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CHAPTER 15

Answers to Multiple Choice – Theoretical

1. c 7. a
2. a 8. a
3. a 9. c
4. b 10. d
5. d 11. a
6. c 12. b

Solutions to Multiple Choice – Computational

1. b

(X – P3.60) x 1,600 = P240 unfavorable material price variance

X = P3.75 actual purchase price per unit.

2. c

(30,000 – 29,000) X = 3,000 unfavorable material quantity variance

X = P3 standard price per unit

Actual cost of direct materials P84,000

Actual standard price (30,000 x P3) 90,000
Material price variance – favorable P 6,000

3. a

Standard material allowed (2,000 x 4) = 8,000 kilos

(7,800 – 8,000) x P5.50 = P1,020 DM quantity variance (f)

4. d

2 / .80 = 2.5 x P30 = P75 Standard DM cost per unit

5. a

(P3.60 - X) 18,000 = P3,600 unfavorable DM price variance

X = P3.40 standard price

(15,000 - 16,000) x P3.40 = P3,400 DM quantity variance (f)

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6. b

(P11 – P10) x 14,000 units = P14,000 unfavorable

7. b

(29,000 - 30,000) X = P4,000 favorable DL efficiency variance

X = P4 standard DL rate

(X – P4) 29,000 DL hrs = P5,800 favorable DL rate variance

X = P3.80 actual DL rate

8. c

(X – 10,000 hrs.) P3.75 = P4,200 unfavorable DL efficiency variance

X = 11,120 actual hours worked

9. a

Estimated weekly wages per employee P240

Employee benefits (P240 x 25%) 60
Total 300
Divided by no. of hours per employee ÷ 30
Rate per hour P 10
Multiply by no. of hours per unit X 2
Standard direct labor cost per unit P 20

10. b

Standard hours allowed for 900 units (900 x 2) = 1,800 hours

(2,000 hours – 1,800 hours) x 10 = P2,000 unfavorable DL efficiency variance

11. a.

Weekly wages per worker P500

Workers’ benefits (P500 x 20%) 100
Total 600
Divided by no. of hours worked ÷ 40
Rate per hour P 15
Hours required per unit x 2
Standard DL cost per unit P 30

12. a

(X – P6.30) x 20,000 hrs. = P8,400 favorable DL rate variance

X = P5.88 actual DL rate

P5.88 x 20,000 DL hours = P117,600 Actual DL cost

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13. a

Standard DL cost per unit:

Actual wages paid P33,680
Labor rate variance – unfavorable ( 1,720)
Labor efficiency variance – favorable 525
Standard DL cost P32,485
Divided by units produced ÷ 6,250 P5.20

Standard DM cost per unit:

Material cost P17,059
Material price variance – favorable 1,400
Material usage variance – unfavorable ( 890)
Standard material cost P17,569
Divided by units produced ÷ 6,250 2.81

Standard prime cost per unit P8.01

14. c

Standard overhead cost allowed (P4 x 3,500 std. hours) P14,000

Actual overhead cost incurred 12,600
Overall overhead variance – favorable P 1,400

15. d

Applied overhead (P42,000 + P30,000) P72,000

Under-applied overhead 15,000
Actual overhead P87,000

16. b

Actual manufacturing overhead (P250,000 + P325,000) P575,000

Budgeted overhead:
Fixed (P3,000,000/12) P250,000
Variable at standard:
Standard hrs. allowed (26,000 x 2) 52,000
Variable std. rate (3,600,000/600,000) x 6 312,000 562,000
Overhead controllable variance – favorable P 13,000

17. d

Budgeted DL hours per month (600,000 / 12) 50,000

Standard DL hours allowed (26,000 x 2) 52,000
Difference in time 2,000
Fixed overhead rate (P3,000,000 / 600,000 hrs.) x 5
Overhead volume variance – favorable P10,000

18. d
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Actual variable overhead P82,000

Variable overhead allowed (5,000 x 2 x 3) 30,000
Variable overhead controllable variance – unfavorable P52,000

