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t--

Chapter 8 - VAIL..NCES FROM STANDARD COST (S, _,,ested Answers)

....=

\''nnn.1111101.1.1

TRUE OR FALSE

(1-50)
1. TRUE
FALSE
A variable or flexible hudget pee rats variable ccets on a p unit basis in that budgeted karrounts can be cakulated for all levels of production with the relevant range.
3_ 'TRUE
4. FAL SE
Generally. the budget is qualatifiod using standard cost. Standard cost is a term given to
scientifically predlet-vniined cleats. The term is applicable to ,manufaiNuring cast; material. labor
. I,
and overhead.
41' 5. FALSE
Refer to No. 2 and No. 13.
t FALSE
A fixed budget is a budget prepared for only one level of operations, while u flexible budget is
budget prepared arse useful over a relevant range of operations.
0- FALSE
Direct labor variance may be brolum into rate and efficiency (hours) variances.
4C
4C
IV. FALSE
Refer to No. 15.
3
FALSE
Mese ate itternsd stiaittarctt that was cl-aahlir.bed through scientific or systematic procedirres
a
like time and motion studies of operations.
ie. FALSE
Cost vatiane: can resub also from the difference betweeiii the actual mixture
mixture of materials in production (mix variance) or difference betwena standant
end the
liana! output in a production process.
11. TRUt
12. F./hi-SE
Refer to No. 2 and No.
13. TRUE
14. TRUE
15. TRUE
16. FALSE
Rola toNa 21
17. FALSE

Refer to No. 2
1$. FALSE

1111

;1Ti;
flexible budge performance
ance report lir the financial report that copes actual
in ce to
budgeted arricAnits that are Wed on actual site volume oc level of activity ci prelierts the
diffrecinoe between actual and budgeted amount, a. ,3 variance.
A

ett --

19_ FALSE:

Variance caused by the difference between the actual and sta duni price is cultrti mariuttoc.
TRUE
21. TRUE

22. FALSE
Variable budget is a symonym For flexible budget
23. FALSE

Ito

Ciontrollabie variance is
um
astaand and the overhead lkidgeted
1.

describe the difFerealtv between

aging level "thieved.

yl
9

Chapter 8 - fiances From Standard Cost (Su rt_rwers)

24. TRUE
2$. FALSE
Standard costs are costs that should be incurred under normal conditioes to produce a given
product or to per form a particular service.
26. FALSE
Volume or capacity variance is the difference between the over or undotapplied amount of

overhead to actual production.
27. TRUE.
211 TRUE
29. FALSE
The srnount of consideration given by the business in past transactions ate known ati past or
historical cost.
30. FALSE.
Overt%ead cost variance is the difference between the actual overhead incurred during a period
and the standard overhead applied to production.
31. FALSE
Variance analysis is the process of examining the (11%1'm:es between actual revenues and /or
costs end the budgeted revenues or cocas and desaibing the differences in terms of the amounts
that resulted from factors such as price and quantity. etc.
FALSE
A standard cost system "costs" the product at standard (predetermined) oasts and compares
expected with. actual *1st This comparison allows variance from expected reeults to be
identifitx1 and investigated. A standard cost system can be used in both job order and process
costing systems to isolate variances,
33. TRUE
34. TRUE
35. FAI SF.
Stardard costing is used to isolate the variances between expected costs and actual ousts. It
allows management to measure perfiemance and to correct inefficiencies. which help to control
coral.
36. TRUE
37. TRUE
38. FAISE
Standard cost variance analysis is a technique that compares the forecasted Costs with actual
eorti. The standard coati system differeetiates the expected cost from the actual cost, which
allows routine identification of deviations from expected results.
39. FALSE
Refer to No 3$ The beet standards are based on attainable perfume/toe so that imy deviation
wilt dame inefficiencies that deserve review and have a ri.usonable probability of responding to
management attention,
1';. FALSE
External standards are establisheel outside the entity. Government regulations and trade
associatiuns are example-1. Standardization of shoe sizes is derived kin external factors and is
obvieris benefit to consumers,
4 1. FALSE
Sales volume variance asloines that, unit prices rernasn constant, the only variable change is the
sake- volume activity level. thus, the difference between the flexible budget unwires and the
static budgeted amounts is the sales volume variance, The resulting variance is biped on the
change in sales volerne exchasively.
1 1...
EL FALSE
1
Refer to Net
effi
variance tortipares, dee
. ii. actual use o;'
:with:the budgeted
quantity of '
doted ftr #ie activity kvel neitiertIL When mu
the budgeted unit
price, it isolate
cast effect oflusing more or fewer inri its of input thatt

01).

Cbspter 8 - Variances A

Sterulard Cost (Suggested Ansnwr.

43. 'TRI.IF,
44. FALSE.
It should be to cost of gora& sold and inventories. Assigning variances to cost of goods sold and
inaantories, hr.:atd on production and soles tiX period will allocate the variance the same as
actual costing: that is, standard coating is Om +F .tod to actual coal ng.

45. FALSE
The netts: of variance seines is to provide information ft, me in controlling the cast of
prod-make not to comply with (MAP.
46. FALSE.
Revortsibility for variances should bear some relationship to the decision and control pros es
',A.A. Material !Asa to should be the rrimary responsibility of the production management
persuancl.
47. TRUE
48. FALSE
The materials price variance firmula is Actual quantity of materials multiplied by the
difference in price.
49. FALSF.
lintivarable prix variance will war if the price of raw materials increase.
50. TRUE
Refer to no_ 46.
MULTIPLF. CHOICE
(1-60)

t. A
The formula to compute Labor Rate Variance Is Actual flours Multiplied by differenoe in Rate.
2. D
Volume or capacity Variance is the difference hetween actual production attained and the
standara production desired based on normal pacify. Volume or capacity variance is
detamined thru the over or underappliod fixed ova - N=1 to actual production.
3. D
Staridardt are criteria that measures performance. In cost accounting, attainable standard is
one whid is attained when reasonable efforts are exerto:I. This standvad gives due allowance for
delays and inte-niptions in the operation and promotes efficient operating condition in a
la:sincaa.
4. B
A debit balance in tabor efficiency variance indicates an unfavorable situation where actual
8 hours except}s stanlard ti urn allowed for a production cirraama.
5.
In the detcnnination of mix and yield variances, "standard hours allowed" means standard
hours allowed for tic:oat output or production.
In the analyski of variances ren ce from standard oasts, it is not enough to
establish the
amount of dilles awe, what is infra important is to iietertant# the causes of the (littera:toe for
oantrol of opera- ion pauposm.

_The Iftersulo to euntlxite Material Price Variance is Adam' Quantity Multiplied

bf 4d rent
in Price.
,.. 1
.; A

Wag MI casting racheall total of inaerials, labor and yenned ore

variances frons st.srodarclottatt

30

Cha r 8 -

Varianies From Standard cast :nested .4nswer5)

Efficiency variance is favorable when the actual hour-. is less than the standard hours allowed fit
a era as of production. 1tite variance Is unfavorable if the actual rate paid to laba is more than
the standard rate that should have been paid hosed on budgets.

10. A

Pons vai ance is favorable if the actual price its lea than thce standard price set itt the budget bat
when actual quantity used is more than the standard quantity that shuuld have been :aseii-PA per
budget the usage varianw is unfavorable,

11 ft
1 When materials are worded at standard price, the material price variance is rtcx)rde_t1 at the
time of purritaie and the formula is Actual Quantity - purchased multiplied to Dirk. aloe in
Price.
2) When materials are recorded at actual prite, the mate' ial price variance is micseedAtging the
time of issulnee of materials ioprotitictite and the formula is Actual quantity (isued to
production) multiplied by the Difference in Price
12. B

Material amoant of Variances are generally allocated between the cost of goods sold, finished
goods inventory and work-in-process inventory.
C
Immaterial variance, are closed to cost of e.00ds sold at the end of the accounting period.

C
If properly used siumiad can helpsnetivate employees because it could also generate more

benefit to the employees

15. B

16, fi

In
overhead
variance analysis, the difference between Actual factory overhaul and the
Budgeted Overhead adjusted to Actual Hours i& called Budgci or Spalding vatiancr.
Refer to No. 4

17. A
One of the purposes of standard costs is to simplify costing procedures and methods of
reporting and controlling costs anti expenses.

18. A
The
formula
to compute Labor Efficiency Variance is Standard Rate multiplied by
Difference in Hours.
19. C
In process costing system, actual equivalent units are multiplied by the 'um:lard ciwr per unit.
D - Refer to No. 1
B - Refer to No. 17
( - Rtfer. to No. 2
C
Using direct or variable costing procedures only the variable manufacturing coots al C assiroed
as
nroduca cost.
t
ii
li
I 21. C - Refer to No 41.
25 A - Refer to No. 10
1.
2h C - Refer to No 4
20.
21.
22.
23.

Irk

27 0
There will he unfavorable tabor efficiency variance if new unskilled will kora wore insigricil on a

job.
28 A

1 1
ll
II
h!il
'
'
'

F
The di
fre
t
encc
be
tiintien actual lib standard
tandard ratemultiplied b*
stanfil ours wil'opmpl;!te total 4114( ririartrat
ii'.II1
1 .
I

se between actual and

Er

Ater

,r..

micolkt
Vdria nCe5 FriStatvittrd Cost Ogg ested Ams_

29. 0

30 9

$earie,AC price is used in crimp Ling difference in prig as used to compute makers*
Variance, It is also mei in computing Material Quantity Variance.
411,
In Two-way Analysis. Volum': Variance 'capacity) is computml by compering Budgeted
Overhead Adjusted to Standard Hairs will. Factory Overhead applied to Actual Produaion.

