CHAPTER 16: Labor Time (efficiency) Variance.

The
STANDARD COST ACCOUNTING difference between the actual direct labor hours
worked and the standard direct labor hours
allowed, multiplied by the standard hourly rate,
Standard cost accounting problems appear
equals the direct labor hours allowed, multiplied
rather frequently in the CPA examination.
by the standard hourly rate, equals the direct
Candidates should be familiar with the
labor time or efficiency variance. Standard direct
computation and journalization of some or all of
labor hours allowed is equal to the standard
the following variances:
number of direct labor hours per unit multiplied
1.​ Direct materials variances by equivalent production or units produced. The
2.​ Direct labor variances equation for the labor time variance is:
3.​ Factory overhead variance
★​ Labor Time Variance = (Actual Hours
DIRECT MATERIAL VARIANCES Worked - Standard Hours Allowed) x
Standard Labor Hourly Rate
Direct material variances may be divided into a
price variance and a quantity (usage) variance. FACTORY OVERHEAD VARIANCES- 2 WAY
ANALYSIS
Materials price Variance. The difference
between actual prices per unit of direct materials Under the two-way analysis of factory overhead
purchased and the standard price per unit of variances, the factory overhead variance is
direct materials purchased results in the direct divided into a budget (controllable) variance and
materials price variance per unit: when multiplied a volume (idle capacity) variance.
by the actual quantity purchased, the total direct
Budget (controllable) variance. The difference
materials price variance. It is important to note
between the actual factory overhead and
that the actual quantity purchased is used
budgeted factory overhead based on standard
instead of the actual quantity used, since it is the
direct labor hours allowed equals the budget
act of purchasing and not requisitioning that will
variances. Budgeted factory overhead at standard
give rise to a price variance. The equation for the
direct labor hours allowed equals variable factory
material price variance is:
overhead (standard direct labor hours x standard
★​ Material Price Variance = (Actual Unit variable overhead application rate) plus fixed
Price - Standard Unit Price) x Actual (budgeted) factory overhead. The equation for
Quantity Purchased the budget variance is:

Materials Quantity (usage or efficiency) ★​ Budget Variance = Actual Factory

Variance. The difference between the actual Overhead - Budgeted Factory Overhead
quantity of materials used and the standard at Standard Direct Labor Hours Allowed
quantity allowed, multiplied by the standard price
Volume (idle capacity) variance. The
per unit equals the direct material quantity
difference between the applied factory overhead
variance. The standard quantity allowed is equal
and the budgeted factory overhead on the basis
to the standard quantity of direct materials per
of standard direct labor hours allowed equals the
unit multiplied by equivalent production or units
volume variance. The equation for the volume
completed. The equation for the materials
variance is:
quantity variance is:

★​ Volume Variance = Applied Factory

★​ Material Quantity Variance = (Actual
Overhead - Budgeted Factory Overhead
Unit Price - Standard Unit Price) x
at Standard Direct Labor Hours Allowed
Standard Unit Price

Alternative method. Volume variance may also be

DIRECT LABOR VARIANCES
computed by using the following equation:
Direct labor variances may be divided into rate
★​ Volume Variance = (Direct Labor Hours
(price) variance and time (efficiency) variance.
at Normal Capacity - Standard Direct
Labor rate (price) variance. The difference Labor Hours Allowed) x Standard Fixed
between the actual hourly wage rate and the Overhead Rate
standard hourly wage rate results in the direct
Analysis of variances- after computing the
labor price or rate variance per hour when
variance the candidate should analyze if the
multiplied by the actual direct labor hours
variance is favorable or unfavorable. The
worked, the result is the total direct labor rate
following are the rules:
variance. The equation for the labor rate (price)
variance is:
Favorable variance= Actual cost is less
than the Standard Cost.
★​ Labor Rate Variance = (Actual Hourly
Rate - Standard Hourly Rate) x Standard
Unfavorable variance= Actual costs is
Labor Hourly Rate
greater than the Standard cost
JOURNAL ENTRIES IN A STANDARD COST Work-in-process xx
SYSTEM. Labor rate variance (u) xx
Labor time variance (u) xx
Under a standard cost system, all production Payroll payable xx
costs are charged to work-in-process inventory at
standard. Departures from standard costs are Journal Entries for Overhead Variances. The
recorded in separate variance accounts. The following entries relate to the recording of factory
variance is debited if the variance is unfavorable overhead at the end of the period:
(u) and credited if the variance is favorable (F).
a. Record actual factory overhead costs:
Journal entries for direct materials Factory overhead control xx
variances. In most standard cost system, only Various credits xx
the standard cost of direct materials requisitioned
is charged to work-in-process inventory. The b. To record applied factory overhead costs:
recording of a direct materials price variance, Work-in-process (at standard) xx
however, may be handled in two ways as follows: Applied factory overhead xx

