CERTIFIED ACCOUNTING TECHNICIAL LEVEL 2

MODULE 7

KEY TO CORRECTIONS
E1
a. Tyson’s Hardware -- Static Budget with Variances -- 20x3
Actual Static Budget Variances
Product handling ₱10,900 ₱11,200 ₱300 F
Storage 465 600 135 F
Utilities 2,020 2,440 420 F
Shipping clerks 1,400 1,664 264 F
Supplies 340 332 8U
Total ₱15,125 ₱16,236 ₱1,111 F

b. Tyson’s Hardware -- Flexible Budget with Variances -- 20x3

Actual Flexible Budget Variances
Product handling ₱10,900 ₱11,125 ₱225 F
Storage 465 675 210 F
Utilities 2,020 2,350 330 F
Shipping clerks 1,400 1,600 200 F
Supplies 340 300 40 U
Total ₱15,125 ₱16,050 ₱925 F

E2
1. FALSE – A flexible budget is calculated at the end of the budget period when actual output is
known.
2. FALSE – An unfavorable variance results when budgeted revenues exceed actual revenues.
3. FALSE – Favorable variance investigation may lead to improved production methods, other
discoveries for future opportunities, or not be good news at all and adversely affect other
variances.
4. TRUE
5. TRUE
6. FALSE – The volume variance is the result of inaccurate forecasting of units sold.
7. FALSE – Decreasing demand for a product may create an unfavorable sales-volume variance.
8. FALSE – An unfavorable variance suggests further investigation, not conclusive evidence of
poor performance.
9. TRUE
10. FALSE – The sales-volume variance is not a measure of cost, but rather a measure of actual
output units differing from budgeted output units.
11. FALSE – A deficiency of using budgeted input quantity information based on actual quantity
data from past periods is that past inefficiencies are included.
12. FALSE – Budgets may be based on standard costs, actual amounts from last year, or data
from other companies.
13. TRUE
14. TRUE
15. TRUE

E3
Actual Flexible Flexible Volume Static
Results Variance Budget Variance Budget
Units sold 20,000 20,000 25,000

Sales ₱1,000,000 ₱ - ₱1,000,000 ₱ 250,000 U ₱ 1,250,000

Variable costs 512,000 32,000 U 480,000 120,000 F 600,000
Contribution
margin 488,000 32,000 U 520,000 130,000 U 650,000
Fixed costs 458,000 8,000 U 450,000 - 450,000
Operating income ₱ 30,000 ₱ 40,000 U ₱ 70,000 ₱ 130,000 U ₱ 200,000

E4
First Second Third Fourth
Quarter Quarter Quarter Quarter Total
Product A:
Sales (units) 20,000 15,000 10,000 5,000 50,000
Price x ₱4 x ₱4 x ₱4 x ₱4 x ₱4
Sales (₱) ₱80,000 ₱60,000 ₱40,000 ₱20,000 ₱200,000

Product B:
Sales (units) 37,500 25,000 25,000 37,500 125,000
Price x ₱10 x ₱10 x ₱10 x ₱10 x ₱10
Sales (₱) ₱375,000 ₱250,000 ₱250,000 ₱375,000 ₱1,250,000

Product C:
Sales (units) 6,250 25,000 25,000 6,250 62,500
Price x ₱6 x ₱6 x ₱6 x ₱6 x ₱6
Sales (₱) ₱37,500 ₱150,000 ₱150,000 ₱37,500 ₱375,000

Total Sales ₱492,500 ₱460,000 ₱440,000 ₱432,500 ₱1,825,000

E5
April May June Total
Desired ending inventory ₱ 9,180 ₱ 9,810 ₱ 9,450 ₱ 9,450
Plus COGS 31,800 30,600 32,700 95,100
Total needed 40,980 40,410 42,150 104,550
Less beginning inventory 9,540 9,180 9,810 9,540
Total purchases ₱31,440 ₱31,230 ₱32,340 ₱ 95,010
E6
1.
DTG Corporation
Production and Direct Labor Budget
For the first quarter of year 2020