I. B

Analysis . Budget re spending Variance is computed by comparing Actual

In Three-way
Fartaryth,erheaii Incurred with ritidgete Overhead adjusted to Actual Hours.
j
?2. A - Wit to Nu. 30 & 31.
- Raw to No. 31.,
33
34. A
In Three-way analysis, the difference between Actual Factory Overhead and Factory Oveshdad
applied to prtiduction represaits the ?4 Overhead Variance ,
.;

In

Ta.o-way

analysis Controllable Variance is computed by comparing Actual 'Factory

Overhend Incurred with Budgeted overhead Adjusted to Standard Hours. Far volume Variance
''.veant:outation refer to No. 30.

Budgeted Overhead based

an standard Hours is used sn Two-way tirutlysis to compute

Controllable 1/ariance while Overhead applied to production is used in computiog volume or
1;, Capacity Variance.
Refer to No. 34.
1
1;,
j. - Refer to No 30.
Refer to No. 35.
fY
Refer to No. 31 & No 36

w y3
When ouertysid is applied to prmlottion. the entry is to debit WOK in-prisms Overhead and
enxiited to Appheed Factory Overhead.
42_ a
1
Budgeted Overhead 4usted to Standard is computed by the. following formula:
Fixed OVeft1Cad
XX
Variable (vest-lead
iN

(Slid.
x Variable 011 Rate)
xx ,

fetal
24

43, C
4 4.

Spending variance or Bildg variance is generally a controllable variance

D- Refer to No. 31.

45 I)
Standard zoos are xicritifically predetermined costs, These are cost saiacily applicabl to
manufacturing cons.
46, A - Reim to T4,. 2
47, D

1, D

varianx is the difference earned by the difference between the standard prim Sel
budget and the actual price the materials was purchased.

a8

Frite:1 eats roceivet the most Myer.

w treatment in ace, in ting, It is Vetted 4t period cost in di
costing while product cost in absorption owing.
0 D

Vt.

Strict andard is a stmelard attainable only if maximum effort is exert) If the strict
is followed oleos variance will by Evocable because it not usetffy attainable.
C Pfer to No 12 & No 13.
The budget or spending

132

ity dithrtstral Orliest

tad costs.
.1

 ae---

fff

Chapter! - Pora

's Ff.PI

Siartdarel Cost (Sawlesied

.ers,1

52 A- Refer la No 491
51 A - Kele: la No. 3
54 C
Quara , ty or auge r11rivice Pt 11t differenca he-rumen actual materiel cannoned in
production and the amoisto of materials that should have latest consuined based in stanched usage.

SS A
The kat:luta to compose tabor Lifirieriey Variance is Standard Kate multiplied by Dille:vitae in
Howl

66. A
Eatimated eats art predetermined cs.ait5 While standard nests are scirmilloally tuecletermined
ream_
14
57 8 Refer

58 Li
Prodlict ion Devirtntolt,
Qi14
- ntity or usage variance is a revonsibitity of
4Y1
A ftMilIC budgeting system is more appliothle to the crintro! of factory oyes- head. Under thr,
system. the budget IS adjustecl to Luton, re-cullsa of operation hefts'. variance analysis H, mode.
641 13
Variabiexets are cosi that arc fixed eci unit they should he the same in all iht. dare levels.

41

i:
A siandatd cosi 1_ an estimate or ii.tia, a
crea should be under normal opuraiinki
ccaufniont biased on it oilim by .4,...., ,uritant^
and engineers. tr. AdditifIll . hoc
anagemont 6 oL4aII:, involved tri the
sAttung of -::.andiud taa,ts, as are quality
:trawl personnel. rep rianagerocalt would
no be involiml because ...tax esti:ration nue
louder-level A"trat ing Niivity.
Participation ny affeeted employees in all
cfaTtrol s,sectn, permit!, all concerned to
understand both she performance levels
desired and the tricauorunatt (A-nal* lazing
applied,
Es
'-.lamed
HP:
coos
rf c..c.tet rrmiritd.
=finable unit cost:.. Sta:idard Cix.t systems

64.

route iie.iiiiions s .iin,mccs) of 110113.1

fri:411 eapected coseR. (me advantage of

standard casts is that the facilitate flexible
bkaOlIgina Accordingly. standard and
budgeted size= %flout(' runt differ when
.-.? ansteds are . r.--Az TT Cia ry Elltaina4k.
I tuwever. in praerk:e. tvddgeted (ad im tit ed
*Alai) clogs may diner flans standard obis
serf operating vine:starts are not npeeted
4, taco aloft antic:Metal wheat the
landare were destIcrial
0
A. standard cost I an' init
imate of
i3
Cost Arvid be under ormal
ing
conditions. fv,a-.ed rin acre tang be

iol

65.

tnirmal operating conditions ro.nd on

accounting and engine erinr 4udies.
imiparing actual told Milthilta COOS
pCITnitS an evaluation of the effectiveness of
m an a get la I per f, win in.b.!, Been use of Ott
impact of liked co..4r in most businesses, .1
standard costing, tystem is usually not
effective unless the cornitam, d SO has
nex bk budgcl,na system. Flexible
bu.teeting uses standard cianS to private
oft
activity IvAtilts
0
Star.-tlards mug be accepted by those who
will carry thorn out if they am to have
inaii..rntaii effect ivisies... Stiboirlioutes
should believe that standards arc both fair
and achievable; i4herwi-ie they nia, tend to
sabotage. ignore, or circumvent them.
Standard coasts are often based on the
reinlli of time and motion studies, or other
types of engineering f&tan darOs
C
The company phinincii to produce 100,00o
units td Pd each (P4 variable P2 fixed
colut, Or a total O 1.1600,(0). consisting of
P,100 (100 of variabiletoms and P200.000 of
sixtxt costs Total prrJutaion %was only
h0.0041 wilts at- i tiihti co rlis,006.

cht, tigNiblv t ippet for a production le% et

uf WAN) units inch* lahic costs of
P3 t().000. (P4 ,s ROAIOWI
Iltl

E. I

111/ 1"""

Chapter trriances From Standard Cost S

volume of the preictuct should not be a
contributing fectur to a material:, efficiency
variance.
75.
B
The production corer'', superveeor has the
mere central over the material usage
variance. The Material ieage vermoce
metsuree the emcees arnotee of materials
used over the Arnow: specified in the
standards. The material usage (or muterial
quantity) varaince when unfavorable, is
nften anxibutahle to viaide, shrinkage, or
theft in the production areas. The ceeete
usage occurs under the supervision of the
pr ' department.
I)
An unfavorable materials quantity variance
is usually caused by waste. shrinkage. or
theft. Alternatively, an uri favorable
%sriance wield be attributable to the
pure-Noire department's not buying the
proper quality of materials in an ateenpt to
achieve a favorable rruaterial price variance,
[bus. either the production manager for
the purchasing manager could be
responsible for a material maim var i ance,
77. C
The materials price variance may he
isolated et the there of purchase or at the
time of transfer to production . !t equals
the actual quantity of materials purchased
or irandferred times the di Herrn ce between
the aetual and standard unit prices. lience,
a favorable materials price variance means
that materials acre purchased at a price
lese than the standard price.

A
A materials price variance is the difference
beeween the weal and standard prices.
times the actual quantity. it is normally
considered the responsibility of the
purchasing manager because no one else
has an oppeerunity to intluoice the price
In this ease. the purchasing manager
obtained the disenunt that led to the
favorable pr,ce variance.

I)
An efficiency variance is calculated by
multiplying
the difference between
standard and pause imp, times the
standard cost peri unit ;listput.
efficiency variancfs can
#14ido.1 into

.yield and mix I,vaf lances_

Answers)
These variances are calculated only ieben
the product -riot process involves combining
several materials or clews of labor in
varying propoctions (when substitutiore arc
allowable in combining reel:Immo.
go.
C
Labor mix and labor yield variance:. are
the compotiaits of the total labor efficiency
variance. For exeluple. in the two
preceding question, the labor yield vananm
was P500 U Ind the labor mix variance els
P320 el, vdefi,sunis to the total labor
efficiency variance of 1120 U.
81.
B
An untivorslik direct labor efficiency
variance indicates that actual hours
exceeded stamberd hove:. Tao many hours
may have been used because of
inefficiency on the part of employees.
tacceseive coffee breaks. machine downtime,
inadequate raw matirials, or mrerials of
poor quality that required excessive rework..
An unfavorable materials usage variance
might be related to an unfavorable lake
efficiency variance. Working on a greeter
quantity of raw materials may require
more direct labor time.
82,
D
air
An unfavorable direct labor efEcieley
variance is normally charged to the
production manager. the pa -son with the
most control over the allIVirit ei:d kinds of
direct labor used. However, that individual
is not responsible (S)he was told to use the
non clonfonning pert that required extra
abor time. Thus, the variance should be
charged to the vice president el
production, the individuals who ewe
influenced the incur-tame of the cost.
83. A
The labor prior (rate) variance is the
difference between the actual rate paid and

the standard nue, times the actual hours.

This dTeeence may be attributable to a
change in labor rates since the

establishment of the standards, using a

single average standard rate despite

diffesent rates earned among differesit

employees, emigre f I higher-paid workers
to jObS est'

require labor-paiti

workers (or
rates hat has

or paying hourly
on place won.

