 3 way approach, the FOH efficiency variance is actually ciency variance. "BAH ~ BASH variable overhead elficency variance may bbe computed based on: ge in hours x Variable FOH = (AH ~ SH) x Variable rate sified into ‘Variable spending variance + Biffiiency Fixed spending variance + Volume Variance es the effect of both FOR ‘variance, In some C™BCS, ded. Manufacturing efficiency variance incorpors cfficiency Variance and Labor Efficiency ‘the material ty. variance may also «= Production Cost Variance DM variance + DLvariance + FOH variance = ProductChapter 11: A Closer Look on Cost Accounting ] ‘Gopi iA Chse Look on ost Accomtg Comprehensive Mustration: ‘The ABC Corporation manufactures a product with the following stang, costs: oe - ‘eetandarg 7 guage price Variance ~ Change in price Kay ater = 08 Ux 9,500 = 2a5y 0 OF Used | usage Quantity Variance = Changin Oy tesa Teo SO ABs Poe tries posl on aed at sae sciance determined at | pauses Solel ital Poe oe of purchase Taninee determined at i is of sua Standards are based on normal monthly capacity of 2,400 direct labor 24,300 Mafra 1-$8x 18000) 34.537 ‘The following information pertains to August: ‘DOF hours, 6 (1,35% 1000 200 ‘Accounts Payabie a MPPV- wr payable (actual cost|_ 24.840 Units produced in Julh S00 Accor rect materials purchased TE : Direct Materials used - 9,500 yards OE Ea TOTS TTT WETS | Direct labor - 2,100 houre at P9.15 TOS INQV ~ favorable 287s | MURY-manorae . ‘Retual Factory Overhead Fixed POO MON et 35% 9,500) ates | Noi tera | ee a ial 389500 | 1. Compute the following variances and indicate whether the ion rian i ae ae 1s i *y are favorable or ‘Hours: ‘Rate Total i a Materile Purchased price, pice usage and quantity variance [2100 Peis pm | ala 5; [Ton | | b. Labor rate and efficiency variance Mo ao Le | ¢. FOH fixed variable spending, efficiency and volume variance. Show the 5 2 Is Wate: Standard Hours per unit based on actual prodtons (units) computation of variable and fixed OH per direct labor hour and the Tinre, per unit x SOO units produced = 2,000 std hours total budgeted FOH into variable and fixed | 11, Prepare journal entries Labor rate variance = Change in rate x Actual hours | = POLIS Ux2,100 hrs. = 315 U Solution: Quantity Price Labor efficiency variance = Chang: in hours x Std rate Teta 9,500 T38 ‘100 hire. U xP9 = 900 U Standart 10,000 135] Difference 500 F 30 Journalentries ‘Note: Standard materials per unit is based on actual production (units) ‘Aabor Incurrence: 6,218 ] 20 yards x 500 units produced = st } Payroll 19) | y produced = 10,000 std aty. eee 19,125 | jaterials | Labor Distribution Material WIP (9x 2,000) 18,000 Price Variance : BEeE a0 on Materials Purchase price variance = Change in price X Ac ) Purchase ariance — unfavorable coreatrr ae, Change in peice % Actual Q6j Func Efficiency Variance - unfavorable 300 19.215 = 03 UX 18,000 = 540 U Payroll (actual cost) ~ z -ee Coser Look on Cost Accounting chapter LEA ote: To determine standard FOH rate, the formola would be Budgeted FOH rate = eR Normal Capacity in hours ted FOH = 7.50 x 2,400 hours Bue = P18,000 Budgeted FOH Variable = PS.00 x 2,400 hours = P12,000 Budgeted FOH Fixed = 2.50 x 2,400 hours = P6,000 ‘Actual FOH Fixed 7,000 Variable P9650. P16,650 Less: Budgeted Allowed based on Actual. hours 2,000 hrs. (BASH) Fixed budgeted 6,000 Variable (P5 x 2,100 hours) 10500 P16,500 1800 Less: Budgeted Allowed based on Std. hours 2,000 hrs. (BASH) Fixed budgeted 6,000 Variable (P5 %2,000 hours) 10.000 _16,000_s00u Less: Std. hours x Std. Rate (SHSR) 2,000 x P7.50 Br tries Incurrence of FOH Fixed FOH control (actual cost) Variable FOH control (actual cost) ‘Various Accounts FOH applied to production Work in Process (Std. co Hd qhe Variable FOH Control account qo ett Control acon (10,000 3.60 a fant Eeiency Variance — unfavorable = Yassble Ee Spending Variance — favorable ne Fixed FOH cone account eg Variance ~ unfavorable xed SPO nce ~ unfavorable volume Vered overhead Control account qociose! ote favorable variances the amount of the cost he amount of the variance end among ending variances will be based jing Inventories and Cost of Goods fe following variances are available for ABC Corp. at year end Price Variance Quantity Variance iciency variance ‘overhead spending variance Fixed overhead spending variance Variable overhead efficiency variance Volume Variance The following are the balance of inventory and Cost of Goods Se year end 2020: Finished goods Cost of Goods Sold inventoryChapter 11: A Closer Look on Cost Accounting ming all the variances are insignificant, ‘he closing of the variance t "$10 Coay of Journal Entry: Material