Management Accounting 2

Direct labor costs variances - Assessment
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?
General Feedback
Romy = P126 bonus
CIA 0597 III-90

The standard direct labor cost to produce one pound of output for a company is presented below.
Related data regarding the planned and actual production activities for the current month for the
company are also given below:
NOTE: DLH = Direct labor hours

Direct labor standard: 0.4 DLH @ P12.00 P 4.80
per DLH
Planned production 15,000
pounds
Actual production 15,500
pounds
Actual direct labor costs (6,250 DLH) P 75,250
The company's direct labor efficiency variance for the current month is?
General Feedback
P600 unfavorable {P12 x [6,250 actual DLH - (.4 DLH x 15,500 pounds actually produced)]}
RPCPA 1097
SUPERIOR Mfg. Co., using a standard cost system, furnished information on direct labor cost as follows:
Standard direct labor hours 75,000

Actual direct labor hours 72,500
Total payroll P 275,500
Unfavorable rate variance 14,500
Favorable efficiency variance 10,000
What was SUPERIOR’s actual direct labor rate per hour?

General Feedback
P3.80
RPCPA 580
The Willard Manufacturing Co., Inc. uses standard cost systems in accounting for manufacturing costs. On June 1,
19x9, it started the manufacture of a new product known as “Whippy.” The standard costs of a unit of “Whippy”
are:
Raw materials 3 kilos @ P1.00 per kilo P 3.00
Direct labor 1 hour @ P4.00 per hour 4.00
Overhead 75% of direct labor cost 3.00

P 10.00
The following data were obtained from Willard’s records for the month of June:
Actual production of “Whippy” 2,000 units
Units sold of “Whippy” 1,250 units
Debit Credit
Sales P 25,000
Purchases P 13,650
Materials price variance 650
Materials quantity variance 500
Direct labor rate variance 380
Direct labor efficiency variance 400
Manufacturing overhead total variance 250
The amount shown above for the materials price variance is applicable to raw materials purchased during June.
The actual direct labor rate for the month of June is?
General Feedback
P4.20
CMA 1291 3-1 to 4

Arrow Industries employs a standard cost system in which direct materials inventory is carried at standard cost. Arrow
has established the following standards for the prime costs of one unit of product.
Standard Standard Price Standard Cost

Quantity
Direct materials 8 pounds P1.80 per pound P 14.40
Direct labor . 25 hour 8.00 per hour 2.00
P 16.40
During November, Arrow purchased 160,000 pounds of direct materials at a total cost of P304,000. The total factory
wages for November were P42,000, 90% of which were for direct labor. Arrow manufactured 19,000 units of product
during November using 142,500 pounds of direct materials and 5,000 direct labor hours.
The direct labor usage (efficiency) variance for November is?

General Feedback
P2,000 unfavorable [P8.00 standard rate x (5,000 actual hrs. - 4,750 standard hrs.)]
Lab Corp. uses a standard cost system. Direct labor information for Product CER for the month of October follows:
Standard direct labor rate P 6.00 per

hour
Actual direct labor rate paid P 6.10 per
hour
Standard hours allowed for actual 1,500 hours
production
Labor efficiency variance--unfavorable P600
What are the actual hours worked?

General Feedback
1,600
RPCPA 0584
Ipil-ipil Woods Inc. grants bonus to its plant employees equal to 50% pay for the time saved in production. The
company has set up a standard rate of production of 200 units of cutting board per hour. The standard pay per
labor hour is P8. Factory overhead varies at the rate of P2.50 per hour.
During the month of June, the employees worked a total of 25,000 direct labor hours and produced 6,000,000 units
of cutting boards. The total variable factory overhead amounted to P62,500. Bonus checks are issued to
employees in the month following the month in which the standards are exceeded.
1. The total net savings to the company for the month of June after deducting the bonus is?
General Feedback
P32,500
2. The labor bonus for the production in June is?

General Feedback
P20,000
RPCPA 1088
MAXIM MFG CO., which uses a standard cost system, manufactures one product with the following standard costs:
Direct materials 2 Kilos at P10 P 20.00

Direct labor 1 hour at P8 8.00
Factory overhead 80% of direct labor 6.40
TOTAL STANDARD UNIT COST P 34.40
Total production in units 10,000 units

Direct materials purchased 22,000 kilos at P11
Actual quantity of materials used 21,000 kilos
Actual labor cost 9,500 at P7.50
Factory overhead total variance P1,000 unfavotable
1.The direct labor efficiency variance for April was?

General Feedback
P800
2. The direct labor efficiency variance is?

General Feedback
P4,000 favorable
RPCPA 0583
Edsol Company uses flexible budget in its standard cost system to develop variances. The following selected data are
given.
Data on standard costs:

Raw materials per unit 5 lbs. at P1.00/lb., P5.00
Direct labor per unit 8 hrs. at P3.00/hr., P24.00
Variable factory overhead per unit P3.00 per direct labor hour, P24.00
Fixed factory overhead per month P25,000
Normal activity per month 8,000 direct labor hours
Units produced in April 1,000 units
Costs incurred for April
Raw materials 5,000 lbs. at P1.10/lb.
Direct labor 7,000 lbs. at P3.10/hr.
Variable factory overhead P27,000
Fixed factory overhead P28,000
The labor efficiency variance for April is?

General Feedback
P3,000 favorable
CIA 0595 III-81 & 82

A company manufactures a machine component called Omega. The following relates to manufacturing operations in
May.
Planned production 2,000 units of Omega

Actual production 2,100 units of Omega
Standard costs per unit of Omega
Direct materials P 20 (5 lbs. @ P4)
Direct labor P 10 (1 hr. @ P10)
Actual costs incurred
Direct materials purchased and P 44,772 (10,920 lbs. @ P4.10)
used
Direct labor P 20,500 (2,000 hr. @ P10.25)
The direct labor flexible budget variance was?

General Feedback
P500 favorable [P20,500 - (P10 x 2,100 units)
Below are Russel Corporation’s standard costs to produce one concrete table:
Direct raw 2 kgs.@ P375 per kg
materials
Direct labor 30 minutes @ 31.25 per hour
In September, Russel produced 250 concrete tables. Five hundred twenty (520) kgs of raw materials were
used at a total costs of P193,440. A total of 128 direct labor hours were used at a cost of P4,096. The direct
labor rate variance is:
General Feedback
P96.00
CMA 0692 3-15 to 17
An organization that specializes in reviewing and editing technical magazine articles. It set the following standards for
evaluating the performance of the professional staff:
Annual budgeted fixed costs for normal capacity level of P600,000

10,000 articles reviewed and edited
Standard professional hours per 10 articles 200 hours
Flexible budget of standard labor costs to process 10,000 P 10,000,000
articles
The following data apply to the 9,500 articles that were actually reviewed and edited during the current year.
Total hours used by professional staff 192,000 hours

Flexible costs P 9,120,000
Total cost 9,738,000
The labor efficiency variance for the year is?

General Feedback
P100,000 unfavorable (P50 x 2,000 hours
CMA 0696 3-22 to 25

Ardmore Enterprises uses a standard cost system in its small appliance division. The standard cost of manufacturing
one unit of Zeb is as follows:
Materials = 60 pounds at P1.50 per pound P 90
Labor = 3 hours at P12 per hour 36
Factory overhead – 3 hours at P8 per hour 24
Total standard cost per unit P150
The budgeted variable factory overhead rate is P3 per labor hour, and the budgeted fixed factory overhead is P27,000
per month. During May, Ardmore produced 1,650 units of Zeb compared with a normal capacity of 1,800 units. The
actual cost per unit was as follows:
Materials (purchased and used) 58 pounds at P1.65 per pound) P 95.70

Labor = 3.1 hours at P12 per hour 37.20
Factory overhead – P39,930 per 1,650 units 24.20
Total actual cost per unit P 157.10
1.The labor rate variance for May is?

General Feedback
P0 [3.1 actual hours x 1,650 units x (P12 per hour standard rate - P12 per hour actual rate)]
2.The fixed cost spending variance for the year is

General Feedback
P18,000 unfavorable
AICPA 1186 II-21

Tub Co. 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
Labor efficiency variance P 1,600 U
What were the actual hours worked?

General Feedback
2,200 (2,000 standard + 200 excess)
RPCPA 0593
The U. R. Good Company manufactures a product, using standard costs as follows:
1. Standard costs per unit:

Material 7 kilos at P3.50 per kilo
Labor 8 hours at P1.75 per hour
Overhead: Fixed P1.15 per hour or P9.20 per unit
Variable P0.85 per hour or P6.80 per unit
2. Overhead applied on direct labor
hours
3. Actual performance (one month)
a) Volume produced 800
b) Labor hours 6,300
c) Overhead P13,200
d) Material cost P3.45 per kilo
e) Labor cost P1.80 per hour
f) Material used 4,800 kilos
Labor rate variance is?

General Feedback
P315 unfavorable
CMA 0692 3-18 to 21

Jackson Industries, which employs a standard cost system in which direct materials inventory is carried at standard
cost. Jackson has established the following standards for the prime costs of one unit of product. During May,
Jackson purchased 125,000 pounds of direct materials at a total cost of P475,000. The total factory wages for May
were P364,000, 90% of which were 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.
Standard Standard Standard
Quantity Price Cost
Direct materials 5 pounds P3.60/pound P18.00
Direct labor 1.25 hours P12.00/hr. 15.00
P33.00
1.The direct labor usage (efficiency) variance for May is?

General Feedback
P6,000 unfavorable {P12 x [28,000 hours - (1.25 hours x 22,000 units)]}
2.The direct labor price (rate) variance for May is?

General Feedback
P8,400 favorable [28,000 hours x (P12 - P11.70)]
CIA 1189 IV-18

One of the items produced by a manufacturer of lawn and garden tools is a chain saw. The direct labor standard for
assembling and testing a chain saw is 2.5 hours at P8 per hour. Budgeted production for October was 1,200 units.
Actual production during the month was 1,000 units, and direct labor cost was P27,840 for 3,200 hours. Using a two-
variance system, what is the direct labor efficiency variance?
General Feedback
P5,600 unfavorable [(3,200 actual hours - 2,500 standard hours) x P8]
CMA 0692 3-18 to 21

Jackson Industries, which employs a standard cost system in which direct materials inventory is carried at standard
cost. Jackson has established the following standards for the prime costs of one unit of product. During May,
Jackson purchased 125,000 pounds of direct materials at a total cost of P475,000. The total factory wages for May
were P364,000, 90% of which were 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.
Standard Standard Standard

Quantity Price Cost
Direct materials 5 pounds P3.60/pound P18.00
Direct labor 1.25 hours P12.00/hr. 15.00
P33.00
The direct labor price (rate) variance for May is?

General Feedback
P8,400 favorable [28,000 hours x (P12 - P11.70)]
Which of the following is the most probable reason a company would experience an unfavorable labor rate
variance and a favorable labor efficiency variance?
General Feedback
The mix of workers assigned to the particular job was heavily weighted towards the use of highly paid
experienced individuals.
Under a standard cost system, labor price variances are usually not attributable to
General Feedback
Union contracts approved before the budgeting cycle
CIA 1191 IV-15

The total budgeted direct labor cost of a company for the month was set at P75,000 when 5,000 units
were planned to be produced. The following standard cost, stated in terms of direct labor hours (DLH),
was used to develop the budget for direct labor cost:
1.25 DLH x P12.00/DLH = P15.00/unit produced
The actual operating results for the month were as follows:
Actual units produced 5,200

Actual direct labor hours worked 6,600
Actual direct labor cost P 77,220
The direct labor efficiency variance for the month would be?
General Feedback
P1,200 unfavorable [(6,500 standard hours - 6,600 actual hours) x P12].
CMA 1294 3-26 to 30

Water Control Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs
per water pump are based on direct labor hours and are as follows:
Variable overhead (4 hours of P8/hour) P 32

Fixed overhead (4 hours at P5*/per hour 20
Total overhead cost per unit P 52
* Based on a capacity of 100,000 direct labor hours per month.
The following additional information is available for the month of November.

Ø 22,000 pumps were produced although 25,000 had been scheduled for production.
Ø 94,000 direct labor hours were worked at a total cost of P940,000.
Ø The standard direct labor rate is P9 per hour.
Ø The standard direct labor time per unit is 4 hours.
Ø Variable overhead costs were P740,000.
Ø Fixed overhead costs were P540,000.
The direct labor efficiency variance for November was

General Feedback
P54,000 unfavorable {P9 x [94,000 hours - (4 standard hours per unit x 22,000 units)]}.
CIA 0590 IV-15

A manager prepared the following table by which to analyze labor costs for the month:
Actual Hours at Actual Rate P10,000
Actual Hours at Standard Rate P 9.800
Standard Hours at Standard Rate P 8,820
What variance was P980?

General Feedback
Labor efficiency variance
RPCPA 1094
ACE Company’s 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?
General Feedback
P62,500
RPCPA 1097
DIGITAL Products produces a product, Digit, and uses standard costing methods. The standard direct labor cost of
Digit is one and one-half hours at P180 per hour. During October, 19x7, 500 Digit units were produced in 1,000 hours
at P176 per hour. The direct labor efficiency variance is a favorable (an unfavorable)
General Feedback
P(45,000)
RPCPA 0583
Edsol Company uses flexible budget in its standard cost system to develop variances. The following selected data are
given.
Data on standard costs:

Raw materials per unit 5 lbs. at P1.00/lb., P5.00
Direct labor per unit 8 hrs. at P3.00/hr., P24.00
Variable factory overhead per unit P3.00 per direct labor hour, P24.00
Fixed factory overhead per month P25,000
Normal activity per month 8,000 direct labor hours
Units produced in April 1,000 units
Costs incurred for April
Raw materials 5,000 lbs. at P1.10/lb.
Direct labor 7,000 lbs. at P3.10/hr.
The total variance to be explained for April is?

General Feedback
P4,200 unfavorable
For the month of April, Thorp Co.'s records disclosed the following data relating to direct labor:
Actual cost P 10,000

Rate variance P 1,000 favorable
Efficiency variance P 1,500 unfavorable
For the month of April, actual direct labor hours amounted to 2,000. In April, Thorp's standard
direct labor rate per hour was:
General Feedback
P5.50.
The direct labor standards for producing a unit of a product are two hours at P10 per hour. Budgeted production was
1,000 units. Actual production was 900 units, and direct labor cost was P19,000 for 2,000 direct labor hours. The
direct labor efficiency variance was:
General Feedback
x = P10 [2,000 - (900 x 2)]
x = P2,000 unfavorable
Variable factory overhead costs variances - Assessment

Ninja Company manufactures a line of products distributed nationally through wholesaler. Presented below are planned
manufacturing data for 20CY and actual data for November 20CY. The company applies overhead based on
planned machine hours using a predetermined annual rate.
20CY Planning Data
Annual November Data for November 20CY
Fixed factory P1,200,000 P100,000 Direct labor hours (actual) 4,200

overhead
Variable factory 2,400,000 220,000 Direct labor hours (plan

overhead
Direct labor 48,000 4,000 based on output) 4,000

hours
Machine hours 240,000 22,000 Machine hours (actual) 21,600
Machine hours (plan based 21,000

on output)
The total amount of factory overhead applied to production for November 2013 was
General Feedback
The amount of factory overhead applied to production.
The amount of factory overhead applied to production is the standard factory overhead. It is equal to standard hours
times standard rate per hour. The standard machine hours in November is 21,000 MH. Therefore, the standard
factory overhead is P315,000 (i.e., 21,000 MH x P15 per MH).
The following information relates to a given department of Herman Company for the fourth quarter of
20CY:
Actual total overhead (fixed plus variable) P178,500

Budget formula P110,000 plus P0.50 /hr.
Total overhead application rate P1.50/hr.
Spending variance P 8,000 unfavorable
Volume variance P 5,000 favorable
The total overhead variance is divided into three variances – spending, efficiency, and volume.
What were the actual hours worked in the department during the quarter?
General Feedback
The actual hours worked during the period.
Actual hours worked is in the computation of spending variance, where, spending variance is actual
factory overhead less budgeted overhead based on actual hours (BAAH). Since, the spending variance is
already given, the BAAH may be computed and consequently the actual hours, as follows:
Actual factory overhead P 178,500

- Unfavorable spending variance 8,000 F
Budget allowed on actual hours 170,500

- Fixed factory overhead 110,000
Variable overhead at actual hours 60,500

/ Standard variable overhead rate P 0.50 per hr.
Actual hours 121,000 hrs.
aff 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 @ P3 per DLH = P6 per unit

Fixed overhead 2 DLHs @ P4 per DLH = P8 per unit
The following information pertains to operations during March:
Units actually produced 38,000

Actual manufacturing overhead
incurred:
Variable overhead P
250,000
Fixed overhead P
384,000
For March, the variable overhead spending variance was:

General Feedback
P10,000 U
If factory overhead is applied on the basis of units of output, the variable factory overhead efficiency
variance will be
General Feedback
Zero
Water Control Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per
water pump are based on direct labor hours and are as follows:

The variable overhead efficiency variance for November was
General Feedback
P48,000 unfavorable {P8 x [94,000 actual hours - (4 standard hours per unit x 22,000 units produced)]}
ing Company estimated that it would operate its manufacturing facilities at 800,000 direct labor hours for the year and
this served as the denominator activity in the predetermined overhead rate. The total budgeted manufacturing
overhead for the year was P2,000,000, of which P1,600,000 was variable and P400,000 was fixed. The standard
variable overhead rate was P2 per direct labor hour. The standard direct labor time was 3 direct labor hours per
unit. The actual results for the year are presented below:
Actual finished units 250,000