19. a

April:
Actual factory overhead P140,100
Budgeted overhead:
Fixed (10 x 40% x 15,000) P60,000
Variable at standard (10 x 60% x 12,000) 72,000 132,000
Overhead controllable variance – unfavorable P 8,100

May:
Actual factory overhead P149,300
Budgeted overhead:
Fixed P60,000
Variable at standard (10 x 60% x 15,000) 90,000 150,000
Overhead controllable variance – favorable P 700

20. c

Budgeted fixed overhead P60,000

Standard overhead allowed 60,000
Overhead volume variance P 0

21. c

The entry to record DM used is to debit WIP at standard prices and standard
quantities (450 units x P9 = P4,050). In this question, all DM variances are
recorded at the time WIP is charged. The materials price variance and the materials
quantity variance must be computed. The project used more units at a higher price
than estimated, so both variances will be unfavorable (debits). The materials quantity
variance is P450 U [(500 – 450) x P9]. The materials price variance is P500 U [500
units x (P10 - P9)]. Materials is credited for the actual prices and actual quantities
(500 x P10 = P5,000).

22. a

The entry to record accrued payroll is to charge WIP at the standard wage rate times
the standard number of hours and to credit accrued payroll for the actual payroll.
The project required mor hours but a lower wage rate than estimated. Hence, the
labor efficiency variance will be unfavorable (a debit); the labor price variance will
be favorable (a credit).

Labor efficiency variance: (50-45) x P12 = P60 U

Labor price variance: (P12-P10) x 50 = P100 F

23. d
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The entry is to debit applied factory overhead fixed) and credit factory overhead
control (fixed) for their respective balances. The difference is attributable solely to
the production volume variance because the budget (spending) variance is zero
(actual fixed factory overhead = the budgeted amount). The volume variance is
unfavorable because fixed overhead is underapplied. The underapplication (the
unfavorable volume variance debited) is P2,500 [P32,500 budgeted fixed factory
overhead – (2,000 hours x P15 per hour).

24. a

The budget variance is recognized by a debit, given that more was spent for that
activity than was estimated. The entry to record the unfavorable variable overhead
budget variance is to charge the variable overhead volume variance account for the
appropriate amount. The variable overhead applied is charged for its balance. The
variable overhead control account is credited for its balance. These entries will result
in a zero balance in both the applied and the control accounts assuming that no
variable overhead efficiency variance existed.

Actual variable overhead incurred: (P5 x 530 hours) = P2,650

Applied variable overhead: (P4.50 x 530 hours) = 2,385
Variable overhead budget variance (u) P 265

SOLUTIONS TO PROBLEMS
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Problem 15-1

1. Material A-1:
Materials Quantity Variance
Standard quantity (9 x 4,000) at standard price (P0.20) P 7,200
Actual quantity (36,250) at standard price (P0.20) 7,250
Materials quantity variance (250 x P0.20) P 50 (U)

Materials Price Variance

Actual quantity (36,250) at standard price (P0.20) P 7,250
Actual quantity (36,250) at actual price (P0.204) 7,395
Materials price variance (36,250 x P.004) P 145 (U)

Material A-2
Materials Quantity Variance
Standard quantity (9.2 x 4,000) at standard price (P0.30) P11,040
Actual quantity (36,400) at standard price (P9.30) 10,920
Materials quantity variance (400 x P.30) P 120 (F)

Materials Price Variance

Actual quantity (36,400) at standard price (P0.30) P10,920
Actual quantity (36,400) at actual price (P0.28) 10,192
Materials price variance (36,400 x P0.02) P 728 (F)

Summary:
Materials Quantity Variance Price Variance Total Variance
A-1 P 50 U P145 U P195 U
A-2 120 F 728 F 848 F
Total P 70 F P583 F P653 F

2. Work in process 18,240

Materials quantity variance (F) 70
Materials price variance (F) 583
Materials inventory 17,587
To charged work in process with standard cost
of materials, removed actual cost of materials
from inventory, and record materials variances.
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Problem 15-2

1. Labor Variance Analysis

Labor Class AA:

Labor Efficiency Variance
Standard hours (1,010) @ standard rate (P11.20) P11,312
Actual hours (1,050) @ standard rate (P11.20) 11,760
Labor efficiency variance (40 hours x P11.20) P 448 (U)