January February March Total

Estimated Unit Sales 20,000 24,000 16,000 60,000
Add: Desired ending inventory 32,000 25,000 27,000 27,000
Total needs 52,000 49,000 43,000 87,000
Less: Expected beginning inventory 32,000 32,000 25,000 32,000
Units to be produced 20,000 17,000 18,000 55,000

Direct labor hour per unit produced 1 1 0.75

Direct labor hours 20,000 17,000 13,500 50,500
Wages (P16/hr) ₱ 320,000 ₱ 272,000 ₱ 216,000 ₱ 808,000
Pension contribution (P0.50/hr) 10,000 8,500 6,750 25,250
Compensation insurance (P0.20/hr) 4,000 3,400 2,700 10,100
Medical insurance (P0.80/hr) 16,000 13,600 10,800 40,400
Social security (7% of DL wages) 22,400 19,040 15,120 56,560
Total direct labor cost ₱ 372,400 ₱ 316,540 ₱ 251,370 ₱ 940,310

2.

DTG Corporation
Production Overhead Budget
For the first quarter of year 2020

January February March Total

Estimated Unit Sales 20,000 24,000 16,000 60,000
Shipping and handling (P3/unit) ₱ 60,000.00 ₱ 72,000.00 ₱ 48,000.00 ₱ 180,000.00

Units to be produced 20,000 17,000 18,000 55,000

Purchasing, material handling, and inspection (P4.50/unit produced) ₱ 90,000.00 ₱ 76,500.00 ₱ 81,000.00 ₱ 247,500.00

Direct labor hours 20,000 17,000 13,500 50,500

Other production overhead (P10.50/ DL hr) ₱ 210,000 ₱ 178,500 ₱ 141,750 ₱ 530,250

Total overhead cost ₱ 360,000 ₱ 327,000 ₱ 270,750 ₱ 957,750

E7
Michelle Enterprises
Budgeted Income Statement
For the Year 20x3

Sales (95,000 x ₱2.75) ₱261,250

Cost of goods sold (20x3 sales x 62%) 161,975
Gross profit 99,275
Less: Operating expenses [(₱0.50 x 95,000] + ₱10,000) 57,500
Operating income ₱ 41,775

E8
a. Collections for the first quarter total ₱766,225 (₱240,400 + ₱256,500 + ₱269,325):

January:
Given ₱240,400

February:
January receivables ₱120,000
February cash services: ₱262,500 x 20% 52,500
February credit services: ₱262,500 x 80% x 40% 84,000 ₱256,500

March:
February credit services: ₱262,500 x 80% x 60% ₱126,000
March cash services: ₱275,625 x 20% 55,125
March credit services: ₱275,625 x 80% x 40% 88,200 ₱269,325

b. The ending cash balance is ₱47,225

January 1 balance (Beginning) ₱ 23,000
Collections 766,225
Payment of December 31 payable (28,000)
Cash operating costs, net of unpaid ((₱250,000 x 3) – ₱36,000) (714,000)
March 31 balance (ending) 47,225

E9
a.
Month Sales Percent Collections
March ₱165,000 10% ₱ 16,500
April 178,000 30% 53,400
May 166,000 60% 99,600
Total ₱169,500

b.
April purchases to be paid in May ₱154,000
Less: 3% cash discount 4,620
Net amount ₱149,380
Add: Cash payments for expenses 119,500
 Total expected cash disbursements ₱268,880

c.
Balance, May 1 ₱127,800
Add: Expected collections 169,500
Subtotal ₱297,300
Less: Expected payments 268,880
Expected balance, May 31 ₱ 28,420

E10
Russell Company
Balance Sheet
June 30, 20x3

Assets: Liabilities and Owners’ Equity:

Cash ₱ 56,000 Accounts payable ₱ 40,000
Accounts receivable 100,000 Bonds payable 160,000
Inventories 180,000 Capital stock 400,000
Equipment, net 240,000 Retained earnings* 376,000
Buildings, net 400,000
Total ₱976,000 Total ₱976,000

