MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 1 of 12
THEORY
Basic concepts1. The best characteristics of a standard cost system is A. all
variances from standard should be reviewedB. standard can pinpoint responsibility
and help motivationC. all significant unfavorable variances should
be reviewedD. standard cost involves cost control which is cost
reduction2. Standard costs are used for all of the following
except:
  A. controlling costsC. income determination B. forming a basis for price setting D.
measuring efficiencies3. Standard costs are least useful for A. Determining minimum
inventory levelsC. Measuring production efficiencyB.
Job order production systems D. Simplifying costing procedures4. To which of the
following is a standard cost nearly like? A. Budgeted
cost.C. Period cost.B. Estimated cost. D. Product cost.5. A difference between
standard costs used for cost control and budgeted costs A. Can exist because
standard costs must be determined after the budget is completed.B. Can exist
because budgeted costs are historical costs while standard costs are based
onengineering studies.C. Can exist because establishing budgeted costs involves
employee participation andstandard costs do not.D. Can exist because standard
costs represent what costs should be while budgeted costsrepresent expected actual
costs.6. Normal costing and standard costing differ in that A. normal costing is less
appropriate for multiproduct firmsB. only normal costing can be used with
absorption costing.C. the two systems can show different overhead budget
variances.D. the two systems show different volume variances if standard hours do
not equal actualhours.7. If a company wishes to establish factory overhead budget
system in which estimated costscan be derived directly from estimates of activity
levels, it should prepare a A. Capital budget. C. Fixed
budget.B. Discretionary budget.D. Flexible budget. 8. Lanta Restaurant compares
monthly operating results with a static budget. When actual salesare less than budget,
would Lanta usually report favorable variances on variable food costsand fixed supervisory
salaries. A.B.C. D.Variable food costs YesYesNo NoFixed supervisory salaries YesNoYes
No9. The primary difference between a fixed (static) budget and a variable (flexible)
budget is that afixed budget: A. includes only fixed costs; while variable budget
includes only variable costsB. cannot be changed after the period begins; while a
variable budget can be changed afterthe period beginsC. is concerned only with
future acquisitions of fixed assets; while a variable budget isconcerned with
expenses that vary with salesD. is a plan for a single level of sales (or other measure
of activity); while a variable budgetconsists of several plans, one for each of several
levels of sales (or other measure ofactivity)10. Standard costing will produce the
same results as actual or conventional costing whenstandard cost variances are
distributed to A. A balance sheet account C. Cost of goods soldB. An income
or expense accountD. Cost of goods sold and inventories 
 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 2 of 1211. Which of the following
term is best identified with a system of standard cost? A. Contribution
approach. C. Marginal
costing.B. Management by exception. D. Standard accounting system.Standard
setting12. Which one of the following terms best describes the rate of output which
qualified workers canachieve as an average over the working day or shift, without
over-exertion, provided theyadhere to the specified method of working and are well
motivated in their work? A. Standard hours C. Standard
timeB. Standard performanceD. Standard unit13. When standard costs are used in a
process-costing system, how, if at all, are equivalent unitsof production (EUP)
involved or used in the cost report at standard? A. Equivalent units are not
used.B. Equivalent units are computed using a special approach.C. The standard
equivalent units are multiplied by the actual cost per unit.D. The actual equivalent
units are multiplied by the standard cost per unit.14. The type of standard that is
intended to represent challenging yet attainable results is: A. controllable cost
standardD. normal standardB. expected actual standard E. theoretical standardC. fle
xible budget standard15. A company using very tight standards in a standard cost
system should expect that A. No incentive bonus will be paidB. Most variances will
be unfavorableC. Employees will be strongly motivated to attain the
standardD. Costs will be controlled better than if lower standards were used16. A
predetermined overhead rate for fixed costs is unlike a standard fixed cost per unit in
that apredetermined overhead rate is A. likely to be higher than a standard fixed cost
per unit.B. used with variable costing while a standard fixed cost is used with
absorption costing.C. based on practical capacity and a standard fixed cost can be based on
any level ofactivity.D. based on an input factor like direct labor hours and a standard
cost per unit is based on aunit of output.17. The variable factory overhead rate under
the normal volume, practical capacity, and expectedactivity levels would be
the A. Same except for expected capacity C. Same except for practical
capacityB. Same except for normal volumeD. Same for all three
activity levelsMaterials & labor variances18. For the doughnuts of McDonut Co. the
Purchasing Manager decided to buy 65,000 bags offlour with a quality rating two
grades below that which the company normally purchased. Thispurchase covered
about 90% of the flour requirement for the period. As to the materialvariances, what
will be the likely effect? A.B.C.
