Costcon

Module 5
VARIABLE COSTING & ABSORPTION COSTING

a. David Writer produces and sells boxes of signing pens for P 1,000 per box. Direct Materials are P400 per
box and direct manufacturing labor averages P75 per box. Variable overhead is P25 per box and fixed
overhead is P12,500,000 per year. Administrative Expenses, all fixed, run P4,500,000 per year, with sales
commissions of P100 per box. Production is expected to be P100,000 boxes, which is met every year. For
the year ended, 75,000 boxes were sold. What is the inventoriable cost per box using variable costing?

TOTAL

b. For P1,000 per box, the Maja Producers Inc., produces and sells delicacies. Direct materials are P400 per
box and direct manufacturing labor averages P75 per box. Variable overhead is P25 per box and fixed
overhead is P12,500,000 per year. Administrative expenses, all fixed, run P4,500,000 per year, with sales
commissions of P100 per box. Production is expected to be P100,000 boxes, which is met every year. For
the year ended, 75,000 boxes were sold. What is the inventoriable cost per box using absorption costing?

TOTAL

● At the end of the fiscal year, Yin Manufacturing recorded the data below:
Prime Cost P 800,000
Variable Manufacturing Overhead P 100,000
Fixed Manufacturing Overhead P 160,000
Variable Selling and administrative P 80,000
Fixed Selling and administrative P 40,000

c. If Yin uses variable costing, the inventoriable costs for the fiscal year are?

TOTAL

d. If Yin uses absorption costing, the inventoriable costs for the fiscal year are?
 TOTAL

e. Linn Company produced 100,000 units of Product Zee during the month of June. Cos5t incurred during June
were as follows:

Direct Materials P 100,000

Direct Labor P 80,000
Variable Manufacturing Overhead P 40,000
Fixed Manufacturing Overhead P 50,000
Variable selling and administrative P 12,000
Fixed selling and administrative P 46,000
Total……………………………………………..P 327,000

What is the unit cost under variable costing? What is the unit cost under absorption costing?

Per unit =

Per unit =

f. Ace Company, which has only one product, has provided the following data concerning its most recent
months of operations:

Selling price P 99
Units in beginning inventory P0
Units produced P 6,300
Units Sold P 6,000
Units in ending inventory P 300

Variable costs per unit: Fixed Costs:

Direct Materials P12 Fixed manufacturing overhead P 170,100

Direct Labor P 42 Fixed selling and administrative P 24,000
Variable Manufacturing Overhead P6
Variable selling and administrative P6
● What is the unit product cost under variable and absorption costing?
 VARIABLE COSTING ABSORPTION COSTING

TOTAL UNIT PRODUCT COST

TOTAL UNIT PRODUCT COST

● What is the net income under variable and absorption costing?

VARIABLE COSTING ABSORPTION COSTING

NET INCOME

NET INCOME

g. Langley Corporation has the following standard cost associated with the manufacture and sale of one its
products:

Direct Material P 3.00 per unit

Direct Labor P 2.50 per unit
Variable manufacturing overhead P 1.,80 per unit
Fixed manufacturing overhead P 4.00 per unit (based on estimate of 50,000 units per year)
Variable selling expenses P 0.25 per unit
Fixed SG&A expense P 75,000 per year

During the year of operations Langley manufactured 51,000 units and sold 48,000. The selling price per unit was
P25. All costs were equal to standard.

● Under absorption costing, the standard production cost per unit for the current year was

Standard Cost per unit = DM + DL + VFOH + FFOH

 STANDARD COST PER UNIT

● Based on variable costing, the income before income taxes for the year was

NET INCOME

h. The following information was extracted from the first year absorption-based accounting records of
Enigma Corporation

Total fixed costs incurred P 100,000

Total variable costs incurred P 50,000
Total period costs incurred P 70,000
Total variable period costs incurred P 30,000
Units produced 20,000
Units sold 12,000
Unit sales price P 12

● What is the Cost of Goods Sold for Enigma Corporation’s first year?

I-minus muna yung mga period cost!!

Computation for TOTAL COGS:

● If Enigma had used variable costing in its first year of operations, how much income (loss) before income
taxes would it have reported?

