PROBLEMS

1. KNOTTY, Inc. estimated the cost of a project it started in October 19x4 as follows: Direct
materials, P495,000; direct labor, 6,000 hours at P30 per hour; variable overhead, P24 per
direct labor hour. By the end of the month, all the required materials have been used at
P491,900; labor was 80% complete at 4,650 hours at P30 per hour; and, the variable overhead
amounted to P113,700. The total variance for the project as at the end of the month was
A. P7,500 U B. P8,400 U C. P9,000 F D. P9,00 F

2. SUPER Co. at normal capacity, operates at 600,000 labor hours with standard labor rate of P20
per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Four units
should be completed in an hour.
Last year, 1,350,000 units were produced using 300,000 labor hours. All labor hours were
paid at the standard rate, and actual overhead cost consisted of P3,738,000 for variable items
and P3,000,000 fixed items.
The total labor and overhead costs saved, by producing at more than standard, amounted to
A. P450,000 B. P500,000 C. P750,000 D. P1,200,000

3. A defense contractor for a government space project has incurred $2,500,000 in actual design
costs to date for a guidance system whose total budgeted design cost is $3,000,000. If the
design phase of the project is 60% complete, what is the amount of the contractor's current
overrun or savings on this design work?
A. $300,000 savings. C. $500,000 savings.
B. $500,000 overrun. D. $700,000 overrun.

4. Hankies Unlimited has a signature scarf for ladies that is very popular. Certain production and
marketing data are indicated below:
Cost per yard of cloth P36.00
Allowance for rejected scarf 5% of production
Yards of cloth needed per scarf 0.475 yard
Airfreight from supplier P0.60/yard
Motor freight to customers P0.90 /scarf
Purchase discounts from supplier 3%
Sales discount to customers 2%
The allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects have
no market value. Materials are used at the start of production.
Calculate the standard cost of cloth per scarf that Hankies Unlimited should use in its cost
sheets.
A. P16.87 B. P17.76 C. P18.21 D. P17.30

5. ALPHA Co. uses a standard cost system. Direct materials statistics for the month of May,
19x7 are summarize below:
Standard unit price P90.00
Actual units purchased 40,000
Standard units allowed for actual production 36,250
Materials price variance- favorable P6,000
What was the actual purchase price per unit?
A. P75.00 B. P85.89 C. P88.50 D. P89.85

6. ChemKing uses a standard costing system in the manufacture of its single product. The 35,000
units of raw material in inventory were purchased for $105,000, and two units of raw material
are required to produce one unit of final product. In November, the company produced 12,000
units of product. The standard allowed for material was $60,000, and there was an unfavorable
quantity variance of $2,500. The materials price variance for the units used in November was
A. $2,500 U B. $11,000 U C. $12,500 U D. $3,500 F
7. The Porter Company has a standard cost system. In July the company purchased and used
22,500 pounds of direct material at an actual cost of $53,000; the materials quantity variance
was $1,875 Unfavorable; and the standard quantity of materials allowed for July production
was 21,750 pounds. The materials price variance for July was:
A. $2,725 F. B. $2,725 U. C. $3,250 F. D. $3,250 U.

8. Cox Company's direct material costs for the month of January were as follows:
Actual quantity purchased 18,000 kilograms
Actual unit purchase price $ 3.60 per kilogram
Materials price variance unfavorable (based on purchases) $ 3,600
Standard quantity allowed for actual production 16,000 kilograms
Actual quantity used 15,000 kilograms
For January there was a favorable direct material quantity variance of
A. $3,360. B. $3,375. C. $3,400. D. $3,800.

9. JKL Company has a standard of 15 parts of component X costing P1.50 each. JKL purchased
14,910 units of component X for P22,145. JKL generated a P220 favorable price variance and
a P3,735 favorable quantity variance. If there were no changes in the component inventory,
how many units of finished product were produced?
A. 994 units. B. 1,090 units. C. 1,000 units D. 1,160 units

10. The following direct labor information pertains to the manufacture of product Glu:
Time required to make one unit 2 direct labor hours
Number of direct workers 50
Number of productive hours per week, per worker 40
Weekly wages per worker $500
Workers benefits treated as direct labor costs 20% of wages
What is the standard direct labor cost per unit of product Glu?
A. $30. B. $24. C. $15. D. $12.

