STANDARD COSTING

- Systematically pre-determined costs established by management to be used as a basis for

comparison with actual cost.

Uses of Standard Costs Standard Costing Procedures

1. Cost Control 1. Establishing standards
2. Pricing decisions 2. Measuring actual performance
3. Comparing actual performance with
3. Motivation and performance appraisal
standards
4. Cost awareness and cost reduction 4. Taking corrective action when needed
5. Preparation of budgets 5. Revising standards when needed
6. Costing of inventories
7. Preparation of cost report
8. Management by exception

I-Time, Inc. produces electronic timepieces. The company uses mini-LCD displays for its products. Each
timepiece uses one display. The company produced 550 timepieces during March. However, due to LCD
defects, the company actually used 570 LCD displays during March. Each display has a standard cost of
P 9.20. Six hundred LCD displays were purchased for March production at a cost of P 6,000

Determine the: Price Usage Variance, Quantity Variance, and Total DM Cost Variance for March.

Alpine Bicycle Company manufactures mountain bikes. The following data for May of the current year
are available:

Quantity of DL used 600 hours

Actual rate for DL P 12.50 per hour
Bicycles completed in May 280
Standard direct labor per bicycle 2 hours
Standard rate for DL P 12.75 per hour
Planned bicycles for May 310

Determine the: DL rate and time variances

Stonehead Statuary manufactures bust statues for famous historical figures. All statues are the same
size. Each unit requires the same amount of resources. The following information is from the static budget
for 2018:

Expected production and sales 6,000 units

DM 72,000 pounds
DL 21,000 hours
Total fixed costs P 1,200,000

Standard quantities, standard prices, and standard unit costs follow for DM and DL:

Quantity Price Unit Cost

DM 12 pounds P 10 per pound P 120
DL 3.5 hours P 50 per hour P 175
During 2018, actual number of units produced and sold was 5,500. Actual cost of DM used was P
668,800, based on 70,400 pounds purchased at P 9.50 per pound. DL hour actually used were 18,500 at
the rate of P 51.50 per hour. As a result, actual DL costs were P 952,750. Actual fixed costs were P
1,180,000. There were no beginning or ending inventories.

Compute:
Price and efficiency variances for DM and DL

The standard for each finished unit of product allows for 3 pounds of plastic of P 0.72 per pound. During
December, 4,500 pounds of plastic were bought at P 0.75 per pound, and used 4,100 pounds in the
production of 1,300 finished units of product.

1. What is the materials quantity variance for December?

a. P 144 F c. P 432 F
b. P 144 UF d. P 432 UF
2. What is the materials price variance for December?
a. P 123 F c. P 135 F
b. P 123 UF d. P 135 UF

The direct labor costs for the month of January 2018 were as follows:

Actual direct labor hours 20,000

Standard direct labor hours 21,000
Direct labor rate variance, UF P 3,000
Total payroll P 126,000

What was the direct labor efficiency variance?

a. P 6,000 F
b. P 6,150 F
c. P 6,150 UF
d. P 6,300 UF

“Some succeed because they are destined to, BUT MOST SUCCEED BECAUSE THEY ARE
DETERMINED TO.”