Variance Analysis (Practice Problems)

PRACTICE PROBLEMS
PROBLEM I. Additives Products Ltd. bottles and sells hot pepper sauce. In 2010, the
company had expected to sell 60,000 bottles but actually bottled and sold 70,000
bottles. The standard direct materials cost for each bottle is P 0.28 comprised of 0.80
ounces at a cost of P 0.35 per ounce. During 2010, 68,000 ounces of material were
purchased out of which 55,000 ounces were used at a cost of P 0.32 per ounce.
Requirement:
(1) Direct materials price variance
(2) Direct materials quantity variance
ANSWER
(1) Direct materials price variance
MPV = (Actual price – Standard price ) x Actual Quantity
MPV = (0.32 – 0.35) X 68,000
MPV = (2,040) F
(2) Direct materials usage variance

MQV = (Actual Quantity –Standard Quantity) x Standard Price
MQV = (55,000 – 56,000) X 0.35
MQV = (350) F
Standard Quantity = 70,000 X 0.80

Standard Quantity = 56,000
PROBLEM II.
Standard direct labor hours 30,000
Actual direct labor hours 29,000
Direct labor efficiency variance (Favorable) (4,000)
Direct labor rate variance (Favorable) (5,800)
Total payroll 110,200
Requirement:
(1) Standard direct labor rate
(2) Actual direct labor rate
ANSWER:
(1) Standard direct labor rate
Labor Efficiency Variance = (Actual Hrs. – Standard Hrs) X Standard Rate
- 4,000 = (29,000 – 30,000) X SR
- 4,000 = - 1,000SR divide BOTH sides by -1,000
SR = P 4.00
(2) Actual direct labor rate

Labor Rate Variance = (Actual Rate – Standard Rate) X Actual Hrs.
- 5,800 = (AR – 4) X 29,000
- 5,800 = 29,000 AR – 116,000 transpose -116,000
29,000 AR = 110,200 divide both sides by 29,000
AR = P 3.80
PROBLEM III. S. Fortunato Soap, Inc. uses a standard cost system in its Powder Soap
Division. The standard cost of manufacturing one sack of Sabong Pulbos is as follows:
Materials 48 kilos @ P75 per kilo P 3,600

Labor 4 hours @ P40 per hour 160
Factory Overhead P50 per direct labor hour 200
Total Standard Cost Per Sack P 3,960
The budgeted fixed factory overhead is P14,400 for a normal monthly production of 180
sacks of Sabong Pulbos.
During the month, S. Fortunato Soap produced 160 sacks of Sabong Pulbos. The actual
costs were:
Materials purchased and used – 7,700 kilos at P73 per kilo P 562,100
Labor – 650 hours at P 38 per hour 24,700
Factory overhead: Fixed factory overhead 14,400
Variable factory overhead 20,800
Total actual cost P 622,000
Requirement:
(1) Material Price Variance
(2) Material Quantity Variance
(3) Labor Rate Variance
(4) Labor Efficiency Variance
(5) Factory Overhead Controllable Variance
(6) Factory Overhead Volume Variance
ANSWER:
(1-2) Material Price Variance & Material Quantity Variance
MVP = (Actual price – Standard price ) x Actual Quantity
MPV = (73 – 75) X 7,700
MPV = (15,400) F
MQV = (Actual Quantity –Standard Quantity) x Standard Price

MQV = [7,700 – (160 X 48)] X 75
MQV = 1,500 UF
(3-4) Labor Rate Variance & Labor Efficiency Variance

LRV = (Actual rate – standard rate) Actual hrs.
LRV = (38 – 40) X 650 hours
LRV = (1,300) F
LEV = (Actual hrs. - standard hrs.) Standard rate

LEV = (650 – 640) X P40 (160*4)
LEV = 400 U
(5-6) Factory Overhead Controllable Variance & Factory Overhead Volume Variance
Actual factory OH 35,200 (14, 400 + 20, 800 )
Less: Budget allowed based on standard hours
Budgeted fixed OH 14,400
Variable (640 hours X 30) 19,200 33,600
Controllable variance 1,600 U
Total actual cost divided by variable foh

622K divided by 20, 800
Budget allowed based on standard hours 33,600

Less: Standard FOH 32,000 (640*50)
Volume variance 1,600 U
Total FOH variance 3,200 U
PROBLEM IV. Villaverde Corporation’s standard cost system contains the following
overhead costs, computed based on a monthly normal volume of 25,000 units or 50,000
direct labor hours:
Variable factory overhead P 12 per unit

Fixed factory overhead 8 per unit
Total P 20
The following information pertains to the month of April 200A:
Actual FOH costs incurred:

Variable P 316,680
Fixed 225,000
Actual production 26,000 units
Actual direct labor hours worked 54,600 hours
Requirement:
(1) Total Factory Overhead Cost Variance
(2) Variable Overhead Variance
(3) Variable Overhead Spending Variance
(4) Variable Overhead Efficiency Variance
(5) Fixed Overhead Variance
(6) Fixed Overhead Budget or Spending Variance
(7) Fixed Overhead Volume or Capacity Variance
(8) Controllable Variance (Using Two Variance Method)
(9) Budget or Spending Variance (Using Three Variance Method)
(10) Efficiency Variance (Using Three Variance Method)
ANSWER;
(1) Total Factory Overhead Cost Variance

Actual Factory Overhead Costs Incurred
(316,680 + 225,000) 541,680
Less: Standard Factory Overhead Costs
(26,000 units X P20/unit) 520,000
Factory Overhead Variance 21,680 U
(2) Variable Overhead Variance

Actual Variable FOH 316,680
Less: Standard Variable FOH (26,000 X P12) 312,000
Variable Overhead Variance 4,680 U
(3) Variable Overhead Spending Variance
Actual Variable FOH 316,680
Less: Actual Hours at Standard Rate Per Hour
(54,600 X P6) 327,600
Variable Overhead Efficiency Variance 10,920 F
Standard Variable OH Cost per Unit P 12

Divided by Standard Time Per Unit
(50,000 hours / 25,000 units) 2 hours
Standard Variable Overhead Rate Per Hour P 6
(4) Variable Overhead Efficiency Variance

Actual Hours at Standard Variable OH Rate Per Hour 327,600
Less: Standard Variable OH (SH X SR)
(52,000 X P6) 312,000
Variable Overhead Efficiency Variance 15,600 U
Actual Production 26,000

X Standard Time Per Unit
(50,000 hours / 25,000 units) 2
Standard Hours 52,000
(5) Fixed Overhead Variance

Actual Fixed Factory Overhead 225,000
Less: Standard Fixed FOH 208,000
Fixed Factory Overhead Variance 17,000 U
Actual Production 26,000 units

X Standard Fixed FOH Per Unit 8
Standard Fixed Overhead 208,000
(6) Fixed Overhead Budget or Spending Variance

Actual Fixed Factory Overhead Incurred 225,000
Less: Budgeted Fixed Overhead
(25,000 units X P8 per unit) or
(50,000 hours X P4 per hour) 200,000
Fixed Overhead Budget or Spending Variance 25,000 U
(7) Fixed Overhead Volume or Capacity Variance

Budgeted Fixed Overhead (25,000 Units X P8) 200,000
Less: Standard Fixed FOH (26,000 Units X P8) 208,000
Volume/Capacity Variance 8,000 F
or
Actual Production 26,000 units

Less: Normal Capacity Level 25,000
Overabsorbed Capacity 1,000
X Standard Fixed FOH Cost Per Unit 8
Volume/Capacity Variance 8,000 F
(8) Controllable Variance (Using Two Variance Method)

Actual Factory Overhead (316,680 + 225,000) 541,680
Less: Budget Allowed Based on Standard Hours
Budgeted Fixed Overhead 200,000
Variable (52,000 hours X P6 per hour) 312,000 512,000
Controllable Variance 29,680 U
(9) Budget or Spending Variance (Using Three Variance Method)

Actual Factory Overhead Costs1 514,680
Less: Budget Allowed Based on Actual Hours
Budgeted Fixed Overhead2 200,000
3
Variable 327,600 527,600
Budget or Spending Variance 14,080 U
1
P316,680 + P225,000
2
25,000 X P8
3
54,600 hours X P6 per hour
(10) Efficiency Variance (Using Three Variance Method)

The three-variance method of factory overhead analysis consists of the spending
variance, efficiency variance, and volume variance.
The spending variance consists of the variable and fixed spending variances.
The efficiency variance is equal to the variable overhead efficiency variance in the
4-way analysis.
The volume variance is the same as the volume variance in the two-way and 4-
way analyses.

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PRACTICE PROBLEMS

(2) Direct materials usage variance

Standard Quantity = 70,000 X 0.80

(2) Actual direct labor rate

Materials 48 kilos @ P75 per kilo P 3,600

MQV = (Actual Quantity –Standard Quantity) x Standard Price

(3-4) Labor Rate Variance & Labor Efficiency Variance

LEV = (Actual hrs. - standard hrs.) Standard rate

Total actual cost divided by variable foh

Budget allowed based on standard hours 33,600

Variable factory overhead P 12 per unit

The following information pertains to the month of April 200A:

Actual FOH costs incurred:

(1) Total Factory Overhead Cost Variance

(2) Variable Overhead Variance

Standard Variable OH Cost per Unit P 12

(4) Variable Overhead Efficiency Variance

Actual Production 26,000

(5) Fixed Overhead Variance

Actual Production 26,000 units

(6) Fixed Overhead Budget or Spending Variance

(7) Fixed Overhead Volume or Capacity Variance

Actual Production 26,000 units

(8) Controllable Variance (Using Two Variance Method)

(9) Budget or Spending Variance (Using Three Variance Method)

(10) Efficiency Variance (Using Three Variance Method)

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