UNIVERSITY OF LA SALETTE INC.

College of Accountancy
Santiago City, Philippines

ADVANCE FINANCIAL ACCOUNTING AND REPORTING

STANDARD COSTING

1. During March, Telahan Corporation manufactured 1,000 units of a special multiplayer fabric with the trade
name Kurdoroy. The following information from the Kurdoroy production department also pertains to March.

Direct material purchased: 36,000 yards at P1.38 per yard P 49, 680
Direct material used: 19,000 yards at P1.38 per yard 26, 220
Direct labor: 4,200 hours at P9.15 per hour 38, 430

The standard prime costs for one unit of Kurdoroy are as follows:

Direct material: 20 yards at P1.35 per yard P 27

Direct labor: 4 hours at P9.00 per hour 36
Total standard prime cost per unit of output 63

Required: Compute the following variances for the month of March, indicating whether each variance is
favourable or unfavourable.
A. Direct-materials spending variance
B. Direct-materials efficiency variance
C. Direct-materials purchase price variance
D. Direct-labor rate variance
E. Direct-labor efficiency variance

2. Stonehead Statuary manufactures bust statues of 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 2017.

Expected production and sales 6,000 units

Direct materials 72,000 pounds
Direct manufacturing labor 21,000 hours
Total fixed costs P 1,200,000

Standard quantities, standard prices, and standard unit costs follow for direct materials and direct
manufacturing labor:

Quantity Price Unit cost

Direct materials 12 pounds P10 per pound P120
Direct manufacturing labor 3.5 hours P50 per hour P175

During 2017, actual number of units produced and sold was 5,500. Actual cost of direct material used was
P668,800, based on 70,400 pounds purchased at P9.50 per pound. Direct manufacturing labor-hours actually
used were, 18,500 at the rate of P51.50 per hour. As a result, actual direct manufacturing labor costs were
P952,750. Actual fixed costs were P1,180,000. There were no beginning or ending inventories.

Required: compute price and efficiency variances for direct materials and direct manufacturing labor.

3. Mankato Control Company, which manufactures electrical swithches, uses a standard-costing system.

Standard production overhead costs per switch are based on direct-labor hours and are as follows:
 Variable overhead (5 direct-labor hours @ P12.00 per hour) P 60
Fixed overhead ( 5 direct-labor hours @ 18.00 per hour)* 90
Total overhead P150

Based on normal capacity of 300,000 direct-labor hours per month.

The following information is available for the month of October.

 Variable overhead costs were P3,510,000
 Fixed overhead costs were P5,625,000
 56,000 switches were produced, although 60,000 switches were scheduled to be produced
 275,000 direct-labor hours were worked at a total cost of P3,825,000.

Required: Compute and analyse the factory overhead variances.

4. Krug Company se the following standard unit costs for its single product.

Direct materials (5 lbs. @ P2 per lb.) P10.00

Direct labor (0.3 hrs. @ P15 per hr.) 4.50
Factory overhead variance-variable (0.3 hrs. @ P10 per hr.) 3.00
Factory overhead variance-fixed (0.3 hrs. @ P14 per hr.) 4.20
Total standard cost P21.70

The predetermined overhead rate is based on a planned operating volume of 80% of the productive capacity
of 600,000 units per quarter. The following flexible budget information is available.

Operating levels
70% 80% 90%
Production in units 420,000 480,000 540,000
Standard direct labor hours 126,000 144,000 162,000
Budgeted overhed:
Fixed factory overhead P 2,016,000 P2,016,000 P2,016,000
Variable factory overhead 1,260,000 1,440,000 1,620,000

During the current quarter, the company operated at 70% of capacity and produced 420,000 units of product;
direct labor hours worked were 125,000. Units produced were assigned the following standard costs:

Direct materials (2,100,000 lbs. @ P2 per lb) P4,200,000

Direct labor (126,000 hrs. @ P15 per hr.) 1,890,000
Factory overhead (126,000 hrs. @ P24 per hour.) 3,024,000
Total standard cost P9,114,000

Actual costs incurred during the current quarter follow:

Direct materials (2,000,000 lbs. @ P2.15) P4,300,000

Direct labor (125,000 hrs. @ P15.50) 1,937,500
Fixed Factory overhead costs 1,960,000
Variable factory overhead costs 1,200,000
Total actual costs P9,397,500

Required:
1. Compute the direct material cost variance, including its price and quantity variances.
2. Compute the direct labor variance, including its rate and efficiency variances.
3. Compute the total variable overhead and total fixed overhead variances.
4. Compute these variances: (a) variable overhead spending and efficiency, (b) fixed overhead spending and
volume.
5. A company manufactures a single product that requires a great deal of hand labor. Overhead cost is applied
on the basis of direct labor hours. The company’s condensed flexible budget for manufacturing overhead is
given below:

Cost formula DIRECT LABOR HOURS

(per DL hour)
Overhead cost 45,000 60,000 75,000
Variable costs P2.00 P90,000 P120,000 P150,000
Fixed costs 480,000 480,000 480,000
Total overhead costs P570,000 P600,000 P630,000

The company’s products requires 3 kilos of material that has a standard cost of P7 per kilo and 1.50 hours of
direct labor that has a standard rate of P6 per hour.
The company planned to operate at a denominator activity level of 60,000 direct labor hours and to produce
40,000 units of product during the most recent year. Actual activity and costs for the year were as follows:

Number of units produced 42,0000

Actual direct labor hours worked 65,000
Actual variable overhead cost incurred P 123,500
Actual fixed overhead cost incurred 483,000

Required:
1. Compute the predetermined overhead rate and break it down into variable and fixed elements.
2. What were the standard hours allowed for the year’s output?
3. Compute the variable overhead spending and efficiency variances and the fixed overhead budget and
volume variances.
4. Suppose the company had chosen 65,000 direct labor hours as the denominator activity rather than 60,000
hours. State which, if any, of the variances computed in (3) above would have changed, and explain how the
variance(s) would have changed. (no computations are necessary)