D.Price variance FavorableFavorableUnfavorable No effectUsage variance FavorableUnfav
orableFavorable Unfavorable19. What type of direct material variances for price and
usage will arise if the actual number ofpounds of materials used was less than
standard pounds allowed but actual cost exceedsstandard cost? A.B.C. D.Usage
FavorableFavorableUnfavorable UnfavorablePrice FavorableUnfavorableFavorable
Unfavorable20. The journal entry to record the direct materials quantity variance may
be recorded A. Only when direct materials are purchasedB. When inventory is
taken at the end of the year.C. Only when direct materials are issued to
productionD. Either (A) or (C)

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 3 of 1221. A manager prepared
the following table by which to analyze labor costs for the month: Actual
Hours at Actual Rate Actual Hours atStandard RateStandard Hours atStandard
Rate$10,000 $9,800 $8,820What variance was $980? A. Labor efficiency
variance. C. Labor spending variance.B. Labor rate variance. D. Volume variance.22. 
A credit balance in the labor efficiency variance indicates that: A. actual hours
exceed standard hoursB. standard hours exceed actual hoursC. actual rate and
actual hours exceed standard rate and standard hoursD. standard rate and standard
hours exceed actual rate and actual hours23. A debit balance in the labor efficiency
variance indicates that A. Actual hours exceed standard hours.C. Standard
hours exceed actual
hours.B. Actual rate exceeds standard rate. D. Standard rate exceeds actual rate.24. I
f the actual labor rate exceeds the standard labor rate and the actual labor hours
exceed thenumber of hours allowed, the labor rate variance and labor efficiency
variance will
be A. B. C.D.Labor Rate Variance Favorable Favorable UnfavorableUnfavorableLabor Efficie
ncy Variance Favorable Unfavorable FavorableUnfavorable25. The variance resulting from
obtaining an output different from the one expected on the basis ofinput is
the: A. efficiency variance C. usage
varianceB. mix varianceD. yield variance Overhead variances26. In the analysis of
standard cost variances, the item which receives the most diverse treatmentin
accounting is A. Direct labor
costC. Factory overhead cost B. Direct material cost D. Variable cost.27. The total
overhead variance is A. Based on actual hours worked for the units produced.B. The
difference between budgeted overhead and applied overhead.C. The difference
between actual overhead costs and applied overhead.D. The difference between
actual overhead costs and budgeted overhead.28. When expenses estimated for the
capacity attained differ from the actual expenses incurred,the resulting balance is
termed the A. Activity variance. C. Unfavorable
variance.B. Budget variance. D. Volume variance.29. If a company uses a
predetermined rate for absorption of manufacturing overhead, the volumevariance
is A. The under- or over-applied fixed cost element of overhead.B. The under- or
over-applied variable cost element of overhead.C. The difference between budgeted
cost and actual cost of fixed overhead items.D. The difference between budgeted
cost and actual cost of variable overhead items.30. The production volume variance
occurs when using the A. Absorption costing approach because of production
exceeding the sales.B. Variable costing approach because of sales exceeding the
production for the period.C. Variable costing approach because of production
exceeding the sales for the period.D. Absorption costing approach because
production differs from that used in setting the fixedoverhead rate used in applying
fixed overhead to production.31. Henley Company uses a standard cost system in
which it applies manufacturing overhead tounits of product on the basis of direct
labor hours. For the month of January, the fixedmanufacturing overhead volume variance
was $2,220 favorable. The company uses a fixed
 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 4 of 12manufacturing overhead
rate of $1.85 per direct labor hour. During January, the standarddirect labor hours
allowed for the month's output: A. exceeded denominator hours by 1,000. C. fell
short of denominator hours by 1,000.B. exceeded denominator hours by 1,200.D. fell
short of denominator hours by 1,200.32. Using the two-variance method for analyzing
overhead, which of the following variancescontains both variable and fixed overhead
elements? A. B.C.D.Controllable (Budget) Variance Yes YesYesNoVolume Variance Yes Ye
sNoNoEfficiency Variance Yes NoNoNo33.
