ACCOUNTING 14 COST ACCOUNTING 2

STANDARD COSTING AND VARIANCE ANALYSIS

QUIZ

Problem 1

Pieta Chemical Company manufactures a wide variety of chemical compounds and liquids for industrial
uses. The standard mix for producing a single batch of 500 gallons of one liquid is as follows:

Liquid Chemical Qty. in Gallons Cost per Gallon Total Cost

Maxan 100 P2.00 P200
Salex 300 0.75 225
Cralyn 225 1.00 225
625 P650

There is a 20% loss in liquid volume during processing due to evaporation. The finished liquid is put into
10-gallon bottles for sale. Thus, the standard materials cost for a 10-gallon bottle is P13.

A total of 4,000 bottles (40,000 gallons) were produced during November. The actual quantities and
costs of the materials placed in production during November were as follows:

Liuid Chemical Quantity in Gallons Total Cost

Maxan 8,480 P17,348
Salex 25,200 17,640
Cralyn 18,540 16,686

Compute the materials price, mix and yield variances, including an analysis of the portion of mix
variance attributable to each material. 2,690F; 91.20U; 2,308.80U

Problem 2

Mac is concerned about the large unfavorable labor quantity variance that arose in his department last
month. He has had a small favorable variance for several months, and he thinks his crew worked just as
effectively last month as in previous months. This makes him believe that something must be wrong
with the calculations, but he admits he doesn’t understand them. The variance was reported as follows:

Standard labor cost of output (120,000 pounds @ P0.0645) P7,740

Actual labor hours at standard wage rate (8,585 )
Labor quantity variance P (845 )

The product is made in batches that start with 1,200 pounds of material. The standard
calls for the following labor quantities for each batch:

Standard Standard
Standard
Labor Class Wage Rate Labor Hours Labor Cost
Class A P4.50 3 P13.50
Class B 4.00 6 24.00
Class C 3.00 9 27.00
Total 18 P64.50

The material is of uneven quality, and the product yield from a batch varies with the quality of the
material used. The standard output is 1,000 pounds, resulting in a standard labor cost of P0.0645 a
pound.
Mac’s workforce is a crew of 12 workers. The standard crew consists of two Class A workers, four Class
B workers, and six Class C workers. Lower-rated employees cannot do the work of the higher-rated
employees, but the reverse is possible with some slight loss in efficiency and a resulting increase in labor
hours.

The standard work day is nine hours. Last month had 23 working days, for a total of 207 standard
working hours.

Last month, 165,000 pounds of material were used to produce 120,000 pounds of product. The actual
amounts of labor used were as follows:

Labor Class Labor Hours Labor Rate Labor Cost

Class A 390 P4.50 P1,755
Class B 980 4.00 3,920
Class C 970 3.00 2,910
Total 2,340 P8,585

Mac’s workforce last month, assigned to him by the personnel department, consisted of two Class A
workers, five Class B workers, and five Class C workers.

Find the labor mix and yield variances.

Problem 3

The flexible budget formula for total overhead for Star Division of Waterous Company is P360,000 + 8
per direct labor hour. The combined overhead rate is P20 per direct labor hour. The following data have
been recorded for the year 2018:

Actual total overhead for 2018 P580,000

Total overhead spending variance 16,000 U
Volume variance 24,000 U

Using a three-variance approach, determine the number of standard hours allowed and actual hours of
direct labor hours worked. 28,000;25,500

Problem 4

Parrothead Corp. determines that the following variances arose in production during March:

Variance Amount

Materials purchase price ...................................................................................................... $2,400 favorable

Materials quantity ................................................................................................................ 1,000 favorable
Labor efficiency .................................................................................................................... 500 favorable
Labor rate ............................................................................................................................. 750 unfavorable
Factory overhead volume ..................................................................................................... 1,700 favorable
Factory overhead controllable.............................................................................................. 2,950 unfavorable

Materials purchases totaled $90,000 at standard costs, while $77,000 in materials were taken from inventory for
use in production. Labor payroll totaled $144,000, and actual overhead incurred was $256,000.

Prepare the journal entries to record the above variances, including the recording of the actual and applied factory
overhead using a single factory overhead control account.

Materials ...................................................................................................................... 90,000

Materials Purchase Price Variance ....................................................................... 2,400

Accounts Payable ................................................................................................. 87,600

Work in Process ........................................................................................................... 78,000

Materials .............................................................................................................. 77,000

Materials Quantity Variance ................................................................................ 1,000

Work in Process ........................................................................................................... 143,750

Labor Rate Variance..................................................................................................... 750

Payroll................................................................................................................... 144,000

Labor Efficiency Variance ..................................................................................... 500

Factory Overhead Control ........................................................................................... 256,000

Various Credits ..................................................................................................... 256,000

Work in Process ........................................................................................................... 254,750

Factory Overhead Controllable Variance ..................................................................... 2,950

Factory Overhead Control .................................................................................... 256,000

Factory Overhead Volume Variance..................................................................... 1,700

or

Work in Process ........................................................................................................... 254,750

Factory Overhead Control .................................................................................... 254,750