11. ACE Companys operations for the month just ended originally set up a 60,000 direct labor
hour level, with budgeted direct labor of P960,000 and budgeted variable overhead of
P240,000. The actual results revealed that direct labor incurred amounted to P1,148,000 and
that the unfavorable variable overhead variance was P40,000. Labor trouble caused an
unfavorable labor efficiency variance of P120,000, and new employees hired at higher rates
resulted in an actual average wage rate of P16.40 per hour. The total number of standard direct
labor hours allowed for the actual units produced is
A. P52,500 B. P60,000 C. P62,500 D. P70,000

12. Pane Company's direct labor costs for April are as follows:
Standard direct labor hours 42,000
Actual direct labor hours 41,200
Total direct labor payroll $247,200
Direct labor efficiency variance favorable $3,840
What is Pane's direct labor rate variance?
A. $44,496 U B. $49,440 U C. $49,440 F D. $50,400 F

13. TAMARAW, Inc. has a maintenance shop where repairs to its motor vehicles are done. During
last months labor strike, certain recorded were lost. The actual input of direct labor hours was
1,000, and the resulting direct labor budget variance was a favorable P3,400. The standard
direct labor rate was P28.00 per hour, but an unexpected labor shortage necessitated the hiring
of higher-paid workers for some jobs and had resulted in a rate variance of P800. The actual
direct labor rate was
A. P27.20 per hour B. P28.80 per hour C. P30.25 per hour D. P31.40 per hour

14. To improve productivity, ST. MICHAEL Corp. instituted a bonus plan where employees are
paid 75% of the time saved when production performance exceeds the standard level of
 production. The company computes the bonus on the basis of four-week periods. The standard
production is set at 3 units per hour. Each employee works 37 hours per week, and the wage
rate is P24 per hour. Below are data for one 4-week period:
Weekly Production (Units)
Employee 1st 2nd 3rd 4th Total
ALAN 107 100 110 108 425
JOEL 104 110 115 115 444
ROMY 108 112 112 133 465
TONY 123 120 119 124 486
The employee who had the inconsistent performance (sometimes performing below standard)
but got a bonus is
A. Alan = P36 bonus. C. Romy = P126 bonus.
B. Joel = P54 bonus. D. Tony = P252 bonus.

15. PALOS Manufacturing Co. has an expected production level of 175,000 product units for
19x7. Fixed factory overhead is P450,000 and the company applies factory overhead on the
basis of expected production level at the rate of P5.20 per unit. The variable overhead cost per
unit is
A. P2.57 B. P2.63 C. P2.93 D. P3.02

16. The following were among Gage Co.s 2000 costs:

Normal spoilage $ 5,000
Freight out 10,000
Excess of actual manufacturing costs over standard costs 20,000
Standard manufacturing costs 100,000
Actual prime manufacturing costs 80,000
Gages 2000 actual manufacturing overhead was
A. $40,000 B. $45,000 C. $55,000 D. $120,000

17. Nil Co. uses a predetermined factory O/H application rate based on direct labor cost. For the
year ended December 31, Nils budgeted factory O/H was $600,000, based on a budgeted
volume of 50,000 direct labor hours, at a standard direct labor rate of $6 per hour. Actual
factory O/H amounted to $620,000, with actual direct labor cost of $325,000. For the year,
over-applied factory O/H was
A. $20,000 B. $25,000 C. $30,000 D. $50,000

18. Peters Company uses a flexible budget system and prepared the following information for the
year
Percentage of total capacity
80% 90%
Direct labor hours 24,000 27,000
Variable factory O/H $48,000 $54,000
Fixed factory O/H $108,000 $108,000
Total factory O/H rate per DLH $6.50 $6.00
Peters operated at 80% capacity during the year but applied factory overhead based on the 90%
capacity level. Assuming that actual factory O/H was equal to the budgeted amount for the
attained capacity, what is the amount of O/H variance for the year?
A. $6,000 over-absorbed. C. $12,000 over-absorbed.
B. $6,000 under-absorbed. D. $12,000 under-absorbed.

19. MNO Company applies overhead at P5 per direct labor hour. In March 2001, MNO incurred
overhead of P120,000. Under applied overhead was P5,000. How many direct labor hours did
MNO work?
A. 25,000 B. 22,000 C. 24,000 D. 23,000
20. At the beginning of the year, Smith Inc. budgeted the following:
Units 10,000
Sales $100,000
Minus:
Total variable expenses 60,000
Total fixed expenses 20,000
Net income $ 20,000

Factory overhead:
Variable $ 30,000
Fixed 10,000
There were no beginning inventories. At the end of the year, no work was in process, total
factory overhead incurred was $39,500, and underapplied factory overhead was $1,500.
Factory overhead was applied on the basis of budgeted unit production. How many units were
produced this year?
A. 10,250. B. 10,000. C. 9,875. D. 9,500.