Actual direct labor 764,000
hours
Actual variable P 1,610,000
overhead
Actual fixed P 392,000
overhead
The variable overhead efficiency variance for the year is:

General Feedback
P28,000 U
The U. R. Good Company manufactures a product, using standard costs as follows:
1. Standard costs per unit:
Material - 7 kilos at P3.50 per kilo
Labor - 8 hours at P1.75 per hour
Overhead: Fixed - P1.15 per hour or P9.20 per unit
Variable - P0.85 per hour or P6.80 per unit
2. Overhead applied on direct labor

hours
3. Actual performance (one month)
a) Volume produced - 800
b) Labor hours - 6,300
c) Overhead - P13,200
d) Material cost - P3.45 per kilo
e) Labor cost - P1.80 per hour
f) Material used - 4,800 kilos
Overhead efficiency variance is

General Feedback
200 favorable
Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied to units of product on the
basis of direct labor-hours. Each unit requires two standard hours of labor for completion. The denominator activity
for the year was based on budgeted production of 200,000 units. Total overhead was budgeted at P900,000 for the
year, and the fixed overhead rate was P3.00 per unit. The actual data pertaining to the manufacturing overhead for
the year are presented below:
Actual production 198,000 units
Actual direct labor-hours 440,000 direct labor-hours
Actual variable overhead P 352,000
Actual fixed overhead P 575,000
Franklin's variable overhead spending variance for the year is
General Feedback
P22,000 unfavorable
Variable factory overhead is applied on the basis of standard direct labor hours. If for a given period, the
direct labor efficiency variance is unfavorable, the variable factory overhead efficiency variance will be
General Feedback
Unfavorable
Under the two-variance method for analyzing factory overhead, the difference between the actual factory
overhead and the factory overhead applied to production is the
General Feedback
Net overhead variance.
iny Tweety Corporation had the following activity relating to its fixed and variable overhead for the month of July:
Actual costs
Fixed overhead P
120,000
Variable overhead 80,000
Flexible budget
(Standard input allowed for actual output achieved x the
budgeted rate)
Applied
budgeted rate)
Fixed overhead 125,000

Variable overhead spending variance 2,000 F
Production volume variance 5,000 U
The fixed factory overhead efficiency variance is
Never a meaningful variance.(cma)
Tyro Company has a standard cost system in which it applies manufacturing overhead to units of product on the basis
of direct labor hours (DLHs). The following information is available:
Actual total overhead costs P 15,000

Actual fixed overhead costs P 7,200
Budgeted fixed overhead costs P 7,000
Actual hours worked 3,500 DLHs
Standard hours allowed for the 3,800 DLHs
output
Variable overhead rate P 2.50 per
DLH
Based on these data, what is the variable overhead spending variance?

General Feedback
P950 favorable
King Company estimated that it would operate its manufacturing facilities at 800,000 direct labor hours for the year
and this served as the denominator activity in the predetermined overhead rate. The total budgeted manufacturing

hours
overhead
overhead
1. The variable overhead efficiency variance for the year is:

General Feedback
P28,000 U
2. The variable overhead spending variance for the year is:

General Feedback
P82,000 U
Water Control Inc. manufactures water pumps and uses a standard cost system. The standard factory overhead costs per
water pump are based on direct labor hours and are as follows:
The variable overhead spending variance for November was
General Feedback
P12,000 favorable
Ninja Company manufactures a line of products distributed nationally through wholesaler. Presented below are planned
manufacturing data for 20CY and actual data for November 20CY. The company applies overhead based on
20CY Planning Data
Annual November Data for November 20CY
Fixed factory P1,200,000 P100,000 Direct labor hours (actual) 4,200

overhead
Variable factory 2,400,000 220,000 Direct labor hours (plan

overhead
Direct labor 48,000 4,000 based on output) 4,000

hours
Machine hours 240,000 22,000 Machine hours (actual) 21,600
Machine hours (plan based 21,000

on output)
The predetermined factory overhead application rate for Ninja Company for 20CY is
General Feedback
The predetermined factory overhead application rate.
The company applies overhead on planned machine hours. The standard overhead rates are:
Fixed overhead (P1,200,000/240,000 P 5.00 / MH
MH)
Variable overhead (P2,400,000/240,000 MH) 10.00 / MH
Total overhead rate P 15.00 / MH
A spending variance for variable factory O/H based on direct labor hours is the difference between actual variable
factory O/H and the variable factory O/H that should have been incurred for the actual hours worked. This variance
results from
General Feedback
Price and quantity differences for factory O/H costs
The following information is available from the Faith Company:

Actual factory overhead P15,000
Fixed overhead expenses, actual P7,200
Fixed overhead expenses, budgeted P7,000
Actual hours 3,500
Standard hours 3,800
Variable overhead rate per DLH P2.50
Assuming that Faith uses a three-way analysis of overhead variances, what is the spending variance?
General Feedback
P750 favorable.
Compute the variable efficiency variance, using the following data:
Standard labor hours per good unit produced 2
Good units produced 1,000
Actual labor hours used 2,100
Standard variable overhead per standard labor hour P 3
General Feedback
Answer
Variable budget allowance for actual hours (2,100 x P3) P 6,300
Variable budget allowance for standard hours (P3 x 1,000 x 2) 6,000
P 300 unfavorable
The variable factory overhead rate under the normal volume, practical capacity, and expected activity levels would be
the
General Feedback
Same for all three activity levels
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
General Feedback
P2.63
King Company estimated that it would operate its manufacturing facilities at 800,000 direct labor hours for the year
and this served as the denominator activity in the predetermined overhead rate. The total budgeted manufacturing

hours
overhead
overhead
The variable overhead efficiency variance for the year is:

General Feedback
P28,000 U
King Company estimated that it would operate its manufacturing facilities at 800,000 direct labor hours
for the year and this served as the denominator activity in the predetermined overhead rate. The total
budgeted manufacturing overhead for the year was P2,000,000, of which P1,600,000 was variable and
P400,000 was fixed. The standard variable overhead rate was P2 per direct labor hour. The standard direct
labor time was 3 direct labor hours per unit. The actual results for the year are presented below:

Actual variable overhead P 1,610,000
The variable overhead spending variance for the year is:

General Feedback
P82,000 U
Differences in product costs resulting from the application of actual overhead rates rather than
predetermined overhead rates could be immaterial if
General Feedback
Overhead is composed only of variable costs
Nanjones Company manufactures a line of products distributed nationally through wholesalers. Presented below are
planned manufacturing data for 1992 and actual data for November 1992. The company applies overhead based on

1992 Planning Data
Annual November
Fixed manufacturing overhead P1,200,000 P100,000
Variable manufacturing overhead 2,400,000 220,000
Direct labor hours 48,000 4,000
Machine hours 240,000 22,000
November 1992 Data
Actual Planned*
Fixed manufacturing overhead P101,200
Variable manufacturing overhead P214,000
* plan based on output
The variable overhead spending variance for November 1992 was
General Feedback
P2,000 favorable
Dori Casting is a job-order shop that uses a full-absorption, standard cost system to account for its production costs.
The overhead costs are applied on a direct-labor-hour basis.
Dori’s choice of production volume as a denominator for calculating its factory overhead rate has
General Feedback
No effect on the fixed factory overhead budget variance
Tiny Tweety Corporation had the following activity relating to its fixed and variable overhead for the month of July:
Actual costs
Fixed overhead P
120,000
Flexible budget
budgeted rate)
Applied
budgeted rate)
Variable overhead spending variance 2,000 F

Production volume variance 5,000 U
If the budgeted rate for applying variable factory overhead was P20 per direct labor hour, how efficient or inefficient was Tiny Tweety
Corporation in terms of using direct labor hours as an activity base?
General Feedback
The direct labor efficiency variance.
Efficiency variance is the difference between actual hours and standard hours. Variable overhead efficiency
variance and variable overhead spending variance comprise the total of variable overhead variance. Since the
actual variable overhead and flexible overhead are given, the total variable overhead variance may be determined.
From this variance, we deduct the variable overhead spending variance to get the variable efficiency variance, as
follows:
Actual variable factory overhead P 80,000
- Budgeted variable overhead on standard capacity 90,000
Total variable overhead variance (10,000) F
- Variable overhead spending variance ( 2,000) F
Variable efficiency variance – in pesos ( 8,000) F
/ Standard variable overhead rate P 20 per hour
Efficiency variance - in hours P (400) F
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:


incurred:
Variable overhead P
250,000
Fixed overhead P
384,000
For March, the variable overhead spending variance was:

General Feedback
P10,000 U
A spending variance for variable factory overhead based on direct labor hours is the difference between
actual variable factory overhead and the variable factory overhead that should have been incurred for the
actual hours worked. This variance results from
General Feedback
Price differences for factory overhead costs
The following information pertains to Roe Co.’s 2000 manufacturing operations:

Standard direct manufacturing labor hours per unit 2
Actual direct manufacturing labor hours 10,500
Number of units produced 5,000
Standard variable overhead per standard direct labor hour P3
Roe’s 2000 unfavorable variable overhead efficiency variance was
General Feedback
(B) is correct. The solutions approach to compute the variable overhead efficiency variance is to
set up a diagram as follows:
AH x SR (10,500 x P3) P 31,500

SH x SR [(2 x 5,000) x P] P 30,000
Variable overhead efficiency variance (unfavorable) P 1,500
Fixed factory overhead costs variances - Assessment
King Company estimated that it would operate its manufacturing facilities at 800,000 direct
labor hours for the year and this served as the denominator activity in the predetermined
overhead rate. The total budgeted manufacturing overhead for the year was P2,000,000, of which
P1,600,000 was variable and P400,000 was fixed. The standard variable overhead rate was P2
per direct labor hour. The standard direct labor time was 3 direct labor hours per unit. The actual
results for the year are presented below:

Actual variable overhead P 1,610,000
The fixed overhead volume variance for the year is:

General Feedback
P25,000 U
The summarized flexible budget of AAA, Inc. is shown below:
Percent of Normal Operating Capacity

80% 90% *100% 110%
Variable overhead P 25,000 P 30,000 P 35,000 P 40,000
Fixed overhead 50,000 50,000 50,000 50,000
Total Factory overhead P 75,000 P 80,000 P 85,000 P 90,000
* Normal capacity
According to standards established, 150,000 units of the product should be manufactured at its normal
capacity. Standard labor time per unit of products is ten minutes. Actual production in 1986 was
132,000 units in 24,000 hours.
What is the standard variable factory overhead rate?

General Feedback
P1.40
The Dillon Company makes and sells a single product and uses a flexible budget for overhead to plan
and control overhead costs. Overhead costs are applied on the basis of direct labor-hours. The standard
cost card shows that 5 direct labor-hours are required per unit. The Dillon Company had the following
budgeted and actual data for March:
Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000
The fixed overhead volume variance for March is:

General Feedback
P7,750 F.
Factory overhead for the Cabanatuan Co. has been estimated as follows:
Fixed overhead P
30,000
Estimated direct labor hours 40,000
Production for the month reached 75% of the budget, and actual factory overhead totaled
P86,000. The favorable (unfavorable) idle capacity variance was
General Feedback
(P7,500)
Coach Corporation is considering which capacity measure is appropriate to use as the

denominator level of activity when applying fixed factory overhead to units produced. Assume
that Coach selects direct labor hours as the cost driver and the following additional data are
available from the prior year:
Hours
Standard direct labor hours for normal capacity 200,000

Standard direct labor hours allowed for units produced in 210,000
the prior year
Standard direct labor hours for the master budget capacity 220,000
Which of the following capacity measures for the denominator-level of activity would have resulted in an
unfavorable volume variance?
General Feedback
Master budget capacity only
The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed
for good output equal this predetermined activity level for a given period, the volume variance will be
General Feedback
The amount of volume variance. Zero
Dori Casting is a job-order shop that uses a full-absorption, standard cost system to account for
its production costs. The overhead costs are applied on a direct-labor-hour basis.
A production volume variance will exist for Dori in a month when?
General Feedback
The fixed overhead applied on the basis of standard allowed direct labor hours differs from the budgeted fixed
factory overhead
The Dillon Company makes and sells a single product and uses a flexible budget for overhead to
plan and control overhead costs. Overhead costs are applied on the basis of direct labor-hours. The
standard cost card shows that 5 direct labor-hours are required per unit. The Dillon Company had
the following budgeted and actual data for March:
Actual Budgeted
Units produced 33,900 30,800
Direct labor-hours 161,800 154,000
Variable overhead costs $140,500 $123,200
Fixed overhead costs $80,000 $77,000
The fixed overhead volume variance for March is:

General Feedback
$7,750 F.
Based on a month’s normal volume of 50,000 units (100,000 direct labor hours), Raff’s standard
cost system contains the following overhead costs:
Variable P 6 per unit

Fixed 8 per unit
The following information pertains to the month of March 20CY:

Actual overhead incurred:
Variable P
250,000
Fixed 384,000
For March 20CY, the fixed overhead volume variance was

General Feedback
The fixed overhead volume variance.
Volume variance is the difference between normal capacity and standard capacity. Capacity is better
expressed in terms of hours inasmuch as standard overhead rates are also expressed in terms of hours.
The standard hours for 38,000 units are 76,000 hours (i.e, 38,000 units x 2 hrs. per unit). The volume
variance is determined as follows:
Normal capacity 100,000 hrs.

- Standard capacity 76,000
Volume variance in hours 24,000 UF

x Fixed overhead rate per hour (P8 per unit / 2 hrs. per unit) P 4.00 per hr.
Volume variance P 96,000 UF
Alternatively, the volume variance may be calculated by getting the difference between budget allowed
on standard hours and standard factory overhead, as follows:
Budget allowed on standard hours:

Fixed (50,000 units x P8 per unit) P 400,000
Variable (76,000 hrs. x P3 per hr.) 228,000 P 628,000
- Standard factory overhead (76,000 hrs. x P7 per hr.) 532,000

Volume variance P 96,000 UF
The total standard overhead rate is P7.00 per hour (P4.00 per hour for fixed overhead and P3.00 per hour
for variable overhead).
The fixed factory O/H application rate is a function of a predetermined activity level. If standard hours
allowed for good output equal this predetermined activity level for a given period, the volume variance will
be
General Feedback
Zero
Water Control Inc. manufactures water pumps and uses a standard cost system. The standard
factory overhead costs per water pump are based on direct labor hours and are as follows:

Fixed overhead (4 hours at P5*/per 20
hour

The fixed overhead spending variance for November was

General Feedback
P40,000 unfavorable
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?
General Feedback
P36,000 unfavorable
The following data were gathered from the Paliwas Company’s overhead costs for the January,
1983 production activity:
Actual total overhead incurred P 112,500

Budgeted fixed overhead P 40,500
Standard direct-labor hours allowed for actual 15,000
production
Standard fixed overhead rate per direct-labor hour P2.25
Standard variable overhead rate per direct-labor P3.25
hour
Paliwas Company has been maintaining a standard absorption and flexible budgeting system. It
also uses the two-variance method (two-way) for overhead variances. What is Paliwas volume
(denominator) variance for January, 1983?
General Feedback
P6,750 unfavorable
An unfavorable volume variance means that

General Feedback
Actual output was less than the level used to set the standard fixed cost
The production volume variance occurs when using the

General Feedback
Absorption costing approach because production differs from that used in setting the fixed overhead rate used in
applying fixed overhead to production
You used predetermined overhead rates and the resulting variances when compared with the results using the actual
rates were substantial. Production data indicated that volumes were lower than the plan by a large difference. This
situation can be due to
General Feedback
Overhead being substantially composed of fixed costs
The summarized flexible budget of AAA, Inc. is shown below:

80% 90% *100% 110%
Fixed overhead 50,000 50,000 50,000 50,000
Total Factory overhead P 75,000 P 80,000 P 85,000 P 90,000
* Normal capacity
According to standards established, 150,000 units of the product should be manufactured at its normal
capacity. Standard labor time per unit of products is ten minutes. Actual production in 1986 was
132,000 units in 24,000 hours.
1. What is the standard direct labor time allowed to finish 132,000 units?
General Feedback
22,000 hours
2. What is the standard fixed factory overhead rate?