During 1990, a department’s three
-variance factory O/H standard costing system reportedunfavorable spending and
volume variances. The activity level selected for allocating factoryO/H to the product
was based on 80% of practical capacity. If 100% of practical capacity hadbeen
selected instead, how would the reported unfavorable spending and volume
varianceshave been affected? A. B.C.D.Spending Variance
Increased IncreasedUnchangedUnchangedVolume Variance Increased UnchangedIncreasedU
nchanged34. A spending variance for variable factory O/H based on direct labor hours
is the differencebetween actual variable factory O/H and the variable factory O/H that should
have beenincurred for the actual hours worked. This variance results from A. Price differences
for overhead costsB. Quantity differences for overhead costsC. Price and quantity
differences for overhead costs.D. Differences caused by production volume
variationResponsibility for variances35. Which department is typically responsible for
a materials price variance? A. Engineering.C.
Purchasing. B. Production. D. Sales.36. Under a standard cost system, the materials
efficiency variance are the responsibility of A. Production and industrial
engineering. C.
Purchasing and sales.B. Purchasing and industrial engineering. D. Sales and industrial 
engineering.37. Which of the following people is most likely responsible for an
unfavorable variable overheadefficiency variance? A. accountant C. purchasing
agentB. production supervisorD. supplier38. Which of the following standard costing
variances would be least controllable by a productionsupervisor? A. Labor
efficiency. C. Overhead
efficiency.B. Materials usage.D. Overhead volume. Investigating variances39. Manag
ement scrutinizes variances because A. It is desirable under conventional knowledge
on good management.B. Management needs to determine the benefits foregone by
such variances.C. Management desires to detect such variances to be able to plan
for promotions.D. Management recognizes the need to know why variances happen
to be able to makecorrective actions and fairly reward good performers.40. A
company reported a significant materials efficiency variance for the month of
January. All ofthe following are possible explanations for this variance
except A. Cutting back preventive maintenance.B. Processing a large number of rush
orders.C. Inadequately training and supervising the labor force.D. Producing more
units than planned for in the master budget.41. Which variance is LEAST likely to be
affected by hiring workers with less skill than those

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 5 of 12already working? A. Labor
rate variance. C. Material use
variance.B. Material price variance.D. Variable overhead efficiency variance.42. Whic
h of the following unfavorable variances is directly affected by the relative position of
aproduction process on a learning curve? A. Materials
mix.C. Labor efficiency. B. Materials price. D. Labor rate.43. Which one of the
following would not explain an adverse direct labor efficiency variance? A. A
reduction in direct labor trainingB. Poor scheduling of direct
labor hoursC. Unusually lengthy machine breakdownsD. Setting standard efficiency at a
level that is too low44. Which of the following is the most probable reason a company would
experience anunfavorable labor rate variance and a favorable efficiency
variance? A. Defective materials caused more labor to be used to product a standard
unit.B. Because of the production schedule, workers from other production areas were
assignedto assist in this particular process.C. The mix of workers assigned to the
particular job was heavily weighted toward the use ofhigher-paid, experienced
individuals.D. The mix of workers assigned to the particular job was heavily weighted
toward the use ofnew, relatively low-paid unskilled workers.45. You used predetermined
overhead rates and the resulting variances when compared with theresults using the actual
rates were substantial. Production data indicated that volumes werelower than the
plan by a large difference. This situation can be due to A. Overhead costs being
recorded as planned.B. Overhead being substantially composed of fixed
costs.C. Overhead being substantially composed of variable costs.D. Products
being simultaneously manufactured in single runs.46. Overapplied factory overhead
results when A. A plant is operated at less than its normal capacity.B. Factory
overhead costs incurred are less than the costs charged to production.C. Factory
overhead costs incurred are greater than the costs charged to production.D. Factory
overhead costs incurred are unreasonably large in relation to the number of
unitsproduced.