*₱976,000 – (₱40,000 + ₱160,000 + ₱400,000) = ₱376,000

E11
Material price variance: Labor rate variance:
100,000 x ₱2.50 = ₱250,000 122,400 x ₱8.35 = ₱1,022,040
100,000 x ₱2.60 = 260,000 122,400 x ₱8.50 = 1,040,400
₱ 10,000 F ₱ 18,360 F

Material quantity variance: Labor efficiency variance:

95,625 x ₱2.60 = ₱248,625 122,400 x ₱8.50 = ₱1,040,400
89,250 x ₱2.60 = 232,050 127,500 x ₱8.50 = 1,083,750
₱ 16,575 U ₱ 43,350 F

E12
a. When using an equation, a favorable balance has a negative sign.
EV = (AH − SH)SR
−1600 = (3,800 − SH)8
−1600 = 30,400 − 8SH
8SH = 30,400 + 1,600
8SH = 32,000
SH = 4,000
Total units = 4,000 standard hours ÷ 2 hrs per unit
Total units = 2,000 units

b. Standard Cost of DM* 48,000

÷ Cost per pound 6
Total pounds (standard) 8,000
 ÷ Units 2,000
Standard pound per unit of product 4
*Standard Cost of DM of ₱48,000 = ₱62,400 DM used - ₱14,400 Total materials price variance

c. When using an equation, an unfavorable balance has a positive sign.

QV = (AQ − SQ)SP
9,600 = (AQ − 8,000)6
9,600 = 6AQ − 48,000
9,600 + 48,000 = 6AQ
57,600 = 6AQ
AQ = 9,600
AP = Actual cost ÷ Actual quantity
AP = 62,400 ÷ 9,600
AP = ₱6.5
*₱9,600 unfav mat quantity var = ₱14,400 unfav total mat var - ₱4,800 unfav mat price var

d.
RV = (AR − SR)AH
2,280 = (AR − 8)3,800
2,280 = 3,800AR − 30,400
2,280 + 30,400 = 3,800AR
32,680 = 3,800AQ
𝐀𝐑 = 𝟖. 𝟔

*Labor rate variance = Total labor variance – Labor efficiency variance

Labor rate variance = 680 – (-1600)
Labor rate variance = 2,280 unfavorable

E13
a. May June
Actual factory overhead ...................................................... ₱ 140,100 ₱ 149,300
Budget allowance based on standard production:
Budgeted fixed expense (40% x ₱10 x 15,000 units) .... (60,000) (60,000)
Variable expenses:
12,000 hrs. allowed x ₱10 x .60 .............................. (72,000)
15,000 hrs. allowed x ₱10 x .60 .............................. (90,000)
Controllable variance .......................................................... ₱ 8,100 unfav. ₱ (700) fav.

b.
Budgeted allowance based on standard hours allowed ...... ₱ 132,000 ₱ 150,000
Standard hours allowed x Standard factory overhead rate:
12,000 hrs. x ₱10 .................................................... (120,000)
15,000 hrs. x ₱10 .................................................... (150,000)
Volume variance ................................................................. ₱ 12,000 unfav. 0
E14
a.
Actual factory overhead ...................................................... ₱ 25,600
Budget allowance based on actual hours:
Variable overhead (4,800 actual hours x ₱3) ................ ₱14,400
Fixed overhead ............................................................. 10,000 24,400
Spending variance .............................................................. ₱ 1,200 unfavorable

b.
Budget allowance based on actual hours (from above) ...... ₱ 24,400
Budget allowance based on standard hours:
Variable overhead (5,200 standard hours x ₱3) ............ ₱15,600
Fixed overhead ............................................................. 10,000 25,600
Variable efficiency variance ................................................ ₱ (1,200) favorable

c.
Budget allowance based on standard hours (from above) .. ₱ 25,600
Standard factory overhead chargeable to production
(from above) ................................................................. 26,000
Volume variance ................................................................. ₱ (400) favorable

d.
Actual factory overhead ...................................................... ₱ 25,600
Standard overhead chargeable to production (5,200
standard hours allowed x ₱5 overhead rate) ................. 26,000
Overall factory overhead variance ...................................... ₱ (400) favorable

or

Spending variance .............................................................. ₱ 1,200

