ABC and STANDARD COSTING

ABC and STANDARD COSTING

Smithson Company
Smithson Company produces two products (A and B). Direct material and labor costs for Product A total
P35 (which reflects 4 direct labor hours); direct material and labor costs for Product B total P22 (which
reflects 1.5 direct labor hours). Three overhead functions are needed for each product. Product A uses
2 hours of Function 1 at P10 per hour, 1 hour of Function 2 at P7 per hour, and 6 hours of Function 3 at
P18 per hour. Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively. Smithson
produces 800 units of A and 8,000 units of B each period.
____
1. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units
produced, Product A will have an overhead cost per unit of
a.
b.
c.
d.

P 88.64.
P123.64.
P135.00.
None of the responses are correct.

____
2. Refer to Smithson Company If total overhead is assigned to A and B on the basis of units
produced, Product B will have an overhead cost per unit of
a.
b.
c.
d.

P84.00.
P88.64.
P110.64.
None of the responses are correct.

____
3. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct
labor hours, Product A will have an overhead cost per unit of
a.
b.
c.
d.

P51.32.
P205.28.
P461.88.
None of the responses are correct.

____
4. Refer to Smithson Company If total overhead is assigned to A and B on the basis of direct
labor hours, Product B will have an overhead cost per unit of
a.
b.
c.
d.

P51.32.
P76.98.
P510.32.
None of the responses are correct.

____
5. Refer to Smithson Company If total overhead is assigned to A and B on the basis of
overhead activity hours used, the total product cost per unit assigned to Product A will be
a.
b.

P86.32.
P95.00.

c.
d.

P115.50.
None of the responses are correct.

____
6. Refer to Smithson Company If total overhead is assigned to A and B on the basis of
overhead activity hours used, the total product cost per unit assigned to Product B will be
a.
b.
c.
d.

P115.50.
P73.32.
P34.60.
None of the responses are correct.

Phelps Company
Phelps Company produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In
that period, four set-ups were required for color changes. All units of Product Q are black, which is the
color in the process at the beginning of the period. A set-up was made for 1,000 blue units of Product
Z; a set-up was made for 4,500 red units of Product Z; a set-up was made for 500 green units of
Product Z. A set-up was then made to return the process to its standard black coloration and the units
of Product Q were run. Each set-up costs P500.
____
7. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department,
what is the approximate per-unit set-up cost for Product Z?
a.
b.
c.
d.

P.010.
P.036.
P.040.
None of the responses are correct.

____
8. Refer to Phelps Company. If set-up cost is assigned on a volume basis for the department,
what is the approximate per-unit set-up cost for the red units of Product Z?
a.
b.
c.
d.

P.036.
P.111.
P.250.
None of the responses are correct.

____
9. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead
costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the blue units
of Product Z?
a.
b.
c.
d.

P.04.
P.25.
P.50.
None of the responses are correct.

____ 10. Refer to Phelps Company. Assume that Phelps Company has decided to allocate overhead
costs using levels of cost drivers. What would be the approximate per-unit set-up cost for the green
units of Product Z?

a.
b.
c.
d.

P1.00.
P0.25.
P0.04.
None of the responses are correct.

Lafayette Savings and Loan

Lafayette Savings and Loan had the following activities, traceable costs, and physical flow of driver
units:
Traceable
Activities
Open new accounts

Physical flow of

Costs

Driver Units

P50,000

1,000 accounts

Process deposits

36,000

400,000 deposits

Process withdrawals

15,000

200,000 withdrawals

Process loan
applications

27,000

900 applications

The above activities are used by the Jennings branch and the Crowley branch:
Jennings

Crowley

200

400

Deposits

40,000

20,000

Withdrawals

15,000

18,000

100

160

New accounts

Loan applications

____ 11. Refer to Lafayette Savings and Loan. What is the cost per driver unit for new account
activity?
a.
b.
c.
d.

P0.09
P0.075
P30.00
P50.00

____ 12. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the deposit
activity?
a.
b.
c.
d.

P0.09
P0.075
P30.00
P50.00

____ 13. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the withdrawal
activity?
a.
b.
c.
d.

P0.09
P0.075
P30.00
P50.00

____ 14. Refer to Lafayette Savings and Loan. What is the cost per driver unit for the loan
application activity?
a.
b.
c.
d.

P0.09
P0.075
P30.00
P50.00

____ 15. Refer to Lafayette Savings and Loan. How much of the loan application cost will be
assigned to the Jennings branch?
a.
b.
c.
d.

P3,000
P4,800
P7,800
P27,000

____ 16. Refer to Lafayette Savings and Loan. How much of the deposit cost will be assigned to the
Crowley branch?
a.
b.
c.
d.