NET INCOME

i. Ching Biscuits manufactures and sells boxed coconut cookies. The biggest market for these cookies is as
gifts that college students buy for their business teachers. There are 100 cookies per box. The following
income statement shows the results of the first year of operations. This statement was the one included in
the company’s annual report to the shareholders.

Sales ( 400 boxes at P 12.50) P 5,000

Less: COGS ( 400 boxes at P 8.00) (3,200)
Gross Margin 1,800
Less: Selling and Administrative (800)_
Profit 1,000

Variable selling and administrative expenses are P 0.90 per box unit. The company produced 500 boxes
during the year. Variable manufacturing costs are P 5.25 per box and fixed manufacturing overhead costs
total P1,375 for the year. What is the company’s direct costing profit?

PROFIT

● During 2019, Jackson Company had the following data associated with the product it makes:

Units in beginning inventory 300

Units produced 15,000

Units sold (P300 per unit) 12,700

Variable cost per unit:

 Direct materials P 20

Direct labor 60

Variable overhead 12

Fixed costs:

Fixed overhead per unit produced P 30

Fixed selling and administrative P140,000

Required:

1. How many units are in the ending inventory?

Ending inventory = Beginning inventory + Units produced - Units sold
300 + 15,000 - 12,700 = 2,600 units

2. Using absorption costing, calculate the per-unit product cost.

Per-unit product cost = (Direct materials + Direct labor + Variable overhead + Fixed overhead per unit produced)
20 + 60 + 12 + 30 = 122_

3. Using variable costing, calculate the per-unit product cost.

Per-unit product cost = (Direct materials + Direct labor + Variable overhead)
20 + 60 + 12 = 92

4. What is the value of ending inventory under absorption costing? under variable costing?

VARIABLE COSTING ABSORPTION COSTING

2,600 * 92 = P 239,200 2,600 * 122 = P 317,200

● During the most recent year, Bheeta Company had the following data:

Units in beginning inventory -

Units produced 10,000

Units sold (P60 per unit) 8,800

Variable costs per unit:

Direct materials P 12

Direct labor 7

Variable overhead 5

Fixed costs:

Fixed overhead per unit produced P8

Fixed selling and administrative expenses P 138,000

Required:
1. Prepare an income statement using absorption costing.

Amount

Sales (8,800 * 60) 528,000

Units Sold * Selling Price

Less: Inventoriable Cost ( 32 * 8,800) (281,600)

Absorption Unit * Units Sold
Product Cost

Contribution Margin 246,400

Less: Period Cost

Fixed selling and administrative expenses (138,000)

NET INCOME 108,400

2. Prepare an income statement using variable costing.

Amount

Sales (8,800 * 60) 528,000

Units Sold * Selling Price

Less: Inventoriable Cost ( 24 * 8,800) (211,200)

Variable Unit * Units Sold
Product Cost

Contribution Margin 316,800

Less: Period Cost

Fixed Manufacturing overhead ( 8 * 10,000) (80,000)

Fixed selling and administrative expenses (138,000)

NET INCOME 98,800

Borques Company produces and sells wooden pallets that are used for moving and stacking materials. The
operating costs for the past year were as follows:

Variable cost per unit

Direct materials P 2.85

Direct labor 1.92

Variable overhead 1.60

Variable selling 0.90

Fixed cost per year:

 Fixed overhead P 180,000

Selling and administrative 96,000

During the year, Borques produced 200,000 wooden pallets and sold 204,300 at P9 each. Borques had 8,200
pallets in the beginning finished goods inventory; costs have not changed from last year to this year. An actual
costing system is used for product costing.

Required:

1. What is the per-unit inventory cost that is acceptable for reporting on Borques' balance sheet at the end of the
year? How many units are in the ending inventory? What is the total cost of the ending inventory?