.r7

Ckapter

&'ecriarrces FrierWord Cost (Suggested Answers)

caused by ecexioinic downeeres, labor
strike, bad weather, or a change in planned
output. Thus, a fixed overtired veltune
variance resulting from a rein management
decision to reduce output has fewer
behavioral implications than other
variane

rata l sec vice versa). The differceee

should nct be caused by a tmion =tract

approved before the budgeting cycle
because such rates would have been
incorporated into the qandards.
C
114
The production voter= variance (also
called we idle capacity veriasicx) is a
eceeponere of the total factory overhead
It is the differeice between
varionce.
`''e budgeted fixed oafs and the product of the
standard fixed coca per unit of input times
:he standard units of input allowed for the
ertuel output. Tier., the prodeetion volume
fixei
reariance equals ender
This
variance
result
factory overhead.
wee actual activity difkrs from the
aciviry based used to calculate the fixed
fectory crewheld application rate.
B
e The fixed oseelemd volume variance
dr measures the effete of not operating at the
btelgeted (denominator) a=ivity level. h is
"'
the difference between budgeted fixed costs
and the product of the standard 6xe1
overhead application foe and the aarneare
activity level kw the actual output. A
fevarable variance means that activity was
gi
then expected and that fixed
ovefaeed was overapplied It might be.
caused by for enuimple. hiring more workers
to fermi& an extra shift. An unfavorable
voiume variance means that activity was
less than budget tee (overhead was
underapplied), for example, because of
insufficient calm or
a labor strike.
Accordingly. the volume variance is tiatralh,
outside tire control of production
avinagement
Moreever. unlike other
vareanees, it does not directly reflect a
difference between actual and budgeted
expendnute of resources.
86 D
Motet eariarexs are of significeuxx to
%tenet-me
who is responsible far that
variance.
However. a foted overhead
volume v2flancr_ is oftera not the
re.ponsibitity of anyone other than, top
management. The fixed overhaul volume
vary:rex equals the differerux bewoeri
b tgraed fixed overhead and Ant arnoaro
applied (standard rate x state dir( input
allowed for the actual output). it
be

87.

Variance aealysis can be used to judge the

effectiveness of selling departments. If a
company's sales deer from the amount
budgeted. the difkrence may be attributable
to either the setae price variance ur the sale
volume (et:entity) variance, Changes in
unit selling price may 11C)Otint Ice the
entire variance if the actual quantity sold is
equal to the quantity budgeted. Nellie of the
revenue variance is attributed to the sales
volume variance because no such variance
exists when a flexible budget is used- The
flexible budget is based on the level of sales
at actual volume.

138.

f)

If a woven?' s sales differ from the amount

budgeted, the difference could be
anribotabla either to the tales price
variance or the :tato volume variance. The
miles Vulltrne variance ie the change in
contribution margin reused by the
difference between the actual and budgeted
sales voliance.
D
For a single-product con - party, the sales
volume variance is the difference between
the actual and budgeted sales quantities,
times the budgeted IJCIA. If the company,
sells two are more products, the difference
between the actual and budgeted product
mixes must be considerixt In that case, the
sales volume variance equals the difference
between (I) actual total unit salt* times the
budgeted weightexi-svernge IJCM for the
actual mix and (2) budgeted total unit sales
time the budgeted weighted-avanee (CM
for the planned mix,

89.

90.

The sales volume variance QUI be _divided

into the sales quantity variance and the
sales mix variance The eel, quantity
variance is the change in *
margin seaused ,by the differen
netualened budgeted volume,
budgeted sales (six, unit variable
I

'

11" .
tres Frans Standard Cost (Stigge.04nswers)
Chapter 8 -4)Lictr

unit vales ptim.,, arc core:tare. Thus,, it
equals the 'elk% volume variance when the
In a
sales mix variance is zero.
multiproduct company. the sale; mix
variance is a variance caused by a sales mix

For
that differs from that budgeted
exatriple, even when the sales quantity is
exactly as budgeted, an unfavorable sales
mix vat !AnCe can be caused by greater sales
ef a few-contribution product at the
expense of lower sales of a highcontribution product.

94

C)
The market share variance gives an
indication of the amount of contribution
margin gained (forgone) because of a
change in the market share.

95.

C
The entry to record direct materials used is
to debit Wit' at standard prices and
standard quantities (450 units x P9
In this question, all direct
P4,050).

materials variances an, recorded at the time

WIP is charged. The materials price
variance and the materials quantity
variance must be calculated The project
.used more units at a higher price than
estimated,
so both variance will he

B
The 'item eolume variance equel% the
difference between the flexible budget
contribution margin for the actual volume
aid that included in the master budget Its
components are the sales quantity and sales
mix variances The salts quantity variance
focusea on the xxnpany's aggregate
resells. It assurnte a constant product mix
and an average contribution margin for
the composite unit. It equals the difference
between actual and budgeted total unit
aleni. times the budgeted weighttel-average
Ut.-M fox the planned mix.
A
The ;ales mix variance may be viewed as a
sum of variances,. For tesch product in the
mix, the difference between actual units
sold and its budgeted percentage of the
actual total unit sales is multiplied by the
budgeted UCM for the product. The results
are added to determine the mix variance.
An alternative is to multiply total actual
units sold by the difference between the
budgeted weighted-average liC.M fre the
planned mix and that for the actual mts

The materials
unfavorable (debits),
quantity variance is (450 U 1(500 - 450) x
P91. The materials price variances is psoo
U 1500 units x (P 10 - N)J. Inventory is
edited for the 'actual prices and actual
quantities (500 x P10 e P5.000j.
96;

A
The entry to record aaeued payroll is to
charge Wil' at the standard wage rate times
the :standard number of hours and to eeedit
accrued payroll for the actual payroll pew
amount. The project required mare hours
but a lower wage rate than etaitnated.
Hence, the labor efficiency variance will be
unfiivorablit (a debit): the labor price
variance will be favorable t o credit).

Labor eff. Var. (50

) x 1'12

P60 U

Labor price var. (P12 - P10 )x 50 e PIDO

F.
97.

1)
The entry is to debit fixed 0/U applied and
credit fixed 0/H control for their respctiive

balances. The difference is attributable

The components of the sales quantity

variance are the market size variance and
the market share variance. The market 512e
variance give! an indication of the change
in curaribution margin caused by a change
in the market size The market sate and
market share 'varia nces are Petra ant to
industries in which total levels of iales and
market -.hare are knoe, 1.. g the
sutecnob, le industry.
The market size
variance measures the effect
i
gics Itl
an 'industry's Miles
individual
company. and
, market
?variance.
analyzes the imOttet pf a chart
ip market
share
11

solely to the productiOn volume variance

because the budget (spending) variance is
zero (actual fixed factory 0/H the
budgeted anum). The volume variance is
unfavorable because fixed 0111 is
undersipplied. The underapplication (the
unfavorable vtiltirric variance debitat) 15
P1,500 [1'31,500 budgeted fixed factory 0/H

- (2,000 hours x P15 per how))

LI

40#1F"--

, -1
I

..Variances Probst Sio 'Ward

Cost (Suggested Amulet)

.11'!

PRORLEMS
( I TO 160 )
ID

Aalsal Price (P84100 - 30,000 Ibis)

Standard Price t P3,000 ; 1,000 WA)
'Difference in Price

The standard price of P3. per It Is te.seci .-in the unfavorable usagc variance of P3,000 resulting

from 1,000 tbs. of eX0eti trine (30.000 Ib 2Q.000 !ha)

eip.sitapap

MPV Forate!a ,.1 ,Actual Quantity x diffixence in Price

30.000 IM x P.20
11.19il-17401:*

2. C

Rem to die Material Price Variant* formula in No. 1,

1.400 units x P.10

1142,m atimnOls
Ald

MATERIAL USAGE VARIANCE FORMULA

MIN = Standard Price x difference in quantity
P6.25 lc 200 units

3. A

EL2.19 vietivirtit
Difference in quantity
Actual quantity used
Standard quantity allowed
Different in quantity
4. C

2,300 units .
,3310kati%

Refer to No. 1 for the formula . Adual price is P2.

(P40,000 4- 20,000 units)
MPV 20.000 *

'

PAO

f2.92Laxgrid*
Reim to No. tfix Material usage variance formula.

5. A

At.tual quantity used

Standard quar&ty (2.000 units x 4 1bs.'wit)
Difference in quantity
4
6. C

7,800 Ite, .

,1.000 lbs,

2QUa.

-0 fib x 200 Ihs

13.W2.0.111I9MbiS
The net staneard direct material ,:ost is araal to the cost per pound multiplied by the required
luartity. including the waste allowance le-4 the cash discount.

u.

If the finished product contain 60 pound.; alter the 20% wastt allowance. therefore, the toed
pounds required is 75 (OD -
)..
,1 1 Jt...
114,
,; i ' :
' !
75
.1 l
I P2.50 i
= !0111.40
ig
discountl
. ' "'-.-itt
unit cost 1
7.4,411W......
, J
I- ".

A&

ji

Chapter 8 *lances From Standard Cost (Sr +g

Answers)

Labor Efficiency Variance Ntandard Rote ' difference in Hours

LEV - P6.15 x 1.000 hours
= P6.150 Favorable
20.000 hours I
Standard Flours j ( P I 2r000 P3,000 )

keter to No. 24 for the formula

LEV = PIO x 200 hours'
P2.000. unfavorable
Standard Hours --= 2 hours per unit x4!)0 units
Actual Hour% given
Difference in hours

.
.
\

1.1100
N.O_Q9

... 20.9

Refer to No. 24 for the formula_

PIO
x 1.500 houri
LEV
P15.000 unfavorable
11,500

Actual flours (P101,500 5- I'9)

Standkird flours. - given
Difference in Hours

10.000

.;

j15

Refer to No. 24 for the formula

1.EV r P20 x I? hour..
- .1240
.