P1,800
P3,600
P5,400
P36,000

____ 17. Refer to Lafayette Savings and Loan. How much of the new account cost will be assigned
to the Crowley branch?
a.
b.
c.
d.

P10,000
P20,000
P30,000
P50,000

Hazel Company uses activity-based costing. The company produces two products: coats and hats.
The annual production and sales volume of coats is 8,000 units and of hats is 6,000 units. There are
three activity cost pools with the following expected activities and estimated total costs:

Activity
Cost Pool
Activity 1
Activity 2
Activity 3

____
a.

Estimated
Cost
P20,000
P37,000
P91,200

Expected
Activity
Coats
100
800
800

Expected
Activity
Hats
400
200
3,000

Total
500
1,000
3,800

18. Refer to Hazel Company. Using ABC, the cost per unit of coats is approximately:
P2.40

b.
c.
d.

____
a.
b.
c.
d.

P3.90
P6.60
P10.59

19. Refer to Hazel Company. Using ABC, the cost per unit of hats is approximately:
P2.40
P3.90
P12.00
P15.90

Kan Co.
Kan Co. produces two products (A and B). Direct material and labor costs for Product A total P35 (which
reflects 4 direct labor hours); direct material and labor costs for Product B total P22 (which reflects 1.5
direct labor hours). Three overhead functions are needed for each product. Product A uses 2 hours of
Function 1 at P10 per hour, 1 hour of Function 2 at P7 per hour, and 6 hours of Function 3 at P18 per
hour. Product B uses 1, 8, and 1 hours of Functions 1, 2, and 3, respectively. Kan produces 800 units of
A and 8,000 units of B each period.
____ 20. Refer to Kan Co. If total overhead is assigned to A and B on the basis of units produced,
Product A will have an overhead cost per unit of
a.
b.
c.
d.

P 88.64.
P123.64.
P135.00.
none of the above.

____ 21. Refer to Kan Co. If total overhead is assigned to A and B on the basis of units produced,
Product B will have an overhead cost per unit of
a.
b.
c.
d.

P84.00.
P88.64.
P110.64.
none of the above.

____ 22. Refer to Kan Co. If total overhead is assigned to A and B on the basis of direct labor hours,
Product A will have an overhead cost per unit of
a.
b.
c.
d.

P51.32.
P205.28.
P461.88.
none of the above.

____ 23. Refer to Kan Co. If total overhead is assigned to A and B on the basis of direct labor hours,
Product B will have an overhead cost per unit of
a.
b.

P51.32.
P76.98.

c.
d.

P510.32.
none of the above.

____ 24. Refer to Kan Co. If total overhead is assigned to A and B on the basis of overhead activity
hours used, the total product cost per unit assigned to Product A will be
a.
b.
c.
d.

P86.32.
P95.00.
P115.50.
none of the above.

____ 25. Refer to Kan Co. If total overhead is assigned to A and B on the basis of overhead activity
hours used, the total product cost per unit assigned to Product B will be
a.
b.
c.
d.

P115.50.
P73.32.
P34.60.
none of the above.

JJ Corp.
JJ Corp. produces 50,000 units of Product Q and 6,000 units of Product Z during a period. In that period,
four set-ups were required for color changes. All units of Product Q are black, which is the color in the
process at the beginning of the period. A set-up was made for 1,000 blue units of Product Z; a set-up
was made for 4,500 red units of Product Z; a set-up was made for 500 green units of Product Z. A setup was then made to return the process to its standard black coloration and the units of Product Q
were run. Each set-up costs P500.
____ 26. Refer to JJ Corp. If set-up cost is assigned on a volume basis for the department, what is the
approximate per-unit set-up cost for Product Z?
a.
b.
c.
d.

P.010.
P.036.
P.040.
none of the above.

____ 27. Refer to JJ Corp. If set-up cost is assigned on a volume for the department, what is the
approximate per-unit set-up cost for the red units of Product Z?
a.
b.
c.
d.

P.036.
P.111.
P.250.
none of the above.

____ 28. Refer to JJ Corp. Assume that JJ Corp. has decided to allocate overhead costs using levels of
cost drivers. What would be the approximate per-unit set-up cost for the blue units of Product Z?
a.
b.

P.04.
P.25.

c.
d.

P.50.
none of the above.

____ 29. Refer to JJ Corp. Assume that JJ Corp. has decided to allocate overhead costs using levels of
cost drivers. What would be the approximate per-unit set-up cost for the green units of Product Z?
a. P1.00.
b. P0.25.
c. P0.04.
d. none of the above.