PROBLEMS
Flexible budget1. Premised on past experience, Mayo Corp. adopted the following
budgeted formula for
estimating shipping expenses. The company’s shipments average 12 kilos per
shipment.
 Shipping costs = P8,000 + (0.25 x kgs. shipped)Planned
ActualSales order 800 780Shipments 800 820Units shipped 8,000 9,000Sales 240,000 28
8,000Total kilograms shipped 9,600 12,300The actual shipping costs for the month
amounted to P10,500. The appropriate monthlyflexible budget allowance for shipping
costs for purposes of performance evaluation would be A. P10,250 C. P10,400B.
P10,340D. P11,075 Standard setting2. Hankies Unlimited has a signature scarf for
ladies that is very popular. Certain production andmarketing data are indicated
below:Cost per yard of cloth P36.00 Allowance for rejected scarf 5% of
productionYards of cloth needed per scarf 0.475 yard Airfreight from
supplier P0.60/yard
 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 6 of 12Motor freight to customers 
P0.90 /scarfPurchase discounts from supplier 3%Sales discount to customers 2%The
allowance for rejected scarf is not part of the 0.475 yard of cloth per scarf. Rejects
haveno market value. Materials are used at the start of production.Calculate the
standard cost of cloth per scarf that Hankies Unlimited should use in its
costsheets. A. P16.87C. P17.76 B. P17.30 D. P18.213. The following direct
labor information pertains to the manufacture of product
Glu:Time required to make one unit 2 direct labor hoursNumber of direct workers 50
Number of productive hours per week, per worker 40Weekly wages per worker $500
Workers’ benefits treated as direct labor costs
 20% of wagesWhat is the standard direct labor cost per unit of product
Glu? A. $12. C. $24.B. $15.D. $30. 4. 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 ofexpected
production level at the rate of P5.20 per unit. The variable overhead cost per unit
is A. P2.57 C. P2.93B. P2.63D. P3.02Materials variances5. ChemKing uses a
standard costing system in the manufacture of its single product. The35,000 units of
raw material in inventory were purchased for $105,000, and two units of rawmaterial
are required to produce one unit of final product. In November, the
companyproduced 12,000 units of product. The standard allowed for material was
$60,000, and therewas an unfavorable quantity variance of $2,500. The materials
price variance for the unitsused in November was A. $2,500 U C. $11,000
UB. $3,500 FD. $12,500 U6. The Porter Company has a standard cost system. In July the
company purchased and used22,500 pounds of direct material at an actual cost of
$53,000; the materials quantity variancewas $1,875 Unfavorable; and the standard
quantity of materials allowed for July productionwas 21,750 pounds. The materials
price variance for July was: A. $2,725
F.C. $3,250 F. B. $2,725 U. D. $3,250 U.7. Cox Company's direct material costs for
the month of January were as follows: Actual quantity purchased 18,000
kilograms Actual unit purchase price $ 3.60 per kilogramMaterials price variance
 –
 unfavorable (based on purchases) $ 3,600Standard quantity allowed for actual productio
n 16,000 kilograms Actual quantity used 15,000 kilogramsFor January there was
a favorable direct material quantity variance of A. $3,360.C.