General Feedback
P2.00
The variance in an absorption costing system that measures the departure from the denominator level of activity that
was used to set the fixed overhead rate is the
General Feedback
Production volume variance
Coach Corporation is considering which capacity measure is appropriate to use as the

denominator level of activity when applying fixed factory overhead to units produced. Assume
that Coach selects direct labor hours as the cost driver and the following additional data are
available from the prior year:
Hours
Standard direct labor hours for normal capacity 200,000

Standard direct labor hours allowed for units produced in 210,000
the prior year
Standard direct labor hours for the master budget capacity 220,000
Which of the following capacity measures for the denominator-level of activity would have resulted in an
unfavorable volume variance?
General Feedback
Master budget capacity only
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:


incurred:
Variable overhead P 250,000
Fixed overhead P 384,000
For March, the fixed overhead volume variance was:

General Feedback
P96,000 U
The production volume variance is due to

General Feedback
Difference from the planned level of the base used for overhead allocation and the actual level achieved
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 P 42,000 P 48,000 P 54,000
Fixed overhead 108,000 108,000 108,000

Total overhead P 150,000 P 156,000 P 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:
General Feedback
P12,000 unfavorable
Based on a month’s normal volume of 50,000 units (100,000 direct labor hours), Raff’s standard cost
system contains the following overhead costs:
Variable P6 per unit
Fixed 8 per unit
The following information pertains to the month of March 2013:

Actual overhead incurred:
Variable P250,000
Fixed 384,000
For March 2013, the fixed overhead volume variance was

General Feedback
P96,000 unfavorable.
Tiny Tykes Corporation had the following activity relating to its fixed and variable factory
overhead for the month of July.
Actual costs
Fixed overhead P120,000

Flexible budget
(Standard input allowed for actual output

achieved x the budgeted rate)
Applied
(Standard input allowed for actual output
achieved x the budgeted rate)
Variable overhead spending variance 2,000F
Production volume variance 5,000U
If the budgeted rate for applying variable factory overhead was P20 per direct labor hour, how
efficient or inefficient was Tiny Tykes Corporation in terms of using direct labor hours as an
activity base?
General Feedback
400 direct labor hours efficient (P8,000 ÷ P20).
QUEEN Processing Co. has set its normal capacity at 24,000 hours for the current year. Fixed overhead was
budgeted for P18,000 and variable overhead was budgeted for P72,000. If actual hours worked for the
current year were 22,000, the idle capacity variance would be
General Feedback
P1,500
Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied to
units of product on the basis of direct labor-hours. Each unit requires two standard hours of labor
for completion. The denominator activity for the year was based on budgeted production of
200,000 units. Total overhead was budgeted at P900,000 for the year, and the fixed overhead
rate was P3.00 per unit. The actual data pertaining to the manufacturing overhead for the year
are presented below:
Actual production 198,000 Units

Actual direct labor-hours 440,000 direct labor-
hours
Actual variable overhead P352,000
Actual fixed overhead P575,000
Franklin's fixed overhead volume variance for the year is

General Feedback
P6,000 unfavorable (2,000 units x P3)
Combined factory overhead costs variances - Assessment
CMA 0696 3-22 to 25

Ardmore Enterprises uses a standard cost system in its small appliance division. The standard cost of manufacturing
one unit of Zeb is as follows:
Materials = 60 pounds at P1.50 per pound P 90

Labor = 3 hours at P12 per hour 36
Factory overhead – 3 hours at P8 per hour 24
Total standard cost per unit P 150
The budgeted variable factory overhead rate is P3 per labor hour, and the budgeted fixed factory overhead is P27,000
per month. During May, Ardmore produced 1,650 units of Zeb compared with a normal capacity of 1,800 units. The
actual cost per unit was as follows:
Materials (purchased and used) 58 pounds at P1.65 per pound) P 95.70

Labor = 3.1 hours at P12 per hour 37.20
Factory overhead – P39,930 per 1,650 units 24.20
Total actual cost per unit P157.10
The flexible overhead variance for May is?
General Feedback
P1,920 favorable (P41,850 flexible budget amount - P39,930 actual amount).
Under the two-variance method for analyzing factory overhead, the budget allowance based on standard hours allowed
is used in the computation of the?
Controllable Volume
(budget) variance variance
General Feedback
Yes Yes
Foundation Company uses a standard cost system. For the month of April 20CY, total overhead is budgeted at
P80,000 based on the normal capacity of 20,000 direct labor hours. At standard each unit of finished product
requires 2 direct labor hours. The following data are available for the April 20CY production activity:
Equivalent units of production 9,500
Direct labor hours worked 19,500
Actual total overhead incurred P 79,500
What is the amount of applied factory overhead in April 20CY?

General Feedback
& Applied factory overhead (or standard factory overhead) is standard hours multiplied by standard overhead rate
(Standard FOH = SH x SR). The standard hour is 2 DLH per unit. The total standard hours shall be 19,000 (i.e.,
9,500 units x 2 DLH per hr.). Take note that we use the equivalent production in the determination of the total
standard hours.
The standard overhead rate is P4.00 per hour (i.e, P80,000/20,000 DLH). Therefore, the standard factory overhead
shall be P76,000 (i.e., 19,000 hrs. x P4 per DLH).
Under the three-variance method for analyzing factory overhead, which of the following is used
in the computation of the spending variance?
Budgeted
Actual Factory Allowance Based
Overhead on Actual Input
Yes Yes
Standard costing will produce the same income before extraordinary items as actual when standard cost variances are
assigned to?
Cost of goods sold and inventories
Sam Company adopted a standard cost system several years ago. The standard costs for the prime costs of its single
product are as follows:
Material (8 kilograms x P5.00/kg.) P 40.00
Labor (6 hours x P8.20/hr.) P 49.20
The operating data in the following column were taken from the records for November:
In-process beginning inventory none

In-process ending inventory (75% complete as to labor;
material is issued at the beginning of processing) 800 units
Units completed 5,600 units
Budgeted output 6,000 units
Purchases of materials 50,000 kilograms
Total actual labor costs P300,760
Actual hours of labor 36,500 hours
Material usage variance P1,500 unfavorable
Total material variance P750

unfavorable
The total amount of material and labor cost in the ending balance of work in process inventory at the end of November
is:
General Feedback
(800 x P40) + (800 x .75 x P49.20) = P61,520
The difference between actual overhead incurred and budgeted overhead at actual hours worked represents
what standard cost variance?
General Feedback
Spending variance
The Willard Manufacturing Co., Inc. uses standard cost systems in accounting for manufacturing costs. On June 1,
19x9, it started the manufacture of a new product known as “Whippy.” The standard costs of a unit of “Whippy”
are:
Raw materials 3 kilos @ P1.00 per kilo P 3.00
Direct labor 1 hour @ P4.00 per hour 4.00
Overhead 75% of direct labor cost 3.00
P 10.00
The following data were obtained from Willard’s records for the month of June:
Actual production of “Whippy” 2,000 units
Units sold of “Whippy” 1,250 units
Debit Credit
Sales P 25,000
Purchases P 13,650
Materials price variance 650
Materials quantity variance 500
Direct labor rate variance 380
Direct labor efficiency variance 400

Manufacturing overhead total variance 250
The amount shown above for the materials price variance is applicable to raw materials purchased during June.
The actual total overhead for the month of June is

General Feedback
P6,250


The actual factory overhead for April was?

General Feedback
P15,500
AICPA 1181 I-24

Union Company uses a standard cost accounting system. The following factory O/H and
production data are available for August?
Standard fixed O/H rate per DLH P 1

Standard variable O/H rate per DLH P 4
Budgeted monthly DLH 40,000
Actual DLH worked 39,500
Standard DLH allowed for actual 39,000
production
Overall O/H variance – favorable P2,000
The applied factory O/H for August should be?

General Feedback
P195,000
The applied factory O/H equals the standard direct hours allowed for actual production multiplied by the
total standard O/H rate per hour.
39,000(P4 VOH + P1 FOH) = P195,000

Dori Castings is a job-order shop that uses a full-absorption, standard cost system to account for its production costs.
The O/H costs are applied on a direct-labor-hour basis.
Dori’s choice of production volume as a denominator for calculating its factory O/H rate has
General Feedback
No effect on the fixed factory O/H budget variance.
TYD, Inc. reported the following data for 20CY:

Actual hours 120,000
Denominator hours 150,000
Standard hours allowed for output 140,000
Fixed predetermined overhead rate P 6 per hour
Variable predetermined overhead rate P 4 per hour
TYD’s 20CY volume variance was?

General Feedback
P60,000 under-applied
When using the two-variance method for analyzing factory overhead, the difference between the budget allowance
based on standard hours allowed and the factory overhead applied to production is the?
Volume variance
Ninja Company manufactures a line of products distributed nationally through wholesaler. Presented below are
planned manufacturing data for 20CY and actual data for November 20CY. The company applies overhead based
on planned machine hours using a predetermined annual rate.
1992 Planning Data

Annual November
November 1992 Data

Actual Planned*
plan based on output
The variable factory overhead spending variance for November 20CY was?
General Feedback
& Variable overhead spending variance is actual overhead less budgeted variable overhead based on actual hours, as
follows:
- Budgeted variable overhead (21,600 MH x P10 per MH) 216,000

on actual hours
Variable overhead spending variance P (2,000) F
R. Richard Company employs a standard absorption system for product costing. The standard cost of its product is as
follows:
Direct materials P 14.50

Direct labor (2 direct labor hours x P8) 16.00
Manufacturing overhead (2 direct labor hours x P11) 22.00
Total standard cost P 52.50
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Richard
planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is:
Variable P 3,600,000
Fixed 3,000,000
P 6,600,000
During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in November at a cost
of P433,350. Actual manufacturing overhead for the month was P250,000 fixed and P325,000 variable.
The manufacturing overhead controllable variance for November is?

General Feedback
Budget allowance:
Variable factory overhead (52,000 x P6) P312,000
Budgeted fixed overhead 250,000 562,000
Controllable variance P 13,000 unfavorable
Universal Company uses a standard cost system and prepared the following budgeted amounts at normal capacity for
the month of January 20CY:
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 20CY were as follows:

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 budget (controllable) variance for January 20CY?
General Feedback
& Controllable variance is the difference between actual factory overhead and budget allowed on standard
allowance. The standard fixed overhead rate per hour is P4.50 (i.e., P108,000/24,000 hrs.). And the standard
variable overhead rate per hour shall be P2.00 (i.e., P6.50 – P4.50). The determination and segregation of
overhead rates are important in overhead variance analysis. The controllable variance is determined as follows:
- Budget allowed on standard hours
Variable overhead (21,000 hrs. x P2.00) 42,000 150,000
Controllable overhead variance P ( 3,000) F
A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per
unit of P4.00 and a fixed cost per unit of P2.00. The firm fell short of its goal and only manufactured 80,000 units at a
total incurred cost of P515,000. The firm’s manufacturing cost variance was?
General Feedback
P5,000 favorable
The efficiency variance for either labor or materials can be divided into a
General Feedback
Yield variance and a mix variance.
Standard costs and budgetary control methods must be closely related. This relationship is particularly applicable for
factory overhead. A flexible budget allows better control over factory overhead than a fixed budget. The flexible
budget for Sta. Maria Corporation is presented below:
80% 90% 100%* 110%
Fixed overhead 45,000 45,000 45,000 45,000
Total factory overhead P117,000 P126,000 P135,000 P144,000
* Normal capacity
In accordance with standards established, 90,000 units of product should be manufactured when the company operates
its normal capacity. The standard labor time per unit of product is 20 minutes. Actual production in 20CY was
75,000 units of product in 24,000 hours.
What is the factory overhead applied to production (based on standard hours?

General Feedback
P112,500
Ninja Company manufactures a line of products distributed nationally through wholesaler. Presented below are
planned manufacturing data for 20CY and actual data for November 20CY. The company applies overhead based
on planned machine hours using a predetermined annual rate.
1992 Planning Data

Annual November
November 1992 Data

Actual Planned*
plan based on output
The total amount of factory overhead applied to production for November 20CY was?
General Feedback
& The amount of factory overhead applied to production is the standard factory overhead. It is equal to standard
hours times standard rate per hour. The standard machine hours in November is 21,000 MH. Therefore, the
standard factory overhead is P315,000 (i.e., 21,000 MH x P15 per MH).


The actual total factory overhead for the month of January is?
General Feedback
P65,000
Overapplied factory overhead results when?

General Feedback
Factory overhead costs incurred are less than the costs charged to production
The following information relates to a given department of Herman Company for the fourth quarter of 20CY:
Actual total overhead (fixed plus variable) P 178,500
Budget formula P 110,000 plus P0.50 /hr.
Total overhead application rate P 1.50/hr.
What were the standard hours allowed for good output in this department during the quarter?
General Feedback
& Standard hours are used in the computation of volume variance, which is the difference between budgeted allowed
on standard hours (BASH) and standard factory overhead. Since the volume variance is given at P5,000 favorable,
the standard hours may be determined, as follows:
If x = standard hours
then: BASH = P110,000 + (0.50x)
Standard OH = 1.50x
where: BASH – Standard OH = (P5,000) F
therefore: (P110,000 + 0.50x) – 1.50x = (5,000)
110,000 – 1.00x = (5,000)
110,000 + P5,000 = 1.00x
X = 115,000 hrs.
The following information relates to a given department of Herman Company for the fourth quarter of 20CY:
Actual total overhead (fixed plus variable) P 178,500
Budget formula P 110,000 plus P0.50 /hr.
Total overhead application rate P 1.50/hr.
What were the actual hours worked in the department during the quarter?
General Feedback
& Actual hours worked is in the computation of spending variance, where, spending variance is actual factory
overhead less budgeted overhead based on actual hours (BAAH). Since, the spending variance is already given,
the BAAH may be computed and consequently the actual hours, as follows:
- Unfavorable spending variance 8,000 F
Budget allowed on actual hours 170,500

- Fixed factory overhead 110,000
Variable overhead at actual 60,500

hours
/ Standard variable overhead P 0.50 per
rate hr.
Actual hours 121,000 hrs.
A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per
unit of P4.00 and a fixed cost per unit of P2.00. The firm fell short of its goal and only manufactured 80,000 units at a
total incurred cost of P515,000. The firm’s manufacturing cost variance was?
General Feedback
P5,000 favorable
In analyzing factory overhead under the two-variance method, the controllable (budget) variance is the difference
between the?
General Feedback
Budget allowance based on standard hours allowed and the factory overhead applied to production
Mars Company ends the month with a volume variance of P6,360 unfavorable. If budgeted fixed overhead was
P480,000, overhead was applied on the basis of 32,000 budgeted machine hours, and budgeted variable factory
overhead was P170,000, what was the actual hours (AH) for the month?
General Feedback
& The overhead rate is P15 (i.e., P480,000/32,000 hrs.). Note that overhead is applied on actual hours. The applied
overhead is determined using the volume variance, as follows:
Budgeted overhead P 480,000
- Volume variance – unfavorable 6,360 UF
Applied overhead on actual 473,640
/ Standard overhead rate P 15

Actual hours 31,576
How should a usage variance that is significant in amount be treated at the end of an accounting period?
Allocated among work-in-process inventory, finished goods inventory, and cost of goods sold
Josey Manufacturing Corporation uses a standard cost system that records direct materials at actual cost, records
materials price variances at the time that direct materials are issued to work in process, and prorates all variances
at year end. Variances associated with direct materials are prorated based on the direct materials balances in the
appropriate accounts, and variances associated with direct labor and factory overhead are prorated based on the
direct labor balances in the appropriate accounts.
The following information is available for Josey for the year ended December 31:
Finished goods inventory at December 31:
Direct materials P 87,000
Direct labor 130,500
Applied factory overhead 104,400
Direct materials inventory at December 31 65,000
Cost of goods sold for the year ended December 31:
Direct materials 348,000
Applied factory overhead 591,600
Direct materials price variance (unfavorable) 12,500
Direct materials usage variance (favorable) 15,000
Direct labor rate variance (unfavorable) 20,000
Direct labor efficiency variance (favorable) 5,000
Factory overhead incurred 690,000
There were no beginning inventories and no ending work in process inventory. Factory overhead is applied at
80% of standard direct labor cost.
The total amount of direct labor in finished goods inventory at December 31, after all variances have been prorated,
is:
General Feedback
P132,750
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.
The applied factory overhead in January was?

General Feedback
P186,200
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 12½% 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 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
The total production cost for one month at 80% capacity is?
General Feedback
P27,280
Peters Company uses a flexible budget system and prepared the following information for the year:
Percent of capacity 80% 90%

Variable factory overhead P 48,000 P 54,000
Fixed factory overhead P 108,000 P 108.000
Total factory overhead rate per P 6.50 P 6.00
DLH
Peters operated at 80% of capacity during the year but applied f actory overhead based on the 90%
capacity level. Assuming that actual factory overhead was equal to the budgeted amount for the
attained capacity, what is the amount of overhead variance for the year?
General Feedback
& The overhead variance is the difference between actual factory overhead and standard overhead. The actual
factory overhead is equal to budgeted overhead at 80% capacity amounting to P156,000 (i.e., P48,000 +
P108,000). The standard hours at actual capacity is 24,000 hours. And the standard overhead rate is P6.00, based
on a predetermined capacity of 90%. The net overhead variance is:
- Standard factory overhead (24,000 hrs. x P6) 144,000
Net overhead variance - underabsorbed P 12,000 UF
RPCPA 0577
In the analysis of standard cost variances, the item which receives the most diverse treatment in accounting is?
General Feedback
Factory overhead cost
RPCPA 0594
WORD PROCESSORS, Inc. provides computer processing services, and relevant data set up by the firm’s
management are shown below:
No. of pages per hour 20

No. of hours per month 500
Variable costs per hour P30
Fixed costs per month P 10,000
For the month of May, 19x4, 12,000 pages are generated in 450 hours. The actual variable costs totaled P13,200,
while the actual fixed costs equaled the estimated amount. The total standard cost for May was?
General Feedback
P30,000
A company recorded the following journal entry:
Work in Process 10,310
Factory Overhead Variable Efficiency Variance 950
Factory Overhead Fixed Efficiency Variance 425
Factory Overhead Control 11,685
This entry indicates that the:

General Feedback
four-variance method is in use and the variance is unfavorable
In analyzing factory overhead variances, an idle capacity variance is the difference between the:
General Feedback
budget allowance for actual units produced for the period and the amount of applied factory overhead
RPCPA 0578
When expenses estimated for the capacity attained differ from the actual expenses incurred, the resulting balance is
termed the?
General Feedback
Budget variance
What standard cost variance represents the difference between actual factory overhead incurred and budgeted factory
overhead based on actual hours worked?
General Feedback
Spending variance
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?
General Feedback
P9,00 favorable
Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied to units of product on
the basis of direct labor-hours. unit requires two standard hours of labor for completion. The denominator
activity for the year was based on budgeted production of 200,000 units. Total overhead was budgeted at P900,000
for the year, and the fixed overhead rate was P3.00 per unit. The actual data pertaining to the manufacturing
overhead for the year are presented below:

The fixed overhead applied to Franklin's production for the year is?
General Feedback
P594,000
Selo Imports uses flexible budgeting for the control of costs. The company’s annual master budget includes P324,000
for fixed production supervisory salaries at a volume of 180,000 units. Supervisory salaries are expected to be
incurred uniformly through the year. During September, 15,750 units were purchased and production supervisory
salaries incurred were P28,000. A performance report for September should reflect a budget variance of?
eneral Feedback P1,000 U.
& Budget variance is the difference between actual factory overhead and budget allowed on actual hours. Or, budget
variance is actual overhead less flexible budget. Of importance is the information that supervisory salaries are
expected to be incurred uniformly through the year. The budget variance is determined, as follows:
Actual salaries incurred P 28,000
- Budgeted salaries based on actual output 27,000

(P324,000/12 mos.)
Budget variance P ( 1,000) F
R. Richard Company employs a standard absorption system for product costing. The standard cost of its product is as
follows:
Direct materials P 14.50

Direct labor (2 direct labor hours x P8) 16.00
Manufacturing overhead (2 direct labor hours x P11) 22.00
Total standard cost P 52.50
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Richard
planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is:
Variable P 3,600,000
Fixed 3,000,000
P 6,600,000
During November, Richard produced 26,000 units. Richard used 53,500 direct labor hours in November at a cost
of P433,350. Actual manufacturing overhead for the month was P250,000 fixed and P325,000 variable.
The manufacturing overhead controllable variance for November is?