- given
Actual
Standard Hours (P8,440 P20)
'Di ffcremxin Wars

10,000
.1.124

Standard Hours - given

Add -. Variance (in hours) P4.200 ' P3.75
Actual 'lours

Standard Hours - given

Fa. Aidd: Variance (P1.600 unfavorable. Actual Hours
A 13

Standard Payroll (40,000 Irlitrs,?t

Less: Favor
rate var64,4-4 in

.lictual

433
fiti111100.114410441. 2,20

PR)

Jaog

The direct labui payroll is found simpl) by

21.000 x P5.$0

km

11,A20

multiplying the actual hours by the :Actual rate

1I

'It

Chapter734lances F

41_

'fandaid (Qv !Sum; eited An

f-

32. B

f3)

ot4
Wmkly wages
Add: benefits (P245 Z %)
Total
Divided by: Weekly produr.-the hours per employee
COO per direct labor hours
Multiplied by Direct Tabor hour per owl
Direct labor cast per unit

P245.00
it

_hours

P31/6.25
15
8.87
3 hours

Actual payroll
Add; Favorable rate variance
Starpdard payroll
Standard Rate = P116,000 29,000 hr.)

54-4.

- t. eft,

Actual direct labor rate equals total payroll divided by actual hours.
29.000 hours P110.200
i,
0co'' et
Clacs 111
PS
P7
Clara II
Oral
P5
Standard Labor

x 500
x 500
x 500

= P 4,
$4,501$

Class. III - P8.50 x 550

Class 11 - P7.50 x 650
Class! - P5.40 x 375
Actual tabor
-1.ft, 4
Atthiail labor
Standard tabor
Direct labor %anand..v

= P 4,675
-
4.875

P 14575

36 A

l0 0 0

L., _LAZA tmfevorable

Refer toNo21 for Labor Rate Variance formula,

Class III Class 11
Class)

17 D

P 11.575

550 hours
650 hours
375 hours x

P JO unfavorable
P .50 unfavorable
P .40 unfavorable

P275
325
_150

mq unfavorable

Refer to No. 24 for Labor Efficiency Variance formula

Class 111 - P8 x 50 hours (U)
P 400 Unfavorable
Class II -
x 150 hours (13)
1.050 Unfavorable
Class ! - P5
1 125 hours (F) lavorahie
Total
11(111 t pe,j2Li)ay,Labl;

,-71 , 6

Chapter 8

lictriareFrom Siandard Cows (SAiggested

311 A
CIELSZ
Actual HOW'S

.44)

40 P

11550
650
375

111

Class TI
Cleats 1

500
500
Class II
Class I1000
lows
_1774
____1511SLIg4
.
/,..4A -vc1 C .-

ChM 111

Standard Hours:

Difference

tra7latteg

Standard Rate - P 10,000.' 1.500 hours -4

Variances P6.67 x 75 hours
...
....e..... Yitid

= ri911:..yalmeae

39 13

A. , j)

4
P 10,823

b) Total Actual hours at Standard Mix x Standard Rate

P4, 2
x P8
Class!!! 1.575 hrs x 1/3
1.575 his x 1/3
x P7 = 3,675 I
2.025
x P5
1,575 his x 113
Unfavorable labor ma variance

111Q9

oilk sew...
r)

I
x Standarkitate
a) Arafat Hours at Actual. Mix
Class III 550 hours x P 8 - P4.400
TT 650 hour x P 7 --- 4.550
I 375 hours x PS = 1,875
f P.:,

A -i. .,

Volume Variance - Budgeted Fixed Overhead less Applied Fixed overhead

P6.360 -
P480,000
( P15 x AH)
It P15 x AN = P410,000 - P6.360
AH = P473,640 - P15

sip

-16,52011142
41. A

Actual overhead
Budgeted overhead adjusted to Actual Hours
Fixed
Variable (3,500 hrs x r2.50)
Spending Variance - Favorable

P15,000
P 7,000

8,35Q _11/3_Q

The P324,000 fir supervisory salaries is a fixed cost at the rate of P27,000 per mouth. Since
these costs are fixed. volume is irrelevant. Thus, the variance is the difference between actual
costs of P28,.000, and the budgeted costs of P27,000 for P1,000 un &Alt -able).

i. C
Actual overhead
Budgeted overhead (3.500 hrs x P4)
Net overhead variance Favmable

Actual overhead Standard overhead -4iistin

Total .r.erhead variairioe Unfavorahl
n

Cbaptti a - Variances

Frojrandani Cost (suggestedAisiver_

PT08,000

Actual fixed overhasd

Applied fixed overhead (24,00en P4)
Undoapplied overhead

Priag

Appicaxioa Rate (PIOR,000 27,000 01,14)

1'
)

The total actual overhead is the SUM of the total applied overhead plus the un
ovesticad
P42,000
30.000
15,000

Applied V3Jiable overhead

Applied fixed overhead
lied overhead
Ur
Total actual ovssiseacl
47. D

Tice variable oYerhead eificiricy variance is the difference betuen the actual and standard
hours multiplied by the standsrni ,mriable overhead rate p stasidard labor hours (100 hrs x
P3)

48 3
Actual Merhetd (P10.300 1- P19,500)
Budgeted overhead adju..-Qted to Actual Hours
Fixed
- Variable (9.300 lsrs x P2)
Unfavorable wend* variance
49 A

P10,000

The applied factory overhead is the standard direct labor hours allowed for actual production
EIGELtkiplial by the total standard overher.d rare per hour

39,004 hours x
It

v.

.119),,,09

50. C
Actual overhead - given
Applied (P325,000 x P2)
Ova-applied overhead

P620,000

650,000

Azklicgion raw:
Budgeted evil-head - given
Direct labia- 150,000 hours x P6)

P600,000
300,000

P600,000 ' P300,000 me

t

5t. A
Budgeted Fry overhead
Applied Fixed overhead (24,000 hours x P3)
Lloderapplied fixed overhead - un favorable

P75,0
72,Km2

52.D

Actual emitted
Budgeted overhead ailjusred to Standard Hours
Fixed
Variable (32.900 h!I
Ccastrollataie (budget)

P232,000

'

P 64,000

101M

CW; er 8 - ll ar e3 Front Standard (*ost (Suggested4lIverj

C

66 A

The APPLIED FACTORY OVI4illEAD is the sum of the btalgated overhead (Refer to No, 64)
and the favorable valume variarae
Budgeted Overhead lno.64)
Add: Favorable volume variance
Applied Factory Overhead
The VARIABLE OVERICAD SPENDINfi VARIANCE is a price variance. It is the
difference 'wave= actual variable overhead costs (actual activity limits the actual rate) and
actual activity times the manciard rate.

raw

Standard: Variable overhead (P135,000 x E0%)

flours (9,000 anti' x 2 hours per unit)

Loami

Variable rale s (P108,000 - 18,000 hie)

P1013,500

Actual overhead - given

Applied (17.200 hours x P6)
Variable overhead spending variance

L_LIVIcuti4YRIDIbi

67. B

The VARIABLE. OVERHEAD EFFICIENCY (QUA N nix) variance is the standard variable
ova-head rate times the difference between actual activity and the standard activity allowed
for the actual output. The rroduetion of 8.500 units required 17,000 staraiard hours. Since
17,200 hours were worked at the rate of P6 per hour (no. 66), the variance is PI,200
unfavorable (200 hours x P2)

61, D

The FIXED OVERHEAD BUDGET variance is the difference between adual firaxi oasts and
budgeted fixed casts.

cy

Actual fixed coat given
Budgeted fixtx1 costs (P135,000 x 20%)
Fixed Overhead budget variance -unfavorable
fs9. C

P28,000
.1.1000

The FIXED OVERHEAD VOLUME Variance is the difference between budgeted fixed costs
and the product of the standard fixed overhead rate multiplied by the standard aaivity
allowed for the actual output.
Standards- Fixed Overhead (P135,000 x 20%)
Hours ( 9.000 units x 2 hours /unit)
r''-ad overhead rate per hour.
re
P27,004) ICON) home
I

wass)

vow
1431 tit 70.

tiargaivi

Budgeted fixed overhead

Applied ( 17,00 hours x Pi 50/tour)
Fixed overhead volunievartance

1,1"1/11fr

P27,000
2.1.5A
P-1650-141fieattgilitliN

The fixed raation should be converted to a rate by dividing it by normal activity.

'Variable ove-aead rate
$
Fixed crvcrtlead rile (PI 32,0(X) -:- 190,000 hrs)
Standard fixed or erhead rata per hour
' II ! II
li '
f
In a +al
cost s)
overhead ia applied using the 5ririndar
,1
1-
prodoction
, 1
Sialr
activity.2
(23.500 netts x 4 hrs fun it)
( )%t. head applied. 04.000 hrs x Pi4b2 per hour i

P13.00

44"12
ithy allemed for

elm*
- Varianct.o n Standard Cott (Sag/revel!
A

Variable overhead is charged to product bused on actual' labor cost incurred Thus, there
efficien) variance. difference between at.tual hours and Sidntiard hours and therk: is no
11-1

no

Note that the total overhead variance in No. 71 is P11,000 untavorahlo consilts of P1.000
unfavorable volume sariance (no. 75) and l'7.000 wilavorahle spending tat iance(No. 7o).