Quantity Variance sta Variable overhead Efficiency Variance 6.300 Fixed overhead Spending Variance Ph ContofGceds ben Bae Matera Price Variance Later Bien Varonce Variable overhead spending Variance Volume Variance After closing the varia amount will be: inces, the total adjusted or actual Cost of Gg, Sag Cost of Goods Sold inventory P13,511,000 Add: net unfavorable variances 145,405 Adjusted Cost of Goods Sold account aE a Case 2: Assuming all the variances are ‘The adjusting journal entries to record the el Inventories and Cost of Goods sold account w ificant, ing of the variances to eng Journal Entry: (a) The Material Price Variance Dispo: ‘The allocation of material into the production, some were not completed (work in process) while some were completed and wert finished goods inventon. ‘The allocation percentage will be: a Total Cost a, tory 1,923,600 wentory 4,122,000. 2% Finished goods inventory 1262400 Cost of Goods Sold inventory 13,511,000 65__ 20,839,000, 10% E00 555 ate inventor (x81, awa breoe ave i y 7560 id goods inventory (6% x 81 : Fi Sods Sold inventory ee) sc 16200 cast of Coote ae Variance : tyaieminingverances remaining variances, mate Mehead apending, efficiency zocess, finished goods inventory ander Fariances occur as part of the cone, lying the percentage allocatedto the ape 705528 the Journal entry would poe” ATOUH a net wy rial quan favorable vatiance of Tetiarcen men at tony (on ests ‘aa invents at ane Sm Vu oven bony Vasance seas MotovtheadSpesene = Labor Efficiency Variance Variable Overhead Spending Variance Volume Variance MIX AND YIELD VARIANCES Usually, materials and labor cost The pal level of expertise an kl, he gl nk rth ‘ffective and efficient selection of workers to perfor the specific 556ee ser Look on Cost Accounting or several components of smbine different : tes companies © ict. This may result in different als ang ee e same produ ‘mate snake the Same Prion by management. Each viable compan Meliy requir now as mix and process yield is the qupygt® va the specified input “ AND YIELD VARIANCES: ‘determined based on the product of actual ice of actual price and standard price, Want, ormulas Direct Material Price Variance = (AP ~ SP) x AQ where gal quantity of mate sed A a re per unt of Get materials used AP = Actual Price Material Mix (Blend Variance) ~ this is the portion of moterat B Misiace which resulted because of the difference between the mismnett Formula: Direct Material Mix Variance = (SM ~ AQ) x SP Where SM = Standard Mix quantity of materials used. rial used of direct materials used. AQ = Actual quantity of SP = Standard Price per of good product or output produced from is the portion materials quantity ich has been obtained. It product of the standard of direct material and the difference between standard ct material allowed for actual production and the standard f direct material. Formula: Direct material Yield Variance = (SQ - SM) x SP 557 Standard Cost ting and Variance Anahsis Whe! gard Quantity of materials quantity of materials used f direct materials used Combining the total Material Mix and Yield Vasany st will result to note! aterial 2 uantity Variance. gummary of Formula cul ots (tual Ace } Pr el iy. x Standard Price anes jst standard Max Total Actual Qty. x Standard Price a Mlustration: Marie Corporation combines three types of materials to produce its product. For a 100 kilo batch, the standard cost for materials areas follows: Ssadard Mix % Total Standard Qty. x Standard Price | Standard Quantity Standard Price Total Material x 60 kilos, PS Y 36 kilos Pe z 24 kilos. PS 20 eos During the month of February, the company produced 20 batches = 2,000 los ofits product. Materials used fortis production were: 558‘Actual Quantity “Actual Price Metertt 12,600 kilos P4.80, 7 7,800 kilos P4.10 7 4,700 kilos P3.40 25. Felos— rial price, mix and yield variance computati ‘The material price yi Somputation are comput follows: ‘Actual Costs (Actual Qty. x Actual Price) X (12,600 x P4.80) ¥ (7,300 x P4.10) (4.700 xP3.40) ‘Actual Qty. x Standard Price X (12,600 x PS) ¥ (7,300 x Pa) 2.(4,700 xP3) Standard Mix % x Total Actual Qty. x Standard Price 63,000 29,200 14,100 _ 106,300 ag Mix x (50% x 24,600x P5) 61,500 ou ¥ 20% x 24,600 x P4) 29'520 105,780 2.20% x 24,600 xP3) 14,760 — ‘Standard Mix % x Total Standard Qty. x 100 U Standard Price vee 2,580 X (50% x 24,000 x P5) 60,000 v ¥ (0% x 24,000 x Pa} 28,800 Z 20% x 24,000 xP3} Another way of computing: ASOC x Actual Output 5.16 x 20,000 kilos = P103,200 Average Standard Output Cost (ASOC): Total Standard Input Cost” P Total Standard Output Quantity = P5.16 perkilo Ses i Computation: Quantity dard 8 ste kilos 60/129 fandard mi 36 kilos 36/120 50% 24 kilos. 