General Feedback
Budget allowance:
Variable factory overhead (52,000 x P6) P312,000
Budgeted fixed overhead 250,000 562,000
Controllable variance P 13,000 unfavorable
CMA 1290 3-5

Franklin Glass Works uses a standard cost system in which manufacturing overhead is applied to units of product on
the basis of direct labor-hours. Each unit requires two standard hours of labor for completion. The denominator
activity for the year was based on budgeted production of 200,000 units. Total overhead was budgeted at P900,000
for the year, and the fixed overhead rate was P3.00 per unit. The actual data pertaining to the manufacturing
overhead for the year are presented below:

Actual variable overhead P352,000
Actual fixed overhead P575,000
The standard hours allowed for actual production for the year ended November 30 total
General Feedback
396,000
AICPA, Adapted
Overhead cost is applied to units based on direct labor hours. For April, total overhead cost was budgeted at P80,000
based on a denominator activity level of 20,000 direct labor hours for the month. The standard cost card indicates
that each unit of finished product requires 2 direct labor-hours. The following data are available for April's
activity:

Actual total overhead cost incurred P
79,500
What amount of total overhead cost would have been applied to production for the month of April?
General Feedback
P76,000
Which one of the following variances is of least significance from behavioral control perspective?
Fixed factory overhead volume variance resulting from management decision midway through the fiscal year to reduce
its budgeted output by 20%
Under the two-variance method for analyzing factory overhead, which of the following is used in the computation of
the controllable (budget) variance?
General Feedback
No Yes
What is the normal year-end treatment of immaterial variances recognized in a cost accounting system using standard
costs?
General Feedback
Closed to cost of goods sold in the period in which they arose
Standard costs and budgetary control methods must be closely related. This relationship is particularly applicable for
factory overhead. A flexible budget allows better control over factory overhead than a fixed budget. The flexible
budget for Sta. Maria Corporation is presented below:

80% 90% 100%* 110%
Fixed overhead 45,000 45,000 45,000 45,000
Total factory overhead P117,000 P126,000 P135,000 P144,000
* Normal capacity
In accordance with standards established, 90,000 units of product should be manufactured when the company operates
its normal capacity. The standard labor time per unit of product is 20 minutes. Actual production in 20CY was
75,000 units of product in 24,000 hours.
What is the standard variable factory overhead rate per hour?

General Feedback
P3.00
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 12½% 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 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
The total production cost for one month at 80% capacity is?
General Feedback
P27,280
AICPA, Adapted
Overhead cost is applied to units based on direct labor hours. For April, total overhead cost was budgeted at P80,000
based on a denominator activity level of 20,000 direct labor hours for the month. The standard cost card indicates
that each unit of finished product requires 2 direct labor-hours. The following data are available for April's
activity:

Actual total overhead cost incurred P
79,500
What amount of total overhead cost would have been applied to production for the month of April?
General Feedback
P76,000
A defense contractor for a government space project has incurred P2,500,000 in actual design costs to date
for a guidance system whose total budgeted design cost is P3,000,000. 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?
General Feedback
P700,000 overrun
RPCPA 1079
Information on Bustos Manufacturing Company’s overhead costs is as follows:
Budgeted overhead based on standard direct-labor hours allowed P 90,000

Budgeted overhead based on actual direct-labor hours allowed P 89,000
Standard applied overhead P 86,000
Actual overhead P 92,000
What is the total overhead variance?

General Feedback
P9,000 favorable
Which of the following is not an acceptable treatment of factory overhead variances at an interim reporting date?
General Feedback
Apportion the total only among work-in-process and finished goods inventories on hand at the end of the
interim reporting period.
RPCPA 1081
Standard costs and budgetary control methods should be closely related. This relationship is especially important for
factory overhead. Better control over factory overhead can be achieved if a flexible budget, rather than a fixed
budget is used. The flexible budget for Kupang Corporation is summarized below:
80% 90% 100%* 110%
Fixed overhead 50,000 50,000 50,000 50,000
Total factory overhead P 71,000 P 73,000 P 75,000 P 77,000
* normal capacity
In accordance with the standards established, 100,000 units of product should be manufactured when the company
operates at its normal capacity. The standard labor time per unit of product is 15 minutes. Actual production in
1980 was 90,000 units of product in 44,000 hours.
What is the budgeted factory overhead adjusted to standard hours?

P90,500
General Feedback
P72,500
Under the two-variance method for analyzing factory overhead, which of the following is used in the computation of
the controllable (budget) variance?
Budget Budget allowance
allowance based based on standard
on actual hours hours
General Feedback
No Yes
At the end of its fiscal year. Graham Company had several substantial variances from standard variable manufacturing
costs. The one that should be allocated between inventories and cost of sales is the one attributable to? Increased
labor rates won by the union as a result of a strike.
Hope Company uses a flexible budget system and prepared the following information for 20CY:
Normal Maximum
Capacity Capacity
Percent of capacity 80% 100%
Variable factory overhead P 64,000 P 80,000
Fixed factory overhead P160,000 P160,000
Total factory overhead rate per direct labor P 7 P 6
hour
Hope operated at 90% of capacity during 20CY. The actual factory overhead for 2013 was P252,000. What was the
budget (controllable) overhead variance for the year?
General Feedback
& Technically, budget variance is different from controllable variance. But since the problem does not specify the
method to be used, the 2-way overhead analysis method shall be in effect. Therefore, the controllable variance is
to be computed. Controllable variance is the difference between actual factory overhead and budget allowed on
standard hours (BASH). Very importantly, the standard overhead rates should be determined. In the given, the
fixed overhead rate is P5.00 per hour (i.e., P160,000/32,000 hrs.). Remember, fixed overhead rate is based on
normal capacity.
The variable overhead rate is computed to be P2.00 per hour (i.e., P64,000 / 32,000) . The standard hours shall be
based on the actual capacity which is at 90%, therefore 36,000 hrs. (i.e., 40,000 hrs. x 90%). The controllable
variance may now be calculated as follows:
Actual factory overhead P

252,000
- Budget allowed on standard hours

Variable overhead (36,000 hrs. x P2.00) 72,000 232,000
Controllable variance P 20,000 U

F
RPCPA 1097
The following data are presented:
Budgeted Actual
Production in units 50,000 55,000
Manufacturing overhead P 750,000 P 800,000
Sales in units No data 47,000
No beginning inventories
The under-applied or over-applied overhead is:

General Feedback
P25,000 over-applied
AICPA 0581 I-25
Peters Company uses a flexible budget system and prepared the following information for the year
Percentage of total capacity
80% 90%
Variable factory O/H P 48,000 P 54,000
Fixed factory O/H P 108,000 P 108,000
Total factory O/H rate per DLH P 6.50 P 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?
General Feedback
P12,000 under-absorbed
RPCPA 1080
Beacon Company manufactures various types of plastic and rubber coated tubing products for various industries.
Standard cost accounting system is used. The following are available:
Actual total overhead P 44,000

Budgeted fixed costs P 12,600
Total overhead application rate per standard direct labor hour P 2.50
Actual hours used 16,000
Standard hours allowed 17,000
Normal activity in hours 14,000
The company uses a two-way analysis of overhead variances.
The controllable variance of Beacon Company is?

General Feedback
P4,200 unfavorable
Variable production cost mix and yield variances - Assessment

Harrigan Corporation uses two materials in the production of their product. The materials, A and B, have the
following standards:
Material Standard Mix Standard Unit Price Standard Cost
A 3,500 units P1.00 per unit P3,500

B 1,500 units 3.00 per unit P4,500
Yield 4,000 units
During January, the following actual production information was provided:
Material Actual Mix

A 30,000 units
B 20,000 units
Yield 36,000 units
What is the materials yield variance?

General Feedback
40,000 - 36,000) x (P8,000/4,000) = P8,000 (U)
Material Standard Standard Unit Standard

Mix Price Cost
Yield 4,000 units
Material Actual Mix

A 30,000 units
B 20,000 units
Yield 36,000 units
What is the materials usage variance?

General Feedback
MUV = mix variance + yield variance
= P10,000 (U) + P8,000 (U) = P18,000 (U)
The labor mix and labor yield variances together equal the
General Feedback
Labor efficiency variance
A company produces a gasoline additive. The standard costs and input for a 500-liter batch of the additive are
represented below.
Standard
Standard
Input
Quantity in Cost Per
Liters Liter
Chemical Total Cost
Echol 200 P.200 P 40.00
Protex 100 .425 42.25
Benz 250 .150 37.50
CT-40 50 .300 15.00
600 P 135.00
The quantities purchased and used during the current period are shown below. A total of 140 batches were made
during the current period.
Quantity Purchased (Liters) Total Purchased Price Quantity

Used
(Liters)
Chemical
Echol 25,000 P 5,365 26,600
Protex 13,000 6,240 12,880
Benz 40,000 5,840 37,800
CT-40 7,500 2,220 7,140
Total 85,500 P 19,665 84,420
What is the material mix variance for this operation?
General Feedback
The material mix variance.
Material mix variance is the difference between the actual mix and the standard mix, multiplied by the actual quantity
used. The standard mix is based on standard input as follows:
Mix variance in
units – UF (F)
Standard Mix variance in
cost per unit pesos–UF(F)
Actual mix Actual quantity at standard mix
Materials
Echol 26,600 (2/6 x 84,420) 28,140 (1,540) F P0.200 P (308.00) F
Protex 12,880 (1/6 x 84,420) 14,070 (1,190) F 0.425 (505.75) F
Benz 37,800 (25/60 x 84,420) 35,175 2,625 UF 0.150 393.75 UF
CT-40 7,140 (5/60 x 84,420) 7,035 105 UF 0.300 31.50 UF
84,420 84,420 P (388.50) F
Alternatively, the materials mix variance may be calculated as follows:
Actual quantity used at standard price
Echol (26,600 x P0.200) P 5,320
Protex (12,880 x P0.425) 5,474

Benz (37,800 x P0.150) 5,670
CT-40 ( 7,140 x P0.300) 2,142 P 18,606.00
- Actual quantity at std. materials input cost
(84,420 units x P0.225) 18,994.50
Materials mix variance P ( 388.50) F
The material mix variance for a product is P500 unfavorable, and the material yield variance is P600 favorable. This
means that the material
General Feedback
Quantity variance is P100 favorable
Material Standard Standard Unit Standard

Mix Price Cost
Yield 4,000 units
Material Actual Mix

A 30,000 units
B 20,000 units
Yield 36,000 units
What is the materials mix variance?

General Feedback
Answer
Materials Mix Variance
Material AQ SM AQ - SP (AQ – SM)SP
SM
A 30,000 35,000 (5,000) P1.00 P(5,000)
B 20,000 15,000 5,000 3.00 15,000
P10,000 (U)
The efficiency variance for either labor or materials can be divided into a
Yield variance and a mix variance.
Landeau Manufacturing Company has a process cost accounting system. A monthly analysis compares actual
results with both a monthly plan and a flexible budget. Standard direct labor rates used in the flexible budget are
established at the time the annual plan is formulated and held constant for the entire year. Standard direct labor
rates in effect for the fiscal year ending June 30 and standard hours allowed for the output in April are
Standard DL Rate Standard DLH

per Hour Allowed for Output
Labor class III P8.00 500
Labor class II 7.00 500
Labor class I 5.00 500

The wage rates for each labor class increased on January 1 under the terms of a new union contract negotiated in
December of the previous fiscal year. The standard wage rates were not revised to reflect the new contract. The actual
direct labor hours (DLH) worked and the actual direct labor rates per hour experienced for the month of April were as
follows:
Actual Direct Labor Actual Rate per Hour Direct Labor Hours
What is the labor yield variance for Landeau in April (rounded)?

General Feedback
P500 unfavorable
The materials yield variance equals

General Feedback
(Inputs allowed – inputs used) x budgeted weighted-average materials unit price for the planned mix
The labor yield variance equals

General Feedback
(Budgeted weighted-average materials unit cost for planned mix – budgeted weighted-average materials unit cost for
actual mix) x inputs used
The labor mix variance equals

General Feedback
(Budgeted weighted-average labor rate for planned mix – budgeted weighted-average labor rate for actual mix) x
inputs used
The labor mix variance equals

General Feedback
(Budgeted weighted-average labor rate for planned mix – budgeted weighted-average labor rate for actual mix) x
inputs used
The materials mix variance equals

(Budgeted weighted-average materials unit cost for planned mix - Budgeted weighted-average materials unit cost for
actual mix) x inputs used
The sum of the labor mix and labor yield variances equals
General Feedback
the labor efficiency variance
Landeau Manufacturing Company has a process cost accounting system. A monthly analysis compares actual
results with both a monthly plan and a flexible budget. Standard direct labor rates used in the flexible budget are
established at the time the annual plan is formulated and held constant for the entire year. Standard direct labor
rates in effect for the fiscal year ending June 30 and standard hours allowed for the output in April are
Actual Direct Labor Actual Rate per Hour Direct Labor Hours
What is the labor mix variance for Landeau in April?

General Feedback
P325.00 unfavorable
is correct. The labor mix variance is the sum of the products of the difference between actual and standard hours
for each class of labor times the difference between the budgeted standard rate for that class of labor and the
weighted-average standard labor rate.
Standard Actual Bud. Std.-

Hours Hours W.A. Std.
Class Variance Product
III 500 550 - 50 +P1.33 P 66.67 U
II 500 650 - 150 + .33 50.00 U
I 500 375 + 125 - 1.67 208.33 U
P325.00 U
A company produces a gasoline additive. The standard costs and input for a 500-liter batch of the additive are
represented below.
Standard
Standard
Input
Quantity in Cost Per
Liters Liter
Chemical Total Cost
Echol 200 P.200 P 40.00
Protex 100 .425 42.25
Benz 250 .150 37.50
CT-40 50 .300 15.00
600 P 135.00
The quantities purchased and used during the current period are shown below. A total of 140 batches were made
during the current period.
Quantity Purchased (Liters) Total Purchased Price Quantity

Used
(Liters)
Chemical
Echol 25,000 P 5,365 26,600
Protex 13,000 6,240 12,880
Benz 40,000 5,840 37,800
CT-40 7,500 2,220 7,140
Total 85,500 P 19,665 84,420
What is the materials yield variance for this operation?
General Feedback
The materials yield variance.
Materials yield variance refers to the difference in actual output and standard (or expected) output given the number
of materials used in the production. The yield rate (or productivity rate) on a given materials input is equal to
standard output over standard materials input, or 83.3333% (i.e., 500 output / 600 input). The materials yield
variance may be determined in three (3) methods, as follows:
Unit-based method:
Standard output (83.333% x 84,420 liters / 500 liters) 140.70 batches
- Actual output 140.00
Yield variance 0.70 UF
x Standard output cost (P135 / 1 batch) P 135 per batch
Yield variance P 94.50 UF
Alternatively, the yield variance may also be determined as follows:

Standard formula:
Actual quantity at standard materials

S input cost (84,420 units x P0.225) P18,994.50 a
les - Actual output at Standard Output
Cost (140 batches x P135 per batch) 18,900.00
Yield variance P 94.50 UF
price, mix, and yield variances - Assessment
Melanie Fashions sells a line of women’s dresses. Melanie’s performance report for November is shown below. The
company uses a flexible budget to analyze its performance and to measure the effect on operating income of the
various factors affecting the difference between budgeted and actual operating income.
Actual Budget
Dresses sold 5,000 6,000
Sales P 235,000 P 300,000
Variable costs (145,000) (180,000)
Contribution margin 90,000 120,000
Fixed costs ( 84,000 ( 80,000)
Operating income P 6,000 P 40,000
2. The fixed cost variance for November is
General Feedback
The fixed cost variance.
The fixed cost variance is the difference in actual fixed costs and budgeted fixed cost. Therefore, the fixed cost
variance is P4,000 U (i.e., P84,000 – P80,000).
The differences between the master budget amounts and the amounts in the flexible budget are due to
Activity level variances
What additional information is needed for Melanie to calculate the peso impact of a change in market share on
operating income for November?
Melanie’s budgeted market share and the actual total market size
Actual and budgeted information about the sales of a product are presented below for June:
Actual Budget
Units 8,000 10,000
Sales revenue P 92,000 P 105,000
The sales price variance for June was:

General Feedback
The sales price variance. P8,000 UF [i.e., (P11.50 – P10.50) x 8,000 units].
Mel, Inc., has a practical production capacity of two million units, the current year’s budget was based on the
production and sales of 1.4 million units during the current year. Actual statistics came out to be: production of
1.44 million units and sales of 1.2 million. Selling price is at P20 each and the contribution margin ratio is 30%.
The peso value that best quantifies the marketing division’s failure to achieve budgeted performance for the
current year is
General Feedback
The peso value that best quantifies the marketing division’s failure to achieve budgeted performance for the current
year.
The actual selling price is presumed to be P20, same as the budgeted amount. Therefore, there is no sales price
variance. The required variance is the net quantity variance.
Actual sales in units 1,200,000

- Budgeted sales in units 1,400,000
Change in quantity sold ( 200,000) U
F
x Unit contribution margin (P20 x 30%) P 6
Net quantity variance P 1,200,000
U
F
The exhibit below reflects a summary of performance for a single item of a retail store’s inventory for the month
ended April 30, 2006.
Flexible Static
Budget (Master)
Actual Variations Flexible
Results Budget Budget
Sales (units) 11,000 - 11,000 12,000
Revenue (sales) P208,000 P12,000 U P220,000 P240,000
Variable costs 121,000 11,000 U 110,000 120,000
CM 87,000 23,000 U 110,000 120,000
Fixed costs 72,000 - 72,000 72,000
Operating income P 15,000 P23,000 U P 38,000 P 48,000
The sales volume variance is
General Feedback
The sales volume variance.
The sales volume variance refers to the contribution margin volume variance which is the difference in actual and
budgeted quantity times the budgeted unit contribution margin of P10 (I.e., P120,000 / 12,000). Therefore, the net
sales volume variance is P(10,000) UF [i.e., (11,000 – 12,000) x P10].
Flexible Static
Budget (Master)
Sales (units) 11,000 - 11,000 12,000
Variable costs 121,000 11,000 U 110,000 120,000
CM 87,000 23,000 U 110,000 120,000
Fixed costs 72,000 - 72,000 72,000
The sales price variance is:

General Feedback
The sales price variance.
The sales price variance is the difference between actual unit sales price and budgeted sales price times the actual
quantity sold. The actual unit sales price is P18.91 (i.e., P208,000 / 11,000), and the budgeted unit sales price is
P20 (i.e., P240,000 / 12,000). Therefore, the sales price variance is P12,000 U [i.e., (P18.91 – P20.00) x 11,000
units].
The controller of Lan Corporation found a P250,000 favorable flexible budget variance. The variance was
calculated by comparing the actual results with the flexible budget. This variance can be wholly explained by The
total flexible budget variance

The difference between flexible budget and master budget sales volume, times master budget unit
contribution margin
Flexible Static
Budget (Master)
Sales (units) 11,000 - 11,000 12,000
Variable costs 121,000 11,000 U 110,000 120,000
CM 87,000 23,000 U 110,000 120,000
Fixed costs 72,000 - 72,000 72,000

2. The variable cost price variance is:
General Feedback
The variable cost price variance.
The variable cost price variance is the difference in actual unit variable cost and budgeted unit variable cost times
the actual quantity sold. The actual units variable cost is P11 (i.e., P121,000 / 11,000), and the budgeted unit
variable cost is P10 (i.e., P120,000 / 12,000). Therefore, the variable cost price variance is P11,000 U [i.e., {P11
– P10) x 11,000 units].
The sales-volume variance equals:

General Feedback
(actual sales volume - budgeted sales volume) x budgeted sales price.
Bi Corporation, which sells a single product, provided the following data from its income statements for the calendar
years, 2013 and 2012:
2013
Sales (150,000 units) P 750,000
Cost of goods sold 525,000
Gross profit P 225,000
2013 (Base
year)
Sales (180,000 units) P 720,000
Cost of goods sold 575,000
Gross profit P 145,000
In an analysis of variation in gross profit between the two years, what would be the effects of changes in sales
price an sales volume?
Sales price Sales volume
General Feedback
The sales price variance and the sales volume variance.
The relevant data that could be derived from the given of the problem are:
2013 2012 Change
Quantity sold 150,000 180,000 30,000 UF
Unit sales price P 5.00 P 4.00 P 1.00 F
Based on these data, the sales price variance and sales volume variance are computed as follows:
Sales price variance = Change in USP x Qty. sold this year
= P1.00 F x 150,000 units = P 150,000 F

Sales volume variance = Change in volume x USP last year
= 30,000 UF x P4.00 = P120,000 UF
Actual Budget
Sales P 235,000 P 300,000
Variable costs (145,000) (180,000)
Fixed costs ( 84,000 ( 80,000)
2. The sales price variance for November is
General Feedback
The sales price variance.
The sales price variance is the change in actual unit sales price and budgeted unit sales price multiplied by the
actual quantity. The actual unit sales price is P47 (i.e., P235,000 / 5,000), and the budgeted unit sales price is P50
(i.e., P300,000 / 6,000). As such, the sales price variance is P(15,000) U [i.e., (P47 – P50) x 5,000 units].
The gross profit of MJP Company for each of the years ended December 31, 2012 and 2013, were as follows:
2012 2013
Sales P 792,000 P 800,000
Cost of goods sold 464,000 480,000
Gross profit P 328,000 P 320,000
Assuming that selling prices were 10% lower during 2006, what would be the amount of decrease in gross profit due
to the change in selling price?
General Feedback
The amount of decrease in gross profit due to the change in selling price.
Sales price variance is basically change in sales prices multiplied by the quantity sold this year.
This formula is not applicable though because the sales prices and the quantity sold last year are
not provided.
The other technique of determining the sales price variance is by getting the difference between sales this year
(STY) and sales this year at unit sales price last year (STY@USPLY ), as follows:
Sales this year P 800,000
- STY @ USPLY (P800,000/90%) 888,889

Sales price variance P (88,889)
Actual Budget
Sales P 235,000 P 300,000
Variable costs (145,000) (180,000)
Fixed costs ( 84,000 ( 80,000)
The effect of the sales quantity variance on the contribution margin for November is
General Feedback
The effect of the sales quantity variance on the contribution margin.
The contribution margin quantity variance is the difference in actual quantity and budgeted quantity multiplied by the
budgeted unit contribution margin of P20 (i.e., P120,000 / 6,000). The contribution margin quantity variance is
P(20,000) U [i.e., {5,000 – 6,000) x P20]. The contribution margin quantity variance is the net quantity variance
of sales and variable cost
The controller of Lan Corporation found a P250,000 favorable flexible budget variance. The variance was calculated
by comparing the actual results with the flexible budget. This variance can be wholly explained by The total
flexible budget variance
Master Products has the following information for the year just ended:
Budget
Actual
Sales in units 15,000 14,000
Sales $150,000 $147,000
Less: Variable expenses 90,000 82,600
Contribution margin $ 60,000 $ 64,400
Less: Fixed expenses 35,000 40,000
Operating income $ 25,000 $ 24,400
The company's sales-price variance is:
General Feedback
$7,000 favorable.
Flexible Static
Budget (Master)
Sales (units) 11,000 - 11,000 12,000
Variable costs 121,000 11,000 U 110,000 120,000
CM 87,000 23,000 U 110,000 120,000
Fixed costs 72,000 - 72,000 72,000
General Feedback
The sales volume variance.
The sales volume variance refers to the contribution margin volume variance which is the difference in actual and
budgeted quantity times the budgeted unit contribution margin of P10 (I.e., P120,000 / 12,000). Therefore, the net
sales volume variance is P(10,000) UF [i.e., (11,000 – 12,000) x P10].
From the records of Frank Co. the following were taken (sales and costs of sales in amounts):
Quantity Sales Costs of Sales
Product Budget Actual Budget Actual Budget Actual
Green 45,000 45,800 450,000 458,000 270,000 274,800
Ann 30,000 26,700 180,000 186,900 108,000 96,120
Co 5,000 9,300 25,000 55,800 15,000 27,900
80,000 81,800 655,000 700,700 393,000 398,820
A. SP is P36,000 favorable; SV is P9,700 unfavorable;

CP is P0; and CV is P5,820 unfavorable
Determine the sales price (SP), sales volume (SV), cost price (CP) and cost volume (CV) variances:
SP is P36,000 favorable; SV is P9,700 unfavorable;

CP is P0; and CV is P5,820 unfavorable
General Feedback
The sales price, sales volume, cost price, and cost volume variances.
First, let us determine the units sales prices and unit cost prices.
Unit sales price Unit cost price
Actual Budget Actual Budget
Green P 10.00 P 10.00 P 6.00 P 6.00
Ann 7.00 6.00 3.60 3.60

Co 6.00 5.00 3.00 3.00
The required variances are computed as follows:

Sales price variance - ∆USP x AQ
Green (P10 – P10) x 45,800 P 0
Ann (P7 – P6) x 26,700 26,700 UF
Co (P6 – P5) x 9,300 9,300 UF P36,000 UF
Sales volume variance = ∆Q x BUSP
Green (45,800 – 45,000) x P10 P 8,000 UF
Ann (26,700 – 30,000) x P6 (19,800) F
Co ((9,300 – 5,000) x P5 21,500 UF P 9,700 UF
Cost price variance = ∆UC x AQ
Green = (P6 – P6) x 45,800 P 0
Ann = (P3.60 – P3.60) x 26,700 0

Co = (P3.00 – P3.00) x 9,300 0 P 0
Cost volume variance = ∆Q x BUC
Green (45,800 – 45,000) x P6 P 4,800 UF

Ann (26,700 – 30,000) x P3.60 (11,880) F
Co ((9,300 – 5,000) x P3 12,900 UF P 5,820 UF
Actual Budget
Sales P 235,000 P 300,000

Variable costs (145,000) (180,000)
Fixed costs ( 84,000 ( 80,000)
The variable cost flexible budget variance for November is
General Feedback
The variable cost flexible budget variance.
The variable cost flexible budget variance is P(5.000) F
Responsibility, authority, and accountability - Assessment
Controllable costs for responsibility accounting purposes are those costs that are directly influenced by
A given manager within a given period of time
In a responsibility accounting system, the process in which a supervisor and a subordinate jointly determine the
subordinate's goals and plans for achieving these goals is
General Feedback
Management by objectives
In a responsibility accounting a center’s performance is measured by controllable costs. Controllable costs

are best described as including.
General Feedback
Only those costs that the manager can influence in the current time period.
Which of these are among the qualities of a good report under the concept of responsibility accounting?
1. It should be consistent in form and content for each issue.
2. It should be prompt, timely and regularly issued.
3. It should easily be understood by users as to the contents, their significance and how to use them.
4. It should be able to pinpoint who is to blame as a pre-requisites to explain variances.
5. It should highlight efficiencies and inefficiencies.
6. It should be comparative and analytical.
7. It should be comprehensive as to include all details that can possibly be contained in the report.
All except 4 and 7
The process of attributing proportion of items of costs among cost centers is called
Cost allocation
The invested capital-employed turnover rate would include

General Feedback
Invested capital in the denominator.
In responsibility accounting, there are two (2) types of reports distinguished as to goals or objectives
General Feedback
Responsibility performances reporting and information reporting
The price that one division of a company charges another division for goods or services provided is
called the
General Feedback
Transfer price.
The CEO of a rapidly growing high-technology firm has exercised centralized authority over all corporate functions.
Because the company now operates in four states, the CEO is considering the advisability of decentralizing
operational control over production and sales. Which of the following conditions probably will result from and be a
valid reason for decentralizing?
General Feedback
Quicker and better operating decisions
Which of these assertions refer to responsibility accounting?
1. Costs and revenues are identified with individuals for better control and performance appraisal.
2. Performance reports under this concept include variance of actual amounts versus plan.
3. Third parties who are external users are the main recipients of information.
4. Only expenses which are directly under the control of managers should ideally be charged to them.
General Feedback
Assertions 1, 2 and 4 only
In a highly decentralized organization, the best option for measuring the performance of subunits is the establishment
of
General Feedback
Cost centers
Responsibility accounting:
Encourages managers and other employees to achieve enterprise goals, not just their own individuals goals
When using a contribution margin format for internal reporting purposes, the major distinction between
segment manager performance and segments performance is
General Feedback
Direct fixed cost controllable by others.
Richmond Enterprises is reviewing its policies and procedures in an effort to enhance goal congruence throughout the
organization. The processes that are most likely to encourage this behavior are
General Feedback
Cost-based transfer pricing, management-by-objective performance evaluation, and participatory budgeting
The basic purpose of a responsibility accounting system is
General Feedback
Motivation
Making segments disclosures is an advantages to a company because it

Facilitates evaluation of company management by providing data on particular segments
That kind of accounting concerned with providing information to management in making decisions about the
operations of the business
Management accounting
Reyes Company has intracompany service transfers from Division Core, a cost center, to Division Pro, a
profit center. Under stable economic conditions, which of the following transfer prices is likely to be most
conducive to evaluating whether both divisions have met their responsibilities?
General Feedback
Standard variable cost.
Gutierrez Corporation’s Department 1 produced component C that it is used by OZM as a key part.
Production and sales data for component C is as follows:
Selling price per unit P100
Variable cost per unit 60
Fixed cost per unit 24*
*based on 10,000 units capacity per annum
Gutierrez Corporation’s Department II is introducing a new product that will use components C. An
outside supplier has quoted Department I a price of P96 per unit. This represents the usual P100 price
less a quantity discount due to the large number of Departments II’s requirements. The company has
transfer price formula of:
Transfer price = Variable cost per unit + Lost contribution margin per unit on outside sales
Department I has enough excess capacity to handle all of Department II’s needs. For the overall interest
of the company, Department I should
General Feedback
Sell to Department II at minimum price of P60 per unit.
Which one of the following will not occur in an organization that gives managers throughout the organizations
maximum freedom to make decisions
Delays in securing approval for the introduction of new products
The following selected data pertain to Jona Company’s Jaja Division for 2018:
Sales P1,000,000
Variable costs 600,000
Traceable fixed costs 100,000
Average invested capital 200,000
Imputed interest rate 15%
How much is the residual income?

General Feedback
Residual income is the difference between segment income and minimum income (i.e., desired income,
imputed income). It is a measure of an investment manager’s performance based on absolute peso standard
and is preferable than the ROI model. The residual income is P270,000 computed s follows:
Operating profit (P1,000,000 – P600,000 – P100,000) P300,000
- Minimum income (P200,000 x 15%) 30,000
Residual income P270,000
Which of the following is most likely to be a disadvantage of decentralization?