$3,400. B. $3,375. D. $3,800.8. ALPHA Co. uses a standard cost system. Direct
materials statistics for the month of May,19x7 are summarize
below:Standard unit price P90.00 Actual units
purchased 40,000Standard units allowed for actual production 36,250Materials price 
variance- favorable P6,000What was the actual purchase price per
unit? A. P75.00 C. P88.50B. P85.89D. P89.859. JKL Company has a standard of 15 parts
of component X costing P1.50 each. JKL purchased

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 7 of 1214,910 units of component
X for P22,145. JKL generated a P220 favorable price variance anda P3,735
favorable quantity variance. If there were no changes in the component
inventory,how many units of finished product were produced? A. 994 units. C. 1,090
units.B. 1,000 unitsD. 1,160 units Questions 10 and 11 are based on the following
information.Valenzuela Plastics Inc. has set a standard cost, P5.25 per unit for
Material D and P12.25 per unitfor Material E. In June, Valenzuela bought 17,500
units of Material D and 8,750 units of Material E. All Material D, except 1,400 units
were bought at the standard unit cost. The 1,400 units had a unitcost of
P6.15. Valenzuela bought 7,875 units of Material E at standard cost and 875 units at
a unitcost of P14.In accordance with the standard two units of Material D and one
unit of Material E should be usedto make each unit of Product F. In January, 7,000
units of Product F were made and 15,050 unitsof Material D were used and 7,175
units of Material E were used.10. The total materials price variance is A. P2,791.25
F C. P13,781.25 FB. P2,791,25 UD. P13,781.25 U11. The total materials quantity
variance is A. P7,656.25 F C. P13,781.25 FB. P7,656.25 UD. P13,781.25 ULabor
variances12. Pane Company's direct labor costs for April are
as follows:Standard direct labor hours 42,000 Actual direct labor
hours 41,200Total direct labor payroll $247,200Direct labor efficiency variance
 –
 favorable $3,840What is Pane's direct labor rate variance? A. $44,496 U C. $49,440
FB. $49,440 U D. $50,400 F13. TAMARAW, Inc. has a maintenance shop where
repairs to its motor vehicles are done.
During last month’s labor strike, certain recorded were lost. The actual input of direct
labor
hours was 1,000, and the resulting direct labor budget variance was a favorable
P3,400. Thestandard direct labor rate was P28.00 per hour, but an unexpected labor
shortagenecessitated the hiring of higher-paid workers for some jobs and had
resulted in a ratevariance of P800. The actual direct labor rate was A. P27.20 per
hour C. P30.25 per hourB. P28.80 per hour  D. P31.40 per hour14.
 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
ofP240,000. The actual results revealed that direct labor incurred amounted to
P1,148,000 andthat the unfavorable variable overhead variance was P40,000. Labor
trouble caused anunfavorable labor efficiency variance of P120,000, and new
employees hired at higher ratesresulted in an actual average wage rate of P16.40
per hour. The total number of standarddirect labor hours allowed for the actual units
produced is A. 52,500C. 62,500 B. 60,000 D. 70,00015. To improve productivity, ST.
MICHAEL Corp. instituted a bonus plan where employees arepaid 75% of the time
saved when production performance exceeds the standard level ofproduction. The
company computes the bonus on the basis of four-week periods. Thestandard
production is set at 3 units per hour. Each employee works 37 hours per week,
andthe wage rate is P24 per hour. Below are data for one 4-week period:Weekly
Production (Units)Employee 1st 2nd 3
rd
 4
th
 Total ALAN 107 100 110 108 425JOEL 104 110 115 115 444ROMY 108 112
112 133 465TONY 123 120 119 124 486

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 8 of 12The employee who
had the inconsistent performance (sometimes performing below standard)but got a
bonus is A. Alan = P36
bonus.C. Romy = P126 bonus.B. Joel = P54 bonus. D. Tony = P252 bonus.Overhead
variances16. The
following were among Gage Co.’s 2000 costs:
 Normal spoilage $ 5,000Freight out 10,000Excess of actual manufacturing costs over stand