24/120 on Oe ext, WEEAMD Txt Yada og RATE, MUX AND MELD VARIANCE 8 a sini price, mix and yield variances, "At 10 the compat of tabor Rate Variance - it is determined bas. sia arent ne eerence of ctl me ne Pe ain onmula: Direct Material Price Variance =(AR~ x 4t A where: Hd = Actual Time of labor used §R = Standard Rate per unit of direct labor. AR = Actual Rate B. Labor Mix Variance (Gang composition variance] - Iisa portion of labor efficiency variance, it oocurs only when two or mere diferent pes /gud Of actual gade of worker tized workers. Ths variance shows how there due to the change in worker 1¢ standard composi labor variance Formula: Labor Mix variance = (SM - AT) x$R Where: SM = Standard Mix of labor time AT= Actual Ti SR* Standard ©. Labor Yield Variance - it is a portion of labor efficiency variance whi result of the difference between actual output of worker and st output of worker specified. Formula: Labor Yield Variance = (ST- Sill x SX Where; SM Standard Mix of labor time St Actual Time SR = Standard Rate_" i Look on Cost Accounting 7 F x 11 A Closet Standard Cog Ge Te Set age Sommary of Formal ner te, ic and variance Wl amp Arahsis jours x Actual Rate 28 ft lin aa sere x age ee 4 bwoorkers (220 X : Pre Vince jourax standard Rate 1220 14,560 syaied ones (0 i x PSO) cu os x Sd Rate sie terere 0 F00 $m MarVariance vond ie Tot Atzal Howes nate ied wort Sh 10x Fa Sas nda Mix Tota Aue Hoos. x Standard ate ae seid ) 3B oe 7 ice Vay eandard Mixx Total Standard Hour xt . Eng field Vaianoe fa aorta 25% x 208 Oni) 0) sogp ied nda Mir%1 Total Standard Hous x Standard Rate sed workers (75% x (20Rr8x20 unt) xP20) 9,00) 4oq9} 50 U Note: Combining the total Labor Mix and Yield Vasiance wil result to Lay ey variance = (Actual Hrs. ~ Std. Hrs) x Std Rate avianice workers (90 hrs. ~(20 units x Shs peiciency Varian eaworkers (320 hes. (20 unite inka SE IHustration: The following information is available from Marie Corp, Standard Labor hours for one unit: ‘workers 5 hours at P50 per hour Paso led workers 15 hours at P30 per hour 80 Total a 20 units of finished product have been actually produced during the period which the actual labor hours used and labor rate paid are as follows: Total standard Mix Computation: Tot Causes of Mix and Yield Variances Possible causes of Unfavorable Mix spoilage of materials, processingin ‘erong temperature and chemical reactions Hours Rate 90 ag 320 2 310 » - 561 Breakdown and faulty of equipment Inefcent production method Tipper mixot materials and laborsrpuB or FALSE cost system i an accounting system where stande for each manufacturing cost element 8 are a, i A standard standard costs can be used with both the Job and process cost sya tems, deat standards do not allow for machine breakdowns and other ny otal inefficiencies. A standard costs serve as a device for measuring efficiency, | when material price variance is recorded at the time of purchase, Tae materials are recorded as inventory at actual cost, poorly trained workers have an unfavorable effect on the labor rie variance. Highly trained workers could have an unfavorable effect onthe labor ue ‘the standard price per unit of direct materials should reflect the fa, delivered cost of the materials, net of any discounts, ‘Afavorable variance is recorded in the accounting records as a credit ‘The difference between the standard cost of the product and its actualcnts is called variance. _ The material quantity variance is the most useful variance in assessingte performance of the Purchasing department. Highly trained workers cpuld have a favorable effect on the material ‘quantity variance. ste standard quantity or standard hours allowed refers tothe amoust dhe inpue that should have been used to produce the actual output ol period. 1 exceeds its standart When the actual price paid on credit for raw m: price, the journal entry would include debit Material Price variance 563 eee Standard Costing ang ard costs are only Set for materials and gn, arance Analysis 45. 5 variance occurs when “ pavorable hen the actual cot is ge ethan standard cost Weta Wage FE Pal C0 direct ao 1. ‘will result to a cre Workers exceeds th Te wae wl FRU 02 cre abort ge j_ andard costs are erABHREG acount : mally standard labor costs should be revise 19, Norm orporate new labor wage rate law. terme hen labor rates change dard costs are divided into price and: a0, stan quantity standard patance in the labor eff gu. A credit ciency vai : 4 Graard rate and standard hours exceed aepieiteshires that —_ ‘hours. op, A standard cost is « budget fo the proton fon service, (fone unit ofa produet or za A favorable labor efficiency variance is created when ‘vorked exceed standard hours allowed. sctual labor hours ae: in developing a direct material price sandal the expected . fei cost the materials should be included. a vane 25, A debit balance in labor efficiency variance account indiates hours exceed actual costs. standard 26. The production department should be responsitie for materi! pice variances that resulted from purchase of wrong grade of materials. 