1. Maintaining the materials inventory account at

c. To record factory overhead variances
standard cost, and recording price variances as
(2-way method)
direct materials are received. The pro-forma
Applied factory overhead xx
entries under this method assuming material
Overhead budget variance (u) xx
price variance is favorable and the material
Overhead volume variance (u) xx
quantity variance is unfavorable are:
Factory overhead control xx

a. To record the purchase of materials:

Materials (at standard price)​ xx
PROBLEMS
Accounts payable (at actual price) ​ xx
Material price variance (F) xx 1. Matt Company uses a standard cost system.
Information for raw materials for product RBI for
b. To record the use of materials: the month of October is as follows:
Work-in-process (at standard cost) xx
Materials quantity variance (u) xx Standard unit price​ ​ ​ ​ P1.60​
Materials (at standard price) xx Actual purchase per unit​ ​ ​ P1.55
Actual quantity purchase​ ​ 2,000 units
2. Maintaining the Materials Inventory account at
Actual quantity use​ ​ 1,900 units
actual cost, and recording price variances when
Standard quantity allowed for ​​
materials are put into production. Under this
actual production​ ​ ​ 1,800 units
method, material price variance is computed
when direct materials are issued to production.
The entries are: What is the materials purchase price variance

a. To record the purchase of materials: a.​ P90 favorable

Materials (at actual price) xx b.​ P90 unfavorable
Accounts Payable xx c.​ P100 favorable
d.​ P100 unfavorable
b. To record the use of materials:
Work in process (at standard cost) xx SOLUTION
Materials quantity variance (u) xx
*Materials price variance xx Material Price Variance = (AP-SP)x AQ purchased
Materials (at actual price) xx
​ ​ ​ = (P1.55-P1.60)x 2,000
*Actual Standard Actual
unit - unit X quantity ​ ​ ​ = P100 (F)
price price used
Note: The price variance is usually based on
quantity purchased rather than quantity used.
Journal entries for direct labor variances. In
2. Information on Material Company’s direct-
a standard cost system, direct labor costs are
material costs is as follows:
charged to work-in-process inventory, using
standard direct labor hours allowed and standard
Actual units of direct material used​ 20,000
prices. The actual payroll is credited to the
Actual direct-material costs 40,000
Payroll Payable account using actual hours and
Standard Price per unit of direct materials 2.10
actual prices. The two direct labor variances are
Direct material quantity variance favorable 3,000
recognized when incurred. Assuming the two
labor variances are unfavorable, the entry to
record payroll is: What was the material's direct-material price
variance?
 a.​ 1,000 favorable SOLUTION
b.​ 1,000 unfavorable
c.​ 2,000 favorable First, compute the standard unit price by using
d.​ 2,000 unfavorable the equation provided on the material usage
variance (MUV) as follows:
SOLUTION
(AQ-SQ) x SP = MUV
Material Price Variance = (AP-SP)x AQ used
3,000 = 30,000 - 29,000 x SP
​ ​ ​ = (P2.00-P2.10)x 20,000
3,000 = 1,000
​ ​ ​ = P2,000 (F)
3,000/1,000 = 3.00 per kg
Actual price (40,000/20,000)....P2.00
With this information, the price variance (PV) can
Note: The price variance is based on the actual be determined:
quantity used, because the actual quantity
purchased is not given. Actual cost - Standard cost = PV

3. During March 2013 Younger Company’s 84,000 - (30,000x3.00) = P6,000 (F)

direct-material costs for the manufacture of
product T were as follows: 84,000 - (90,000)