Kingston Company
The following July information is for Kingston Company:

Standards:
Material
Labor

Actual:

Production
Material
Labor

3.0 feet per unit @ P4.20 per foot

2.5 hours per unit @ P7.50 per hour

2,750 units produced during the month

8,700 feet used; 9,000 feet purchased @ P4.50 per foot
7,000 direct labor hours @ P7.90 per hour

____ 30. Refer to Kingston Company. What is the material price variance (calculated at point of
purchase)?
a.
b.
c.
d.

____
a.
b.
c.
d.

____
a.
b.
c.
d.

____

P2,700
P2,700
P2,610
P2,610

U
F
F
U

31. Refer to Kingston Company. What is the material quantity variance?

P3,105
P1,050
P3,105
P1,890

F
F
U
U

32. Refer to Kingston Company. What is the labor rate variance?

P3,480
P3,480
P2,800
P2,800

U
F
U
F

33. Refer to Kingston Company. What is the labor efficiency variance?

a.
b.
c.
d.

P1,875 U
P938 U
P1,875 U
P1,125 U

Timothy Company
Timothy Company has the following information available for October when 3,500 units were produced
(round answers to the nearest peso).

Standards:
Material
Labor

3.5 pounds per unit @ P4.50 per pound

5.0 hours per unit @ P10.25 per hour

Actual:

Material purchased
12,300 pounds @ P4.25
Material used
11,750 pounds
17,300 direct labor hours @ P10.20 per hour

____
a.
b.
c.
d.

____
a.
b.
c.
d.

34. Refer to Timothy Company. What is the labor rate variance?

P875
P865
P865
P875

F
F
U
U

35. Refer to Timothy Company. What is the labor efficiency variance?

P2,050
P2,050
P2,040
P2,040

F
U
U
F

____ 36. Refer to Timothy Company. What is the material price variance (based on quantity
purchased)?
a.
b.
c.
d.

____
a.
b.
c.
d.

P3,075
P2,938
P2,938
P3,075

U
U
F
F

37. Refer to Timothy Company. What is the material quantity variance?

P2,250 F
P2,250 U
P225 F
P2,475 U

____ 38. Refer to Timothy Company. Assume that the company computes the material price
variance on the basis of material issued to production. What is the total material variance?
a.
b.
c.
d.

P2,850
P5,188
P5,188
P2,850

U
U
F
F

Batt Manufacturing
The following March information is available for Batt Manufacturing Company when it produced 2,100
units:

Standard:
Material
Labor

2 pounds per unit @ P5.80 per pound

3 direct labor hours per unit @ P10.00 per hour

Actual:
Material
Labor

____
a.
b.
c.
d.

____
a.
b.
c.
d.

____
a.
b.
c.
d.

____
a.
b.
c.
d.

4,250 pounds purchased and used @ P5.65 per pound

6,300 direct labor hours at P9.75 per hour

39. Refer to Batt Manufacturing. What is the material price variance?

P637.50
P637.50
P630.00
P630.00

U
F
U
F

40. Refer to Batt Manufacturing. What is the material quantity variance?

P275
P290
P290
P275

F
F
U
U

41. Refer to Batt Manufacturing. What is the labor rate variance?

P1,575 U
P1,575 F
P1,594 U
P0

42. Refer to Batt Manufacturing. What is the labor efficiency variance?

P731.25 F
P731.25 U
P750.00 F
none of the above

Redd Co.
Redd Co. uses a standard cost system for its production process and applies overhead based on direct
labor hours. The following information is available for August when Redd made 4,500 units:

Standard:

DLH per unit

Variable overhead per DLH
Fixed overhead per DLH
Budgeted variable overhead
Budgeted fixed overhead

Actual:

Direct labor hours

Variable overhead
Fixed overhead

____
a.
b.
c.
d.

____
a.
b.
c.
d.

____
a.
b.
c.
d.

____
a.
b.
c.
d.

____

2.50
P1.75
P3.10
P21,875
P38,750

10,000
P26,250
P38,000

43. Refer to Redd Co. Using the one-variance approach, what is the total overhead variance?
P6,062.50
P3,625.00
P9,687.50
P6,562.50

U
U
U
U

44. Refer to Redd Co. Using the two-variance approach, what is the controllable variance?
P5,812.50
P5,812.50
P4,375.00
P4,375.00

U
F
U
F

45. Refer to Redd Co. Using the two-variance approach, what is the noncontrollable variance?
P3,125.00
P3,875.00
P3,875.00
P6,062.50

F
U
F
U

46. Refer to Redd Co. Using the three-variance approach, what is the spending variance?
P4,375 U
P3,625 F
P8,000 U
P15,750 U

47. Refer to Redd Co. Using the three-variance approach, what is the efficiency variance?

a.
b.
c.
d.