Labor Rate Variance

Actual hours (1,050) @ standard rate (P11.20) P11,760
Actual hours (1,050) @ actual rate (P11.10) 11,655
Labor rate variance (1,050 hours x P0.10) P 105 (F)

Labor Class BB:

Labor Efficiency Variance
Standard hours (2,020) @ standard rate (P12) P24,240
Actual hours (2,010) @ standard rate (P12) 24,120
Labor efficiency variance (10 hours x P12) P 120 (F)

Labor Rate Variance

Actual hours (2,010) @ standard rate (P12) P24,120
Actual hours (2,010) @ actual rate (P11.90) 23,919
Labor rate variance (2,010 hours x P0.10) P 201 (F)

Summary:
Labor Labor Efficiency Labor Rate Total
Class Variance Variance Variance
AA P 448 U P 105 F P343 U
BB 120 U 201 F 321 F
Total P 328 U P 306 F P 22 U

2. Work in process 35,552

Labor efficiency variance (U) 328
Labor rate variance (F) 306
Factory payroll 35,574
To charge Work in Process with standard cost
Of direct labor, removed actual labor cost from
Factory Payroll and record labor variance.

Problem 15-3
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a. Work in Process 340,800

Materials quantity variance 480
Materials price variance 6,928
Materials inventory 334,352
To charge Work in Process with standard cost
of materials, remove actual cost of materials
from Materials Inventory and record materials
variances.

Computations of Materials Variances:

RM-1 Materials Quantity Variance
Standard quantity at standard price (200,000 x P1.20) P240,000
Actual quantity at standard price (201,000 x P1.20) 241,200
Materials quantity variance (1,000 x P1.20) P 1,200 (U)

RM-1 Materials Price Variance

Actual quantity at standard price (201,000 x P1.20) P120,600
Actual quantity at actual price (201,000 x P1.16) 233,160
Materials price variance (201,000 x P0.04) P 8,040 (F)

RM-2 Materials Quantity Variance

Standard quantity at standard price (70,000 x P1.44) P100,800
Actual quantity at standard price (69,500 x P1.44) 100,080
Materials quantity variance (500 x P1.44) P 720 (F)

RM-2 Materials Price Variance

Actual quantity at standard price (69,500 x P1.44) P100,080
Actual quantity at actual price (69,500 x P1.456) 101,192
Materials price variance (69,500 x P0.016) P 1,112 (U)

Summary:
Materials Quantity Variance Price Variance Total
RM-1 P1,200 (U) P8,040 (F) P6,840 (F)
RM-2 720 (F) 1,112 (U) 392 (U)
P 480 (U) P6,928 (F) P6,448 (F)

Problem 15-3 (continued)

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b. Work in Process 48,000

Labor Efficiency Variance 1,536
Labor Rate Variance 1,032
Factory Payroll 50,568
To charge Work in Process with standard
cost of direct labor, remove actual cost from
Factory Payroll and record labor variances.

Computations of Labor Variances:

Labor Efficiency Variance
Standard hours at standard rate (2,500 x P19.20) P48,000
Actual hours at standard rate (2,580 x P19.20) 49,536
Labor efficiency variance (80 x P19.20) P 1,536 (U)
Labor Rate Variance
Actual hours at standard rate (2,580 x P19.20) P49,536
Actual hours at actual rate (2,580 x P19.60) 50,568
Labor rate variance (2,580 x P.40) P 1,032 (U)

Problem 15-4

1. Annual fixed costs P 540,000

Annual variable costs budgeted for normal volume 720,000
Total costs at normal volume P1,260,000

Standard cost per DL hour: (P1,260,000 ÷ 24,000 hrs) P52.50

Standard cost per unit of product: (P1,260,000 ÷ 180,000 units P 7.00

2. May production 15,180 units

Standard cost per unit x P 7.00
Total standard cost P106,260

3. Standard costs P106,260

Actual costs:
Fixed P46,000
Variable 60,852 106,852
Total overhead variance P 592 (U)

