Reviewer for STANDARD COSTING

Problem 1: Faring Company produces many products for household use.

Company sells products to storekeepers as well as to customers. DetergentDX is one of the products of Faring Company. It is a cleaning product that is
produced, packed in large boxes and then sold to customers and
storekeepers.
Faring Company uses a traditional standard costing system to control costs
and has established the following materials, labor and overhead standards to
produce one box of Detergent-DX:
Direct materials: 1.5 pounds @ P12 per pound
Direct labor: 0.6 hours P24 per hour
Variable manufacturing overhead: 0.6 hours @
P5.00

P18.00
P14.40
P3.00
______
35.40
______

During August 2014, company produced and sold 3,000 boxes of DetergentDX. 8,000 pounds of direct materials were purchased @ P11.50 per pound.
Out of these 8,000 pounds, 6,000 pounds were used during August. There
was no inventory at the beginning of August. 1,600 direct labor hours
were recorded during the month at a cost of P40,000. The variable
manufacturing overhead costs during August totaled P7,200.
Additional Informations:
3,000 x 1.5 pounds = 4,500 pounds (Standard Quantity)
3,000 x 0.6 = 1,800 direct labor hours (Standard DL allowed)
7,200/1,600 = 4.5 (Actual Rate)
Required:
a. Compute materials price variance and materials quantity variance.
(Assume that the materials price variance is computed at the time of
purchase.) (2 pts)
b. Compute direct labor rate variance and direct labor efficiency variance.
(2 pts)
c. Compute variable overhead spending variance and variable overhead
efficiency variance. (2 pts)
Solution:

(a) Materials variances:

Materials price variance = (Actual quantity purchased x Actual price) - (Actual
quantity purchased x Standard price)

= (8,000 pounds P11.50) (8,000 pounds P12)

= P92,000 P96,000
= P4,000 Favorable
Materials quantity variance = (Actual quantity of materials used x Standard price) (Standard quantity of materials allowed x Standard price)

= (6,000 pounds P12) (4,500 pounds P12)

= P72,000 P54,000
= P18,000 Unfavorable
(b) Labor variances:
Direct labor rate variance = (Actual direct labor hours worked x Actual rate) - (Actual
direct labor hours worked x Standard rate)

= P40,000 (1,600 hours P24)

= P40,000 P38,400
= P1,600 Unfavorable
Direct labor efficiency variance = (Actual direct labor hours worked x Standard rate) (standard direct labor hours allowed x Standard rate)

= (1,600 hours P24) (1,800 hours P24)

= P38,400 P43,200
= P4,800 Favorable
(3) Variable overhead variances:
Variable overhead spending variance = (Actual hours worked x Actual rate) - (Actual
hours worked x Standard rate)

= (1,600 hours P4.5) (1,600 hours P5)

= P7,200 P8,000
= P800 Favorable
Variable overhead efficiency variance = (Actual hours worked x Standard rate) (Standard hours allowed x standard rate)

= (1,600 hours P5) (1,800 hours P5)

= P8,000 P9,000
= P1,000 Favorable

Problem 2: Lukring Corporation is a large company that produces a lot of

products. One of the product is a paint that is stored in containers. The
variable standard cost per container is given below:

Direct materials
Direct labor
Variable manufacturing
overhead

Quantity /
Hours
6 liters
1 hour

Per liter / Per

hour
P2
P9

Standard
cost
P12
P9

1 hour

P6

P6

P24

The direct materials to produce this product is available in liquid form. During
May, 60,000 liters of direct materials were purchased and 38,000 liters were
sent to production department. The production for the month of May was
6,000 containers.
The following costs were incurred during May.
P114,0
00
P55,9
Actual direct labor cost
00
Actual variable manufacturing overhead
P40,9
cost
50
Variable manufacturing overhead efficiency P3,00 Unfavorab
variance
0
le
Actual cost of materials purchased

Required:
a. Compute actual direct labor hours worked during the month of May. (1pt)
b. Compute variable manufacturing overhead spending variance. (1pt)
c. Compute direct labor rate variance and direct labor efficiency variance. (2
pts)
Additional Informations:
P40,950/6,500 = P6.3 (Actual Rate)
Solution:

(a) Actual direct labor hours worked during May:

Standard hours allowed at standard rate (6,000* hours P6)
P36,000
Add: unfavorable efficiency variance
3,000
Actual hours worked at standard rate
P39,000
*6,000 containers x 1 hour
Actual hours worked = Actual hours worked at standard rate / Standard rate
= P39,000 / P6
= 6,500 hours
(b) Variable manufacturing overhead spending variance:
Variable overhead spending variance = (Actual hours worked x Actual rate) (Actual hours worked x Standard rate)
= (6,500 hours P6.3) (6,500 hours P6)
= P40,950 P39,000
= P1,950 Unfavorable
(c) Labor variances:
Direct labor rate variance = (Actual direct labor hours worked x Actual rate) - (Actual
direct labor hours worked x Standard rate)
= P55,900 (6,500 hours P9)
= P55,900 P58,500
= P2,600 Favorable

Direct labor efficiency variance = (Actual direct labor hours worked x Standard rate) (standard direct labor hours allowed x Standard rate)
= (6,500 hours P9) (6,000 hours P9)
= P58,500 P54,000
= P4,500 Unfavorable

Materials price variance = (AQPx AP) - (AQPx SP)

Materials quantity variance = (AQUx SP) - (SQAx SP)
Direct labor rate variance = (ADLHWx AR) - (ADLHWx SR)
Direct labor efficiency variance = (ADLHWx SR) - (SDLHAx SR)
Variable overhead spending variance = (AHWx AR) - (AHWx SR)
Variable overhead efficiency variance = (AHWx SR) - (SHAx SR)
Actual hours worked = AHW @ SR/SR