Direct Material 2.85

Direct Labor 1.92

Variable manufacturing overhead 1.60

Fixed manufacturing overhead 0.90

( 180,000 / 200,000)

Per unit Inventory Cost 7.27

Beginning Inv 8,200 End Inv 3,900

Produced 200,000 Multiply by:

Sold 204,300 Inventory Cost per unit 7.27

Units in Ending Inventory 3,900 Total Cost of End Inventory 28,353

2. Calculate the absorption-costing operating income.

Amount

Sales (204,300 * 9) 1,838,700

Units Sold * Selling Price

Less: Inventoriable Cost ( 7.27 * 204,300) (1,485,261)

Absorption Unit * Units Sold
Product Cost

Contribution Margin 353,439

 Less: Period Cost

Fixed selling and administrative expenses (96,000)

NET INCOME 257,439

3. What would the per-unit inventory cost be under variable costing? Does this differ from the unit cost
computed in Requirement 1? Why?

Direct Materials 2.85

Direct Labor 1.92

Variable Manufacturing Overhead 1.60

TOTAL UNIT PRODUCT COST 6.37

4. Calculate variable costing operating income.

Amount

Sales (204,300 * 9) 1,838,700

Units Sold * Selling Price

Less: Inventoriable Cost ( 6.37 * 204,300) (1,301,391)

Variable Unit * Units Sold
Product Cost

Contribution Margin 537,309

Less: Period Cost

Fixed Manufacturing overhead (180,000)

Fixed selling and administrative expenses (96,000)

NET INCOME 261,309

5. Suppose that Borques Company had sold 196,700 pallets during the year. What would absorption-costing
operating income have been? Variable costing operating income?

Absorption Costing Variable Costing

Sales (196,700 * 9) 1,770,300 Sales (196,700 * 9) 1,770,300

Units Sold * Selling Price Units Sold * Selling Price

Less: Inventoriable Cost (1,430,009) Less: Inventoriable Cost (1,252,979)

( 7.27 * 196,700) ( 6.37 * 196,700)
Absorption Unit * Units Sold Variable Unit * Units Sold
Product Cost Product Cost

Contribution Margin 340,291 Contribution Margin 517,321

Less: Period Cost Less: Period Cost

Fixed selling and administrative (96,000) Fixed Manufacturing overhead (180,000)

expenses

Fixed selling and administrative (96,000)

expenses

NET INCOME 244,291 NET INCOME 241,321

JOINT AND BY-PRODUCTS

a. Spicy Chemicals produces two industrial chemical compounds, X15 and Z24, from the same process, which
last year cost P300,000. Spicy produced 15,000 gallons of X15, which sells for P40 per gallon and 45,000
gallons of Z24, which sells for P20 per gallon. Using the Market value at split-off point method, how much
of the joint cost should be allocated to X15?

Get the rate !!

Market value at split-off point method:

b. Bud Chemicals produces two industrial chemical compounds, X15 and Z24, from the same process, which
last year cost P300,000. Bud produced 15,000 gallons of X15, which sells for P40 per gallon and 45,000
gallons of Z24, which sells for P20 per gallon. Using the physical units method, how much of the joint cost
should be allocated to Z24?

Add the physical units to get rate:

Z24 =

c. The following information is available for Kat Company.

Joint Costs amounted to P 164,000.

Products Units and Disposal Cost MV at Split-off Additional Final MV

Produced Processing Cost

A 28,000 4,000 8.00 50,000 11.50

B 34,000 1,000 7.00 30,000 10.00

C 20,000 5,000 9.50 35,000 14.00

● Compute the joint cost to be allocated to each product under the physical output method.

A=

B=

C=

● Compute the total production costs for each product under the physical output method.

TOTAL PRODUCTION COST

● Compute the joint cost allocated to each product under market value at split-off method.

A=

B=

C=

● Compute the total production costs for each product under market value at split-off method.
 Joint cost

● Compute the joint cost to be allocated to each product under net realizable value method

JOINT
COST

.
● Compute the total production costs for each product under net realizable value method.

TOTAL PRODUCTION COST

d. Jose’s Dairy products purchase raw milk from individual farms and process it until the split-off point, when
two products – cream and liquid skim-emerge. These two products are sold to a company, which markets
and distributes them to supermarkets and other retail stores.

Production` Sales

Cream 12,500 gallons 10,000 gallons, P8 per gallon

Liquid 37,500 gallons 15,000 gallons, P4 per gallon

● Allocate the P200,000 joint costs using the physical output method.
 Cream =

Liquid =

● Determine the joint cost per gallon of Cream and Liquid.