Cost of goods sold Job No. 1376

Work-in-process-beginning
Additionri numeri

P72.500
I 0

Vireo labor

4KiKallekt.i 4. 71 40113401 0111010

1.4*e. -Et C09 4114./ '

Overhead (161" (WWI: tP7000 ti I ht} o1

P01.700
IA. IP inventory consists of materials.. labor, and overhead (160% of labor cost) Since, Job no.
1376 was completed, only Jobs 1377, 1378, and 1179 remains in process_
ktiLefie
P26.000

13 77

12.000
4,000
P42.000

137/3
1379

.4.()vsrhnO_
'P103.800
35.400
.PA0(j

P 84,400
14.400
1.600
P100,800

P53.1)00

9.000
I.000
r63.000

pw,soo

1606,4 of direr labor

UN1Ititt()111-.FtAPPI 1E1) OVERIWAI) ,:hould be allocated proportimatel n to the inventory in

WIP. finished goods and COS. Underapplied overhead of P14.000 fur Dept 203 should thus
he allocated betvieen work-its-proce-.s and finished goods. Overhead in hiding WIP in Dept.
203 is P100.800 No 79) and irde head Of 19 1.200 (No 78) was in Joh 1176, which was

finished.
I P100.800) PI00.800 t P1 1,200) x P14.000 I a pj2,600
Refer to '40. 66 !same that he standard variable rate is 1'3 (P6 2 hours)

Actual variable overhead

80.000 hours x P3 per hour)

Variable overhead spending variance

P250.000
000

10,094.unfavosbig

Refer to No 69 Tale mite that the standard liked overhead rate is P4 ($ -- 2 hours) and actual
hours is 76.000 hours (38.000 units 2 hrs) and actual hours is 76.000 hours ; 38.000 units
1. 2 hrs.)
tiudgetrd fixed overhead

( 50.000
per unit)

Applied: 176.000 hr.. t. P4 per hour)

(verhead %Anne tariante

P100,000
30.1 000
r..36.$00.11flfi1v.99 1/4

the I.AW)R 135)4i( N'ARIANtl is the &Here-rice betsvecii actual hours and standard houra
multiplied 6.1 .lartaird duet! labia rale A fatorahle owe tariance results when aelual hours
than standard hours.
Siondard rut

( PO.4001
F'3 thr

hotini

,(i4.0of) hrs - 15.000 hrs)

r_32,0)(1..ko4b.lc

tt

BM.

w
i+' Cosi (Suggested Answers)

Chfterti - yariancr Fr

Aciustaireffiles4

P32.000

budget based no Actual !Iota

4. Fixed
P1.5(1)
Varialsterl.000 brx
Budget Variance - Unfav(wable

.111)9_, _WO
,

85. C
Hodge tased an Actual hours Oslo. 8-11
Osernead applied (15.000 his x P2.251
Volume Variance - Favorable
86. A

P31,500

__13219_
21.121
1

.olan.-d or reeorlod at time or purdirme.

In standard saYst mg. when pr jet ti ariance
purchased are recorded at standard price.
100.000 tee of Item ! x P.75 per foot

gems

" J2.1991)
C

'4. 0'k-in-proem accounts are always recorded at standard Mat There were 32.000 hours
atiosved far good output 018.000 units charged in
32.000 Std. hours x P3.50 per hour
t1T

g8. D

The n lter;al usage variance is the difference between actifid tilmic and standard
multiplied try ...tandar it price

Actual usage - give

usage tgAtet 'Mit* X 1 feet quit*,

Difference in quantity

Multiplied by Standard Rate

Materials usage Variance - unfavorable

89 A
Fy

26.000 feet
2,1991.1135
2.000 feet
t.

22,,.444

The Materials usage Variance is not prorated tn the ram, material iriventoo.. the purpose of
prorating sariances is to march the wir=anr.e to the accounts that contain the variance., Rav,
material inventors does not curtain a usage variance. This variance should be wed
arming MP. inventors. rt.; inventory and Cost of-floods Scrld.

Total variance on materials purchased 1100.1100 ft x P.03)

less: Variance on Material actually used in nroduction
08,000 feet x P.03)
Price V-ariance un Ending Inventory

2,,149
N.

The most appropriate time to record price variances is at the time of purchase. The varpatsees
that can he identified with each group of items purchased and in the period purch.tscd.

the labor rate 'mimic: is the di ITefence betv.een the actual rate and standard rate multiplied h!.
A mai hours.
Actual rate given

Standard ra.c - give

Difference Rate
Muhiplied by : A
Labor KaleVan

Cl,a ter
99. D

Wade ifCe3 Fipttdard Cost (Suggested Answers

Refer to No. 21 and 24_

8.200 hours x P_10
IRV
EIPQ 7. ill'flaMitie
P 4.10
_ .Lgil

Actual Rate - given

itandard Rate given

Difference in Rate

10

LEV - P4

x 200 hours

=12104.1insubio
Actual hours - given
Standard hours - (5.000 units x 1.6 hours)
NMI-vitae in Ileum

s
m( 100. C

8,200
LON
..20Q

Toe& variable c.verhead incurred

P 9.840
3.300

Indirect labor - given

- giver;
Supplies -
Variable service dept. costs - given
Tout
101. A

Total fixed overbead incurred

n.

p2.0,11 71111i !

Supervision
Depreciation
Outer fixed COVA
Total

J2
24

The total wsriabie tiverliraci cost is P180.000 a ram. for 60,000 unit!.; a y,air div1. by 12
. incntbs to get P15.000, A.-either way of computing is to divide P I lif),000 by 6010 units or
P3 NI' unit multiplied b: 5,000 units or P15.000.
103. B

The fixed overhead appli ca tion rate is P1.45 per unit (P87,000 60.000 units)
= 5.000 units x P1.45 /unit

164. ht

The budgeted fixed overhead is P7,250 . which is P87,000 divided by 12 months, Note that
the budgeted fixed overhead usually varies from appl nal fixed ovarbead. In this problem, they
are the same because budgeted activity of 5,000 units is equal to actual production.

105. B

The differci:a hiaween the variable overhead incurred and applied variable overhead is the
variable Overhead Variance.

Variable overhead incurred - No. 10(1

Applied variable overhead - No. 102
'v'ariable overhead vatianee - unfavorable

1%. A

15,099
t.

The axed ov.rrheari variance is the difference between the fiNeal a'erhen d incurred and Mal
applied fixed overhead

I ,
.

ttp0f,t
Applied fixed.ad - no. Mg
Fixed over:lead
- onattVorable
11
Fixed overtt

1 52

P16,340

ed -

'Chapter 8

Variances Fro. endued east (Suggested Ansotres)

Ekarti the rurctle.ing and the manufacturilig department ratty share the variance if it can he
shown that it s a result of decisions made m both departments. Fa( example, the material
usage variance may be punially the result of incurred materials purchase Le d tle purchasing
department andiew iriaN rett usage by the mannfileturing department.
t

114, Li ilte total variance freer; eta:Ward cast of the COW; charged An production is the difference
between act ual cords ammo.' to production and the standard cost per sprinkle time the number
of sprinkles maputactured in February
Actual cysts charged to produilion - given
4 Standard Costs 01,500 sprinkles Ji P2_50 t
ire itepial,a 1 vet etrienaarakavorahlikA to,

ite
11)

*Info 14.24,270 t -vie_421,2_9

s

1-ip oklytolok , IL.1.0;40.

qi,

D The question dearly indicates that the c.ntr.lituie plastic is a lower ivacle and !hat inspection
rejects more units. Accordingly. the most likely cause of unacceptable material usage
variance is the substitute plastic.

MA

The spending ur hedger variance is the difference between acteal fixed overhaul and budgeted
fixed overhead.
Actual fix ad overhead
P 1,100

Budgeted fixed overhead - we schedule
Lfig,1.
l'
`Spending variance - unfavorable
E.-1110
Armin; overhead (30.000 hrs x P1.20 !hr.)
P345.90A
Budgeted Fixed overhead (P36,000 12 most
L.L.OK!

il. B

The labor efficiency variance is equal to the standard price multiplied by the difference
between die standard qualifiry and reseal quantity. The quiestieu requires. the calculation of
Actual Hours
Straight time - hours
2.100
Add: Overt ta u:
Actual hours

C if the cr2- overtime premium is not charged Pio nverhend , it is considertx1 a rate variance. All
wam were at di,: standard of PA per h.Hrr, except the 400 hours of overtime itt P6 per hour.
The !abor rate variance is sous P800 unfavorable (400 hrs x P2)

The manufacturing overhead volume variance arises front morn (or Isar) fixed overhead being
applied in s period than us bedgeted.
Budgeted fixed overhead - No 110
P3 ,0 00
Applied ( see schedule}
qverapplied
60
flours all:need (1,500 units x .3 hut)
kehihtplied by : Std. rate per hour
Applied fixed overhead

2.c SO
P 0

Cbapter 8
114. B

Variances Fro.andard Cost (Suggested Arnwers:

Standard variable costing includes all variable co545 but not fitted overhead.
P24,270
Total actual overhead - no. 108
jag
Less: Iii portion - 4o. 110
P21,170
Total actual fixed overhead
Standard variable cost
.0.LV
8.500 units x 112.14 per unit
P 2,980
Variable variance - unfavorable
P 2.50

Standard cost per unit

Less: Fixed per unit
Standard variable rate per unit

115. A

30 l

The variable overhead variance is the difference between the actual variable overhead I the
budgeW overhead for the aqua! volume.
P 5,200
Actual vat table overhvid - given
4,080
Rudgeted variable overhead (11.500 units x P.48)
Variable overhead budget variance
E.1,14_tiP1 lY_Cr.APIC

Refer to No I for the formula (MPV)

pifferespe prkc
Aluminum

Amok
Substitute
MPV Actual Quantity
Aluminum
Plastic
Sotatitute

&lord
P.48 P 50 P .29 -

StantimA
P.40 I
P.38

'-
' -

P.38

difference in Rate
=
1,80 !be.