ard costs 20,000Standard manufacturing costs 100,000 Actual prime manufacturing
costs 80,000
Gage’s 2000 actual manufacturing overhead was
 A. $40,000C. $55,000B. $45,000 D. $120,00017. At the beginning of the year, Smith
Inc. budgeted the following:Units 10,000Sales
$100,000Minus:Total variable expenses 60,000Total fixed expenses 20,000Net incom
e $ 20,000Factory overhead:Variable $ 30,000Fixed 10,000There were no beginning
inventories. At the end of the year, no work was in process, totalfactory overhead
incurred was $39,500, and underapplied factory overhead was $1,500.Factory
overhead was applied on the basis of budgeted unit production. How many units
wereproduced this year? A. 9,500.C. 10,000.B. 9,875. D. 10,250.18. Daly had a
$18,000 favorable volume variance, a $15,000 unfavorable variable
overheadspending variance, and $12,000 total over-applied overhead. The fixed
overhead budgetvariance was A. $9,000
F.C. $16,000 U.B. $16,000 F. D. 49,000 U.19. Universal Company uses a standard
cost system and prepared the following budget at normalcapacity for the month
of January:Direct labor hours 24,000Variable factory O/H $48,000Fixed factory O/H 
$108,000Total factory O/H per DLH $6.50 Actual data for January were as
follows:Direct labor hours worked 22,000Total factory O/H $147,000Standard DLH all
owed for capacity attained 21,000Using the two-way analysis of O/H variances, what
is the budget (controllable) variance forJanuary? A. $3,000
F.C. $10,500 U.B. $9,000 F. D. $13,500 U.20. JKL Co. has total budgeted fixed costs
of P75,000. Actual production of 19,500 units resultedin a $3,000 favorable volume
variance. What normal capacity was used to determine the fixedoverhead
rate? A. 16,500C. 18,750 B. 17,590 D. 20,31321. TYD, Inc. reported the following
data for 1996:

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
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 STANDARD COSTING & VARIANCE ANALYSIS Page 9 of 12 Actual
hours 120,000Denominator hours 150,000Standard hours allowed for output 140,000Fix
ed predetermined overhead rate P6 per hourVariable predetermined overhead rate P4 pe
r hour
TYD’s 1996 volume variance was
 A. P60,000 favorable.B. No volume variance.C. P60,000 under-applied.D. P60,000
which is neither favorable nor under-applied.22. Peters Company uses a flexible
budget system and prepared the following information for theyearPercentage of
total capacity80%
90%Direct labor hours 24,000 27,000Variable factory O/H $48,000 $54,000Fixed fact
ory O/H $108,000 $108,000Total factory O/H rate per DLH $6.50 $6.00Peters
operated at 80% capacity during the year but applied factory overhead based on
the90% capacity level. Assuming that actual factory O/H was equal to the budgeted
amount forthe attained capacity, what is the amount of O/H variance for the
year? A. $6,000 over-absorbed. C. $6,000 under-absorbed.B. $12,000 over-
absorbed.D. $12,000 under-absorbed.23. Patridge Company uses a standard cost
system in which it applies manufacturing overhead tounits of product on the basis of
direct labor hours. The information below is taken from thecompany's flexible budget
for manufacturing
overhead:Percent of capacity 70% 80% 90%Direct labor hours 21,000 24,000 27,000Va
riable overhead $ 42,000 $ 48,000 $ 54,000Fixed overhead 108,000 108,000 108,00
0Total overhead $150,000 $156,000 $162,000During the year, the company
operated at exactly 80% of capacity, but applied manufacturingoverhead to products
based on the 90% level. The company's fixed overhead volume variancefor the year
was: A. $6,000 F. C. $12,000 F.B. $6,000 U.D. $12,000 U Problems 24 and 25
are based on the following information.The MABINI CANDY FACTORY has the following
budgeted factory overhead
costs:Budgeted fixed monthly factory overhead costs P85,000Variable factory overhead P4.
00 per direct labor hourFor the month of January, the standard direct labor hours
allowed were 25,000. An analysis of thefactory 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-wayanalysis of factory overhead
variances.24. The actual factory overhead incurred in January
was A. P103,500 C. P186,200B. P181,500D. P188,500 25. The applied factory
overhead in January was A. P103,500C.
