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Standard/Variance

1. A primary purpose of using a standard cost system is


a. to make things easier for managers in the production facility
b. to provide a distinct measure of cost control
c. to minimize the cost per unit of production
d. b and c are correct
2. The standard cost card contains quantities and costs for
a. direct material only
c. direct material and direct labor only
b. direct labor only
d. direct material, direct labor, and overhead
3. Which of the following statements regarding standard cost systems is true?
a. Favorable variances are not necessarily good variances
b. Managers will investigate all variances from standard
c. The production supervisor is generally responsible for material price variances
d. Standard costs cannot be used for planning purposes since costs normally change in the future
4.

Which of the following factors should not be considered when deciding whether to investigate a
variance?
a. magnitude of the variance
b. trend of the variances over time
c. likelihood that an investigation will reduce or eliminate future occurrences of the variance
d. whether the variance is favorable or unfavorable

Forrest Company uses a standard cost system for its production process and applies overhead based
on direct labor hours. The following information is available for August when Forrest made 4,500
units:
Standard:
DLH per unit
Variable overhead per DLH
Fixed overhead per DLH
Budgeted variable overhead
Budgeted fixed overhead

2.50
P 1.75
P 3.10
P 21,875
P 38,750

Actual:
Direct labor hours
Variable overhead
Fixed overhead

10,000
P 26,250
P 38,000

5.

Using the one-variance approach, what is the total overhead variance?


a. P 6,062.50 U
b. P 3,625 U
c. P 9,687.50 U

d. P 6,562.50 U

6.

Using the two-variance approach, what is the controllable variance?


a. P 5,812.50 U
b. P 5,812.50 F
c. P 4,375 U

d. P 4,375 F

Items 45 to 49 are based on the following information


Rosario Company uses a standard cost system for its production process and applies
overhead based on direct labor hours. The following information is available for August
when Rosario made 4,500 units.
Standard:
DLH per unit
Variable overhead per DLH
Fixed overhead per DLH
Budgeted variable overhead
Budgeted fixed overhead

P 2.50
1.75
3.10
21,875
38,750

Actual:
Direct labor hours
Variable overhead
Fixed overhead
1.

2.

3.

4.

5.

1.

10,000
P 26,250
38,000

a.
b.
c.
d.

Using one-variance approach, what is the total overhead variance?


P 9,687.50 under-applied
P 9,687.50 over-applied
P 3,625.00 under-applied
P 3,625.00 over-applied

a.
b.
c.
d.

Using two-variance approach, what is the overhead volume variance?


P 750 favorable
P 750 unfavorable
P 3,875 favorable
P 3,875 unfavorable

a.
b.
c.
d.

Using three-variance approach, what is the overhead efficiency variance?


P 2,187.50 favorable
P 2,187.50 unfavorable
P 3,875.00 favorable
P 3,875.00 unfavorable

a.
b.
c.
d.

Using four-variance approach, what is the fixed overhead spending variance?


P 750 favorable
P 750 unfavorable
P 3,125 favorable
P 3,125 unfavorable

a.
b.
c.
d.

Using four-variance approach, what is the variable overhead spending variance?


P 6,562.50 favorable
P 6,562.50 unfavorable
P 8,750.00 favorable
P 8,750.00 unfavorable

Apple Shoe Shop is preparing its cash budget for the month of May. Apple pays 60% of purchases
in the month of purchase and the remainder the next month. Operational information follows:
Beginning inventory, May 1
P 20,000
Estimated May cost of goods sold
100,000
Estimated May ending inventory
35,000
April purchases
90,000
What are Apples estimated cash payments for shoes in May?
a. P 115,000
b. P 105,000
c. P 87,000
d. P 70,000

2.

Lemons inventory increased during the year. On the basis of this information, income reported
under absorption costing
a. Will be the same as that reported under variable costing
b. Will be higher than that reported under variable costing
c. Will be lower than that reported under variable costing
d. Will differ from that reported under variable costing, the direction of which cannot be
determined from the information given

3.

A company that desires to lower its break-even point should strive to


a. Decrease selling prices
c. Increase fixed costs

b.

Reduce variable costs

d. Sell more units

4.

Orange Company produced 4,000 units product. Each unit requires 30 minutes to produce. The
standard labor rate is P 12 per hour. The direct labor payroll for the period was P 22,000, based on
an hourly rate of P 10. What is the direct labor rate variance?
a. P 4,400 favorable
c. P 2,000 unfavorable
b. P 3,750 unfavorable
d. P 2,400 unfavorable

5.

Refer to Orange Company, what is the direct labor efficiency variance?


a. P 4,400 favorable
c. P 2,000 unfavorable
b. P 3,750 unfavorable
d. P 2,400 unfavorable

Items 5 and 6 are based on the following information


Anthony operates Tiny Tony Nursery which provides baby-sitting services for children
between 2 to 5 years old. Working mothers leave their children at 8:00 am and pick
them on after office hours.
Anthony converted his house into a nursery home where children are provided with
sleeping areas, play pen, and study areas, as well as meals, milk, and snacks. Nursery
fee is computed by adding a markup to the total cost of service provided to each child.
At present, Anthony uses the traditional costing system in computing the cost of service
per child, where the total cost is divided by the number of children served.
During the previous month, the nursery served 100 children, for which the company
incurred P50,000 total cost of service. Anthony observed, however, that it is not right to
just divide the total cost by the number of children because incurrence of some costs
may vary depending on some factors. For example, children between 2 to 3 years old
need more attention and are provided more service than those above 3 years old.
Considering this, Anthony plans to apply ABC system in determining the cost of service
per child. He conducted a study of the previous months operations, and the following
results came out:
Cost Drivers
Cost
Meals, snacks, supplies
P20,000
Caregiving (nursing assistance
& tutorials
P30,000
Children Category
Babies (2 3 years old)
Kiddies (above 3 years old)

Cost Driver
Number of children

Cost driver quantity


100 children

Staff hours

1,200 staff hours

Number of Children
60
40

Staff Hours
1,000
200

6.

If the traditional costing system were used and nursery fee was computed at 300%
of the cost of service per child, Tiny Tony Nursery could have charged each child a fee of
a. P 166.67
b. P 500
c. P 650
d. P 1,500

7.

If the ABC system were used, nursery fee per child should have been
a. P 1,850 for the babies, P975 for the kiddies.
b. P 616.67 for the babies, P325 for the kiddies.
c. P 1,500 for both the babies and kiddies.

d. P 1,412.50 for both the babies and kiddies.