The following information will be used to answer Question Nos.

71 through 74:
Garch, Inc. analyzes manufacturing overhead in the production of its only one product, CD. The following set of
information applies to the month of May, 2006:
Budgeted Actual
Units produced 40,000 38,000
Variable manufacturing OH P 4/DLH P16,400
Fixed manufacturing overhead P20/DLH P88,000
Direct labor hours 6 min/unit 4,200 hr
i. What is the fixed overhead spending variance?
A. P4,000 Favorable C. P8,000 Unfavorable
B. P8,000 Favorable D. P4,000 Unfavorable

ii. What is the volume variance?

A. P4,000 Favorable C. P8,000 Favorable
B. P4,000 Unfavorable D. P8,000 Unfavorable

iii. How much was the variable overhead spending variance?

A. P 400 Favorable C. P400 Unfavorable
B. P1,200 Favorable. D. P1,200 Unfavorable

iv. How much overhead efficiency variance resulted for the month of May?
A. P1,600 Favorable C. P1,600 Unfavorable
B. P 800 Favorable D. P800 Unfavorable

Questions 75 through 78 are based on Darf Company, which applies overhead on the basis of direct labor hours.
Two direct labor hours are required for each product unit. Planned production for the period was set at 9,000 units.
Manufacturing overhead is budgeted at P135,000 for the period, of which 20% of this cost is fixed. The 17,200 hours
worked during the period resulted in production of 8,500 units. Variable manufacturing overhead cost incurred was
P108,500 and fixed manufacturing overhead cost was P28,000. Darf Company uses a four variance method for
analyzing manufacturing overhead.

v. The variable overhead spending variance for the period is

A. P5,300 unfavorable C. P6,300 unfavorable
B. P1,200 unfavorable D. P6,500 unfavorable

vi. The variable overhead efficiency variance (quantity) variance for the period is
A. P5,300 unfavorable C. P1,200 unfavorable
B. P1,500 unfavorable D. P6,500 unfavorable

vii. The fixed overhead budget (spending) variance for the period is
A. P6,300 unfavorable C. P2,500 unfavorable
B. P1,500 unfavorable D. P1,000 unfavorable

viii. The fixed overhead volume (denominator) variance for the period is
A. P 750 unfavorable C. P2,500 unfavorable
B. P1,500 unfavorable D. P1,000 unfavorable

Comprehensive
ix. Big Marat, Inc. began operations on January 3. Standard costs were established in early January assuming a
normal production volume of 160,000 units. However, Big Marat produced only 140,000 units of product and
sold 100,000 units at a selling price of P180 per unit during the year. Variable costs totaled P7,000,000, of
 which 60% were manufacturing and 40% were selling. Fixed costs totaled P11,200,000, of which 50% were
manufacturing and 50% were selling. Big Marat had no raw materials or work-in-process inventories at
December 31. Actual input prices and quantities per unit of product were equal to standard.
Using absorption costing, Big Marats income statement would show:
A. B. C. D.
Cost of Goods Sold at Standard Cost P8,200,000 P7,200,000 P6,500,000 P7,000,000
Overhead Volume Variance P800,000 U P800,000 F P700,000 U P700,000 F

Questions No. 80 through 85 are based on the following information:

You have recently graduated from a university and have accepted a position with Villar Company, the manufacturer
of a popular consumer product. During your first week on the job, the vice president has been favorably impressed
with your work. She has been so impressed, in fact, that yesterday she called you into her office and asked you to
attend the executive committee meeting this morning for the purpose of leading a discussion on the variances
reported for last period. Anxious to favorably impress the executive committee, you took the variances and
supporting data home last night to study.