27. The pr Jnasing department would normally begin an investigation an unfavorable material quantity variance, 28, Volume variance measures fixed factory overhead. 29. standard costs exceed actual cont, art entry wld be made nh appropriate variance account to record the variance 30. Controllable variance measures the conta rete fed factory overhesd cost. 31, Efficiency variance measures variable faclon, overhead. %. Variances are usually reported to management sotCloser Look on Cost Accounting Chapter nt should be responsible f duction department I Or mate; 33, The pro 2 i ees oe ag 9 . variance may be due to failure o a4, An uftovorable volume valance may failure of supe ragy mIPLE CHOICE sppiseada an even Doo 8 Mor of te followings a pumose of 45, at the end of the year, variances are normally closed to f 1, Me Determine *breakeven" tandard Production jyel 4 COting | 7 ished eo Control costs level ial Bliminate the need for subjective deeiso i Allocate cost with mor sions 36, An unfavorable volume variance may be due to machine breakdowns, id. Allocat re accuracy by management 497, Variances should be reported to creditors, lowing is a pumose oft e budgets and budgeting fy costing procedures eg eG cost ate under/over a led HOH athe edt eng Po cst fren epoig dar costings 38, When the price of materials increase'in the market, the sta indard materials should be revised. ©8t of 39: Incurring actual indirect factory w: actual production results in a conti 40. Standard costs are used by the company mary purpose of using a standard cost A Pio minnoe the cout percent | To provide a distinct measure af eta iy the e, Toinake things easier for enaprn at hater ey 4. To minimize recording of erainecuting ne ne, 1. Which one of the following stateme: a, Standard costs are estimates of, ideal conditions, but rarely p lard costs are difficult to use with a proces-costing system. If properly used, standards can help motivate employees Unfavorable variances, material in amount, should be investigated, but large favorable variances need not be investgnted. 41, When actual costs differ from standard costs standard cost of the company should be revised. 42, It is best to isolate material qua pirchased. variance when the materials a ‘is true conceming standard costs? ‘attainable only under the most . Standard costs are least useful for ing production efficiency b. Simplifying costing procedures future costs: ing minimum inventory levels The best basis upon which cost standards should be set to measure controllable production inefficiencies is 4. Engineering standards based on ideal perfomance >. Normal capacity €. Ehgneering standards based on atsnale pstmt 4. Practical capacity cost system should A company using very tight standards in standard cost $= expect that ee 565Chapter 11: A Closer Look on Cost Accounting, ¥ No incentive bonus will be paid its of materials at @ cost of Pi.29 B Most variances will be unfavorable nits Of Pabv'e tateriele spent Most waren be strongly motivated to attain the standards wat ne (cy Conte wil be controted better that is Tower standards were agg e300 .. The material cost variance is composed of prnation on Pat's ret materials cont Soe Quantity and efficiency variances 14 tole Cost is aon: Soe nee _ceical anit of Direct Materials waa €. Price and mix variances Se rec Material east @. Mix and yield variances Oa amas ? terial quantity 9, The variance least significant for purposes of controlling costs isthe Direct material quantity variance, favo a. Material usage variance : 3 . b. Variable overhead efficiency variance wha ns the Paz’ material re vrncer c. Fixed overhead spending variance o. 2000 F ©4000 F 4, Fixed overhead volume variance b. 2 4,000 u Under a standard cost system, the material, Ur untaorale, te auton SY ewe eed 10, What is the variation in the use of materials at actual prices materials at standard prices? coos 4. Material usage variance sere ne Sots fam rae mene : thousand units were completed. What was the @ Material ric vanance, sential wae? pepe e dae! 4. Materials yield variance iS ioiss gaat Goshen : each 11, Which of the following is the most probable reason with a company