PV = P6,000 (F)
Actual units purchase price​ 6.50​
The P6,000 price variance is favorable because
Standard quantity allowed for ​​
the actual price is lower than the standard price.
actual production​ ​ ​ 2,100
Quantity purchased and use for ​
5. RTW Company uses a standard costing system
actual production​ ​ 2,300​
in connection with the manufacture of a “one size
Standard unit price 6.25​
fits all” article of clothing. Each unit of finished
product contains 2 meters of direct materials.
However, a 20% direct material spoilage
Younger’s material usage variance for March
calculated on input quantities occurs during the
2013 was:
manufacturing process. The cost of direct
a.​ 1,250 unfavorable materials is P3 per meter. The standard direct
b.​ 1,250 favorable material cost per unit of finished product is:
c.​ 1,300 unfavorable
a.​ P4.80
d.​ 1,300 favorable
b.​ P6.00
SOLUTION c.​ P7.20
d.​ P7.50
Material Usage Variance = (AP-SP)x AQ used
SOLUTION
​ ​ ​ = (2,300-2,100)x P6.25
Each unit of the finished product contains 2
​ ​ ​ = P1,250 (u) meters of direct materials. However, the problem
states that the 20% direct material spoilage is
4. Information on Rex Co.’s direct material costs calculated on the quantity of direct material
for May 2013 is as follows: input. Although mentioned, the facts in this
question infer that the spoilage is normal and
Actual quantity of direct materials purchased and should be part of the product’s standard cost.
use​ ​ ​ ​ ​ 30,000kls. The first step would be to set up the following
Actual cost of direct materials 84,000 formula:
Unfavorable direct materials ​ ​
usage variance​ 3,000​ Input quantity - spoilage = output amount
Standard quantity of direct materials ​
allowed for MAy production​ 29,000ks. x​ ​ - .2x = 2 meters

​ ​ .8x ​ = 2 meters
For the month of May, what was Rex’s direct
materials price variance?
​ ​ x​ = 2.5 meters
a.​ 2,800 favorable
Thus, the standard direct material cost per
b.​ 2,800 unfavorable
unit of finished product is P7.50 (2.5 meters
c.​ 6,000 unfavorable
x P3).
d.​ 6,000 favorable
6. Data on Goodman Company’s direct-labor
costs is given below: ​ ​ ​ ​ = P6.30/hour

Standard direct-labor hours​ ​ ​ 30,000 (2)​Knowing the actual labor rate (P3.60 per
Actual direct-labor hours​ ​ ​ 29,000 hour) the total rate variance (P3,000) and
Direct-labor usage (efficiency)​ ​ 4,000 the actual number of hours worked
Variance-favorable​ (20,000 hours) we can determine the
Direct-labor rate standard labor rate, as follows:
Variance-favorable​ ​ ​ 5,800​
Total payroll​ ​ ​ ​ 110,200 Rate Variance = (Actual rate-Std. rate) X
actual hours
What was Goodman’s actual and standard direct
labor rate? Standard rate = Actual rate- Rate var.
Actual hours
​ Actual​ ​ ​ Standard
​ D/L rate ​ ​ D/L rate = 6.30 - P3,000
A.​ P .60​ ​ ​ P 3.54 ​ P 20,000
B.​ P3.80​​ ​ P 4.00
C.​ P 4.00​​ ​ P 3.80 = P6.15
D.​ P 5.80​​ ​ P 5.80
(3)​The labor efficiency variance is computed
Solution as follows:
Actual D/L Rate = total Payroll / actual D/L Hours
​ ​ = P110,200 / 29,000 hrs. Eff var. = (actual hrs - std. hours) x std.
​ ​ = P 3.80 rate
​ ​ = 20,000 - 21,000 x P6.15
Standard D/L rate. The technique to compute this ​ ​ = P 6,150 favorable
is to use the equation of Labor Rate Variance as
follows: 8. Cola manufactures one product with a
Labor Rate Variance = (AR - SR) X Actual Hours standard direct labor cost of four hours at P12.00
​ = (P 3.80 - SR) X 29,000 = 5,800 (F) per hour. During June, 100 units were produced
Rate Variance Per Hr. (P5,800 / 2,000) ​ P .20 using 4,100 hours at P12.20 per hour. The
Add: Actual Rate Per Hr. ​ ​ ​ 3.80 unfavorable direct labor efficiency variance was:
Standard Rate Per Hr. ​ ​ ​ P 4.00
a.​ P 1,220
7. Lion Company’s direct-labor costs for the b.​ P 1,200
month of January, 2013 were as follows: c.​ P 820
d.​ P 400
Actual direct-labor hours​ ​ ​ 20,000
Standard direct-labor hours​ ​ ​ 21,000 Solution
Direct-labor rate ​ Labor efficiency variance = (Actual Hrs -
Variance-unfavorable​​ P 3,000 std. hrs) x Std. rate
Total payroll​ ​ ​ ​ P126,000 ​ ​ = (4,100 - 4,000) x P12
What was Lion’s direct-labor efficiency variance? ​ ​ = P 1,200 unfavorable