____
a.
b.
c.
d.

P9,937.50
P2,187.50
P2,187.50
P2,937.50

F
F
U
F

48. Refer to Redd Co. Using the three-variance approach, what is the volume variance?
P3,125.00
P3,875.00
P3,875.00
P6,062.50

F
F
U
U

____ 49. Refer to Redd Co. Using the four-variance approach, what is the variable overhead spending
variance?
a.
b.
c.
d.

P4,375.00
P4,375.00
P8,750.00
P6,562.50

U
F
U
U

____ 50. Refer to Redd Co. Using the four-variance approach, what is the variable overhead
efficiency variance?
a.
b.
c.
d.

P2,187.50
P9,937.50
P2,187.50
P2,937.50

U
F
F
F

____ 51. Refer to Redd Co. Using the four-variance approach, what is the fixed overhead spending
variance?
a.
b.
c.
d.

P7,000 U
P3,125 F
P750 U
P750 F

____ 52. Refer to Redd Co. Using the four-variance approach, what is the volume variance?
a. P3,125 F
b. P3,875 F
c. P6,063 U
d. P3,875 U

ABC AND STANDARD COSTING

Answer Section

MULTIPLE CHOICE
1. A
Total Overhead
Product A

Function

Product B

Hourly
Rate
10

Hours
2

18

108

Totals

135

Hourly
Rate
10

Hours
1

10

Function

56

18

18

Totals

10

84

135

800

108,000

84

8000

672,000

Total OH

Proportion

Total

P 780,000

0.090909091
(800/8800)

780,000
Allocated
OH

Units
Produced

OH per
Unit

800

P 88.64

70,909.09

2. B
See #70 for Total Overhead Computations

P 780,000

PTS:

Allocated
OH

0.909090909
(8000/8800)

DIF:

3. B
Product

DL Hrs/Unit

Moderate

Total

Units
Produced

Proportion

20

OH/Unit

Total OH

Total

Units
OH per
Produce Unit
d
709,090.91
8000
P 88.64

OBJ:

5-3

Units Produced

800

1.5

8000

Total DL
Hours
3200
12000
15200

Total OH
P

Proportion

780,000

Allocated
OH

0.210526316 P

Units
Produced

164,210.53

OH per
Unit

800

205.28

(3,200/15,200)

4. B
See #72 for Direct Labor Computations
Total OH
P

Proportion

780,000

Allocated
OH

0.789473684

Units
Produced
615,789.47

OH per
Unit

8000

76.98

(12,000/15,200)

PTS:

DIF:

Moderate

5. C
Total OH
Proportion
P
780,000

0.082568807

OBJ:

Allocated
OH
P
64,403.67

5-3

Units
Produced
800

OH per
Unit
P 80.50

Units
Produced

OH per
Unit

DM and
DL/Unit
P
35.00

Total

P 115.50

(7,200/87,200)

6. D
Total OH
P 780,000

Proportion

Allocated
OH

0.917431193 P 715,596.33
(80,000/87,200)

7. B
Total setup cost: P500 4 = P2,000
P2,000/56,000 = P0.0357

8. A
Total setup cost: P500 4 = P2,000
P2,000/56,000 = P0.0357

9. C
Setup cost for blue units = P500.00
Number of blue units produced = 1,000

8000 P

89.44

DM and
DL/Unit
P

22.00

Total

P 111.44

P500/1,000 = P.50

10. A
Setup cost = P500.00
Units produced = 500
P500.00/500 = P1.00/unit

11. D
P50,000/1,000 = P50.00 per account

12. A
P36,000/400,000 = P0.09

13. B
P15,000/200,000 = P0.075

14. C
P27,000/900 = P30.00

15. A
P30.00 100 = P3,000

16. A
P0.09 * 20,000 = P1,800

17. B
400 * P50 = P20,000

18. C

Activity

Cost Allocation

1
2
3

P20,000 * 100/500 = P 4,000 / 8,000

P37,000 * 800/1,000 = P29,600 / 8,000
P91,200 * 800/3,800 = P19,200 / 8,000

Total Cost per Unit

Cost per Unit

P0.50
3.70
2.40

6.60

19. D

Activity

Cost Allocation

1
2
3

P20,000 * 400/500 = P 16,000 / 6,000

P37,000 * 200/1,000 = P 7,400/ 6,000
P91,200 * 3,000/3,800 = P72,000 / 6,000

Total Cost per Unit

Cost per Unit

P2.67
1.23
12.00

15.90

20. A
21. B
22. B
23. B
24. C
25. A
26. B
27. B
28. C
29. A
30. A
31. D
32. C
33. B
34. B
35. A
36. D
37. A
38. C
39. B
40. C
41. B
42. D
43. C
44. A
45. B
46. C
47. B

48. C
49. C
50. C
51. D
52. D