21. Premised on past experience, Mayo Corp. adopted the following budgeted formula for
estimating shipping expenses. The companys shipments average 12 kilos per shipment.
Shipping costs = P8,000 + (0.25 x kgs. shipped)
Planned Actual
Sales order 800 780
Shipments 800 820
Units shipped 8,000 9,000
Sales 240,000 288,000
Total kilograms shipped 9,600 12,300
The actual shipping costs for the month amounted to P10,500. The appropriate monthly
flexible budget allowance for shipping costs for purposes of performance evaluation would be
A. P10,250 B. P11,075 C. P10,340 D. P10,400

22. Universal Company uses a standard cost system and prepared the following budget at normal
capacity for the month of January:
Direct labor hours 24,000
Variable factory O/H $48,000
Fixed factory O/H $108,000
Total factory O/H per DLH $6.50

Actual data for January were as follows:

Direct labor hours worked 22,000
Total factory O/H $147,000
Standard DLH allowed for capacity attained 21,000
Using the two-way analysis of O/H variances, what is the budget (controllable) variance for
January?
A. $3,000 F. B. $13,500 U. C. $9,000 F. D. $10,500 U.

23. ABC Company uses the equation P300,000 + P1.75 per direct labor hour to budget
manufacturing overhead. ABC has budgeted 125,000 direct labor hours for the year. Actual
results were 110,000 direct labor hours, P297,000 fixed overhead, and P194,500 variable
overhead. What is the fixed overhead volume variance for the year?
A. P35,000 U. B. P36,000 U. C. P2,000 F D. P3,000 F

24. JKL Co. has total budgeted fixed costs of P75,000. Actual production of 19,500 units resulted
in a $3,000 favorable volume variance. What normal capacity was used to determine the fixed
overhead rate?
A. 18,750 B. 20,313 C. 17,590 D. 16,500
25. TYD, Inc. reported the following data for 1996:
Actual hours 120,000
Denominator hours 150,000
Standard hours allowed for output 140,000
Fixed predetermined overhead rate P6 per hour
Variable predetermined overhead rate P4 per hour
TYDs 1996 volume variance was
a. P60,000 which is neither favorable nor under-applied.
b. P60,000 favorable.
c. No volume variance.
d. P60,000 under-applied.

26. Patridge Company uses a standard cost system in which it applies manufacturing overhead to
units of product on the basis of direct labor hours. The information below is taken from the
company's flexible budget for manufacturing overhead:
Percent of capacity 70% 80% 90%
Direct labor hours 21,000 24,000 27,000
Variable overhead $ 42,000 $ 48,000 $ 54,000
Fixed overhead 108,000 108,000 108,000
Total overhead $150,000 $156,000 $162,000
During the year, the company operated at exactly 80% of capacity, but applied manufacturing
overhead to products based on the 90% level. The company's fixed overhead volume variance
for the year was:
A. $6,000 U. B. $6,000 F. C. $12,000 U D. $12,000 F.

27. Margolos, Inc. ends the month with a volume variance of $6,360 unfavorable. If budgeted
fixed factory O/H was $480,000, O/H was applied on the basis of 32,000 budgeted machine
hours, and budgeted variable factory O/H was $170,000, what were the actual machine hours
(AH) for the month?
A. 32,424 B. 32,000 C. 31,687 D. 31,576

28. Web Company uses a standard cost system in which manufacturing overhead is applied to
units of product on the basis of machine hours. During February, the company used a
denominator activity of 80,000 machine hours in computing its predetermined overhead rate.
However, only 75,000 standard machine hours were allowed for the month's actual production.
If the fixed overhead volume variance for February was $6,400 unfavorable, then the total
budgeted fixed overhead cost for the month was:
A. $96,000. B. $102,400. C. $100,000. D. $98,600.

29. The following information is available from the Tyro Company:

Actual factory O/H $15,000
Fixed O/H expenses, actual $7,200
Fixed O/H expenses, budgeted $7,000
Actual hours 3,500
Standard hours 3,800
Variable O/H rate per DLH $2.50
Assuming that Tyro uses a three-way analysis of O/H variances, what is the spending variance?
A. $750 F. B. $750 U. C. $950 F D. $200 U

30. At Overland Company, maintenance cost is exclusively a variable cost that varies directly with
machine-hours. The performance report for July showed that actual maintenance costs totaled
$9,800 and that the associated spending variance was $200 unfavorable. If 8,000 machine-
hours were actually worked during July, the budgeted maintenance cost per machine-hour was:
A. $1.20. B. $1.25. C. $1.275. D. $1.225.
31. Given for the variable factory overhead of GHI Products, Inc.: P39,500 actual input at
budgeted rate, P41,500 flexible budget based on standard input allowed for actual output,
P2,500 favorable flexible budget variance. Compute the spending variance.
A. P500 unfavorable. C. P500 favorable.
B. P2,000 favorable. D. P2,000 unfavorable.