a.​ P 6,000 favorable 9. Abe uses a standard cost system. The

b.​ P 6,150 favorable following information pertains to direct labor for
c.​ P 6,300 favorable product B for the month of October:
d.​ P 6,450 favorable
Actual rate paid​ ​ P 8.4 per hour
Solution Standard rate​​ ​ P 8.00 per hour
We know that the labor efficiency variance was Standard hours allowed
favorable, since actual labor was 1,000 hours less for actual production​ 2,000 hours
than standard. In order to determine the pesos Labor efficiency variance P 1,600 unfavorable
amount of that variance, we need to know the
standard labor rate. The standard labor rate is What were the actual hours worked?
derived as follows:
a.​ 1,800
(1)​Determine the actual labor rate. This is b.​ 1,810
obtained by dividing the actual payroll by c.​ 2,190
actual hours. d.​ 2,200

​ Actual labor rate = P 126,000

​ ​ ​ 20,000 hours
 Standard variable cost of
processing 1,500,000 papers P900,000
Solution Fixed cost per year ​ ​ P 150,000​
​ Another technique to solve question such
as this one is to set up a diagram computing the
direct-labor efficiency variance (which is given)
and fill in the information given

AH X SR​ ​ ​ ​ SH X SR
? X P8.00​​ ​ 2,000 X P8.00
​ ?​ ​ ​ ​ P16,000
Efficiency variance, P1,600 unfavorable

​ Since the variance is unfavorable, AH x SR

must equal P16,000 plus P1,600, or P17,600. The
actual hours worked can then be computed by
dividing P17,600 by P8.00, resulting in AH of
2,200. The diagram can be completed as follows:

​ AH X SR​ ​ ​ SH X SR
2,200 X P8.00 ​​ 2,000 x P8.00
P17,600​ ​ ​ P16,000
Efficiency variance, P1,600 unfavorable
​

10. The following processing standards have been

set for TMT Company’s clerical workers:

Number of hours
per 1,000 papers processed 150​
Normal number of papers
processed per year ​ ​ 1,500,000
Wage rate per 1,000 papers​​ P 600

The following information pertains to the

1,200,000 papers that were processed during
2013:

Total cost​ ​ ​ P 915,000

Labor cost​ ​ ​ P 760,000
Labor hours ​ ​ ​ 190,000

For 2013, TMT’s labor rate variance would be:

a.​ P40,000 unfavorable

b.​ P 32,000 favorable
c.​ P 10,000 unfavorable
d.​ P0

Solution
​ This question can be answered by filling in
the labor rate variance diagram:

​ AH X AR ​ ​ AH X SR
​ Labor Rate Variance

Actual labor hours (AH) are given as

190,000. The actual rate (AR) per hour is P4 and
is computed by dividing the actual labor cost of
P760,000 by the actual labor hours of 190,000.
The standard rate (SR) per hour is also P4. the
SR is computed by dividing the standard wage
rate of P600 (per 1,000 papers) by the 150
standard hours (per 1,000 papers). This will
result in a labor rate variance of P0 as shown in c.​ 1.60
the diagram below: d.​ 1.85

AH X AR​ ​ AH X SR Solution:
190,000 x P4​ 190,000 X P4
P760,000​ ​ P760,000 Standard costs are predetermined target costs which
Labor rate variance = 0 should be attainable under efficient conditions. Currently
attainable standards should be achieved under efficient
11. The following direct labor information operating conditions. Therefore, engineering estimates
pertains to the manufacture of product MM: based on attainable performance would provide the best
basis for Sarsi in establishing standard hours allowed,
and answer (b) is correct
Time required to make one unit 2 direct labor hours
No. of direct workers 50
No. of Productive hours per week, per worker 40 13. Mahal Company had a total underapplied
Weekly wages per worker P500
Worker’s benefits treated as Direct Labor Costs 20% of wages overhead of P15,000. Additional information is as
follows:

What is the standard direct labor cost per unit of

product MM? Variable overhead:
Applied based on standard direct labor hours allowed P42,000
a.​ P30 Budgeted based on standard direct labor hours 38,000

b.​ P24 Fixed overhead:

c.​ P15 Applied base on standard direct labor hours allowed 30,000
Budgeted based on standard direct labor hours 27,000
d.​ P12

Solution: What is the actual total overhead?