4. Budget Variance
Budgeted overhead:
Variable (15,180 x P4 std variable rate) P60,720
Fixed (P540,000 ÷ 12) 45,000 P105,720
Actual overhead cost 106,852
Overhead budget variance P 1,132 (U)

5. Volume Variance
Standard costs (15,180 x P3.00 fixed std rate) P 45,540
Fixed costs (P540,000 ÷ 12) 45,000
Overhead volume variance P 540 (F)
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Problem 15-5

1. Journal entries:
a. Work in Process (standard cost) 899,200
Material price variance 10,144
Material quantity variance 2,944
Materials (actual cost) 906,400

b. Work in process (standard cost) 512,700

Labor efficiency variance 320
Labor rate variance 4,020
Factory payroll (actual cost) 509,000

c. Work in process (standard cost) 362,600

Overhead budget variance 1,000
Overhead volume variance 2,400
Manufacturing overhead control (Actual cost) 361,200

d. Finished goods 1,774,500

Work in process 1,774,500
2,500 units x P709.80

e. Accounts receivable 2,253,680

Sales 2,253,680
2,167 units x P1,040

f. Cost of goods sold 1,538,137

Finished goods 1,538,137
2,167 units x P709.80

g. Materials quantity variance 2,944

Labor rate variance 4,020
Overhead volume variance 2,400
Cost of goods sold 2,100
Overhead budget variance 1,000
Materials price variance 10,144
Labor efficiency variance 320

2. Queen Company
Partial Income Statement
Month Ended April 30, 2010

Sales P2,253,680
Cost of goods sold
Cost of goods sold at Std cost P1,538,137
Material price variance 10,144
Labor efficiency variance 320
Overhead budget variance 1,000
Material quantity variance ( 2,944)
Labor rate variance ( 4,020)
Overhead volume variance ( 2,400) 1,540,237
Gross profit P 713,443
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Problem 15-6

Direct Materials Variances:

Materials price variance: P149,000 - (P3 x 50,000) = P1,000 (F)
Materials quantity variance: (41,500 – 40,000) x P3 = P4,500 (U)

Direct Labor Variances:

Labor rate variance: 196,000 – (21,000 x 9) = P7,000 (U)
Labor efficiency variance: (21,000 – 20,000) x 9 = P9,000 (U)

Overhead Variances:
Overhead controllable variance:
Actual overhead P158,000
Budgeted overhead at standard labor hours:
Fixed P120,000
Variable (10,000 x P4) 40,000 160,000
Overhead controllable variance P 2,000 (F)
Overhead volume variance:
Budgeted overhead at standard labor hours P160,000
Standard overhead (10,000 x 2) x 7 140,000
Overhead volume variance P 20,000 (U)

Problem 15-7

Direct Materials Variances:

Materials price variance: (P7.30 – P7) x 5,100 = P1,530 (U)
Materials quantity variance: (5,100 - 4,900) x P7 = P1,400 (U)

Direct Labor Variances:

Labor rate variance: (P12.50 - P12) x 7,000 = P6,000 (U)
Labor efficiency variance: (7,000 - 7,350) x P12 = P4,200 (F)

Overhead Variances:
Overhead controllable variance:
Actual overhead P74,920
Budgeted overhead at standard labor hours:
Fixed P18,750
Variable (7,350 x P7.50) 55,125 73,875
Overhead controllable variance P 1,045 (U)
Overhead volume variance:
Budgeted overhead at standard labor hours P73,875
Applied overhead (7,350 x P10) 73,500
Overhead volume variance P 375 (U)
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Problem 15-8

Direct Materials Variances

Materials price variance: (P1 - P.90) x 58,000 = P5,800 (U)
Materials quantity variance: (58,000 - 60,000) x P.90 = P1,800 (F)

Direct Labor Variances

Labor rate variance: (P11.50 - P12) x 4,900 = P2,450 (F)
Labor efficiency variance: (4,900 - 5,000) x P12 = P1,200 (F)

Overhead Variances:
Overhead controllable variance:
Actual overhead P25,400
Budgeted overhead at standard labor hours:
Fixed P10,400
Variable 14,000 24,400
Overhead controllable variance P 1,000 (U)
Overhead volume variance:
Budgeted overhead at standard labor hours P24,400
Applied overhead (5,000 x P4.8) 24,000
Overhead volume variance P 400 (U)