Lower-level managers may make conflicting decisions
A successful responsibility accounting reporting system is dependent upon

The proper delegation of responsibility and authority
Decentralized firms can delegate authority and yet retain control and monitor manager’s performance by
structuring the organization into responsibility centers. Which one of the following organizational segments
is most likely an independent business?
General Feedback
Investment center.
Responsibility accounting defines an operating center that is responsible for revenue and costs as a (n)
General Feedback
Profit center.
Among the management accounting concepts is controllability which means
Management accounting identifies elements or activities which management can or cannot influence, and seeks to
arrest risk and sensitivity factors
Jun Iglesias is the manager of Profit Center #5. His unit reported the following for the period just
ended:
Contribution margin P350,000

Period expenses:
Manager’s salary P100,000
Depreciation expense 40,000
Allocated administrative 25,000 165,000
costs
Profit center #5 income P185,000
Of the foregoing, in all likelihood, Mr. Iglesias controls

General Feedback
P350,000
In deciding how or which costs should be assigned to a responsibility center is the degree of
C ontrollability
When used for performance evaluation, the generated reports in a responsibility accounting system should
Not include allocated fixed manufacturing overhead
Organizational designs - Assessment
Responsibility costs motivate managers of responsibility centers to act in the organization's interest. The attribute that
would be least persuasive in deciding to allocate costs to responsibility centers is that they
General Feedback
Are limited to staff services, such as consulting or internal audit
Making segment disclosures is an advantage to a company because it

General Feedback
Facilitates evaluation of company management by providing data on particular segments
The least complex segments or area of responsibility for which costs are all allocated is a (n)
Cost center
What is the name given to a unit or a function of an organization that is headed by a manager who has direct
responsibility for its performance?
Responsibility center
Cost centers are

A section of an organization for which budgets are prepared and control exercised
Product part: make or buy? - Assessment
Among the costs relevant to a make-or-buy decision, include variable manufacturing costs as well as
General Feedback
Avoidable fixed cost.
Verona Company has offered to sell Plainfield 10,000 units of part G for P30 per unit. If Plainfield
accepts Verona’ offer, the released facilities could be used to save P45,000 in relevant costs in the
manufacture of part H. In addition, P5 per unit of the fixed overhead applied to part G would be totally
eliminated. What alternative is more desirable and by what amount is it more desirable?
1) Alternative
2) Amount
General Feedback
1) Buy 2) P35,000
Special sales order: accept or reject? - Assessment
Tagaytay Open-Air Flea market is along the highway leading to Taal Vista Lodge. Arnel has a stall which
specializes in hand-crafted fruit baskets that sell for P60 each. Daily fixed costs are P15,000 and variable
cost are P30 per basket. An average of 750 baskets are sold each day. Arnel has a capacity of 800 baskets per
day. By closing day time yesterday, a bus load of teachers who attended a seminar at the Development
Academy of the Philippines stopped by Arnel’s stall. Collectively, they offered Arnel P1,500 for 40 baskets.
Arnel should have
General Feedback
Accepted the offer since he could have P300 contribution margin.
Idle capacity in the interim (normally temporary) will generate short-term benefit in accepting sales at price
that
General Feedback
Result in less than normal contribution margin.
Unprofitable business segment: drop or continue? - Assessment
An architecture firm currently offers services that appeal to both individuals and commercial clients. If the
firm decides to discontinue services to individuals because of ongoing losses, which of the following costs
could the company likely avoid?
General Feedback
Variable operating costs.
Division A of Division Experts Corporation is being evaluated for elimination. It has contribution to
overhead of P400,000. It receives an allocated overhead of P1 million, 10% of which cannot be eliminated.
The elimination of Division A would affect-pre-tax income by
Applying this principle in the problem, we have: P500,000 decrease.
Contribution margin P 400,000
Controllable fixed overhead (P1 million x 90%) ( 900,000)
Segment margin P(500,000)
Unprofitable business segment: temporarily shut-down or continue operations? - Assessment
The Mark X Corp. contemplates the temporary shutdown of its plant facilities in a provincial area
which are economically depressed due to natural disasters. Below are certain manufacturing and selling
expenses
1. Depreciation
2. Property tax
3. Interest expense
4. Insurance of facilities
5. Sales commissions
6. Delivery expenses
7. Security of premises
Which of the following expenses will continue during the shutdown period?
General Feedback
All except items 5 & 6.
Levy Corporation had been experiencing a slowdown in business activities in August and September
and is considering temporarily shutting down its operations during those months. The accounting
department has provided the following normal operating data for considerations:
Unit sales price P150

Unit variable production costs P 60
Unit variable marketing costs P 10
Monthly fixed overhead 500,000
Monthly fixed expenses 200,000
Regular sales in units 10,000 per month
Estimated sales in units in August and September 5,000 per month
If the company shuts down its operations, the following costs are expected to be incurred:
Security and safety P200,000 per month

Re-start-up costs P100,000 per set up
Regular fixed overhead 40% of total will remain
Regular fixed expenses will be reduced by 30%
The total shut down costs amount to

General Feedback
The total shut down costs.
Shut down costs are those still incurred during the shut down period. Based on the data given, the shut
down costs are:
Unavoidable fixed overhead (P500,000 x 40% x 2) P 400,000
Unavoidable fixed expenses (P200,000 x 70% x 2) 280,000
Security and safety (P200,000 x 2) 400,000
Re-start up costs 100,000
Total shut down costs P1,180,000
Use of limited resources: Product 1 or 2? - Assessment
When a multi-product plant operates at full capacity, quite often decisions must be made as to which
products to emphasize. These decisions are frequently made with a short-run focus. In making such
decisions, manager should select products with the
General Feedback
Highest contribution margin per unit of the constraining resource.
S. Kent Co. has a limited number of machine hours that it can use for manufacturing two products, A and B.
Each product has a selling price of P160 per unit but product A has 40% contribution margin and product B
has a 70% contribution margin. One unit of B takes twice as many machine hours to make as a unit of A.
Assume either product can be sold in whatever quantity is produced, which product or products should the
limited number of machine hours be used for?
General Feedback
A.
Completed product: sell now or process further? - Assessment
Coco Company owns a large processing line which segregates coconuts into its components upon
contract with breaker of the machine. Presently, it sells the coconut meat, juice, shell and husk to
various manufacturers. A feasibility study is being made to process its components into “buko pies”
for the meat, “buko juice” for the juice, flower pots for the shells, and fuel briquettes for the husk.
At the segregation point, you gathered the following data per unit:
Meat Juice Shell Husk

Selling price P4.00 P2.00 P1.00 P1.00
Allocated joint cost 0.13 0.06 0.03 0.03
Profit (loss) P3.87 P 1.94 P0.97 P0.97
The study shows that after further application of additional manufacturing process, the
following is projected:
Meat Juice Shell Husk

Selling price P12.00 P4.00 P2.00 P2.00
Additional processing cost 3.80 2.90 1.95 1.95
Fixed cost of the plant amounts to P500,000. Interest rate is 12% Which product should go
through the additional manufacturing process?
Coconut meat only because it will give incremental profit of P4.20 per coconut.
In the manufacturing process of Drigo Company, an output called substance “pooz” is disposed of
as waste. Recently, the Research Department has discovered a process to convert this waste to
detergent. The following data are available:
1. Cost of disposal is P20.00 per liter.

2. Additional processing cost will be P6.00 per liter.
3. Selling price of the new detergent is P14.00 per liter.
4. Joint costs to manufacture all products is P1.5 billion, of which P250,000 can be allocated to
“pooz”.
Which of the amounts are relevant in the decision to dispose or sell “pooz” as detergent?
P20, P6, P14.
Bid price: highest or lowest? - Assessment
Power systems, Inc, manufactures jet engines for the Philippine armed forces on a cost-plus basis. The
cost of a particular jet engine the company manufactures is shown below:
Direct materials P200,000
Overhead:
Supervisor’ salary 20,000
Fringe benefits on direct labor 15,000
Depreciation 12,000
Rent 11,000
Total cost P408,000
If production of this engine were discontinued, the production capacity would be idle, and the supervisor would be laid off. When asked to
bid on the next contract for this engine, the minimum unit price that Power Systems should bid is
General Feedback
P385,000
Lakas Engines Company manufactures engines for the military equipment on a cost-plus basis. The
cost of a particular machine the company manufactures is shown below:
Direct materials P400,000
Overhead:
Supervisor’s salary 40,000
Fringe benefits on direct labor 30,000
Depreciation 24,000
Rent 22,000
Total P816,000
If the production of the engine were discontinued the production capacity would be idle, and the
supervisor will be laid off. Should there be a next contract for this engine, the company should bid a
minimum price of
General Feedback
P770,000
Old asset: retain or replace? - Assessment
Ysabelle Industries, Inc. has an opportunity to acquire a new equipment to replace one of its existing
equipment. The new equipment would cost P900,000 and has a five-year useful life, with a zero terminal
disposal price. Variable operating cost would be P1 million per year. The present equipment has a book value
of P500,000 and a remaining life of five years. Its disposal price now is P50,000 but would be zero after five
years. Variable operating costs would be P1,250,000 per year. Considering the five years in total, but
ignoring the time value of money and income taxes, Ysabelle should
General Feedback
Replace due to P400,000 advantage.
At December 31, 2018, Zar Company had a machine with an original cost of P84,000, accumulated
depreciation of P60,000, and an estimated salvage value of zero. On December 31, 2018, Zar was
considering the purchase of a new machine having a five-year life, costing P120,000, and having an
estimated salvage value of P20,000 at the end of five years. In its decision concerning the possible purchase
of the new machine, how much should Zar consider as sunk cost at December 31, 2018?
General Feedback
P 24,000
Defective unit: scrap or rework? - Assessment
Kwing Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost of
P50,000. If the lamps are reworked for P20,000, they could be sold for P35,000. Alternatively, the lamps
could be sold for P8,000 to a jobber located in a distant city. In a decision model analyzing these
alternatives, the sunk cost would be
P50,000
Imaw Corporation is considering to keep or dispose P1 million obsolete inventory acquired several years
ago, this cost is
General Feedback
Sunk cost.
Indifference point analysis - Assessment
Litton Production, Inc., owns and operates a chain of movie theaters. The theaters in the chain vary
from low volume, small town to high volume, Big City/Downtown theaters. Management is
considering installing machines that will make popcorn on the premises. This proposed feature would
be properly advertised and is intended to increase patronage at the company’s theaters. These
machines are available in two different sizes with the following details:
Economy Regular Popper
Popper
Annual capacity (boxes) 50,000 120,000
Costs:
Annual machine rental P80,000 P110,000
Popcorn cost per box 1.30 1.30
Cost of each box 0.80 0.80
Other variable costs / 2.20 1.40
box
The level of output in boxes at which the Economy Popper and the Regular Popper would earn the same
profit (loss) is
General Feedback
37,500
Wheels Corp. employees 45 sales personnel to market its sedan cars. The average car sells for P690,000 and
a 6% commission is paid to the sales person. It is considering changing the scheme to a commission
arrangement that would pay each person a package of P30,000 plus a commission of 2% of the sales made
by the person. The amount of total monthly car sales at which Wheels Corp. would be indifferent (answer
may be rounded off) as to which plan is selected is
General Feedback
P33,750,000
Miscellanenous special operating decisions - Assessment
Bolsa Company estimates that 60,000 special zippers will be used in the manufacture of industrial bags
during the next year. Sure Zipper Company has quoted a price of P6 per zipper. Bolsa would prefer to
purchase 5,000 units per month but Sure is unable to guarantee this delivery schedule. In order to ensure the
availability of these zippers, Bosla is considering the purchase of all 60,000 units at the beginning of the
year. Assuming that Bolsa can invest cash at 12% the company’s opportunity cost of purchasing the 60,000
units at the beginning of the year is
P 9,900
These data pertain to Belle Corp.’s Product X

Direct labor P 32.25
Direct materials 2.50
Fixed manufacturing overhead 5.50
Variable manufacturing overhead 6.00
Variable selling expenses 5.75
Fixed selling expenses 0.80
Variable distribution expense 4.25
Fixed distribution expense 12.10
Total unit cost P 99.15
Unit selling price P134.00
Since the plant has excess capacity, production had developed Product Y with the same cost structure as
Product X. Marketing believes this new product can be sold for P80.00 per unit. It will be logical for
Belle Corp. to do this in the short run:
General Feedback
Produce Product Y and market at P80.00.
Total quality management - Assessment

CIA 1195 III-84
Productivity is defined as the ratio of outputs of a production process to the inputs that are used.
Consider a process that currently produces 2,000 units of output with 500 hours of labor per day.
This process can be redesigned to produce 2,520 units of output requiring 600 labor hours per day.
The percentage change in productivity from redesigning the process is
General Feedback
5% [(4.2 - 4.0) ・4.0]
CMA 0696 3-16

The series of activities in which customer usefulness is added to the product is the definition of?
General Feedback
A value chain
The quantity of output divided by the quantity of one input equals?

General Feedback
Partial productivity
All of the following would generally be included in a cost-of-quality report except:

Lost contribution margin
Comparing one's own product, service, or practice with the best known similar activity is?
General Feedback
Benchmarking
Under a total quality management (TQM) approach?

Measurement occurs throughout the process and errors are caught and corrected at the source
The cost of scrap, rework and tooling changes in a product quality cost system is categorized as a(an)?
General Feedback
Internal failure cost
A manufacturing cell’s partial productivity can be measured using data on.

Direct materials usage
Productivity is defined as the ratio of output of a production process to the input that are used. Consider a
process that currently produces 2,000 units of output with 500 hours of labor per day. This process can be
redesigned to produce 2,520 units of output requiring 600 hours per day. The percentage change in
productivity from redesigning the process is?
General Feedback
& The change in productivity is taken by comparing the new productivity with the old productivity, as
follows:
New productivity rate (2,520 units/600 hrs.) 4.2 units

Old productivity rate (2,000 units/500 hrs.) 4.0
Increase in productivity rate 0.20 unit
The percentage change in productivity is 5% (i.e., 0.20/4.0)
In which of the following organizational structures does total quality management (TQM) work best?
General Feedback
Teams of people from different specialties
CIA 1194 III-46
A company produces stereo speakers for automobile manufacturers. The automobile manufacturers
emphasize total quality control (TQC) in their production processes and reject approximately 3% of the
stereo speakers received as being of unacceptable quality. The company inspects the rejected speakers to
determine which ones should be reworked and which ones should be discarded. The discarded speakers are
classified as?
General Feedback
Spoilage
The cost of statistical quality control in a product quality cost system is categorized as a (an)?
Appraisal costs
In 2013, a manufacturing company instituted a total quality management (TQM) program

producing the following report:
Summary Cost of Quality Report

(in thousands)
2012 2013 %
Change
Prevention costs P 200 P 300 +50
Appraisal costs 210 315 +50
Internal failure costs 190 114 -40
External failure costs 1,200 621 -48
Total Quality Costs P 1,800 P 1,350 -25
On the basis of this report, which one of the following statements is most likely correct?
General Feedback
An increase in conformance costs resulted in a higher-quality product and a decrease in nonconformance
costs
The cost of scrap, rework and tooling changes in a product quality cost system is categorized as a(an)?
General Feedback
Internal failure cost
The International Standards Organization (ISO) has developed standards for ring networks that include fault
management, configuration management, accounting management, security management, and performance
monitoring. Which of the following controls is included in the performance-monitoring standards?
Compiling statistics on the number of times that application software is used
A company has recently introduced total quality management (TQM). The company’s top management wants
to determine a new and innovative approach to foster total participation throughout the company.
Management should?
Bring the employees together for a brainstorming session.
A traditional quality control process in manufacturing consists of mass inspection of goods only at the end of
a production process. A major deficiency of the traditional control process is that?
It does not focus on improving the entire production process.
If a company is customer-centered, its customers are defined as?

General Feedback
Anyone external to the company and those internal who rely on its product to get their job done.
The primary reason for adopting total quality management is to achieve

General Feedback
Greater customer satisfaction.
CIA 1194 III-46
A company produces stereo speakers for automobile manufacturers. The automobile manufacturers
emphasize total quality control (TQC) in their production processes and reject approximately 3% of the
stereo speakers received as being of unacceptable quality. The company inspects the rejected speakers to
determine which ones should be reworked and which ones should be discarded. The discarded speakers are
classified as?
General Feedback
Spoilage
The most important component of quality control is?

Ensuring goods and services conform to the design specifications.
Quality is achieved more economically if the company focuses on?

Prevention costs
Product-quality related costs are part of a total quality control program. A product-quality related cost
incurred in detecting individual products that do not conform to specifications is an example of a(n)?
General Feedback
Appraisal costs
In a quality control program, which of the following is(are) categorized as internal failure costs?
I. Rework.
II. Responding to customer complaints.
Statistical quality control procedures
I only
Management of a company is attempting to build a reputation as a world-class manufacturer of quality

products. Which of the four costs would be the most damaging to its ability to build a reputation as a world-
class manufacturer?
External failure costs
Comparing one’s own product, service or practice with the best known similar activity is?
Benchmarking
The following information is available for Rocky Company for its 2 fiscal years:
Year 1 Year 2
Statistical process control P 70,000 P 100,000
Quality audits 35,000 50,000
Training 40,000 80,000
Inspection and testing 100,000 150,000
Rework 90,000 50,000
Spoilage 80,000 55,000
Warranties 180,000 80,000
Estimated customer losses 800,000 450,000
Net sales 3,000,000 3,200,000
In its cost of quality report for year 2, Rocky will disclose that the ratio of
General Feedback
& Conformance costs include prevention costs and appraisal costs. Specifically, statistical process
control, quality audits, training, and inspection and testing are conformance costs. Total quality costs
include the conformance costs and rework, spoilage, warranties, and estimated customer losses. The ratio
of conformance costs to total quality costs are computed as follows:
Year 1 Year 2
Conformance costs
(P70,000 + P35,000 + P40,000 + P100,000) P 245,000
(P100,000 + P50,000 + P80,000 + P150,000) P 380,000
÷ Total quality costs

(P245,000 + P90,000 + P80,000 + P180,000 + P800,000) 1,395,000
(P380,000 + P50,000 + P55,000 + P80,000 + P450,000) 1,015,000
Ratio of conformance costs over total quality costs 17.56% 37.44%
Conformance costs to total quality costs increased from 17.56% in year 1 to 37.44% in year 2.
CIA 0596 III-95

A company's accounts receivable department processed 33,000 invoices during a 6-month period
with a billing error rate of 3%. Each billing error cost $110 to correct. In addition, 15% of contract
cancellations during this period were attributed to billing errors, resulting in estimated lost total
contribution margins of $75,000 from dissatisfied customers who canceled their contracts. If the
number of invoices issued and the costs per billing error remain unchanged, the annual savings
available for funding of a quality improvement program to lower the company's billing error rate by
1% (i.e., from 3% to 2%) would be?
General Feedback
$122,600 (2 x $61,300)
Yahoo Corporation is a highly automated manufacturing firm. The Vice-President of Finance,

Ferdinand, has decided that traditional standards are inappropriate for performance measures in
an automated environment. Labor is insignificant in terms of the total cost of production and
tends to be fixed. Materials quality are considered more important than minimizing material
cost, and customer satisfaction is the number one priority. As a result, delivery performance
measures have been chosen to evaluate performance. The following information is considered
typical of the time involved to complete orders:
Wait time:
from order being placed to start of 10.0 days
production
from start of production to completion 5.0 days
Inspection time 1.5 days
Process time 3.0 days
Move time 2.5 days
What is the delivery cycle time for this order?
General Feedback
Delivery cycle time (DCT) measures the total length of time waited by the customer from the date he placed an order to the date he received
his order. Delivery cycle time includes the lead time from supplier and the manufacturing cycle time, as follows:
DCT = Lead time + Manufacturing cycle time
= 10 days + 12 days = 22 days
Which of the following statements regarding benchmarking is false?