3.900 lbs

.st

l)ifferonce

6,000 lbs

P.08

x P.12

P.09

P.08 Unfaio
P.12 Unfit
P.041 Favnrtt

.p144 1. in ta vocable; i.
UnfavorableP540 Fa arable

The especlied total cost assuming standard performance is P870,000

Variable costs U1,200.000 4' 1 ,000 ) x P6001
Fixed - given
Total

P720,000
A

f_17.Q.QQ9

Actual rate (P760,000 - 190,000 hours)
Standard Rate (P600 150 hours)
Difference in rate
119. B

150.090

P4

(defer No. 21 and 22 . Take note that both the standard avid actual prices arc given in the
problem.
Molders
- 1 80w hrs x P_25
,
Trunroaa - 1,600 brs x P.15
o.C219,1w,faxcatIA;
,

120. C

Calculation of labor sut-Atitution variance requires the identification of the two hundred hours
(200) from the shift from molders, whose standard rate is P6 per how, to trimming (*nation,
where the standard fait is P4 per hoiir.
Unfavorable substitution
2(0 It

54

Chapter 8 - Varian
121. D

rani Standard Cost (Suggested Ansip

The plastic wasted molder and trimmer labor to produce 7,000 caw that were discarded
because of detects at final in.pection. The standard tabor cod for producing 10 plastic cases

is P3 for molders and P1 for Trimmers.

:.1
P2,100 unfavorable
P 700 unfit% us-elk

Molders - (7,0(10 10) x P3

Trimmers - (7,000 in)

D The idk time variance for molders and trimmers is equal to the idle time hours muttipliA by the
standard rate. The data to be u.led in the computation is given in the problem.
Molders - 75 hour.

Trimmers 35 bourn
C

x P6
x P4

25 hours x P6
'Molders
*Trirturiers R 15 hours x P4
"Atival hours - given
Standard (70.000 - 10 x .5 hr)
tTerence
Lets: Hours transferred trimming
Idle time
Difference in Hours
Actual hours given
10 x .2.5 hr)
Struidard (70,0(X
Difference
Less: transferred from Molding
Less. Idle time
'0' Difference in hours

124 B

Plilastinutals
rld(Lmarantritak
iti5,Q.svargisbk.
211iinfaxsakk
3,600
5.a5 09
300
700
75

1 75

1,600
1,750
ISO
I 200
50

'

pthreitv.

1001

ion ot the total labor- variance rotiiiires the determination of the standitd labor coat of
the output achieved cornpami to the actual labor cost
Actual latxx cost - given
Standard labor cost - given below the problem
63,000 x (P4 - 10) )
Unfavorable total labor variance

P 30,390

L1-1.22

This total variance is the sum of the variance calculated in Nos. 119, 120, 121 and 122.
Rate (No. 110)
P1,190 unfavorable
Labor Substitution (No. 120)
400 unfavorable
Material Substitution No. 121)
I
2,800 unfavorable
Idle time (No 122)
Total

elpaimaygibic

115 B

Tice direct material omit of pruduct X - 4 is calculated a as follows:

Budgeted input quantity required for 600,000 pillow; of output
600,000 -- .96
625,000 gallons
Budgeted direct materials cost:
P1,500,000 i f 625,000

II

rzo.pctigilfx,

ii

Chapter
126.

8 - VtilifiRCCS FrolknderitCosi

(Suggested Answers)

Refer to 14o. for the torrouta

600,000 gallons a P.12
MPV
122flafavisrable
Computation:
Actual

Aalla

quantity

'11

953/4 yield equals 570,000 gallons

2 570.000 gallons + 95%
6000500 gallons wield

Slan2.1 C4:03:
": 600,000 gallons

PI ,36S,

eiaLper gallon
Standard mania} co
127. A

per

rAilon 9.ye fi 125

Refer to No. 3 kr the formula

P2.40 pet gallon x 6,250 gallons
P 15.000 unfavorable
Actual quantity - see no. 126
Standard (570,000 gallons 96% )
Difference in quantity - gallons

128. A

600,000
593.750

Refo. to No. 22 far the formula,

t P.50
168,000 hits

EIL4.229.4wiegralc
P6.50 per hour
Actual flours : P1,092,000
= 1p8 000 hours
Beth Actual .end Standard rates are given in the ornblcm.

Refer to No. 24 for the formula.

MUV
Pt st 3,500 hours

= ...eaS99_14:14Yora,b1c
Actual. hours see No. 128
Standard hours
1( 651,000 gallons
600.000 gallons) s 150,00 hours

Difference in hours

168,000

'At ('00,000 gallons there are 150.000 budgeted D1.11.

130. B

The 4:wormy wishes to produce 42,750 units of good production, givoi that that h 5%
cooilsgc. Conversely', 95% arc goat and 42,750 units equals 95% of unit: -. I ',wired to be
start ed ,

42,750 units 4. 95%

'131. B

i;099.,,diutilit.:1 ,

An exiuivalent material unit of labor is the amount of labor needed to complete a good unit of
output. that is assuming no -...fioilage or :neFficiency. lhe MATERIAL EQUIVALENT.UNII
PRODUCTION is the number, of direct
d ial units di . 1,6y the labor efficient-4,4 ,
maks

of

1__fu
(9

vided
Di
by: Labor "'rill
err

Equivalent nutonad
756

It.

Nu. iAmitY4 !
i

Chapter 8 Varee3 Frain Standard Cast (Suggotedirrs)

132.

OttlUt IV await%) NI prx..40,e

CalmIstiou of the hour ,: of drprortikir ciassearof Ithar
42,750 good units requircs the proportional amount of labor originally laidgetal to producA:

50,000 units. For 100 units, (1 citas I persons. 2 aria 11 persons, and 1 Clay, V person we
required (mar that the revised mix of workers resulted in the l0"'a loss in effkieney)
To produce 30.000 ur its multiply the twoport ion by 500(50,00(1 100) oraulurtg
3,000 hours
Class 1
6 x 5(X)
= 1,000 hours
2 x 500
Class 11
500 hours
COO
I
x
ClA, V
133 1)

Using the budgeted hours calculated in No. 132 the expedoi labor oust of production of
47.7520 tinit_ it;

Class I
Class 11
Class V

3,000 hours x P 6
1,000 'was x P7.50
x P11,50
500 hours

is

..,

P 18,000
7,500
5,750

134. A The planned iatxr variance is the difTererwe between the normal labor cost and the expected
labor cost.
Normal labor cost 142,750 x ( P58
Expected labor cost:
Class I
see No. 133
Class II
see No. 133
Class V
see No. 133
Total planned labor variance
135. 13

130. D

100 ))

I
P18,000
7.500.
5 750

Normal activity is scheduled at 2,400 dire labor hours. Fixed *dory overhead per direct
labor hour is 1/3 of the total factory overhead rate,

MPV

Actual quantity purchased x difference in Price

18,000 yards x P.03

411Q4lailOrabk
Actual ands asidard price, arc given in the problem.
138. C

31159
P k.,115

Rernernba- that the ratio of variable uverhead to fixed overhead is 2 to 1, that you iable factory
overhead must be P20.
Dirt labor ho.ultanit (2,400 DUI - 600 +u its)
iltzuks
Variable overhead pa infit 41'20 - 4 huur)
111.1A01

Fixed overhead per unit (P30 x 1/3) 21,Q,Auj1

F i?..ed overhead per hour (P10 "- 4 hours) -US /IBM
2,400 hours x P2.50 /hour
.11,91X1
37. B

P24.795

Refer to Nio 3 for the formula

P1.35 x 500 yard.%
Styorsbl.:
14 f,

'ACtus1 quantity - given

Standard quantity - (500 unitsx 20 'raft's)

Difforere in (NY

1,1

Answers)
CAi.trer 8 - Variances Fronisdard Cost (Suggested
139 A

Refer to No 21
LRV 2,100 hours x P. 15 Blur

EaftuDfatutk

140. D

Refer to No. 23
LEV = P9 x 100 hours
= P900 unfavorable
Standard hours -= 500 units x 4 hour/unit = 2,000 hour
Actual hours is given in tht problem.

141 A
Fixed overhead - See no. 136
Variable 4500 units x 4 hours x P5)
Budgeted factory overhead at std. how

P 6,000
_ 10 000

.?-112.9SIQ

142. C
Adult! OvcrtitSCII

Budget based cm Standard hours No. 141

Controllable variance - unfavorable
143. B

P16,650
_16 000

Ove-head applied to production

(2.000 hour x P7.50) In 215.,,Q09

144 C

Budget based on standard hours No. 142

Overhead applied to production No. 141
Volume van ince unfavorable
-

145. C

P16,000,
_15,000'

LOW

Sipail/ird coo -.)f prcducing 500 units is P46,500 (500 'mils eP93)

146,

Materials (9.500 units x P1.38)

Labor - given
Overhead - given
TeAlti WWI r.x.151 t4'500 units
147. B

The Ending KIP is 75% cornPlege as to labor

Eqvis.alent unit of production i.a:
,600 units

(809 x 7W.) - 6,200 touts

Actual hours given

Standard hours (6,200 units x 6 hours)
Difftrence in Maws
Multiplied by : Standard Rxte
Labor efEclency variance - favorable

LILY

36,500

Actual Rate:
roast rate ill

x P.04

P13,110
19.211
16,654
EiL924

Chapter
119 "P

Vit ested .
tLa
Vats &Om standard Cos

raj

Calculation of the actual kilograms of materials require -working backwmill from the P1,500
itrilavorabk materials usage variance.
Standard nunober of kilograms fur 5,600 units
plus BOO units of Ending WIP: 10 4
6.40owlits xgki log' ams )
1
Standard cost of materials (51.20(1 x P5)
Add: Unfavorable usage variance
Actual cost of materials
Divided by : Standard cost per kilogram
;Amber of kilograms used in Novelistic.