32. Daly had a $18,000 favorable volume variance, a $15,000 unfavorable variable overhead
spending variance, and $12,000 total over-applied overhead. The fixed overhead budget
variance was
A. $9,000 F. B. $16,000 F. C. 49,000 U. D. $16,000 U.

Problems 33 and 34 are based on the following information.

The MABINI CANDY FACTORY has the following budgeted factory overhead costs:
Budgeted fixed monthly factory overhead costs P85,000
Variable factory overhead P4.00 per direct labor hour
For the month of January, the standard direct labor hours allowed were 25,000. An analysis of the
factory overhead shows that in January, the factory had an unfavorable budget (controllable)
variance of P3,500 and a favorable volume variance of P1,200. The factory uses a two-way
analysis of factory overhead variances.

33. The actual factory overhead incurred in January was

A. P186,200 B. P188,500 C. P181,500 D. P103,500

34. The applied factory overhead in January was

A. P188,500 B. P183,800 C. P186,200 D. P103,500

Questions 35 & 36 are based on the following information.

Raff Co. has a standard cost system in which manufacturing overhead is applied to units of product
on the basis of direct labor hours (DLHs). The following standards are based on 100,000 direct
labor hours:
Variable overhead 2 DLHs @ $3 per DLH = $6 per unit
Fixed overhead 2 DLHs @ $4 per DLH = $8 per unit
The following information pertains operations during March:
Units actually produced 38,000
Actual direct labor hours worked 80,000
Actual manufacturing overhead incurred:
Variable overhead $250,000
Fixed overhead $384,000

35. For March, the variable overhead spending variance was:

A. $6,000 F. B. $10,000 U. C. $12,000 U. D. $22,000 F.

36. For March, the fixed overhead volume variance was:

A. $96,000 U. B. $96,000 F. C. $80,000 U. D. $80,000 F.

Questions 37 thru 39 are based on the following information.

The Murray Company makes and sells a single product. The company recorded the following
activity and cost data for May:
Number of units completed 45,000 units
Standard direct labor-hours allowed per unit of product 1.5 DLHS
Budgeted direct labor-hours (denominator activity) 72,000 DLHS
Actual fixed overhead costs incurred $66,000
Volume variance $4,275 U
The fixed portion of the predetermined overhead rate is $0.95 per direct labor-hour.
37. The amount of fixed overhead contained in the company's overhead flexible budget for May
was:
A. $64,125. B. $67,500. C. $68,400. D. $70,275.

38. The amount of fixed manufacturing overhead cost applied to work in process during May was:
A. $61,725. B. $62,700. C. $42,750. D. $64,125.

39. The fixed overhead budget variance for May was:

A. $2,400 U. B. $2,400 F. C. $6,000 U. D. $6,000 F.

Questions 40 and 41 are based on the following information.

Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for Material D and P12.25 per unit
for Material E. In June, Valenzuela bought 17,500 units of Material D and 8,750 units of Material
E. All Material D, except 1,400 units were bought at the standard unit cost. The 1,400 units had
a unit cost of P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875 units
at a unit cost of P14.
In accordance with the standard two units of Material D and one unit of Material E should be used
to make each unit of Product F. In January, 7,000 units of Product F were made and 15,050 units
of Material D were used and 7,175 units of Material E were used.

40. The total materials price variance is

A. P2,791.25 F B. P2,791,25 U C. P13,781.25 F D. P13,781.25 U

41. The total materials quantity variance is

A. P7,656.25 F B. P7,656.25 U C. P13,781.25 F D. P13,781.25 U

Questions 42 and 43 are based on the following information.

Based on normal capacity operations, Sta. Ana Company employs 25 workers in its Refining
Department, working 8 hours a day, 20 days per month at a wage rate of P6 per hour. At normal
capacity, production in the department is 5,000 units per month. Indirect materials average P0.25
per direct labor hour; indirect labor cost is 12% of direct labor cost; and other overhead are P0.15
per direct labor hour.
The flexible budget at the normal capacity activity level follows:
Direct materials P 4,000
Direct labor 24,000
Fixed factory overhead 1,200
Indirect materials 1,000
Indirect labor 3,000
Other overhead 600
Total P 33,800
Cost per unit P 6.76

42. The cost per unit at 60% capacity is

A. P6.00 B. P6.50 C. P6.82 D. P6.92

43. The total production cost for one month at 80% capacity is
A. P20,760 B. P21,500 C. P27,280 D. P30,160