a.​ P50,000
Standard costs are predetermined target cost which b.​ P57,000
should be attainable under efficient conditions the c.​ P80,000
standard direct labor cost per unit of product glu is d.​ P87,000
calculated as follows:
Solution:
Weekly wages per worker P500 Factory overhead applied (P42,000 + 30,000) P72,000
Benefits treated as DL cost 100 Underapplied overhead 15,000
Total DL per week per worker P600
Hours per week Divide: 40 Total factory overhead (actual) P87,000

DL cost per hour 15

Hours required for each unit x 2

Standard DL cost per unit P 30

12. In connection with a standard cost system

being developed by Sarsi Company, the following
information is being considered with regard to
standard hours allowed for output of one unit of
product:

Average historical performance for the past three

years 1.85 hrs.
Production level to satisfy the average consumer
demand over a seasonal time span 1.60 hrs.
Engineering estimates based on attainable performance 1.50 hrs.
Engineering estimates based on ideal performance 1.25 hrs.

To measure controllable production inefficiencies,

what is the best basis for Sarsi to use in
establishing standard hours allowed?

a.​ 1.25
b.​ 1.50
 d.​ P6,000 unfavorable
14. Golf Company uses a standard cost system.
Overhead cost information for Product CO for the month Solution:
of October is as follows:
Total variance:​
Actual overhead​ ​ ​ P86,000​
Total Overhead cost incurred P12,600
Applied overhead​​ ​ 80,000​
Fixed overhead budgeted P 3,300
Underapplied overhead ​ P6,000
Total standard overhead rate per direct labor hour P 4.00
Variable overhead rate per direct labor hours P 3.00
Standard hours allowed for actual production 3,500

What is the overall (or net) overall variance?

a.​ P1,200 favorable

b.​ P1.200 unfavorable
c.​ P1,400 favorable
d.​ P1,400 unfavorable

Solution:

Total variance
Actual overhead P12,600
Applied overhead (3,500 x P4.00) 14,000
Overapplied overhead (P1,400) F

15. Information on Pool Company’s overhead

costs is as follows:

Standard applied overhead​ ​ ​ P80,000​

Budgeted overhead based on standard​
direct-labor hours allowed ​ ​ ​ P84,000​
Budgeted overhead based on actual ​
direct-labor hours allowed ​ ​ ​ P83,000​
Actual overhead ​ ​ ​ ​ ​ P86,000

What is the total overhead variance?

a.​ P2,000 unfavorable

b.​ P3,000 favorable
c.​ P4,000 favorable
16. M Valdez, a department manager, exercises
control over the department’s cost.​
Following is elected information relating to the
department for July:

Variable factory overhead​

Budgeted based on standard hours allowed ​ P80,000​
Actual ​ ​ ​ ​ ​ 85,000​
Fixed factory overhead​
Budgeted​ ​ ​ ​ ​ 25,000​
Actual ​ ​ ​ ​ ​ 27,000

The department’s unfavorable spending variance

for July was:

a.​ P7,000
b.​ P5,000
c.​ P2,000
d.​ P0

Solution:

The overhead spending variance is calculated as the

difference between actual overhead incurred and the
budgeted overhead based on standard hours allowed. Since
the problem states that variable costs are budgeted using
standard hours allowed, the problem asking for a
two-variance analysis (which measures a spending variance
and a production-volume variance). The technique to this
problem is to set up a diagram as followes:

​ Actual Costs ​ ​ Badgeted ​

P 27,000 Fixed ​ ​ P 25,000 Fixed ​
85,000 Variable ​ ​ 80,000 Variable ​
P112,000​ ​ ​ P105,000​

​
​ Overhead Spending Variance​
P7,000 unfavorable

17. El Mondo Company uses a standard cost

system and prepared the following budget at
normal capacity for the month of January 2013:​

Direct-labor hours ​ ​ ​ ​ 24,000​

Variable factory overhead​ ​ ​ P 48,000​
Fixed factory overhead ​ ​ ​ P108,000​
Total factory overhead per direct-labor hour P 6.50

Actual data for January 2013 were as follows:

Direct-labor hours worked ​ ​ ​ 22,000​

Total factory overhead ​ ​ ​ P147,000​
Standard direct-labor hours allowed ​
for capacity attained ​ ​ ​ ​ 21,000

Using the two-way analysis of overhead variances

what is the budget (control-lable) variance for
January 2013?