General Feedback
The benchmarking organization against which a firm is comparing itself must be a direct competitor
A traditional quality control process in manufacturing consists of mass inspection of goods only at the end of
a production process. A major deficiency of the traditional control process is that?
It does not focus on improving the entire production process.
Nonfinancial performance measures are important to engineering and operations managers in

assessing the quality levels of their products Which of the following indicators can be used to
measure product quality?
I. Returns and allowances.
II. Number and types of customer complaints.
III. Production cycle time.
I and II only
One of the main reasons that implementation of a total quality management program works better through
the use of teams is?
Teams are natural vehicle for sharing ideas, which leads to process improvement.
Quality costs indices are often used to measure and analyze the cost of maintaining a given level
quality. One example of a quality cost index, which uses a direct labor base, is computed as
Quality cost index = (Total quality costs / Direct labor costs) x 100
The following quality costs data were collected for May and June:
May June
Prevention costs P 4,000 P 5,000
Appraisal costs 6,000 5,000
Internal failure 12,000 15,000
costs
External failure 14,000 11,000
costs
Direct labor costs 90,000 100,000
Based upon these cost data, the quality cost index

General Feedback
The quality cost index (QCI) based on DL costs is total quality costs divided by DL costs. Total quality costs include prevention costs,
appraisal costs, internal failure costs, and external failure costs. By comparison, we may derive the following information for the months of
May and June, as follows: Decrease 4 points from May to June
May June
Total quality costs P 36,000 P 36,000
DL costs 90,000 100,000
QC index (P36,000/P90,000) 40%
(P36,000/P100,000) 36%
Decrease in QC index (40% - 36%) 4%
An example of an internal nonfinancial benchmark is?
The percentage of customer orders delivered on time at the company’s most efficient plant becoming the benchmark
for the company’s other plants.
Which of the following is a characteristic of total quality management (TQM)?

General Feedback
Education and self-improvement
Which of the following is not a characteristic of an innovative manufacturing company?

Emphasis on existing products
Which of the following is a type of costing that relates to the continuous accumulation of small betterment
activities rather than innovative improvements?
General Feedback
Kaizen costing
Balanced scorecard - Assessment
When developing comprehensive performance indicators to assist in assuring total quality management,
performance indicators should not
General Feedback
Rely on traditional, historical, internal financial measures.
Which of the following statements is true?

General Feedback
To achieve success, it is important to set nonfinancial objectives as well as financial objectives
The purpose of the balanced scorecard is best s helping an organization

General Feedback
Translate an organization’s mission and strategy
Other emerging strategic philosophies - Assessment

Which of the following statements regarding benchmarking is false?
The benchmarking organization against which a firm is comparing itself must be a direct competitor.
Target pricing
General Feedback
Is a pricing strategy used to create competitive advantage
Productivity is defined as the ratio of output of a production process to the input that are used. Consider a
process that currently produces 2,000 units of output with 500 hours of labor per day. This process can be
redesigned to produce 2,520 units of output requiring 600 hours per day. The percentage change in
productivity from redesigning the process is
General Feedback
5%
The Plan-Do-Check-Act (PDCA) Cycle is a quality tool devised by W.E. Deming. It is best described as
General Feedback
A “management by fact” approach to continuous improvement.
Backflush costing - Assessment
Companies that adopt just-in-time purchasing system often experience?

A reduction in the number of suppliers
The I Co. uses a raw and in process (RIP) inventory account and expenses all conversion costs to the
cost of goods sold account. At the end of each month, all inventories are counted, their conversion
costs components are estimated, and inventory account balances are adjusted accordingly. Raw
material costs is backflushed from RIP to Finished Goods. The following information is for the
month of April:
Beginning balance of RIP account, including P31,000
P1,400 of conversion cost
Raw materials received on credit 367,000
Ending RIP inventory per physical count,
including P1,800 conversion cost estimate 33,000
Compute the amount to be backflushed from RIP to Finished goods:

General Feedback
365,400
The underlying philosophy of “just-in-time” inventory system is?

General Feedback
It is a quest toward continuous improvement in the environmental conditions that necessitate inventories
The costing system appropriate to use with a JIT inventory system whose costs flow directly to cost of goods
sold is
General Feedback
Backflush costing.
Which feature distinguishes backflush accounting from other systems?

General Feedback
Costs are attached when output is completed or sold
Increased competitions, technological innovation, and a shift from mass production of standardized products
to custom-produced products in many industries have increased the need for productivity improvements and
flexibility of production systems. In response to these demands, organizations have increased their reliance
on automation and the use of advanced technologies in their operations. Which of the following is an
example of the use of automation and advanced technologies?
General Feedback
Flexible manufacturing system (FMS).
A manufacturing company is attempting to implement a just-in-time (JIT) purchase policy system by

negotiating with its primary suppliers to accept long-term purchase orders which result in more
frequent deliveries of smaller quantities of raw materials. If the JIT purchase policy is successful
in reducing the total inventory costs of the manufacturing company, which of the following
combinations of cost changes would be most likely to occur?
Cost Category Cost Category
to increase to decrease
General Feedback
Stockout costs Carrying costs
The benefits of a just-in-time system for raw materials usually include.

Elimination of nonvalue-adding operations
A major justification for investments in computer integrated manufacturing (CIM) projects is

General Feedback
Reduction in the costs of spoilage, reworked units, and scrap.
Which changes in costs are most conducive to switching from a traditional inventory ordering
system to a just-time ordering system?
Cost per Inventory Unit
Purchase Order Carrying Cost
Decreasing Increasing
Bell Company changed from a traditional manufacturer philosophy to just-in-time philosophy. What
are the expected effects of this change on Bell’s inventory turnover and inventory as a
percentage of total assets reported on Bell’s balance sheet?
Inventory turnover Inventory percentage
Increase Decrease
The costing system appropriate to use with a JIT inventory system whose costs flow directly to cost of goods
sold is?
General Feedback
Backflush costing
The company uses a planning system that focuses first on the amount and timing of finished goods
demanded and then determines the derived demand for raw materials, components, and subassemblies at
each of the prior stages of production. This system is referred to as?
General Feedback
Materials requirements planning
A major justification for investments in computer integrated manufacturing (CIM) projects is

Reduction in the costs of spoilage, reworked units, and scrap.
In Belk Company’s just-in-time production system costs per setup were reduced from P28 to P2. In
the process of reducing inventory levels, Belk found that there were fixed facility and
administration costs that previously had not been included in the carrying cost calculation. The
result was an increase from P8 to P32 per unit per year. What were the effects of these changes
on Elk’s economic lot size and relevant costs?
Lot Size Relevant Costs
Decrease Increase
Key Company changed from a traditional manufacturing operation with a job-order costing system
to just-in-time operation with a back flush costing system. What is (are) the expected effect (s)
of these changes on Key’s inspection costs and recording detail of costs tracked to jobs in
process?
Inspection Detail of Costs
Costs Tracked to Jobs
Decrease Decrease
Throughput costing - Assessment
A company operates a throughput accounting system. The details of product A per unit are:
Selling price 24.99

Material cost P8.87
Conversion costs P12.27
Time on bottleneck resources 6.5 minutes
The return per hour for product A is

General Feedback
P148.80
Throughput costing relates to the concept of (that), except:

General Feedback
Costs should be related to the processes to which they are incurred.
A company manufactures four products – J, K, L and M. The products use a series of different
machines but there is a common machine, X, which causes a bottleneck. The standard selling price
and standard cost per unit for each product for the forth-coming year are as follows:
J K L M
Selling price 2,000 1,500 1,500 1,750
Cost:
Direct materials 410 200 300 400
Labor 300 200 360 275
Variable overheads 250 200 300 175
Fixed overheads 360 300 210 330
Profit 680 600 330 570
Machine X – Minutes 120 100 70 110
per unit
Direct material is the only-level manufacturing costs. Using a throughput accounting approach, the
ranking of the products would be:
1) J
2) K
3) L
4) M
General Feedback
1) 2nd 2) 1st 3) 4rt 4) 3 rd
Learning curve analysis - Assessment
Moss Point Manufacturing recently completed and sold an order of 50 units that had costs as shown
below. The company has now been requested to prepare a bid for 150 units of the same product.
Direct Materials P 1,500
Direct labor (1,000 hours x P8.50) 8,500
Variable overhead (1,000 hours x P4.00)* 4,000
Fixed overhead** 1,400
Total P15,400
*Applied on the basis of direct labor hours.
**Applied at the rate of 10% of variable cost.
If an 80% learning curve is applicable, Moss Point’s total cost on this order will be estimated at
General Feedback
& Only direct labor and variable overhead are subject to the learning curve model. The batch size is 50 units, the
second batch should be 100 units and the third batch should be 200 units. Meaning, there are 3 additional batches
to be made or a total of 4 batches (i.e., the old 1 plus the new 3 batches) to make an additional of 150 units (i.e.,
200 units – 50 units). Each doubling of production level reduces labor and variable overhead by 80% per unit.
The estimated costs are as follows:
Labor and variable overhead (P12,500 x 80% x 80% x 4 lots) P 32,000
Materials (P1,500 x 4 batches) 6,000
Fixed overhead (P38,000 x 10%) 3,800
Total costs – for 200 units P 41,800
Incremental costs for the additional 150 (P41,800 – P15,400)

units
P26,400.
LCB, Inc. is preparing a bid to produce engines. The company has experienced the following costs:
Cumulative Units Total Cumulative Costs

Produced Materials Labor
10 P 60,000 P 120,000
20 120,000 192,000
40 240,000 307,200
At LCB, variable overhead is applied on the basis of P1.00 per direct labor peso. Based on historical costs, LCB
knows that the production of 40 engines will incur P100,000 of fixed overhead costs. The bid request is for an
additional 40 units. All companies submitting bids are allowed to charge a maximum of 25% above full cost for
each order.
LCB, Inc.’s rate of learning on the 3-year engine contract is

General Feedback
& The learning curve is related to labor. Learning curve rate is the ratio of new labor cost per unit over the old
labor cost per unit, as follows:
Total
Production Labor Cost Average DL cost per unit
10 P 120,000 P12,000 (P 12,000 / 10 units)
20 192,000 9,600 (P192,000 / 20 units)
40 307,200 7,680 (P307,200 / 40 units)
Thus, the learning curve rate is 80% (i.e., P9,600/P12,000).
CMA 1289 4-10

Learning curves are best used to predict
General Feedback
Unit direct labor costs
The average labor cost per unit for the first batch produced by a new process is P120. The cumulative
average a labor cost after the second batch is P72 per product. Using a batch size of 100 and assuming the
learning curve continues, the total labor cost of four batches will be.
General Feedback
P17,280

10 P 60,000 P 120,000
20 120,000 192,000
40 240,000 307,200
each order.
The maximum bid price that LCB, Inc. can submit for the 40 unit is
General Feedback
& The maximum bid price that could be submitted for the additional 40 units should be total costs assigned to the
additional production plus markup. Completing the labor cost table prepared in the preceding question and using
an 80% learning curve rate, the total labor cost to produce 80 units is:
Units Produced Average Unit Labor Cost Total Labor Cost
10 P12,000 P 120,000
20 9,000 192,000
40 7,680 307,200
80 6,144 (P7,680 x 80%) 491,520
Finally, the additional costs to produce the additional 40 units should be:
Materials [(P60,000/10 units) x 40 units] P 240,000
Labor (P491,520 – P307,200) 184,320
Variable overhead (P184,3320 x 100%) 184,320
Total costs for the additional 40 units 708,640
+ Markup (25% x P708,640) 177,160
Maximum bid price P 885,800
If a firm is considering the use of learning curve analysis in the determination of labor cost standards for new product,
it should be advised that this technique ordinarily is most relevant to situation in which the production time per unit
decreases as additional units are produced and the unit cost?
General Feedback
Decreases.
A learning curve of 80% assumes that direct labor costs are reduced by 20% for each doubling of output.
What is the cost of the sixteenth unit produced?
General Feedback
40%

10 P 60,000 P 120,000
20 120,000 192,000
40 240,000 307,200
each order.
To ensure that the company will not lose money on the project, LCB, Inc.’s minimum bid for the 40 units will be
General Feedback
& The minimum bid price should at least equal to, not less than, the incremental costs of P608,640 (i.e.,
P708,640 – P100,000).
Seacraft Inc. received a request for a competitive bid for the sale of one of its unique boating products with a
desired modification. Seacraft is now in the process of manufacturing the product but with a slightly
different modification for another customer. These unique products are labor intensive and both will have
long production runs. Which one of the following methods should Seacraft use to estimate the cost of the
new competitive bid?
General Feedback
Learning curve analysis.
CMA 1289 4-7

The technique used to predict the change in direct labor hours as a new process stabilizes is?
General Feedback
Learning curve analysis
If Moss Point had experienced a 70% learning curve, the bid for the 150 units would?
General Feedback
& A learning curve of 70% means that the direct labor hours are estimated to diminish by 70% for each doubling of
lots computed as follows:
Cumulative Cumulative
Batch Lot Units DLH per lot hours
1 1 50 1,000 1,000
2 2 100 700 (1,000 x 70%) 1,400
4 4 200 490 (700 x 70%) 1,960
The average DLH per unit for the next 150 units is 6.40 hours per unit [i.e., (1,960 – 1,000) / 150 units].
Activity-based costing - Assessment
Examples of activities at the batch level of costs include?

General Feedback
Scheduling, setting up, and moving
CMA 0694 3-26

Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of
individual products, the controller estimates the amount of overhead that should be allocated to the
individual product lines from the information given as follows:
Wal Specialty
Mirrors Windows
Units produced 25 25
Material moves per product line 5 15
Direct labor hours per unit 200 200
Budgeted materials handling costs,
$50,000
Under a costing system that allocates overhead on the basis of direct labor hours, the materials
handling costs allocated to one unit of wall mirrors would be
Under activity-based costing (ABC), the materials handling costs allocated to one unit of wall mirrors would
be
General Feedback
$500
Believing that its traditional cost system may be providing misleading information, an
organization is considering an activity-based costing (ABC) approach. It now employs a full cost
system and has been applying its manufacturing overhead on the basis of machine hours.
The organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The
following data show the manufacturing overhead that is budgeted.
Activity Cost Driver Budgeted Budgeted Cost

Activity
Material No. of parts 6,000,000 P 720,000
handling handled
Setup costs No. of setups 750 315,000
Machining costs Machine hours 30,000 540,000
Quality control No. of batches 500 225,000
Total manufacturing overhead cost P 1,800,000
Cost, sales, and production data for one of the organization’s products for the coming year are as follows:
Prime costs:
Direct material cost per unit P 4.40
Direct labor cost per unit .05 DLH @ 0.75
P15/DLH
Total prime cost P 5.15
Sales and production data

Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch
If the organization uses the traditional full cost system, the cost per unit for this product for the coming year will be?
General Feedback
The unit cost shall be composed of the prime (or direct) costs and overhead, as follows:
Price costs P 5.15

Overhead [(P1.8M / 30,000MH) / (80 MH / 5,000 units)] 0.96
Unit costs under traditional costing method P 6.11
What is the normal effect on the numbers of cost pools and cost assignment bases when an
activity-based cost (ABC) system replaces a traditional cost system?
Cost Assignment
Cost Pools Bases
Increase Increase
Plant occupancy is a?
General Feedback
Facility level activity
Which of the following is true in respect to plant-wide and departmental overhead rates?
General Feedback
All answers are correct
Process value analysis is a key component of activity-based management that links product costing and?
General Feedback
Continuous improvement
A company has identified the following overhead costs and cost drivers for the coming year:
Budgeted Budgeted
Overhead Item Cost driver Cost Activity level
Machine setup Number of setups P 20,000 200
Inspection Number of inspections 130,000 6,500
Material handling Number of material moves 80,000 8,000
Engineering Engineering hours 50,000 1,000
P280,000
The following information was collected on three jobs that were completed during the year:
Job 101 Job 102 Job 103

Direct materials P5,000 P12,000 P8,000
Direct labor P2,000 P2,000 P4,000
Units completed 100 50 200
Number of setups 1 2 4
Number of inspections 20 10 30
Number of material moves 30 10 50
Engineering hours 10 50 10
Budgeted direct labor cost was P100,000, and budgeted direct material cost was P280,000
If the company uses activity-based costing, compute the cost of each unit of job 102
General Feedback
P340
Testing the prototype of a new product is a?