would i atisaroa Acie experience an unfavorable labor rate variance .and a favorable labor oe ‘Angel's direct material costa i as folom: efficiency variance? gel unit price 4. Tue mix of workers assigned tothe particular job was heavy weighted Feta 0 PNET oa toward the use of highly paid, experienced individuals. te b. The mix of workers assigned to the particular job was heavily weighted Fe oo Slowed Tora nan [250] toward the use of new, relatively low paid, unskilied workers. lnterials purchase price variance, favorable PSD ¢. Because of the production schedule, workers from other production areas were assigned to assist in this particular process. What was the actual purchase pice per unit, unde tothe nearest d. Defective materials caused more labor to be used in order to produce a ” 3.08 Pas st ‘unit. ns < . tandard unit. B P3.11 4375 12, Favorable fixed overhead volume variance occurs if 17, Heat Com i + pound for material. a. There is a favorable labor efficiency variance ews Comeany has a standard pce of PS0 er and xa & Tesaeadrunity Ghee ces ae rs elt shared a en pene c. Production is less than planned re, sd for materials? @. Production is greater than planned Detiaan, whit woe the senda en ras db 1 1100 13, PADJ Corp. installs electric outlets on residential houses. The standard 1074 material cost for X house is P2,500 based on 2,000 units at a cost of Fs each. During April, PADJ installed outlets on 20 X houses, using 4 easiest pont fa company follows the practice of solating variances at the eaniest Pins in time, what would be the appropiate tne to isolate and recoeiee direct material price variance price a eet mmm 567weer 19, Bench Company’ 2 ai. mn Cost Accounting er 11: A Closer Look 0 purchased i$ Ssed in production ernase order is originated js direct labor costs for the month of January ye TE og follows: lon direct labor hours 20,000 sc ect abo Hous 21000 rehor rate variance ~ Unfav. P 3,000 ‘Total payroll 126,000 What was Bench’s direct labor efficiency variance? fa. P6,000 favorable ‘.. B6,150 favorable b. P6,300 favorable d. P6,450 favorable ‘Acredit balance in the materials price variance indicates that a. Actual price exceeds the standard price b.. Standard price exceeds actual price ¢. Actual quantity exceeds standard quantity @. Standard quantity exceeds actual quantity Information on Iram Company's direct labor costs are presented below: set labor hours 30,000 .ct labor hours 29,000 efficiency variance Favorable P 4,000 rate variance Favorable P 5,800 Total payroll 110,200 What was Iram’s standard direct labor rate? a. P3.54 ©. P3.80 b, P4.00 d. P5.80 What was Iram’s actual direct labor rate? a. a, P3.60 c. P3.80 b. 4.00 a. P5.80 Reggie manufactures bags with wheels. The standard material cost forthe ‘wheels used per bag is P7.80 based on six square feet of plastic at a cost of P1.30 per square foot. A production run of 2,000 bags in 2020 resultedte ‘usage of 12,800 sqft. of plastic at a cost of P1.20 per sqft. a total cost of 15,960, What was the material usage variance om the above production a. 240F c. 1,040 U b. 960 U 4. 1,280 F 569 ——E>—>—————ti‘(‘CéS™ nce Us av Fiaterial Oty. variance a. Bet rice of Ditect materials Standard Cost Costing and Varance as es standard costing. The folloving daa ag isis Svailable for, January: the standard quantity of materials atoneg g for the Jam sary ©. 49,000 tbs, ‘4. 50,000 Ibs. a. standard cos ompany uses @ St t system to account Ae fal standard per unit was 4 Tbs, at PS 10 pec you Proc. wee what was the materials usage variance for January? 2,340 U 4.2400 U 25, A manufacturer of toy purchase components from subcontractors for assembly into complete toys. Each radio requires three units each of part X, which has a standard cost of P2.90 per unit. During August, the company had the following experience with respect to part X Purchases P72,000 OO units ‘Consumed in manufacturing 20,000 units [Toys manufactured 0007 During August, the company incurred a material purchase price variance of a 1,800 F b. 1,800 U ©. 