Rate Joint Costs Unit Cost

Cream

Liquid

e. The following information relates to the costs and production for the First Department of the Golf
Manufacturing Company for the month of June.

Product Units Produced

Red 10,000 kls, sales price of P1.20 per kilo with no addt’l
processing costs

Blue 10,000 kls, sales price of P2.00 per kilo with addt’l processing
cost of P0.20 per kilo after separation

The total manufacturing costs applicable to Red and Blue in this department were P21,000.

● What is the amount of joint costs to be allocated to each kilo of each product using the Physical Units
method?

Red =

Blue =

● What is the amount of joint costs to be allocated to each kilo of each product using the Market Value at
Split –off point method?

RED =

BLUE =
 ● What is the amount of joint costs to be allocated to each kilo of each product using the Net Realizable
Sales value?

Additional JOINT COST

Processing
Cost

RED

BLUE

f. Omega Company manufactures Product A and Product B from a joint process. Joint costs are allocated on
the basis of the sales value at split-off point. It costs P 4,560 to process 500 units of Product A and
1,000 units of Product B to the split-off point. The sales value at split-off point is P10 per unit for
Product A and P14 for Product B. Product B requires an additional processing after split-off at a cost
of P2 per unit before it can be sold.

● What is Omega’s cost to produce 1,000 units of Product B?

ADDT’L
COST

A=

B=

g. Sakura Company manufactures Product S and T from a joint process. The sales value at split-off point was
P50,000 for 6,000 units of Product S and P50,000 for 2,000 units of Product T.

● Assuming that the portion of the total joint cost properly allocated to Product S using sales value at split-off
point method was P 30,000, what is the total joint costs?

ITO ANG SAGOT KASI 50% YUNG RATE NG BOTH PRODUCT EVER SINCE.

h. Hinata Company manufactures Product X and Y using a joint process. The joint costs are P10,000.
Product X and Y can be sold at split-off for P12,000 and P8,000 respectively. After split-off, Product X is
processed further at a cost of P5,000 and sold for P21,000, whereas Product Y is sold without further
processing.
 ● If the company uses the sales value at split-off point method for allocating joint costs, what is the joint
cost allocated to Product X?

X=

Y=

i. Classmate Corporation purchases trees from Cheney lumber and processes them up to the split-off point
where two products (paper and pencil casings) emerge from the process. The products are then sold to an
independent company that markets and distributes them to retail outlets. The following information was
collected for the month of October:

Trees Processed: 310 trees

Production: paper 190,000 sheets

Pencil Casings 190,000

Sales: Paper 178,000 at P0.10 per page

Pencil Casings 189,000 at P0.14 per casing

The cost of purchasing 310 trees and processing them up to the split-off point to yield 190,000 sheets of paper and
190,000 pencil casings is P13,500.
Classmate's accounting department reported no beginning inventory.

● If the sales value at split-off method is used, what are the approximate joint costs assigned to ending
inventory for paper?
Paper

Pencil Casings

Ending Inventory (Paper)

Answer:
Shack Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle
are P8,000.

Yards Sales price Disposal Further Final sale

per yard at cost per processing price per

split-off yard at per yard yard

 split-off

X 1,500 6.00 3.50 1.00 7.50

Z 2,200 9.00 5.00 3.00 11.25

If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer.

Required:

1. Using a physical measure, what amount of joint processing cost is allocated to Product X (round to the nearest
peso)?

X=

2. Using a physical measure, what amount of joint processing cost is allocated to Product Z (round to the nearest
peso)?

Z=

3. Using sales value at split-off, what amount of joint processing cost is allocated to Product X and Z (round to the
nearest peso)?

X=

Z=
4. Using net realizable value at split-off, what amount of joint processing cost is allocated to Product X and Z
(round to the nearest peso)?

Addition Disposa JOINT

al l Cost COST
Processi
ng Cost

Z
Ardmore Company produces two main products jointly, A and B, and C, which is a by-product of B. A and B are
produced from the same raw material. C is manufactured from the residue of the process creating B.