JIM

II

P256.000
P257,500
ULAN

150. B The material usage variance was P1.500 unfavorable and the total material variance au P750
unfavorable, so the material price variance must have been P750 favorable
Standard material cost (50.000 kilos x PS)
Favor-able Price 'v'ariance
Actual material cost
Divided by. Actual quantity
Actual price - per kilogram

P250,000
750
P249,250

50.Q00
LAM

151. A The foal amount of mater i al and labor transferred to finished goods is equal to the number of
units transferred multiplied by standard cost per trait.
5.600 units x PS9.20 per unit
15'1 C

153. D

F
1

Materials (S(1O units x P40 limit)
Labor (800 units x 75% x P49.20tunit)

Total Materials & Libor in WIP

P32,000
MG=

The actual cost of materials used in one unit of product is the sum of the actual cost of each
of the materials used divided by the number of units produced.
Actual costs;
G 27 aluminum
P270,000
MI4 steel alloy
83,000
Total
P353,000
Divided by : Actual production - units
6.209
Actual cost per unit
L :131

154. A The cost of material that should be processed per machine hour is the coat of both materials
divided by the budgeted machine hours.
At 32,000 hours (P352,000 - 32,000 hours)
or At 3 I s t.i00 hours (P341.000 '- 31,000 hours)
P-1,14.11r
155. 13 The taidgeted direct labor cost of each unit produced is equal to the total labor cost divided by
the budgeted number of units
At 30 MO units.
Amem hits
Gunder ,
Total diraitt labor (at 300 14)

Divi jal*I Budgeted

!lb"
cst
,

its

'I
,

Chapter 8 - Verionces From IlOsdaid Cyst Ouggesini itiower0

156 13

511IL

Variable trianufiseitring overhead consist of maintenance supplied supervision and inspection.

Insuranrx and 'ISVS miation are fixed

Anitw_
f
P
24,000
i
129,000
80,000
.4-1004
firL9911

Higlies!
Lorrirn
Difference

ILWILbsvr1

329911.1bagi

P 24.800
133,300
12.000
147.000

P 25.600
137,600
$1,000

U32.1-Q4

1121.1a2

P397,200
171.A

P32,000
31991

154 .AQ

P-231,2%1

P20,200 + 2,000 hnurs 219asszlfac

The fait thing to do is to maniac the variable cost of eachoral:mem of manta

1-1

overhead.
Example : Supervision Increase in Cast 4- Imre:TA in hours
1,000 hour
P2,000 --

tl
hour

?alai cost inipervisace) at 30.000 level
Lam Variable portion (30,000 x P2)

Mad Supervision
Total Fixed O
verivess&
Supervision
Inspeaor
Insurance
Depreciation
Total

P 80,000
CUQQ

P 20,000
54,000

50 , 000
_
MOAN
324.121X?

Predetermined overhewi rats oars

P324,000 + 30,000 hoursr eNalitacaptic
5.0041d hours allowed for

RoodmaNt

Actual prixiArtion - units

M..thiplied by Std. brawn per twit
Standard hours allovied
Less- Budgeted hours
Exam. of over budgeted
Multipfied by Standard rate
Multiplied overhmd volume variance

6.200
31,000

ALCM
1.000

19.: #

EAMLiktgatiS

SS. B The rnanufactunng overhead spending variance is the difference betwecrn actual iwk-rhimd eng
and the budgeted overhead coat in the flexible. Midget.
Ac
Utidget
Maintenance
P 25,000
P 25,600
Snootier
130,000
137,600
Sapa-visiesa
81,000
$4 000
last:ester
14,000
01
Insurance
ooc0
15100
Depreciation
20o
coo

e04.240 f ,
60

er 8 Variances Fr.tandard Cost (Sagptsiedi Answers)

-

The overhead efficiency variance is actual hours less standard hart multiplied by
rate.
3 32.000
Actual hours - given
3 ta.090
Standard hours - (6,200 units x S hours)
1,000
DIffercrirx in Hours
P
1A1,19
Multiplied by: Variable rate per heir
...E1
Efficiency variance - unfavorable

Overhead is applied on the basis of P20.90 per standard hour.

Variable rate - No. 156
157
Fixed rate -

Standard rate per hour

Multiplied by: Standard hour
Overhead applied to finished goods

standar(

P 10.10

Q.19
P 2090

31,M

The earidard cost per part is P1.45. The actual cost was P18.000 for 12,000 parts, or P1.50
Rex:h. Thus., the price variance is P600 unfavorable 112,000 parts x (P1.50 - P1.45)1. The
ariance is unfavorable becausc the actual cost was higher than the leafletted cost
A

Standard os.alee was three parts per radio at P1.45 each. For a production level of 3.000 units,
the :ctal materials needed equaled 9,000 parts. but materials actually used totaled 10,000 pans.
Thus, the variance is P1.450 unfavorable IP1.45 standard cost per part x (10,000 used -9,000
rtarulard image)].

Dividing the actual cost of P60.025 by the 4,900 units used mutts in an average col of P12,25
per unit.

,` The price variance equals the actual quantity times the difference between the actual price and
tha standard rime. The actual price is P1225 and the standard price is P12 (given). Thus the
mat v=tance is P1,225 unfavorable [4,900 units x (P12.25 a1ual - P12.00 standard)).

'1:1";iiven that the company produced 12,000 units with a total standard cost for materials of
SP60.000, the standard cost most be P5.00 (P60.000 - 12.000 units) per unit of finished prnduea.

... Stexause -each unit of finiafiel product requires r units of raw materials, the standard unit cost
for raw materials must he P2.50.

The company produced 12,000 units of nutput, each of which required two units of raw
mateeials. Thus. the standard input allowed for raw materials was 24,000 units at a standard
cost of P2.50 each . An unfavorable quantity variance signifies. that the actual quantity cued was
greater thanthe
standard input allowed_ The millet - Isis quantity variance equals the diffetra
between &mad and nar.dard quantities, time the standard price per unit. Consequently,
1..ional
000 (P2 500 U P2.50)
addit were
units
the
total clonally must have
011
25.000 tun
(24.000 standard 1.000).

1t16 I 10;1

.ter 8
147.

Variaaces Fromelindard Cow (Suggested Answek

110

Oa 4$
times the difference between the scam! and standard
equals
actual
usantity
The price variarioe

prices. Actual usage and the stambrd price were calculated in the two preceding questions as
25.000 units and 2.50. r espcctively . Actual price was P3.00 (P105,000 total cost * 35.000 units
pun:ha:wed) Consequently. the materials price variance is P12.500 unfavorable 1tP3.00 - P2 t , (
k 25,000 =est

168.
The materiaLLatiLvariancels the actual total quantity tnoitthugs the dipferepee *wean - the
budget ,:d aeigniedfitieeage standard unit oast for the latiklgetedm ix-and the budgeted weightedaverage standard anit.cest mix, This variant* i firvetaf'7CInhritiiitiard
iieribiett- riertige cost for the actual mix I-, less than the standard weighted-average cost for
budgeted mix. The standard mix weighted-average standard unit cost is per liter (1'135
standard fatal COW 600 liters). The standard cost of the actual quantity used was N18,606 Oat
below). Thus, the actual mix weighted-average standard unit cost was P.220398 (P18.606
84.420 livers used) and the mix variance was P388.50 favorable 11) .220)98 - P.225) x 84.420
Inert).
P100

425
150
300

x
x
x

26.600
12,1010
37.800
7.140

P 5,320.00
5.474.00
5,670.00

23142
mil 606.00

The materials yield variance equals the difference between the actual Input and the standard input
allowed for the actual output times the budg.diai weighted-average standard cost peer input unit at
the standard. mix. The standard input for the actual output was 84.000 liters (14.0batches x 600
liters bat4). The standard mix budgeted weighted-average standard unit cost is P.225 per
liter (P135 total cost + - 600 liters). Thus, the yield variance is P9.1.50 tu 'itvorahle 1(84,420
Ikea used - 84.000 liters allowed) x P-2251

170,

B
The total flexible budget direct labor variance equals the diikeence hetweml total nclital
labor cent and standard direst labor cost 4stanclard rate x standard hours) allowed for the act
output. It combines the direct labor rate and efficiency variances. Fur this company, the varlan ice
is P1.900 U (P48500 actual wages at actual hours - P46,600 standard wages at standard hours.)E .

71.

C
Total factor productivity equals units of ca quit divided by the cost of all inputs. It varies
with
output levels, input prices. input quantities, and input mix. Hence. the total factor productivity
equals 0.25 units per peso input 1 1,500 units --I(450 pounds of A x PI.50) + (300 pounds of if
P2.75) + (300 hours x P15)11

first-line supervisor's primary

cm the basis of output
is - 300 labor hours) meaaur
..,pervtior has the most control.

is employee,

r1Sbot hOtiT4Ir.

tp1, taluctivi

us, ftwa.
tlii

txltalivity
hour expendedl

which the

Chapter 8 Variat.From Standard Cost (Suggestic1

-

173

Ak_______111
/ )

D
no variance
The standssd cotta rat materials for 8,500 units is P127,500 (8500 x P15). Thus,
arose with respect to materials_ Because labor for 9,000 units was budgeted at P81,000, the unit
labor cost is P9. Thus. the labor budget for 8,5(X) units is 116,500, and the total labor vurianoc is
P1,275 (P77.775 - P76,500). Because the actual cost is greeter than the budgeted amounts, the
P1275 variance is unfavorable. Given that the actual time per unit (45 minutes) was the same as
that budgeted. no labor efficiency variance was incurred. Haire, the entire PI .275 untavorable
variance must be attributable to the labor rate fur price) variance_

174

A
The labor yield variance is the difference between actual and budgeted inputs, times the budgeted
weighted-average rate for the planned mix Total hours worked were 1.575 (550 f - 650 t- 375),
standard hours allowed equaled 1,5()0 (500 500 .1 500), and the budgeted weighted-average rate
for the planned mix was P6.67 (1(500 x P8) (500 x P7) f (500 x P5)1 + 1.500 standard DLH).
Thus, the variance is P500 unfavorable (P6.67 x 75).