2,400 U 4.2400 F 26. During August, the company incurred a material purchase effiency variance of a. 5,800 U b. 5,800 F 21. What is the amount that will be shown on a flexible bulet during the month of At i. em wugust ‘& P52,200 * b. P54,000 17,400 U 417,400 F part Xusee . P58,000 <4. P72,000Chapter 11: A Closer Look on Cost Accounting tp. The following data to direct labor costs for the current per io ‘the journal entry for the direct labor efficiency variance? a. P7,200 0 ©. P8000 Cr. b. P7200 Di 4. P8000 Dr. pewwat direct labor HOUFS in June amouneg i direct labor hourly rate? ao 29, Bea's direct labor information for Product Ranger for the month of, sent ee ly rate 000. What was the ae follows: lig a. F550 ears b. PS 4 Pas een [ESTO peri ingis a standard co Santer 9-10 per Br followingis a si " Aertel rate paid 6.00 peri Te ee valance analysis repro Sect an Std. hours allowed for actual production | 3,000 hours a $1 Tabor efficiency variance PT 200 Dr. “op Retual Fis at hat Ta Wages Standard wages | See aT What is the actual hours worked? x Poa gard wags | Suni ape a. 2,800 ©.3,197 PIS SS Pair b. 2,804 43,200 Pere ace i P19,788 x 30. ABC's direct labor costs for the month of February 2020 were as follows: P5370 Ss PIS = PLES) PR [ Sta Direct Labor costs 500 FE —} a | ‘Retual direct Tabor hours 7 What is the total (flexible budget) dre ; Direct labor rate variance credit balance Meat ints tea diet Wer mabe nt labor rate per hour ei aod cuaee What was ABC’s direct labor payroll for the month of February 20202 a. P486,000 . P503,200 . P488,000 . P520,000 31. Fix Company uses a standard cost system. ‘The following information pertains to direct labor costs for the month of June Actual output (units) ‘4,000 Standard hours allowed for actuel production 20,000 hours How many actual labor hours were worked during March for Fix Company? ‘000 a WIP DM price qty. variance 500 DM qty. variance DM Inventory b WIP DM price variance DM aty. variance DM Inventory 5,9505 : ¥ oer ee | 11; A Closer Look on Cost Accounting Standard Conan Ca ee eg 0%0 | «uP fhe ma Fperotlowing data ate the actual eu ya 2 {ce variance omy fn | Dw iy. variance 450 Mat a ovtput 'Y forthe month op | Dif Inventory 5,000 Ato variable overead 4500 ang | fete fed overhead 260.005 | a wiP 5,000 sefual machine time 108,000 Ti taseany 5008 ae gon cost and budget information fo | 45, In determining the standard FOH rate, which level of capacity is stand oriable overhead rate "8A Company ting, fa. Maximum capacity €. Normal capacity “S¢¢? Stoniard quantity of machine hours 5° 00perha b Practical capacity 4: Expected actual capaiy Stageted fied overhead aa rn fed output 600 be ear 436. Which level of capacity if used would result into the lowest fixed Ee $000 perme i. wethead sqne overhead efficiency variance is: ¢, Normal Capacity 3,000 Favorable z a. Expected actual capcy © Petaoo Favorable FR to 37. Information on Kyle's FOH cost is as follows Company uses a two-way analysi 40. Man for the March production activity ates Emenee! "MMO. Seleced Standard applied overhead Budgeted FOH based on Sta DL brs allowed 700 ‘Actual variable OH incurred ae 5 Variable OH rate per Mit re ‘Actual FOH P Standard MH allowed een Actual Mis Pred What was the total FOH variance? a. 4,000 U ©. 8,000 F Assuming that budgeted fixed overhead costs ate equal to acta Seed ‘b. 6,000 F 412,000 U costs, the controllable variance for March is . 800 F 38. May Corp. has a standard absorption and flexible budgeting system and 8,000 U 4. i2oce F is of FOH variances. Selected data lows: the June 2020 uses a two way production activi mation on Pio’s FOH costs for the May 2020 production activity is ax lows: [Budgeted Fixed FOR costs Budgeted Fixed FOR FSO ‘Actual FOH incurred St. Fixed FOH rate per DEB is Variable FOH rate per DL br. | Std Variable FOH rate per DL [Standard DLhours —____——~«d*~ 0] Eo Actual DE hours Pio has a standard absorption and afenibe bgt sytem and uses re What is the budget (controllable) variance f ie eta a. 2,000 F {RP variance method for FOH varanes lay 20202 b. 2,000 U eee ae aee b. 6,000 F 4.8000 F 3 per irect labor hour ‘2 The Alright Co.'s standard fixed overhead costs PSP Toes dee, Based on budgeted fixed coste of P0000. Te sar a | ‘574Chapter 11: A Closer Look on Cost Accounting um per unit, During 2006, Alright produced Ss, labor orreurred P315,000 of fixed overhead costs, and S50 wat Protet hours of direct labor. What are the fixed overhead vari aes 5.05 . ‘spending variance Vo at a. P15,0000 30,000 F b_P33,000 U 30,000 F ©. 15,000 U P18,000 F 33,0000 P18,000 F ‘Ayen’s budgeted fixed FOH cost is P100,000 per month plus, 43. Avent 4 per direct labor hour. The standard direct bor hours For, October production was 36,000. An anal vdcnt ete fr October, Ayen had an unfavorable budget ( vara that in eee’ unfavorable volume variance of P1,000. Ayen uses a 120 analysis of FOH variance. 8 8 1W0 Way What is the actual FOH measured in October? 1. 242,000 . 244,600 », 244,000 4. 246,000 44, What is the applied (standard) FOH in October? a. 243,000 . 245,000 244000 4. 