Costs before separation are apportioned between the two main products by the net realizable value method. The net
revenue realized from the sale of C is deducted from the cost of B. Data for April were as follows:

Costs before separation P200,000

Costs after separation:

A 50,000

B 32,000

C 4,000

Production for April, in pounds:

A 800,000

B 200,000

C 20,000

Sales for April:

A 640,000 pounds @ P0.4375

B 180,000 pounds @ 0.65

C 20,000 pounds @ 0.30

Required: Determine the gross profit for April.

Module 6
STANDARD COSTING

a. The Enha Household Company has established standard costs for the cabinet department, in which one
size of MX cabinet is made. The standard costs of producing one of these MX cabinets are shown below:

Standard Cost Card MX Cabinet:

Direct Material: Lumber 50 board feet at P4 P200

Direct Labor: 8 hours at P10 80

Overhead Costs: Variable – 8 hrs at P5 40

Fixed – 8 hrs at P3 24

Total Standard Unit Cost P344

During June 2023, 500 of these cabinets were produced. The cost of operations during the month is shown below.
There are no work in process at the beginning and end of the month.

Direct Material purchased: 30,000 board feet at P 4.10 P123,000

Direct Material Used: 24,000 board feet

 Direct Labor: 4,200 hours at P9.50 39,900

Overhead Costs: Variable Costs 22,000

Fixed Costs 11,000

The budgeted overhead for the cabinet department based on normal monthly activity of 4,500 hours is P36,000 of
which P 22,500 is variable and P 13,500 is fixed overhead.

● Compute for the ff variances for Prime Costs

a. DMPV b. DMEV / DMQV c. DLRV d. DLEV

DMPV = DMEV = DLRV = DLEV =

b. Woodside Company manufactures tables with vinyl tops. The standard material cost for the vinyl used per
Style-R table is P7.20 based on 8 square feet of vinyl at a cost of P0.90 per square foot. A production run
of 1,000 tables in January resulted in usage of 8,300 square feet of vinyl at a cost of P0.85 per square
foot, a total cost of P7,055. The direct materials quantity variance resulting from the above production run
was:

DMQV =

SQ=

c.Ben's Climbing Gear, Inc. has direct material costs as follows:

Actual units of direct materials used 20,000
Standard price per unit of direct materials P2.50
Direct Materials quantity variance--favorable P5,000
What was Ben's standard quantity of direct material allowed?
WORKBACK!
DMQV =
d. Lola Inc., Uses a standard costing system in manufacturing a certain shirt. Each unit of finished product
contains 2 meters of direct materials. However, 20% direct material spoilage calculated on input quantities
occurs during the manufacturing process. The cost of direct materials is P30 per meter. The standard direct
material cost per unit of finished product is:

e. Information about Mama Company’s direct material costs for the month of June 2023 was as follows:
Actual quantity purchased 18,000
Actual unit purchase price P 3.60
Materials price variance – unfavorable P 3,600
Standard quantity allowed for actual production 16,000
Actual quantity used 15,000

● For June 2023, what is the direct materials quantity variance?

f. Burger King uses a standard costing system in the manufacture of its single product. The 35,000 units of
raw materials in inventory were purchased for P105,000, and two units of raw materials 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 P60,000 and there was an unfavorable quantity variance of P2,500.

● Burger King’s standard price for one unit of material is:

● The unit of material used to produce November output totaled:

● The materials price variance for the units used in November is:
 g. Each unit of Product O requires two direct labor hours. Employee benefits costs are treated as direct labor
costs. Data on direct labore are as follows:
Number of direct employees 25
Weekly productive hours per employee 30
Estimated weekly wages per employee P 240
Employee benefits 25%
The standard direct labor cost per unit of Product O is:

h. For the month of April, Tom Company’s records disclosed the following data relating to direct labor:
Actual Cost P 10,000
Direct Labor Rate Variance 1,000 F
Direct Labor Efficiency Variance 1,500 UF
Standard Cost P 9,500
For the month of April, actual direct labor hours amount to 2,000. In April, Tom’s standard direct labor rate per hour
was:

i. Tube Company uses a standard cost system. The following information pertains to direct labor for product B
for the month of October.
Standard hours allowed for actual production 2,000
Actual rate paid per hour P 8.40
Standard rate per hour P 8.00
Direct Labor Efficiency Variance P 1,600 U
What were the actual hours worked?