Variable efficiency variance ................................................ (1,200)
Volume variance ................................................................. (400)
Overall factory overhead variance ₱ (400)favorable

E15
VARIABLE

Actual VOH ₱6,400

Variable Spending Variance: a) ₱275 F
Flex. Bud. Based on Actual
Input Hours (8,900 x ₱.75) ₱6,675
Variable Efficiency Variance: b) ₱75 F
Applied VOH
(1,800 x 5 x ₱.75) ₱6,750
 FIXED

Actual FOH ₱17,500

FOH Spending Variance: d) ₱590 U
BUDGETED FOH ₱16,910
FOH Volume Variance: f) ₱190 F
Applied FOH
(1,800 x 5 x ₱1.90) ₱17,100
E16
1. Materials .......................................................................................... 90,000
Materials Purchase Price Variance ........................................... 2,400
Accounts Payable ..................................................................... 87,600

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

Materials ................................................................................... 77,000
Materials Quantity Variance...................................................... 1,000

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

Labor Rate Variance ........................................................................ 750
Payroll ...................................................................................... 144,000
Labor Efficiency Variance ......................................................... 500

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

Factory Overhead Controllable Variance ......................................... 2,950
Factory Overhead Control ........................................................ 256,000
Factory Overhead Volume Variance ......................................... 1,700

E17
1.) Actual quantities at individual standard materials cost ............................. ₱11,6201
Actual input quantity at WASIC (20,160 x ₱0.3812) ....................................... ₱ 7,681
Materials mix variance ................................................................................ ₱ 3,939
unfav.

2.) Actual input quantity at WASIC (20,160 x ₱0.3812) .................................. ₱ 7,681

Actual output quantity at WASOC (18,500 lbs. x ₱0.403) .............................. 7,400
Materials yield variance ₱ 281 unfav.

1
Beeswax............................................. 4,100 lbs. @ ₱1 per lb................................ ₱ 4,100
Synthetic wax ..................................... 13,800 lbs. @ ₱.20 per lb............................. 2,760
Colors................................................. 2,200 lbs. @ ₱2 per lb................................ 4,400
Scents ................................................ 60 lbs. @ ₱6 per lb................................ 360
20,160 lbs. .................................................. ₱
11,620
2
Weighted average standard input costs:
Beeswax ............................................ 200 lbs. @ ₱1 ......................................... ₱200
Synthetic wax ..................................... 840 lbs. @ ₱.20 ...................................... 168
Colors................................................. 7 lbs. @ ₱2 ......................................... 14
Scents ................................................ 3 lbs. @ ₱6 ......................................... 18
1,050 lbs. .................................................. ₱400
 ₱400
WASIC = = ₱0.381 per lbs
1,050 lbs

3 ₱400
WASOC = = ₱0.40 per lbs
1,000 lbs

E18
1.
Actual hours @ Standard Rate AH SR
Mixing 4,500 x ₱ 10.00 = ₱ 45,000
Finishing 3,000 x ₱ 5.00 = ₱ 15,000
Actual hours @ Standard Rate ₱ 60,000
AH WASCH
Less: Actual hours @ WASCH 7,500 x ₱ 8.333 = ₱ 62,500.00
Mix variance ₱ 2,500.00 F

₱6,250
WASCH = = ₱8.333 per hour
750 hours

2.
Actual hours @ WASCH 62,500
Standard Cost 56,250
Yield variance 6,250 UF

• Standard Cost is computed as:

SH SR Standard Cost
Mixing 4,500 x ₱ 10 = ₱ 45,000
Finishing 2,250 x ₱ 5 = ₱ 11,250
Total ₱ 56,250

• To get the standard hours:

Standard hrs on 4,000 units Std Units Std Hour per unit
Mixing 500 ÷ 4,000 = 0.1250
Finishing 250 ÷ 4,000 = 0.0625

Remember that standard costs are based on actual units. If there are 36,000 actual units,
then standard hours are:
Std Hour per unit Actual Units Std Hour per unit
Mixing 0.1250 x 36,000 = 4,500
Finishing 0.0625 x 36,000 = 2,250