P186,200 B. P183,800 D. P188,500Questions 26 thru 28 are based on the following
information.The Murray Company makes and sells a single product. The company
recorded the followingactivity and cost data for
May:Number of units completed 45,000 unitsStandard direct labor-hours allowed per 
unit of product 1.5 DLHSBudgeted direct labor-hours (denominator activity) 72,000 D
LHS Actual fixed overhead costs incurred $66,000Volume variance $4,275 U
 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
 –
 STANDARD COSTING & VARIANCE ANALYSIS Page 10 of 12The fixed portion of the
predetermined overhead rate is $0.95 per direct labor-hour.26. The amount of fixed
overhead contained in the company's overhead flexible budget for
Maywas: A. $64,125.C. $68,400. B. $67,500. D. $70,275.27. The amount of fixed
manufacturing overhead cost applied to work in process during May
was: A. $42,750. C. $62,700.B. $61,725.D. $64,125. 28. The fixed overhead budget
variance for May was: A. $2,400 F.C. $6,000 F.B. $2,400 U. D. $6,000 U.29. Web
Company uses a standard cost system in which manufacturing overhead is applied
tounits of product on the basis of machine hours. During February, the company
used adenominator activity of 80,000 machine hours in computing its predetermined
overhead rate.However, only 75,000 standard machine hours were allowed for
the month's actual production.If the fixed overhead volume variance for February was
$6,400 unfavorable, then the totalbudgeted fixed overhead cost for the month
was: A. $96,000. C. $100,000.B. $98,600.D. $102,400. 30. Given for the variable
factory overhead of GHI Products, Inc.: P39,500 actual input atbudgeted rate, P41,500
flexible budget based on standard input allowed for actual output,P2,500 favorable flexible
budget variance. Compute the spending variance. A. P500
favorable.C. P2,000 favorable.B. P500 unfavorable. D. P2,000 unfavorable.31. The
following information is available from the Tyro Company: Actual factory
O/H $15,000Fixed O/H expenses, actual $7,200Fixed O/H expenses, budgeted $7,0
00 Actual
hours 3,500Standard hours 3,800Variable O/H rate per DLH $2.50 Assuming that Tyr
o uses a three-way analysis of O/H variances, what is the spendingvariance? A. $200
U C. $750 U.B. $750 F.D. $950 F32. At Overland Company, maintenance cost is
exclusively a variable cost that varies directly withmachine-hours. The performance
report for July showed that actual maintenance costs totaled$9,800 and that the
associated spending variance was $200 unfavorable. If 8,000 machine-hours were
actually worked during July, the budgeted maintenance cost per machine-
hourwas: A. $1.20. C. $1.25.B. $1.225. D. $1.275.Questions 33 & 34 are based on
the following information.Raff Co. has a standard cost system in which manufacturing
overhead is applied to units of producton the basis of direct labor hours (DLHs). The following
standards are based on 100,000 directlabor
hours:Variable overhead 2 DLHs @ $3 per DLH = $6 per unitFixed overhead 2 DLHs @ $4 
per DLH = $8 per unitThe following information pertains operations during
March:Units actually produced 38,000 Actual direct labor hours worked 80,000 Actual
manufacturing
overhead incurred:Variable overhead $250,000Fixed overhead $384,00033. For
March, the variable overhead spending variance was:

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
 –
 STANDARD COSTING & VARIANCE ANALYSIS Page 11 of 12 A. $6,000 F. C. $12,000
U.B. $10,000 U.D. $22,000 F.34. For March, the fixed overhead volume variance
was: A. $80,000 F. C. $96,000 F.B. $80,000 U.D. $96,000 U. Total
variance35. KNOTTY, Inc. estimated the cost of a project it started in October 19x4
as follows: Directmaterials, P495,000; direct labor, 6,000 hours at P30 per hour;
variable overhead, P24 perdirect labor hour. By the end of the month, all the required
materials have been used atP491,900; labor was 80% complete at 4,650 hours at P30 per
hour; and, the variableoverhead amounted to P113,700. The total variance for the
project as at the end of the monthwas A. P7,500 U C. P9,000
FB. P8,400 UD. P9,100 F 36. A defense contractor for a government space project has incurred
$2,500,000 in actual designcosts to date for a guidance system whose total budgeted
design cost is $3,000,000. If thedesign phase of the project is 60% complete, what is
the amount of the contractor's currentoverrun or savings on this design work? A. $300,000
savings. C. $500,000 savings.B. $500,000 overrun.D. $700,000 overrun.37. SUPER
Co. at normal capacity, operates at 600,000 labor hours with standard labor rate
ofP20 per hour. Variable factory overhead is applied at the rate of P12 per labor hour. Fourunits
should be completed in an hour.Last year, 1,350,000 units were produced using
300,000 labor hours. All labor hours werepaid at the standard rate, and actual
overhead cost consisted of P3,738,000 for variable itemsand P3,000,000 fixed
items.The total labor and overhead costs saved, by producing at more than standard,
amounted to A. P450,000 C. P750,000B. P500,000D. P1,200,000 Normal
costing38. Nil Co. uses a predetermined factory O/H application rate based on direct
labor cost. For the
year ended December 31, Nil’s budgeted factory O/H was $600,000, based on a
budgeted
volume of 50,000 direct labor hours, at a standard direct labor rate of $6 per
hour. Actualfactory O/H amounted to $620,000, with actual direct labor cost of
$325,000. For the year,over-applied factory O/H was A. $20,000C.