General Feedback
Unit level activity
ALF Co. is an assisted-living facility that provides services in the form of residential space, meals,
and other occupant assistance (OOA) to its occupants. ALF currently uses a traditional cost
accounting system that defines the service provided as assisted living, with service output
measured in terms of occupant days. Each occupant is charged a daily rate equal to ALF's annual
cost of providing residential space, meals, and OOA divided by total occupant days. However,
an activity-based costing (ABC) analysis has revealed that occupants' use of OOA varies
substantially. This analysis determined that occupants could be grouped into three categories
(low, moderate, and high usage of OOA) and that the activity driver of OOA is nursing hours.
The driver of the other activities is occupant days. The following quantitative information was
also provided:
Annual Annual
Occupant Occupant Nursing
Category Days Hours
Low usage 36,000 90,000
Medium usage 18,000 90,000
High usage 6,000 120,000
60,000 300,000
The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and
meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate should be
General Feedback
$182.50 for occupants in the low-usage category
Activities, their drivers, and their costs may be classified as unit-level, batch-level, product-level, and
facility level. If activity-based costing information is prepared for internal purposes, which costs are most
likely to be treated as period costs?
General Feedback
Facility-level
Cavite Hospital has found itself under increasing pressure to be accountable for the charges it
assesses its patients. Its current pricing system is ad hoc, based on pricing norms for the
geographical area, and it only explicitly considers direct costs for surgery, medication, and other
treatments. Cavite’s controller has suggested that the hospital try to improve its pricing policies
by seeking a tighter relationship between costs and pricing. This approach would make prices for
services less arbitrary. As a first step, the controller has determined that most costs can be
assigned to one of three cost pools. The three cost pools follow along with the estimated amounts
and activity drivers.
Activity Center Amount Activity Driver Quantity

Professional P900,000 Professional 30,000 hours
salaries hours
Building costs 450,000 Square feet used 15,000 square
feet
Risk management 320,000 Patients served 1,000
The hospital provides service in three broad categories. The services are listed below with their
volume measures for the activity centers.
Professional Square Number of

Service hours Feet Patients
Surgery 6,000 1,200 200
Housing 20,000 12,000 500
patients
Outpatient care 4,000 1,800 300
Compute the allocation rates for each activity center:

Professional Building cost Risk Management
Salaries
General Feedback
The activity centers are the professional salaries, building costs, and risk management. The budgeted
amount for each activity center as well as their respective cost drivers are given, so the activity-based
cost rates are:
Budgeted Activity Driver ABC Rates

Cost
Professional salaries P900,000 30,000 hours P 30 / hour
Building costs 450,000 15,000 square 30 / sq. ft.

fee
Risk management 320,000 1,000 patients 320 / patient
30/hr.
30/sq. ft.
320 per patient
CIA 0596 III-99

A company with three products classifies its costs as belonging to five functions: design, production,
marketing, distribution, and customer services. For pricing purposes, all company costs are assigned to the
three products. The direct costs of each of the five functions are traced directly to the three products. The
indirect costs of each of the five business functions are collected into five separate cost pools and then
assigned to the three products using appropriate allocation bases. The allocation base that would most likely
be the best for allocating the indirect costs of the distribution function is?
General Feedback
Number of shipments
Nile Company’s cost assignment and product costing procedures follow activity-based costing principles.
Activities have been identified and classified as being either value-adding or nonvalue-adding as to each
product. Which of the following activities, used in Nile’s production process, is nonvalue- adding?
General Feedback
Raw materials storage activity
C Corporation accumulated the following cost information for its two products, D and L
D L Total
Production volume 2,000 1,000 3,000
Total direct man. labor 5,000 20,000 25,000
hrs.
Setup cost per batch P1,000 P2,000
Batch size 100 50
Total setup costs incurred P20,000 P40,000 P60,000
A traditional costing system would allocate setup costs on the basis of DMLH. An ABC system
would trace costs by spreading the cost per batch over the units in a batch. What is the setup
cost per unit of product D under each costing system?
Traditional ABC
Costing
General Feedback
The set-up cost per unit under the traditional costing method, using the direct man labor hours, shall be
P6.00, [(P60,000 x 5/25) / 2,000 units]. The set-up cost per unit under the activity-based costing method
shall be P10.00 [P10,000 / 1,000 units].
CIA 0593 IV-3

A manufacturing firm produces multiple families of products requiring various combinations of different
types of parts. The manufacturer has identified various cost pools, one of which consists of materials
handling costs. This cost pool includes the wages and employee benefits of the workers involved in
receiving materials, inspecting materials, storing materials in inventory, and moving materials to the
workstations; depreciation and maintenance of materials handling equipment (e.g., forklift trucks); and costs
of supplies used as well as other related costs. Of the following, the most appropriate cost driver for
assigning materials handling costs to the various products most likely is?
General Feedback
Number of parts used
Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of
individual products, the controller estimates the amount of overhead that should be assigned to the
individual product lines from the information given as follows:
Wall Specialty
Mirrors Windows
Units produced 25 25
Material moves per product 5 15
line
Direct labor hours per unit 200 200
Budgeted materials handling, P50,000
Under a costing system that assigns overhead on the basis of direct labor hours, the materials handling
costs allocated to one unit of wall mirrors would be
General Feedback
P1,000
Cost drivers are?

General Feedback
Activities that cause costs to increase as the activity increases
Which of the following statements about activity-based costing is not true?

General Feedback
Activity-based costing is more likely to result in major differences from traditional costing systems if the firm
manufactures only one product rather than multiple products
An accounting system that collects financial and operating data on the basis of the underlying nature and
extent of the cost drivers is?
General Feedback
Activity-based costing
Multiple or departmental manufacturing overhead rates are considered preferable to a single or plant-wide
overhead rate when?
General Feedback
Various products are manufactured that do not pass through the same departments that use the same manufacturing
techniques.
The use of activity-based costing normally results in?

General Feedback
Substantially greater unit costs for low-volume products than is reported by traditional product costing
Examples of activities at the plant level of costs include

General Feedback
heating, lighting, and security.
CIA 1195 III-41

Cost allocation is the process of assigning indirect costs to a cost object. The indirect costs are grouped in
cost pools and then allocated by a common allocation base to the cost object. The base that is employed to
allocate a homogeneous cost pool should?
General Feedback
Have a cause-and-effect relationship with the cost items in the cost pool
Activity-based costing
General Feedback
Tends to increase the number of cost pools
Plant-level costs are costs that?

General Feedback
Are incurred to sustain capacity at a production site
D Company makes two products, X and Z. X is being introduced this period, whereas Z has been in
production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured.
Assume that the only relevant overhead item is the cost of engineering change orders; that X and Z are
expected to require eight and two change orders, respectively; that X and Z are expected to require 2 and 3
machine hours, respectively; and that the cost of a change order is P6,000. If D Company applies
engineering change order costs on the basis of machine hours, the cross subsidy per unit arising from this
peanut-butter costing approach is
General Feedback
& Using the traditional costing approach, there is a cross-subsidy in the overhead costs from one product to another
as opposed to activity-based costing that uses the peanut-butter costing, as follows:
X Z
Unit cost, traditional costing
[(P6,000 x 2/5) / 1,000 units] P 2.40
[(P6,000 x 3/5) / 1,000 units] P 3.60
Unit cost, ABCosting
[(P6,000 x 8/10) / 1,000 units] 4..80
[(P6,000 x 2.10) / 1,000 units] 1.20
Cross-subsidy P (2.40) P 2.40
Issuing a purchase order is a?

General Feedback
unit level activity
Believing that its traditional cost system may be providing misleading information, an
organization is considering an activity-based costing (ABC) approach. It now employs a full cost
system and has been applying its manufacturing overhead on the basis of machine hours.
The organization plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The
following data show the manufacturing overhead that is budgeted.
Activity Cost Driver Budgeted Budgeted Cost

Activity
Material No. of parts 6,000,000 P 720,000
handling handled
Setup costs No. of setups 750 315,000
Machining costs Machine hours 30,000 540,000
Quality control No. of batches 500 225,000
Total manufacturing overhead cost P 1,800,000
Cost, sales, and production data for one of the organization’s products for the coming year are as follows:
Prime costs:
Direct material cost per unit P 4.40
Direct labor cost per unit .05 DLH @ 0.75
P15/DLH
Total prime cost P 5.15
Sales and production data

Expected sales 20,000 units
Batch size 5,000 units
Setups 2 per batch
Total parts per finished unit 5 parts
Machine hours required 80 MH per batch
If the organization employs an activity-based costing system, the cost per unit for the product described for
the coming year will be?
General Feedback
The unit cost will still be composed of the prime costs and indirect costs. But this time, the overhead shall
be determined using cost drivers as bases. First, let us compute the ABCost rates as follows:
Materials handling (P720,000 / 6,000,000 parts) P 0.12 per part

Setup costs (P315,000 / 750 setups) 420.00 per setup
With
Machining costs (P540,000 / 30,00 MH) 18.00 per MH
the
Quality control (P225,000 / 500 batches) 450.00 per batch
ABCost rate already computed, the unit cost shall now be determined as follows:
Prime costs P 5.15
Overhead:
Machine setup [P0.12 per part x 5 parts) 0.600
Setup costs [P420 per setup x (2 / 5,000 units)] 0.168
Machining costs [P18 per MH x (80MH / 5,000 units)] 0.288
Quality control [P450 per batch / 5,000 units] 0.090 1.146
Unit cost – ABCosting P 6.296
Activity-based costing (ABC) has become increasingly more feasible because of technological advances that
allow managers to obtain better and more timely information at a relatively low cost. For this reason, a
manufacturer is considering using barcode identification for recording information on parts used by the
manufacturer. A reason to use bar codes rather than other means of identification is to ensure that?
General Feedback
The movement of parts is easily and quickly recorded.
F Cosmetics has used a traditional cost accounting system to apply quality control costs
uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for
Luz makeup is P27,500. In an attempt to distribute quality control costs more equitably, F is
considering activity-based costing. The monthly data shown in the chart below have been
gathered for Luz makeup.
Quantity
Activity Cost Driver Cost Rates for Luz
makeup
Incoming material Type of P11.50 per 12 types
inspection material type
In-process inspection Number of P 0.14 per 17,500
units unit units
Product certification Per order P 77 per 25 orders
order
The monthly quality control cost assigned to Luz makeup using activity-based costing is?
General Feedback
P525.50 higher than the cost using the traditional system.
Choice letter “d” is correct because the overhead assigned to ABCosting is P525.50 higher than the
traditional costing, as shown in the computation below:
Quantity per
unit
Activity ABCost Rates ABCosts
Incoming mat. inspection P11.50 per type 12 types P 138.00
In-process inspection 0.14 per unit 17,500 units 2,450.00
Product certification 77.00 per order 25 orders 1,925.00
Activity-based costing monthly quality costs 4,513.00
Less: Traditional costing monthly quality (P27,500 x 14.5%) 3,987.50
costs
Excess monthly quality costs under ABCosting P 525.50
Statistical Control Techniques - Assessment
Following a strategy of product differentiation, Harmony Corporation makes a high-end

kitchen range hood, BT4. Harmony’s data for 2016 and 2017 follow:
2016 2017
1. Units of BT4 produced and sold 40,000 42,000
2. Selling price P100 P110
3. Direct material (square feet) 120,000 123,000
4. Direct material costs per square foot P10 P11
5. Manufacturing capacity for BT4 50,000 units 50,000 units
6. Total conversion costs P1,000,000 P1,100,000
7. Conversion cost per unit of capacity P20 P22
(Row 6 ÷ Row 5)
8. selling and customer-service capacity 30 customers 29 customers
9. Total selling and customer-service P720,000 P725,000
costs
10. Cost per customer of selling and
customer service capacity (Row 9 ÷ P24,000 P25,000
Row 8)
Harmony produced no defective units, and reduced direct material usage per unit of BT4 in
2017. Conversion costs in each year are tied to manufacturing capacity. Selling and
customer-service costs are related to the number of customers that the selling and service
functions are designed to support. Harmony has 23 customers (wholesalers) in 2016 and 25
customers in 2017.
Operating income for each year is determined as:

2016 2017
Revenues (P100 x 40,000; P110 x 42,000) P4,000,000 P4,620,000
Cost
Direct materials costs (P10 x 120,000; 1,200,000 1,353,000
P11 x 123,000)
Conversion costs (P20 x 50,000; P22 x 1,000,000 1,110,000
50,000)
Selling & customer service costs
(P24,000 x 30; P25,000 x 29) 720,000 725,000
Total costs 2,920,000 3,178,000
Operating income P1,080,000 P1,442,000
Change in operating income P362,000 F
The change in operating income from 2016 to 2017 attributable to growth is:
General Feedback
P140,000 favorable
The change in operating income from 2006 to 2007 attributable to price-recovery is:
General Feedback
P164,000 favorable
The recovery factors considered in the strategic profitability analysis are the following:
General Feedback
Price, productivity, and growth
The cost of statistical quality control in a product quality cost system is categorized as a(n)
CMA 1295 3-14
General Feedback
Appraisal cost
Emerging management accounting techniques (target costing, target pricing, etc.) - Assessment
Increased competitions, technological innovation, and a shift from mass production of standardized
products to custom-produced products in many industries have increased the need for productivity
improvements and flexibility of production systems. In response to these demands, organizations have
increased their reliance on automation and the use of advanced technologies in their operations. Which of
the following is an example of the use of automation and advanced technologies?
General Feedback
Flexible manufacturing system (FMS).
The company uses a planning system that focuses first on the amount and timing of finished goods
demanded and then determines the derived demand for raw materials, components, and subassemblies at
each of the prior stages of production. This system is referred to as
General Feedback
Materials requirements planning.
In target costing,
General Feedback
The market price of the product is taken as a given
Life-cycle costing
General Feedback
Is sometimes used as a basis for cost planning and product pricing
Which of the following is a type of costing that refers to the continuous accumulations of small betterment
activities rather than innovative improvements?
General Feedback
Kaizen costing
Pricing models - Assessment

EFEM Corporation wishes to earn a 30% return on its P100,000 investment in equipment used to
produce product X. Based on estimated sales of P10,000 units of product X next year, the costs per
unit would be as follows:
Variable manufacturing costs P5
Fixed selling and administrative costs 2
Fixed manufacturing costs 1
At how much per unit should product X be priced for sale?

General Feedback
P 11
Penetration pricing
General Feedback
Involves the setting of a low initial price in order to gain widespread market acceptance.
Target pricing
General Feedback
Is a pricing strategy used to create competitive advantage.
Price-settings and market variance analysis - Assessment
The income statement of a trading firm, Ellen Corporation for the years 2017 and 2018 showed the
following gross margins on sales.
2017 2018 Change

Number of Units Sold 10,000 12,000 + 2,000
Sales Revenue P80,000 P97,200 + 17,200
Cost of Sales 50,000 72,000 + 22,000
Gross Margin P30,000 P25,200 + P(4,800)
Disappointed with the results of operations during 2018 the owner of the firm has asked for an accounting
of the decline in gross margin.
The change in gross margin due to the change in unit selling price is
General Feedback
P1,200 increase
Price variances are determined based on

General Feedback
Standard units
In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and

eliminating
All Cost Nonvalue-
Drivers Adding
Activities
General Feedback
No Yes
CMA 0696 3-30

New-Rage Cosmetics has used a traditional cost accounting system to apply quality control costs
uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for Satin
Sheen makeup is $27,500. In an attempt to distribute quality control costs more equitably, New-
Rage is considering activity-based costing. The monthly data shown in the chart below have been
gathered for Satin Sheen makeup.
Quantity
for
Activity Cost Driver Cost Rates Satin Sheen
Incoming material Type of $11.50 per 12 types
inspection material type
In-process Number of $0.14 per 17,500
inspection units unit units
Product Per order $77 per 25 orders
certification order
The monthly quality control cost assigned to Satin Sheen makeup using activity-based costing is
General Feedback
$525.50 higher than the cost using the traditional system
The income statement of a trading firm, Ellen Corporation for the years 2017 and 2018 showed the following
gross margins on sales.
2017 2018 Change

Number of Units Sold 10,000 12,000 + 2,000
Sales Revenue P80,000 P97,200 + 17,200
Cost of Sales 50,000 72,000 + 22,000
Gross Margin P30,000 P25,200 + P(4,800)
Disappointed with the results of operations during 2018 the owner of the firm has asked for an accounting
of the decline in gross margin.
The percentage of change in unit selling price is

General Feedback
1.25% increase
CMA 1296 3-28

The use of activity-based costing normally results in?
General Feedback
Substantially greater unit costs for low-volume products than is reported by traditional product costing

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Direct labor costs variances - Assessment

Weekly Production (Units)

CIA 0597 III-90

NOTE: DLH = Direct labor hours

Standard direct labor hours 75,000

What was SUPERIOR’s actual direct labor rate per hour?

Raw materials 3 kilos @ P1.00 per kilo P 3.00

Direct labor 1 hour @ P4.00 per hour 4.00

Overhead 75% of direct labor cost 3.00

Actual production of “Whippy” 2,000 units

Units sold of “Whippy” 1,250 units

Materials price variance 650

Materials quantity variance 500

Direct labor rate variance 380

Direct labor efficiency variance 400

Manufacturing overhead total variance 250

CMA 1291 3-1 to 4

Standard Standard Price Standard Cost

The direct labor usage (efficiency) variance for November is?

Standard direct labor rate P 6.00 per

What are the actual hours worked?

2. The labor bonus for the production in June is?

Direct materials 2 Kilos at P10 P 20.00

Total production in units 10,000 units

1.The direct labor efficiency variance for April was?

2. The direct labor efficiency variance is?

Data on standard costs:

The labor efficiency variance for April is?

CIA 0595 III-81 & 82

Planned production 2,000 units of Omega

The direct labor flexible budget variance was?

Annual budgeted fixed costs for normal capacity level of P600,000

Total hours used by professional staff 192,000 hours

The labor efficiency variance for the year is?

CMA 0696 3-22 to 25

Materials (purchased and used) 58 pounds at P1.65 per pound) P 95.70

1.The labor rate variance for May is?

2.The fixed cost spending variance for the year is

AICPA 1186 II-21

Standard hours allowed for actual production 2,000

What were the actual hours worked?

1. Standard costs per unit:

Labor rate variance is?

CMA 0692 3-18 to 21

1.The direct labor usage (efficiency) variance for May is?

2.The direct labor price (rate) variance for May is?

CIA 1189 IV-18

CMA 0692 3-18 to 21

Standard Standard Standard

The direct labor price (rate) variance for May is?

CIA 1191 IV-15

The actual operating results for the month were as follows:

Actual units produced 5,200

CMA 1294 3-26 to 30

Variable overhead (4 hours of P8/hour) P 32

The following additional information is available for the month of November.

The direct labor efficiency variance for November was

CIA 0590 IV-15