On your way to work this morning, the papers were laying on the seat of your new, red convertible. As you were
crossing a bridge on the highway, a sudden gust of wind caught the papers and blew them over the edge of the
bridge and into the stream below. You managed to retrieve only one page, which contains the following information:

Standard Cost Summary

Direct materials, 6 pounds at P3 P18.00
Direct labor, 0.8 hours at P5 4.00
Variable overhead, 0.8 hours at P3 2.40
Fixed overhead, 0.8 hours at P7 5.60
P30.00

Total VARIANCES REPORTED

Standard Price or Spending or Quantity or Volume
Cost Rate Budget Efficiency
Direct materials P405,000 P6,900 F P9,000 U
Direct labor 90,000 4,850 U 7,000 U
Variable overhead 54,000 P1,300 F ?@
Fixed overhead 126,000 500 F P14,000U
Applied to Work in process during the period
@ Figure obliterated.

You recall that manufacturing overhead cost is applied to production on the basis of direct labor-hours and that
all of the materials purchased during the period were used in production. Since the company uses JIT to control
work flows, work in process inventories are insignificant and can be ignored.

It is now 8:30 A.M. The executive committee meeting starts in just one hour; you realize that to avoid looking
like a bungling fool you must somehow generate the necessary backup data for the variances before the
meeting begins. Without backup data it will be impossible to lead the discussion or answer any questions.

x. How many pounds of direct materials were purchased and used in the production of 22,500 units?
A. 138,000 lbs. C. 135,000 lbs.
B. 132,000 lbs. D. 137,300 lbs.

xi. What was the actual cost per pound of material?

A. P3.00 C. P2.95
 B. P3.05 D. P3.10

xii. How many actual direct labor hours were worked during the period?
A. 18,000 C. 19,400
B. 16,600 D. 18,970

xiii. How much actual variable manufacturing overhead cost was incurred during the period?
A. P55,300 C. P56,900
B. P58,200 D. P59,500

xiv. What is the total fixed manufacturing overhead cost in the companys flexible budget?
A. P112,500 C. P139,500
B. P140,000 D. P125,500

xv. What were the denominator hours for last period?

A. 18,000 hours C. 20,000 hours
B. 22,000 hours D. 25,000 hours

Productivity measures
Manufacturing cycle efficiency
xvi. Fireout Company manufactures fire hydrants in Bulacan. The following information pertains to operations during

the month of May:

Processing hours (average per batch) 8.0
Inspection hours (average per batch) 1.5
Waiting hours (average per batch) 1.5
Move time (average per batch) 1.5
Units per batch 20 units
The manufacturing cycle efficiency (MCE) is:
A. 72.7% C. 64.0%
B. 36.0% D. 76.0%

Throughput time
xvii. Choco Company manufactures fire hydrants in Bulacan. The following information pertains to operations during

the month of May:

Processing time (average per batch) 8.0 hours
Inspection time (average per batch) 1.5 hours
Waiting time (average per batch) 1.5 hours
Move time (average per batch) 1.5 hours
Units per batch 20 units
The throughput time is:
A. 12.5 hours C. 4.5 hours
B. 8.0 hours D. 9.5 hours

Delivery cycle time

xviii. Alabang Corporation is a highly automated manufacturing firm. The vice president of finance has decided that

traditional standards are inappropriate for performance measures in an automated environment. Labor is
insignificant in terms of the total cost of production and tends to be fixed, material quality is considered more
important than minimizing material cost, and customer satisfaction is the number one priority. As a result,
production and delivery performance measures have been chosen to evaluate performance. The following
information is considered typical of the time involved to complete and ship orders.
Waiting Time:
 From order being placed to start of production 8.0 days
From start of production to completion 7.0 days
Inspection time 1.5 days
Processing time 3.0 days
Move time 2.5 days
The Delivery Cycle Time is:
A. 22 days C. 14 days
B. 11 days D. 7 days

xix. Fixed manufacturing overhead was budgeted at P500,000 and 25,000 direct labor hours were budgeted. If
the fixed overhead volume variance was P12,000 favorable and the fixed overhead spending variance was P16,000
unfavorable, fixed