a.​ P 3,000 favorable

b.​ P 5,000 favorable
c.​ P 9,000 favorable
d.​ P10,000 unfavorable

Solution:
The requirement is to determine the budget (controllable) Solution:
variance for January 2011, using the two-way analysis of
overhead variances. The controllable variance is the difference Actual factory overhead:​
between actual overhead costs (P147,000), and overhead Budget based on STD​
budgeted for output achieved. When overhead is applied Fixed ​ ​ ​ P50,000​
based on direct-labor hours, the budgeted amount is equal to Variance (18k x 4) ​ ​ 72,000​ P122,000​
budgeted fixed overhead (108,000), plus standard Add: Controllable variance (U) ​ ​ 1,000
direct-labor hours times the standard variable overhead rate
(21,000 x P2 = P42,000). The standard variable rate is
Actual overhead ​ ​ ​ P123,000
computed by dividing budgeted variable overhead by the
budgeted activity level (48,000 / 24,000 = P2). The budget
The P1,000 U controllable variance indicates that the actual
(controllable) variance is computed below:​
overhead exceeded the budgeted overhead. Therefore, the
​
P1,000 U variance must be added to the budget to drive the
​ Actual ​ ​ Budget for output achieved ​
actual overhead.
P147,000​ ​ P108,000 + (21,000 x P2) ​
​ ​ ​ ​ P150,000​
Applied factory Overhead: ​
​
Budget based on STD:​
​ Budget variance, P3,000 F​
Fixed ​ ​ ​ P50,000​
Variable (18,000 x 4) ​ ​ 72,000 ​ P122,000​
​
Add: Volume variance (F) ​​ ​ ​ 500
The variance is favorable because actual costs are less than
budgeted costs,.
Applied overhead ​ ​ ​ P122,500

18. The following information pertains to FPJ

Company 2013 manufacturing operations: 20. The following were among Goodnight
​ Company’s 2013 cost:
Standard direct labor hours per unit ​ ​ 2​
Actual direct labor hours ​ ​ ​ ​ 10,500​
Number of units produced ​ ​ ​ 5,000​
Standard variable overhead per standard​
direct labor hour​ ​ ​ ​ P 3​ Normal spoilage ​ ​ ​ ​ ​ P5,000​
Actual variable overhead​ ​ ​ ​ P28,000 Freight out ​ ​ ​ ​ ​ 10,000​
Excess of actual manufacturing​
costs over standard cost​ ​ ​ 20,000​
Standard manufacturing costs​ ​ ​ 100,000​
FPJ’s 2013 unfavorable overhead efficiency Actual prime manufacturing cost​ ​ ​ 80,000
variance was:

a.​ P0
b.​ P1,500 Goodnight’s 2013 actual manufacturing overhead
c.​ P2,000 was:
d.​ P3,000
a.​ P 40,000
Solution: b.​ P 45,000
c.​ P 55,000
Overhead efficiency variance = (Actual hrs - STD hrs) x STD d.​ P120,000
rate​
​ ​ ​ = (10,500 - 10,000) x P3​
​ ​ ​ = 1,500 unfavorable​
Solution:​
​ ​
Standard hrs (2 x 5k) ​ = 10,000 hrs To determine Goodnight’s actual manufacturing overhead
from the information given, total actual manufacturing costs
must first be computed:

Standard manufacturing cost​ ​ P100,000​

19. GMA Company’s budgeted fixed factory Excess of actual manufacturing​
overhead cost are P50,000 per month plus a cost over standard cost​ ​ 20,000
variable factory overhead rate P4 per direct labor
Since prime costs consist of direct materials and direct labor,
hour. The standard direct labor hours allowed for
there costs are deducted from total actual costs to derive the
October production were 18,000. An analysis of portion that are overhead costs. Ordinarily, normal spoilage is
the factory overhead indicates that, in October, not added to actual manufacturing overhead. The cost of
GMA had an unfavorable budget (controllable) normal spoilage should be added to the cost of good units
produced. Freight out is also excluded because it is a selling
variance of P1,000 and a favorable volume
expense.
variance of P500 GMA uses a two-way analysis of
overhead variances. Total actual costs ​ ​ ​ P120,000​
Prime costs ​ ​ ​ ​ ( 80,000)
The actual and applied factory overhead in
October are: Actual manufacturing overhead ​ P 40,000

Answer (a) is correct because Goodnight 2008 actual

​ Actual F/O​ ​ Applied F/O
manufacturing overhead was P40,000

a.​ P121,000​ ​ P121,000

b.​ P122,000​ ​ P122,500
c.​ P122,500​ ​ P123,000
d.​ P123,000​ ​ P122,500