j. Earl Company's direct labor costs for the month of January follow:

Actual direct labor hours 18,000

Standard direct labor hours 19,000
Direct labor rate variance--unfavorable P 1,800
Total payroll P 117,000

What was Earl's direct labor efficiency variance?

 k. Jackson Industries employs a standard cost system in which direct materials inventory is carried at standard
cost. Jackson has established the following standard for prime costs of one unit of product.

Standard Quantity Standard Price/Rate

Standard Cost
Direct Materials 5 pounds P 3.60 P 18.00
Direct Labor 1.25 hours P 12 P 15.00

During May, Jackson purchased 125,000 pounds pf direct materials at a total cost of P 475,000. The total factory
wages for May were P 364,000, 90% of which are for direct labor. Jackson manufactured 22,000 units of product
during May using 108,000 pounds of direct materials and 28,000 direct labor hours.

The Direct labor rate variance is:

The Direct labor efficiency variance is:

l. JR Company has the following information available for October when 3,500 units were produced.
Standards:
Material 3.5 pounds per unit @ P4.50 per pound
Labor 5.0 hours per unit @ P10.25 per hour
Actual:
Material purchased 12,300 pounds @ P4.25
Material used 11,750 pounds
17,300 direct labor hours @ P10.20 per hour

What is the labor rate variance?

What is the labor efficiency variance?

Assume that the company computes the material price variance on the basis of material issued to production. What is
the total material variance?
OVERHEAD VARIANCES:

a. The Enha Household Company has established standard costs for the cabinet department, in which one
size of MX cabinet is made. The standard costs of producing one of these MX cabinets are shown below:

Standard Cost Card MX Cabinet:

Direct Material: Lumber 50 board feet at P4 P 200
Direct Labor: 8 hours at P10 P 80
Overhead Costs: Variable – 8 hours at P5 P 40
Fixed – 8 hours at P3 P 24
Total Standard Unit Cost P 344

During June 2023, 500 of these cabinets were produced. The cost of operations during the month is shown below.
There are no work in process at the beginning and end of the month.

Direct Material purchased: 30,000 board feet at P 4.10 P 123,000

Direct Material Used: 24,000 board feet
Direct Labor: 4,200 hours at P9.50 P 39,900
Overhead Costs: Variable Costs P 22,000
Fixed Costs P 11,000
The budgeted overhead for the cabinet department based on normal monthly activity of 4,500 hours is P36,000 of
which P 22,500 is variable and P 13,500 is fixed overhead.

Compute for the Overhead Variance using: a. Two way analysis b. Three way analysis c. Four way analysis
 COV = AO - BOSH VOV = BOSH - OA
or
= BOSH - (SH*SOR)

BOSH = (BFO + (SH * VOR)

BOSH =

COV = VOV =

SPV = AO - BOAH VEV = BOAH - BOSH VOV = BOSH - OA

Or Or
= (AH - SH) * VOR = BFO - (SH * FOR)
Or
= (NH * FOR) - (SH * FOR)

BOSH = (BFO + (SH * VOR)

BOAH = (BFO + (AH * VOR)
OA = SH * SOR

SPV = VEV = VOV =

1ST METHOD

FSPV = AFO - BFO VSPV = AVO - (AH*VOR) VEV = (AH - SH) * VOR VOV = (NH - SH) * FOR
 2ND METHOD

SPV = AO - BOAH VEV = BOAH - BOSH FEV = (AH - SH) * FOR ICV = (NH - AH) * FOR

BOSH = (BFO + (SH * VOR)

BOAH = (BFO + (AH * VOR)

SPV = VEV = FEV = ICV =

b. University Company uses a standard cost system and prepared the following budgeted mounts at normal
capacity for the month of January 2023:

Direct Labor Hours 24,000

Variable factory overhead P 48,000

Fixed factory overhead P 108,000

Total factory overhead per direct labor hour P 6.50

Actual data for January 2023 were as follows:

Direct labor hours worked 22,000

Total factory overhead P 147,000

Standard direct labor hours allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the controllable variances for January 2023?
 c. The following information is available from the Faith Company:

Actual factory overhead P 15,000

Fixed overhead expenses, actual P 7,200

Fixed overhead expenses, budgeted P 7,000

Actual hours 3,500

Standard hours 3,800

Variable overhead rate per DLH P 2.50

Assuming Faith uses a 3-way analysis of overhead variances, what is the spending variance?
 d. The following data relate to Tray Co.,’s manufacturing operations:

Standard direct labor hours per unit 3

Actual direct labor hours 24,500

Number of units produced 8,000

Standard variable overhead per standard

direct labor hour P 2.00

Actual variable overhead P 46,000

What is the variable efficiency variance?

e. Water Control System, Inc. manufactures water pumps and uses a standard cost system. The standard
overhead costs per water pump are based on direct labor hours and are as follows:

Variable Overhead (4 hours at P8 per hour) P 32

Fixed Overhead (4 hours at P5 per hour)

(based on a capacity of 100,000 direct labor hours per month) P 20

Total overhead cost per unit P 52

The following information is available for the month of November:

- 22,000 pumps were produced although 25,000 had been scheduled for production

- 94,000 direct labor hours were worked at a total cost of P 940,000

- The standard direct labor rate is P9 per hour

- The standard direct labor time per unit is 4 hours

- Variable overhead costs were P 740,000

- Fixed overhead costs were P 540,000

What is the fixed overhead spending variance?

What is the variable overhead spending variance?

 f. The data below relate to the month of April for Monroe, Inc., which uses a standard cost system and a
two-variance analysis of factory overhead:

Actual direct labor hours used 16,500

Standard direct labor hours allowed 16,250
Actual total factory overhead P53,200
Budgeted fixed factory overhead P12,000
Budgeted activity in hours 16,000
Total overhead application rate per standard direct labor hour P3.25
Variable overhead application rate per standard direct labor hour P2.50

What was Monroe's volume variance for April?

g. Forrest Company uses a standard cost system for its production process and applies overhead based on
direct labor hours. The following information is available for August when Forrest made 4,500 units:

Standard:

DLH per unit 2.50

Variable overhead per DLH P1.75

Fixed overhead per DLH P3.10

Budgeted variable overhead P21,875

Budgeted fixed overhead P38,750

Actual:

Direct labor hours 10,000

Variable overhead P26,250

Refer to Forrest Company. Using the four-variance approach, what is the variable overhead efficiency variance?

h. Rainbow Company uses a standard cost system for its production process. Rainbow Company applies
overhead based on direct labor hours. The following information is available for July:

Standard:

Direct labor hours per unit 2.20

Variable overhead per hour P2.50

Fixed overhead per hour

(based on 11,990 DLHs) P3.00

Actual:

Units produced 4,400

Direct labor hours 8,800

Variable overhead P29,950

Fixed overhead P42,300

Refer to Rainbow Company Using the four-variance approach, what is the variable overhead spending variance?

i. Paramount Company uses a standard cost system and prepared the following budget at normal capacity for
January:

Direct labor hours 24,000

Variable OH P48,000

Fixed OH P108,000

Total OH per DLH P6.50

Actual data for January were as follows:

Direct labor hours worked 22,000

Total OH P147,000

Standard DLHs allowed for capacity attained 21,000

Using the two-way analysis of overhead variances, what is the controllable variance for January?
 j. The following information is available from the Fitzgerald Company:
Actual OH P15,000
Fixed OH expenses, actual P7,200
Fixed OH expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable OH rate per DLH P2.50

Assuming that Fitzgerald uses a three-way analysis of overhead variances, what is the overhead spending variance?

k. The following information relates to a given department of Hernan Company for the 4th quarter of 2022:
Actual total overhead P 178,500
Budget Fixed Overhead P 110,000
Variable Fixed overhead rate P 0.50/hr
Total overhead application rate P 1.50/hr
Spending Variance P 8,000 U
Volume Variance P 5,000 F

The total overhead variance is divided into three variances – spending, efficiency and volume/

What were the actual hours worked?