$30,000B. $25,000 D. $50,00039. MNO Company applies overhead at P5 per direct labor
hour. In March 2001, MNO incurredoverhead of P120,000. Under applied overhead
was P5,000. How many direct labor hoursdid MNO work? A. 25,000 C. 24,000B. 22,000D.
23,00040. Margolos, Inc. ends the month with a volume variance of $6,360
unfavorable. If budgetedfixed factory O/H was $480,000, O/H was applied on the
basis of 32,000 budgeted machinehours, and budgeted variable factory O/H was
$170,000, what were the actual machine hours(AH) for the month? A. 31,576C.
32,000B. 31,687 D. 32,42441. ABC Company uses the equation P300,000 + P1.75
per direct labor hour to budgetmanufacturing overhead. ABC has budgeted 125,000
direct labor hours for the year. Actualresults were 110,000 direct labor hours,
P297,000 fixed overhead, and P194,500 variableoverhead. What is the fixed
overhead volume variance for the year? A. P2,000 F C. P35,000
U.B. P3,000 FD. P36,000 U. Comprehensive

 
MANAGEMENT ADVISORY SERVICES HILARIO TANMSQ-03
 –
 STANDARD COSTING & VARIANCE ANALYSIS Page 12 of 12Questions 42 and 43
are based on the following information.Based on normal capacity operations, Sta. Ana
Company employs 25 workers in its RefiningDepartment, working 8 hours a day, 20 days
per month at a wage rate of P6 per hour. At normalcapacity, production in the
department is 5,000 units per month. Indirect materials average P0.25per direct labor
hour; indirect labor cost is 12½% of direct labor cost; and other overhead are
P0.15per direct labor hour.The flexible budget at the normal capacity activity level
follows:Direct materials P 4,000Direct labor 24,000Fixed factory overhead 1,200Indirect 
materials 1,000Indirect labor 3,000Other overhead 600Total P 33,800Cost per unit P 6.
7642. The cost per unit at 60% capacity is A. P6.00 C. P6.82B. P6.50D.
P6.92 43. The total production cost for one month at 80% capacity is A. P20,760C.
P27,280 B. P21,500 D. P30,160
ANSWER KEYTheory Problem
1. B 26. C 1. D 26. C2. C 27. C 2. C 27. D3. A 28. B 3. D 28. A4. A 29. A 4. B 29. D5. 
D 30. D 5. D 30. A6. D 31. B 6. C 31. B7. D 32. C 7. C 32. A8. B 33. C 8. D 33. B9. D 
34. C 9. D 34. D10. D 35. C 10. B 35. D11. B 36. A 11. B 36. D12. B 37. B 12. B 37. 
D13. D 38. D 13. B 38. C14. D 39. D 14. C 39. D15. B 40. D 15. C 40. A16. D 41. B 1
6. A 41. D17. D 42. C 17. A 42. D18. B 43. D 18. A 43. C19. B 44. C 19. A20. C 45. B 
20. C21. A 46. B 21. C22. B 22. D23. A 23. D24. D 24. D25. D 25. C
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