246,000 45, Shell Fuel Company uses a standard cost system. Overhead cost information for January is as follows: “Total actual factory overhead incurred Fixed overhead budgeted Total standard overhead rate per MH Variable overhead rate per MH P3 Standard MHs allowed for actual production 7,000 What is the total factory overhead variance? a. P2,400 F . P2,800 F b. P2,400 U 4. 2,800 U 46. Under the three variance meth¢ variance is computed by subtract a. Budgeted allowance based on. »b, Budgeted allowance based on actual output . Budgeted allowance based on standard input d. Budgeted allowance based on standard output 575 .g FOH, budget or spending FOH costs incurred to the pe toing information is ava fom ja, a * Fixed FOH expenses, actual Fixed FOH expenses, bu jesuming Jules utes three-way analy ening variance? a. 1500 «1100p 1/500 clare oF min, 1g. pilyas standard variable costs as fos Billy produced 12,000 units usi 38000 42,800 F Jo. Tre overhead variances for Sam Company wer Variable overhead spending. eatin Variable overhead efficiency variance: Fixed overhead spending variance: Fixed overhead volume valence! 3,600 favorable 6,000 unfaorable 24,0 favorable ‘What was the overhead controllable variance? a. P3I rable .F24,00 favorable '. P13,600 favorable 4 P 7.600 fare 50. Gerald uses « standard cost system in which apts manu FOH to units of product on the basis of direct ltr hou. The infrmtion to-a recent month's acti:Chapter 11: A Closer Look on Cost Accounting Chapter 11: A Closer Look on Cost Acco ‘What would the volume variance? . P300 F b. 360 F 4. 240 F 51, The following data are the actual results for van Company for the month of May: ‘Actual output 9,000 unite ‘Actual variable overhead P720,000 ‘Actual fixed overhead 216,000 28,000 Mit ‘Actual machine time ‘Standard cost and budget information for Ivan Company follows: 6.00 per MH 3 hours per unit 1,555,200 per year 9,600 unit per month, ‘Standard variable overhead rate ity of machine hours Budgeted output ‘The overhead efficiency variance is: ‘a. P6,000 Favorable , P10,800 Favorable €. P6,000 Unfavorable 4d. P10,800 Unfavorable 52. One way of analyzing the variable FOH variance is breaking it down inte ei Variable overhead spending and efficiency variances, ’. Variable overhead spending and rate variances cc. Variable overhead efficiency and volume variances @. Fixed overhead efficiency and capacity variance ‘53. One way of analyzing the fixed FOH variance is breaking it down into fa. Fixed overhead spending and volume variances ', Fixed overhead spending and budget variances ¢. Fixed overhead efficiency and volume variances 4. Fixed overhead efficiency and capacity variances 54, What is the FOH variance that serves as a measure of capacity utilization? ‘a. The overhead spending variance The overhead efficiency variance ¢. The overhead budget variance 4. The overhead volume variance 55. Zoe has total budgeted fixed overhead costs of P128,000. Actual production ‘was 30,000 units, normal capacity is 32,000 units. What was the volume variance? a. 8,000 F b. 8,534 F ©. 8,534 U d. 8,000 U 377 _—— eral 360 ‘cost etre less than budgeted sales “tn was less than sales € Progettion was less than the level used to sey iguction rate the fixed overhead nas budgeted fixed FOH of P900,C00, Actua sol wd 12,000 favorable volume variance, Wha to" of 78.000 units 5. ced it an 5 resulted ute fixed overhead rate? What nomal capacity nee 3 66,000 esta £75,000 com * roduetion volume variance is due to a mer int use of direct labor hours ope etnancien eof uae ead ficient OF rom planned levels ofthe bane sed for orehe ¢ Pillye actual level achieved for oeead allocation 4. Bn4.2Sve application of act labor hours over the standard anmuna for the output level actually achieved 2. Mae produces 8 single product. The standard cost card forthe product [Direct materials (4 meters @ PS per mete —[ Pav Direct labor (1.5 hrs. @ P10 per hr) PIs Variable FOH (1.5 hrs @ P4 per hour] 76 | During a recent period, the company produced 2,400 units of product, Various costs associated with the production ofthese units are given below. } Direct Materials purchased (12,000 meter) | PST 000 Thy, company records all variances at the able manwiacturing sae applied to products on dnc Taber hour Mt POH coe ae What is the materials price variance for the period? materi 1c for the peri 2,800 F a 2,500 U x 3,000 U ©. What is t is the material quantity variance for the period? | win tthe material quantity variance for the oOo, | 2,000 u 578 éChapter 11: A Closer Look on Cost Accounting | wna ae abr rte variance 0 the period? oi, What ©. 6.300 F b. 5,400 U 6,300 U Ga, What the labor eficleney variance for the period? a > c. 5,100 U b. 6,000 U 5,100 F 63. What is the variable FOH spending variance for the period? a, 2,880 F ‘&. 