Problem 15-9

(a) Direct Materials Variances:

Materials price variance: (7.30 - P7) x 58,000 = P17,400 (U)
Materials quantity variance: (58,000 - 60,000) x P7 = P14.000 (F)

Direct Labor Variances:

Labor rate variance: (P11.20 - P12) x 11,500 = P9,200 (F)
Labor efficiency variance: (11,500 - P12,000) x P12 = P6,000 (F)

Overhead Variances:
Overhead controllable variance:
Actual overhead P132,000
Budgeted overhead at standard DL hours:
Fixed P90,000
Variable (12,000 x P3) 36,000 126,000
Overhead controllable variance P 6,000 (U)
Overhead volume variance:
Budgeted overhead at standard DL hours P126,000
Applied overhead (12,000 x P9) 108,000
Overhead volume variance P 18,000 (U)
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Problem 15-9 (continued)

(b) Materials 406,000

Material price variance 17,400
Accounts payable 423,400

Work in process 420,000

Materials quantity variance 14,000
Materials 406,000

Factory payroll 138,000

Labor rate variance 9,200
Payroll payable 128,800

Work in process 144,000

Labor efficiency variance 6,000
Factory payroll 138,000

Applied factory overhead 108,000

Overhead controllable variance 6,000
Overhead volume variance 18,000
Factory overhead control 132,000

Problem 15-10

(a) Direct Materials Variances:

Materials price variance: (P3.40 - P3) x 17,700 = P7,080 (U)
Materials quantity variance: (17,700 - 18,000) x P3 = P 900 (F)

Direct Labor Variances:

Labor rate variance: (P11.80 - P12) x 2,950 = P 590 (F)
Labor efficiency variance: (2,950 - 3,000) x P12 = P 600 (F)

Overhead Variances:
Overhead controllable variance:
Actual overhead P87,500
Budgeted overhead at standard DL hrs:
Fixed P28,000
Variable (3,000 x 20) 60,000 88,000
Overhead controllable variance P 500 (F)
Overhead volume variance:
Budgeted overhead at standard DL hrs. P88,000
Applied overhead 90,000
Overhead volume variance P 2,000 (F)
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Problem 15-10 (continued)

(b) Holy Manufacturing Company

Income Statement
Month Ended July 31, 2010

Sales P240,000
Cost of goods sold (actual cost)
Cost of goods sold at standard cost P180,000
Materials price variance 7,080
Materials quantity variance (900)
Labor price variance (590)
Labor efficiency variance (600)
Overhead controllable variance (500)
Overhead volume variance ( 2,000) 182,490
Gross profit 57,510
Operating expenses 25,000
Net income P 32,510

Problem 15-11

(a) Journal Entries:

1. Materials 6,150
Materials price variance 615
Accounts payable 6,765

2. Work in process 6,000

Materials quantity variance 150
Materials 6,150

3. Factory payroll 16,800

Labor rate variance 420
Payroll payable 16,380

4. Work in process 16,000

Labor efficiency variance 800
Factory payroll 16,800

5. Factory overhead control 24,200

Accounts payable 24,200

6. Work in process 24,000

Applied factory overhead 24,000

7. Applied factory overhead 24,000

Overhead volume variance 400
Overhead controllable variance 200
Factory overhead control 24,200

8. Finished goods 46,000

Work in process 46,000
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9. Accounts receivable 70,000

Sales 70,000
Problem 15-11 (continued)

10. Cost of goods sold 46,000

Finished goods 46,000

11. Selling and administrative expenses 2,000

Accrued expenses 2,000

(b) Venus Corporation

Income Statement
Month Ended January 31, 2010

Sales P70,000
Cost of goods sold (actual cost)
Cost of goods sold at standard cost P46,000
Material price variance 615
Material quantity variance 150
Labor rate variance ( 420)
Labor efficiency variance 800
Overhead controllable variance ( 200)
Overhead volume variance 400 47,345
Gross profit 22,655
Selling and administrative expenses 2,000
Net income P20,655