STANDARD COSTING with GP VARIANCE ANALYSIS

Question 1

1. A difference between standard costs used for production and the budgeted costs of the same effort can exist because
   a. Standard costs represent what costs should be, whereas budgeted costs are expected actual costs
   b. Budgeted costs are historical costs, whereas standard costs are based on engineering studies
   c. Budgeted costs include some slack, whereas standard costs do not
   d. Standard costs include some slack, whereas budgeted costs do not

Answer 1

a. Standard costs represent what costs should be, whereas budgeted costs are expected actual costs

Question 2

2. Variance analysis should be used
   a. To understand why variances arise
   b. To encourage employees to focus on meeting standards
   c. As the only source of information for performance evaluation
   d. To administer appropriate disciplinary action to employees that do not meet standards

Question 3

3. The production department should generally be responsible for material price variances that resulted from
   a. Purchases made in uneconomical lot-sizes.
   b. Rush orders arising from poor scheduling.
   c. Purchase of the wrong grade of materials.
   d. Changes in the market prices of raw materials.

Question 4

Items 4 and 5 are based on the following information

Rhum has a budgeted normal monthly capacity of 5,000 labor hours with a production of 4,000 units. Standards are:
Materials 2 kilos at P 1.00
Labor P 8.00 per hour
Factory overhead at normal capacity:
Fixed expenses P 5,000.00
Variable expenses P 1.50 per labor hour

During November, actual factory overhead totaled P 11,250 and 4,500 labor hours cost P 33,750. Production during the month was 3,500 units using 7,200 kilos of materials at a cost of P 1.20 per kilo.
4. What was the material purchase price variance?
a. P 1,440 U
b. P 3,440 U
c. P 204 F
d. P 2,187.50 F

Answer 4

a. P 1,440 U

Solution: Material purchase price variance (MPV): AQ (AP – SP) = 7,200 (1.20 – 1.00)

Question 5

5. What was the labor efficiency variance?
   a. P 2,250 U
   b. P 1,000 U
   c. P 2,187.50 F
   d. P 62.50 F

Answer 5

b. P 1,000 U
Solution: Labor efficiency variance: (AH – SH) SR = [4,500 – 3,500 (1.25*)] 8
* Standard hours per unit (based on normal capacity): 5,000 ÷ 4,000 = 1.25

Question 6

Items 6 to 8 are based on the following information
Vodka Company uses a standard cost system and prepared the following budget for May when 24,000 machine
hours of activity were projected: variable overhead, P 48,000; fixed overhead: P 240,000. Actual data for May were:

Standard machine hours allowed for output attained: 25,000
Variable overhead incurred: P 50,000
Actual machine hours worked: 24,000 Fixed overhead incurred: P 250,000

6. What was the standard variable overhead rate for May?
   a. P 2.00
   b. P 2.08
   c. P 5.00
   d. P 5.21

Answer 6

a. P 2.00
Solution: Standard variable overhead rate: P 48,000 ÷ 24,000 machine hours

Question 7

7. What were the variable-overhead (A) spending and (B) efficiency variances, respectively?
   a. P 0, P 0
   b. P 0, P 2,000 U
   c. P 2,000 U, P 0
   d. P 2,000 U, P 2,000 F

Answer 7

d. P 2,000 U, P 2,000 F
Solution: VFOH spending variance: AFOH (V) – BAAH (V) = 50,000 – 24,000 (2)
VFOH overhead efficiency variance: BAAH (V) – BASH (V) = (AH – SH) VR = (24,000 – 25,000) 2

Question 8

8. What were the fixed-overhead (A) budget and (B) volume variances, respectively?
   a. P 0, P 10,000 F
   b. P 10,000 F, P 0
   c. P 10,000 U, P 0
   d. P 10,000 U, P 10,000 F

Answer 8

d. P 10,000 U, P 10,000 F
Solution: FFOH budget (spending) variance: AFOH (F) – BAAH (F) = 250,000 – 240,000
FFOH volume variance: BASH (F) – SHSR (F) = 240,000 – 25,000 (240,000 ÷ 24,000)
NOTE: In standard cost variance analysis, under-applied = unfavorable (over-applied = favorable)

Question 9

9. Whiskey Company, which sells a single product, provided the following data:
   2024 2023
   Unit Sold 150,000 180,000
   Sales P 750,000 P 720,000
   a. Price: P 150,000 F, Volume: P 120,000 U c. Price: P 180,000 F, Volume: P 150,000 U
   b. Price: P 150,000 U, Volume: P 120,000 F d. Price: P 180,000 U, Volume: P 150,000 F

Answer 9

a. Price: P 150,000 F, Volume: P 120,000 U

Solution: Sales Price Variance: 150,000 (5 – 4) Sales Volume Variance: (150,000 – 180,000) 4

Question 10

10. Strategic analysis to operating income does not require determining:
    a. Price recovery component
    b. Cost recovery component
    c. Growth component
    d. Productivity component