Roberts Company has the following information available for the current year:

Standard: Actual:

Material 4.25 feet per unit @ P2.75 Material 128,000 feet used
per foot (130,000 feet purchased
@ P2.80 per foot)

Labor 7 direct labor hours @ Labor 212,000 direct labor hours

P9.25 per unit incurred @ P9.30 per hour

30,000 units were produced

Required:

1. Compute the material purchase price and quantity variances.

DMPV = (AP - SP) * AQ DMQV = (AQ - SQ) * SP

Direct Materials = ( Actual Price - Standard Price) * Actual Quantity Direct Materials = ( Actual Quantity - Standard Quantity) * Standard Price
Price Variance Quantity Variance

= (2.80 - 2.75) * 128,000 = (128,000 - 127,500 ) * 2.75

DMPV = 6,400 U 4.25 * 30,000
DMQV = 1,375 U

2. Compute the labor rate and efficiency variances.

DLRV = (AR - SR) * AH DLEV = (AH - SH) * SR

Direct Labor = ( Actual Rate - Standard Rate) * Actual hour Direct Labor = ( Actual Hours - Standard Hours) * Standard Rate
Rate Variance Efficiency Variance

= (9.30 - 9.25) * 212,000 = (212,000 - 210,000) * 9.25

DLRV =10,600 U 7 * 30,000
DLEV = 18,500 U
Lincoln Company applies overhead based on direct labor hours and has the following available for the current month:

Standard: Actual:

Direct labor hours per unit 6 2,000

Units produced

Variable overhead per 0.80 11,900

DLH Direct labor hours

Fixed overhead per DLH 2.10 9,900

(based on 11,900 DLHs) Variable overhead

25,500
Fixed overhead

Required:

1. Compute all the appropriate variances using the two-variance approach.

COV = AO - BOSH VOV = BOSH - OA

or
= BOSH - (SH*SOR)

BOSH = (BFO + (SH * VOR)

BOSH = ( 24,990 + (12,000 * 0.80)

= 34,590

COV = 35,400 - 34,590 VOV = 34,590 - (12,000 * 2.90)

= 810 U = 34,590 - 34,800
= 210 F

2. Compute all the appropriate variances using the three-variance approach.

SPV = AO - BOAH VEV = BOAH - BOSH VOV = BOSH - OA

Or Or
= (AH - SH) * VOR = BFO - (SH * FOR)
Or
= (NH * FOR) - (SH * FOR)

BOSH = (BFO + (SH * VOR)

BOAH = (BFO + (AH * VOR)
OA = SH * SOR

BOSH = ( 24,990 + (12,000 * 0.80)

= 34,590
 BOAH = ( 24,990 + (11,900 * 0.80)
= 34,510

SPV = 35,400 - 34,510 VEV = 34,510 - 34,590 VOV = 34,590 - (12,000 * 2.90)
= 890 UF = 80 F = 34,590 - 34,800
= 210 F

3. Compute all the appropriate variances using the four-variance approach.

1ST METHOD

FSPV = AFO - BFO VSPV = AVO - (AH*VOR) VEV = (AH - SH) * VOR VOV = (NH - SH) * FOR

FSPV = 25,500 - 24,990 VSPV = 9,900 - (11,900 * 0.80) VEV = (11,900 - 12,000) * 0.80 VOV = (11,900 - 12,000) * 2.10
= 510 UF = 9,900 - 9,520 = 80 F = 210 F
= 380 UF

2ND METHOD

SPV = AO - BOAH VEV = BOAH - BOSH FEV = (AH - SH) * FOR ICV = (NH - AH) * FOR

BOSH = (BFO + (SH * VOR)

BOAH = (BFO + (AH * VOR)

BOSH = ( 24,990 + (12,000 * 0.80)

= 34,590
BOAH = ( 24,990 + (11,900 * 0.80)
= 34,510

SPV = 35,400 - 34,510 VEV = 34,510 - 34,590 FEV = (11,900 - 12,000) * 2.10 ICV = (11,900 - 11,900) * 2,10
= 890 UF = 80 F = 210 F =0