i. Answer: C
Actual fixed overhead P88,000
Budget fixed overhead (4,000 hrs @ P20) 80,000
Unfavorable fixed OH Spending variance P 8,000
Budgeted (denominator) hours (40,000 units x 6 60) 4,000

ii. Answer: B
Budget fixed overhead P80,000
Applied fixed overhead (38,000 x 0.10 x P20) 76,000
Unfavorable volume variance P 4,000

iii. Answer: A
Actual variable overhead P 16,400
Budget at actual hours (4,200 x P4) 16,800
Favorable variable OH spending variance P ( 400)

iv. Answer: C
Unfavorable Efficiency Variance: (AH SH) SVOHR
(4,200 3,800) x P4 = 1,600 UNF
SH allowed (38,000 units x 1 10) = 3,800 hours

v. Answer: A
Actual variable overhead 108,500
Budgeted VOH at actual hours (17,200 x 6) 103,200
Variable overhead spending variance, UNF 5,300
VOH rate per hour (135,000 x 0.80) 18,000 hours P6.00

vi. Answer: C
The computation of variable overhead efficiency variance involves the comparison of the actual hours and
standard hours allowed by actual production.
(17,200 17,000) x P6 1,200 UNF
Standard hours allowed: 8,500 x 2 17,000

vii. Answer: D
The amount of fixed overhead budget (spending) variance is calculated by subtracting from the actual fixed
overhead the amount of budgeted fixed overhead.
Actual fixed overhead 28,000
Budgeted fixed overhead (135,000 x 0.2) 27,000
 Unfavorable fixed overhead budget variance 1,000

viii. Answer: B
The amount of volume variance (denominator or over/underapplied fixed overhead variance) is calculated by
comparing the budgeted fixed overhead and fixed overhead applied to production.
Budgeted fixed overhead (135,000 x 0.2) 27,000
Applied fixed overhead (8,500 x 3) 25,500
Underapplied (unfavorable) volume variance 1,500
Alternative calculation: (9,000 8,500) x 3 1,500
Fixed overhead per unit (27,000 9,000) 3

ix. Answer: C
Std unit cost:
Variable (7,000,000 x 0.60) 140,000 P30
Fixed OH (11,200,000 x 0.50) 160,000 35
Std unit cost P65
CGS Std (100,000 x 65) 6,500,000
OH Volume Variance: (160,000 140,000) x 35 P 700,000 UNF

x. Answer: A
SQ allowed (22,500 x 6) 135,000
Unfavorable usage variance 3,000
Actual quantity of materials 138,000

xi. Answer: C
Actual quantity purchased and used at standard price (138,000 x 3) 414,000
Favorable price variance 6,900
Actual Quantity @ Actual Price 407,100
Actual Price (407,100 138,000) P2.95

xii. Answer: C
SH @ SR 90,000
Efficiency Variance 7,000
AH @ SR 97,000
Actual hours (97,000 5) 19,400

xiii. Answer: D
AH @ SR (19,400 x 3) 58,200
Spending variance 1,300
Actual Variable Overhead 59,500

xiv. Answer: B
Applied Fixed OH 126,000
Underapplied fixed overhead 14,000
Budgeted fixed overhead 140,000

xv. Answer: C
Denominator or Budgeted Hours: (140,000 7) = 20,000

xvi. Answer: C
 MCE = Value Added Hours Throughput Time
Processing hours 8.00
Inspection hours 1.50
Waiting time 1.50
Move time 1.50
Throughput time 12.50
MCE (8.00 12.50) 64%

xvii. Answer: A

xviii. Answer: A
Delivery cycle time:
Total waiting time 15.00
Inspection time 1.50
Processing time 3.00
Move time 2.50
Delivery Cycle Time 22.00

xix. Answer: C
A favorable volume variance arises when the applied fixed overhead is higher than the budgeted fixed overhead.
Budgeted fixed overhead 500,000
Favorable volume variance (overapplied) 12,000
Applied fixed overhead 512,000