NAME: DATE:
SECTION: SCORE:
1. Xander Labs, Inc., produces various chemical compounds for industrial use. One compound, called
Theena, is prepared using an elaborate distilling process. The company has developed standard
costs for one unit of Theena, as follows:
Materials – 2.5 kilograms @ ₱20 per kilogram
Direct labor – 1.40 hours @ ₱12.50 per hour
During the previous month, the following activity was recorded relative to production of Theena:
a. Materials purchased, 12,000 kgs. At a cost of ₱225,000
b. There was no beginning inventory of materials; however, at the end of the month, 2,500
kgs. of materials remained in the ending inventory.
c. The company employs 35 lab technicians to work on the production of Theena. During the
previous month, they worked an average of 160 hours at an average rate of ₱12 per hour.
d. During the previous month, the company planned to produce 4,000 units of Theena.
However, only 3,750 good units of Theena were produced.
REQUIRED:
1. For direct materials used in the production of Theena, compute the price and
quantity variances.
The materials were purchased from a new supplier who is anxious to enter into a long-
term purchase contract. Would you recommend that the company sign the contract?
Explain.
2. For the direct labor employed in the production of Theena, compute the rate and
efficiency variances.
In the past, the 35 technicians employed in the production of Theena consisted of 20
senior technicians and 15 assistants. During the previous month, the company
experimented with fewer senior technicians and more assistants in order to save
costs. Would you recommend that the new lab mix be continued? Explain.
2. A company produces a product. The direct materials and direct labor standards for one unit of
the product are given below:
Direct materials – 4.6 kgs. @ ₱2.50 per kg. = ₱11.50
Direct labor – 0.2 hour @ ₱12 per hour = ₱2.40
During the most recent month, the following activity was recorded:
a. Twenty thousand kilograms of materials were purchased at a cost of ₱2.35 per
kilogram.
b. Fourteen thousand seven hundred fifty kilograms of materials purchased were used to
produce 3,000 units of the product. The rest of the material purchased remained in the
raw materials inventory.
c. 750 hours of direct labor time were recorded at a total labor cost of ₱10,425.
REQUIRED:
1. Compute the direct materials price and quantity variances for the month.
2. Compute the direct labor rate and efficiency variances for the month.
3. A company’s variable manufacturing overhead should be ₱3.00 per standard machine hour and its
fixed manufacturing overhead should be ₱300,000 per period.
The following information is available for a recent period:
a. The denominator activity of 60,000 machine hours is used to compute the
predetermined overhead rate.
b. At the 60,000 standard machine hours level, the company should produce 40,000 units of
product.
c. The company’s actual operating results were:
Number of units produced 42,000
Actual machine hours 64,000
Actual variable overhead cost ₱185,600
Actual fixed overhead cost ₱302,400
REQUIRED:
Compute the total factory overhead variance. Analyze the variance using two-way, three- way,
and four-way variance analyses.