175.
The labor mix variance is the difference between the budgeted weighted-average rates for the
actual and planned mixes, times the actual labor inputs. The budg.cted weighted-average rate for
the planned mix is P6.67. the budgeted weighted-average rate for the actual mix is P6.873 [(550
x + (650 x P7) 4 (375 x P5) 4- 1.575 actual 1)1.14). Thus, the mix variance is P320 1(1)15.11T3 6.67) x 1,5751.

3
176.

C
The migeriais quantity variance equals the standard price times the difference between the actual
and standard quantiti es . Hence, the favorable materials quantity variance is P4.950 [ P1.50
standard x 1,650 units x (60 standard pounds 5$ actual poiinds.)J

in..

178

A
4 ,
f
I
The etatwials price variance equals the actual quantity used t u nas the difference between1117
actual and standard prier, per unit_ Thus, the um favorable materials price variance is P14,355 [58
actual pounds x 1,650 units x (P1.65 actual price P1.50 standard price))
,

,,

B
The Labor rate variance equals the actual hours used times the difference between the actual and
standard rates Consequently_ the few rate variance is zero MI actual hours x 1,650 units x
(P12 per hour standard rate - P12 per hour actual rate))

\P.

46.

f)
The flexible budget overhead variance is the difference between actual overhead orals arid the
flexible budget amount for the actual output. Standard total fixed costs at any level of prixiactian
arc P27.000. Standard variable overhead is P9 per unit (P3 x 3 labor hours). Thus. total standard
variable overhead is P1.1.850 for the actual output (P9 x 1,651) units) and the total flexible budget
amount is P-II.R50 (P27.000 FOIL , P14,1450 VOl I)

I i..
tADR
B
If variable overhead is applied to produraiiin uo the basis of direct labor hours. The both the
variable overhead efficiency variance and the direct labor eilieency variance will be calculated on
the basis of
the same number of hours If the labia efficiency variarav is unfavorable, then the
overhead efficiency variance will also, lxfav
sin
beak" both variarto% e
on the
difference between st
and actual lapar apara
I
Vii!
.!1
,
111
'.1li,..-_,
id
'

Chapter - Variances FroAndard Cast (Suggested Answers

4
181.

A
The violable over-iv-Act efficiency varntnee equal", the prtiduct of the variable overhead application
rase and the difference braveen the atandard ionut for the *Cull output and the Wesel1.
Hence. the variance will be UM if variable overhead is applied on the basis of units ot
tamatase the difference heroism actual and standard input Lanni>, he recd sized.
i II

182.

A
s
The fixed overhead spending (budget) variance is the ditt;rence between actual and bud
fixed factory overhead. Actual fixed overhead was P540,000. Budgeted fixed overhead was P5
per healr eased on a aapacity of 100.000 direct labor hours per month, ur P500.000. Because
these costa are fixed, the budgeted fined overhead is the same at any level of production. 'Rance,
the variance is P40.000 unfavorable (P540.000 - P500.000)-

ti

I83

B
The variable riverhead spending variance is the dilrerence between actual variable traerhead and
the variable overhead applied based on the standard rate and the actual activity level. Thua, the
variable overhead "pending V2riant was P12,000 favorable 1P7410,000 artnal cost - (P11 ittaedard
rate x 04,CXXi actual hours)). Because actual is less than standard the variance was favorable.

s84.

A
The variable overhead efficienc) variance equals the standard price (P8 an hour) times the

difference between the actual hours and the standard hours allowed liar the actual output Thus.
the variance is P48,000 1011 x (11,000Aqua1 hours - (4 atandard kows.j.ier unit a 22,000 , unite
1
producetp)). The variance is unfavorable because actual hours exceeded standard hours.

I *5

The direct labor price variance equals actual labor hours times the difference betwerm standard
and actual lalxir rates. The actual labor cost was P940.000 for )4,000 hours, or NO per how.
The standard raze was P9 pc. hour. Thus, the variance is P94,000 t'4,00() bout x ( PIO - / PC1 )).
The variance is uneavorable became the actual rate paid was higher than the standard rate.

D
The direct labor efficiency variance equals the standard rate times the difference between actual
and standard hours_ Hence, the variance is P54.000 x [94.000 hours - (4 standard hours per
Jai! x 22.000 unitsi)). The variance is unfavorable bouts the actual hours exevedeid the
standard hogs.
D
The varsahis uverbead spending and_efficiency variances are the cornpenents of the t 1 v able

! I!f

towhead aoriance. diven that actual variable overhead was P80,000 aerfl C 'legible budget
amount wax P90.000. the total variance is P10,000 favorable the overhead spending variance
is 1^.=)00 favorable. the efficiency Val 'lance musr. . -011.000 favorable (P10,000 1,401 - 17,000
spending). At a rate of P20 per hour, this variance is equivaleet to 100 direct labor hours
(P8,000 + P20).
L

Variable overhead variances car. he subdivided into spending and etliciene) I air-Towels,
,0 However. fixed ceverhtad variances do not have an effiei
components because used costa.
definition- are riot reared to changing lore of output., Coriaaaacntly, there is no ;
, efficicncy with respm to the eurrence Q 1 eel CO543. 1"
variances
autalivided.into a budges for
id
venal
'

F).119

The pa edeterre Fled rive:d:ad

240.000 machine hours)
764

scat ion
IT '


sar,

Chapter 8

190.

7ARr

'TM

Ans

VarianAkm Standard Coq (Suaested

8
e
Overhead is applied an the basis of . planned machine hours. The predetermined overhead
application rate is P15 ((P1,200,00(l FOIL . P2.400,000 VOTI) 240,000 mediate hours). Thus,
total overhead applied was P315 (P15 x 21,000 planned machine hour a basal an output).
y ' -, li 1
._ I

(XI,al"

1:
-.

..,
:40
,.."
Li
.1

.,a...--.
.
:.....,

8
Variable overhead applied in November P210,000 121,000 planned machine hOurr. based tm
output x 0,2,4o,000 planned annual V011 4 ' 240.000 planned machine hoursl Deuittac the
applied overhead eras lea; than actual (P214.000), anderaeplied variable overhead equaled

191.

P4.000.

192.
6

It

A
The variable overhead variance is the price variance (or over!emd. It oquals actual hours times
the efifference between standard and actual prices. At a variable overhead application rate
(standard cost) of P10 per machine hour (P2,400,000 240,000 hours), the total standard cost fix
the 21,600 actual hours was P216,000. Given ad-ual costs of P214,000. the favorable variance is
P2.000.

It
193.

fa
flee fixed overread volume (idle capacity) variance is the difference heavvecri budgeted fixed costs
and the product of the standard fixed overhead cart per unit of input and the standard units of
input allowed far the actual output. Budgeted fixed costs for the month were P100,000. The
standard costs of actual output was P105,000 [21,000 machine hours planned for actual output x
(P1,200,000 planned annual F011 - 240,00() planned annual machine hours) 1:011 application
rate) Hence, the fixed overhead volume variance was P5.000 favorable. it was favorable because
the budirt far fixed merheoll was lees than the amount applied to jibs. An rive:application of
flatad overhead suggests that output exceeded expectations.

194.

t
The total employee benefits include 20% of superviaion and direct and indirect labor costs. To
find the amount associated with direct tabor, 20% of supervision and inditect labor costs arc
subtracted from total employee benefits IP575,000 - 2fra x (P250,000 e P375,000)). or P450,000.

195.
..?
N
P

1)
To determine the variable manufacturing 0tH rate, all variable amounts must be totaled
(P1.500.000) and divided In the capacity in MI 1(300,000).
Total
Pee DIM
Sapplies
420.000
-
P1.40
Indirect labor
375.000 ..
1.25
Pf Pia
t110.000
.60
Employee benefits
20% direct labor
4 50.1XXII
II
20% indirect labor
-I 'LW
Total

+
I

it

09a210

'17 '
Chapter S Yariances Fro 'landed Cfpst (Suggested Aits4tevs),
-

ii
196. A
The variable inamsfacturing cost to produce a 100-unit lot fp 100 times the sum of direct

materials, direct labor, and variable CAN per se.at.

Olabiat mater iials
Padding
Vinyl
foul aritilon materials
Cow increase 103/4 (given)
Can of cushioned it
Cushion fabrication labor tP7.501)114 x .5 DUI)
Variable overhead (P5.0411)LH x .5 MN)
Total variable coat per cushion seat
Total variable cat per !0O-unii lot

197,

P2.46
....449i
P6.40
?. LIQ
P7.04

i,

3.75
2.50

en 42

IC

P1.329 .

A
Total fixed 0/H is F'2....1-40,000 It is divided by the 300,000-hour level of activity (0 d eterm ine
the P710 hourly rate.
Supervision
Flew and lip it
Property taxes and towns:toe
Deprxiation
Benefits (20% of 5UptTViSiOt1)

198

lip

P2 50,000
140,000
200,000
1,700,000

gaimeas.

Fl
The !lbw hours mett in cushion fabrication will be used to make the modified Lush ioncx1 scut.
Thus, the labor time freed by not making deluxe stools equals the frame fabrication and wisembly
time only. The number of economy offices stools that can be produced is 125.
Labor hours to make ID() deluxe stools (1.5 x100)
Minim: Lew hours to make 100 cushioned seats
(cushion fabrication .5 x 100)
Labor hOtIra available for economy 51001
Labor hours to make one economy stool
11 Stools prodtaxd by extra labor in economy stool
prodsplion (100 -Stu)

150 hr.

(mil hr.
100 hr.
1,1

1.741.1 ,994