3,360 F b. 2,880 U d. 3,360 U 4. What In the vasioble overhad effitency vasiance for the per a. 2,400 U ©. 2,880 J me? b, 2,400 F d. 2,880 F 65, Paul Company, which applies overhead to production 0} machine hours, reported the following data for the period just nage just ended, If Paul estimates four hours to manufacture a completed unit, the company's fixed-overhead volume variance would be : a. 10,400 F ©. 11,000 F b, 10,400 U 11,000 U 66. ‘The followingrelates to a given department of Caloy for the first quarter of 2020: ‘Actual FOH (fixed plus Variable) _| P178,50i Budget formula 000 + PO-S0 per hour [Total FOF application rate Spending Variance (from S-way) | P8000 U ‘Volume variance (irom 2-way) | P5,000 F ‘Overall factory overhead variance _| P6,000 U What were the actual hours worked in this department during the quate? ‘a. 110,000 b. 121,000 ©. 137,000 153,000 sti Company USeS a Standard co Bas capacit} St system an & Brag at normal capacity for the mong ne PR te labor hours ir Ditple factory overhead “on Fixed factory overhead 755009 Fatal factory overhead per DLH P2i6om tual data for January were as follows: P60 Aect bor hours worked me Total factory overhead 40m i Peetdard DLH allowed for capacity attained Fasano 000 Using the two-way analysis of overhead {controllable} variance for January? ‘a, P6,000 favorable b. P27,000 unfavorable Yaviancts, what isthe budget © PIB, 000 favorable 4.2,000 unfeorabie @ Information on Coy’s manufacturing FOH costs fo last peo is ren below: Fetual DL hours worked SO. | La | TOOT Piper P0000 Mio uses a standard cost syste to units of product on the basi overhead cost for the period 4,000 over-applied b. 16,000 under-applied \dbe: 70, Heaven Company uses a standard cost scoot factory overhead and production data are ‘and applies manufacturing overhead cost rect labo hours. Given these dai, the 6.73000 orp 2500 underapied ing system. The following vate for Aug 7 ‘Standard fixed overhead rate per DUE dard variable overhead rte pe DU sd monthly DLAChapter 11: A Closer Look on Cost Accounting ‘etual DLA worked 3 ‘Standard DUH allowed for actual production (Overall overhead variance-favorable __| ‘The applied factory overhead for August should be ‘a. 390,000 ‘¢. 395,000 71. ABC has a P20,000 unfavorable fixed overhead budget variance, a p ee ae le amiable overhead spending variance and a 4,090 4712000 volume variance. What was the total overhead? ‘avorable 28,000 over-applied ©. 36,000 over-appieg 'b, 28,000 under-applied 4. 36,000 under-applied na. been na. F000 fojatle von rien, 'a 80 005 iy Darin nae P6000 forall a lene overhead. The fixed overhead budget variance was: lied Sas aa ‘a. 18,000 favorable . 32,000 favorable b. 32,000 unfavorable 73. A standard costing system is most often used by a firm in conjunction with a. Management by Objectives b. Target (hurdle) rates of return ¢. Participative management programs d. Flexible budgets 74, A difference between standard cost used for cost control and budgeted costs a. Can exists because standard costs must be determined after the budgt is completed b. Can exists because standard costs represent what costs should be whereas budgeted costs represents expected actual costs c. Can exists because standard costs are historical, whereas standard costs are based on engineering studied. 4. Cannot exist because they should be the same amounts 75. Setting Standards fa. Has important behavioral implications b. Is largely a matter of calculating rates and qu d._Is done only for manufacturing activities 76. A major drawback to setting standards based on historical results is that such standards a. Can perpetuate inefficiencies b. Are harder to compute than are engineered standards 581 Standard Cosing ang ' hard to z re woually too bard to meet bectuse of nga & see usually 7 : se by workers gnished Unit of product X contains 6 ny ft bearing process Must provide for a 2" re material ‘ean be purchased for a cost of py mateF 40, The company takes all cash dscoun n/ixerial cost of each unit of product xp et e790 « & 197.50 company, which applies overhead to prs yim S, reported the folowing data ore 8,0" the ass ieechine hour data forthe period unt onaee aqaal units produce: aretha; Ferual fixed overhead incurred UU Factual machine hours worked T8000, Budgeted fixed overhead 7 cio casino Nah ct ry uf ram estas fue No tn «co Weekly wages per worker Workers’ benefit treated as direct labor costs What is the standard direct labor cost per unit of pedue 07? a. P30 cP5 b. P24 apa ume vaiance,'a P1600 Unfavorable vargble overhead spending wine, and P2000 ower applied overhead. The fixed overhead budrtvariares & P41,000 favorable b. P41,000 Unfavorable