Standard Costing

6 STANDARD COSTING

STANDARD COST:-
Standard cost is the cost what should have been under a given set of operating conditions.
According to Chartered Institute of Management Accountants (C.I.M.A.), London, “Standard cost is
the pre-determined cost based on technical estimates for materials, labour and overhead for a
selected period of time for a prescribed set of working conditions.”

STANDARD COSTING:-
Standard costing is one of the cost control techniques. “Standard costing is the preparation is the
preparation and use of standard costs, their comparison with actual costs and the analysis of
variances to their causes and points of incidence.”

BASIC STANDARD:-
Basic Standard is a standard which is established for some base year and remain in use for a long
period of time. Variances from basis standards indicate the trends of deviations of actual cost from
the basic cost. It has no practical utility from the point of view of cost control.

CURRENT STANDARD:-
Current Standard is a standard which is established for a limited period and is related to current
conditions.

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IDEAL STANDARDS:-

Ideal Standards is a standard which is based on perfect performance without making any allowance
for unavoidable losses (e.g. Normal Idle Time, Normal Waste / Scrap / Defectives / Spoilage etc.). It is
merely a theoretical standard which is unrealistic and unattainable. Variances from ideal standard
generally indicate unfavorable deviations.

EXPECTED OF PRACTICAL STANDARD:-

Expected or Practical Standard is a standard which is based on expected performance after making a
reasonable allowance for unavoidable losses (e.g. Normal Idle Time, Normal waste / Scrap /
Defectives / Spoilage etc.). It is realistic and attainable standard. Variances from the expected
standard indicate real deviations from the attainable performance.

NORMAL STANDARD:-
Normal Standard is a Standard which is based on average performance in the past. It is attainable
under normal conditions. The main purpose of normal standard is to eliminate variations in the cost
arising out of trade cycles.

STANDARD HOUR:-

The Standard Hour is the quantity of output or amount which should be performed in one hour.
According to C.I.M.A. London, a standard hour is a “ hypothetical hour which represents the amount
of work which should be performed in one hour under stated conditions.”

STANDARD COST CARD/SHEET:-

Standard Cost Card / Sheet is a record of standard material, labour and overheads costs for a
particular product / service.

VARIANCE:-
Difference between standard and actual is known as variance.

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MATERIAL COST VARIANCE:-

Material Cost Variance This is the difference between standard material cost for the actual
output and actual cost incurred.
Material Price It measures variance arises in die material cost due to difference in
Variance actual material purchase price from standard material price.
Material Usage It measures die variance in material cost due to usage/ consumption of
Variance materials.
Material Mix Variance Variance in material consumption which arise due to difference in
proportion actually used from the set standard proportion. It arises only
when two or more inputs are used to produce a product
Material Yield Variance Variance in material consumption which arises due to yield or
productivity of the inputs. It mav arise due to use of sub standard quality
of materials or inefficiency or workers or due to wrong processing.

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Basic Formulae
(The difference between the Standard Material Cost of the actual production volume and the
actual cost of material)
[(SQ × SP) - (AQ × AP)]
Basic Formula
(The difference between the standard Material Cost of the actual production volume and the
actual cost of material)
[(SQ X SP) – (AQ X AP)]

Material Price Variance Material Usage Variance

[Standard Cost of Actual Quantity - Actual [Standard Cost of Standard Quantity for
Cost] Actual Production – Standard Cost of Actual
Quantity]
(The difference between the Standard Price (The difference between the Standard
and Actual Price for the Actual Quantity Quantity specified for actual production and
Purchased) the Actual Quantity used, at Standard
Price)
[(SQ - AQ) X SP]
[(SP - AP) X AQ] Or
Or [(SQ X SP) – (AQ X SP)]
[(SP X AQ) – (AP X AQ)]

Material Mix Variance Material Yield Variance

[Standard Cost of Actual Quantity in [Standard Cost of Standard Quantity for
Standard Proportion – Standard Cost of Actual Production – Standard Cost of Actual
Actual Quantity] Quantity in Standard Proportion]

(The difference between the Actual Quantity (The difference between the Standard
in Standard Proportion and Actual Quantity Quantity specified for actual production and
in Actual Proportion, at Standard price) Actual Quantity in Standard Proportion , at
[(SP - AP) X AQ] Standard Purchased Price)
Or [(SQ - RSQ) X SP]
[(SP X AQ) – (AP X AQ)] Or
[(SQ X SP) – (RSQ X SP)]

LABOUR COST VARIANCE:-

Labour Cost Variance This is difference between the standard labour costs for actual hours
worked and actual wages paid.
Labour Rate Variance This arises due to the difference in actual rate paid from the
standard rate.
Labour Efficiency Variance Labour efficiency variance is the difference between the actual hours
worked by the worker and the standard hours required to produce
the actual quantity.
Labour Mix/ Gang Labour efficiency variance which arises due to change in the
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Variance proportion or combination or different skills set.

Labour Yield Variance Labour efficiency variance which arises due to the productivity of
workers from the set standard productivity.
Idle Time Variance It is calculated for the unproductive labour hours.

Labour Cost Variance

Labour efficiency Variance + Labour Rate Variance

Labour Yield Variance + Labour Mix Variance + Idle Time Variance

Labour Variance

Labour Cost Variance

[Standard Cost - Actual Cost]
(The difference between the Standard Labour Cost and the Actual Labour Cost incurred for
the production achieved)
[(SH X SR) – (AH X AR)]

Labour Rate Variance
[Standard Cost of Actual
Time – Actual Cost]
(The difference between the
Standard Rate per hour and
Actual Rate per hour for the
Actual Hours paid.)
[SR – AR) X AH*]
Or
[(SR X AH*) – (AR X AH*)]
Labour Idle Time Variance
[Standard Rate per Hour X
Actual Idle Hours]
(The difference between the
Actual Hours paid and
Actual Hours worked at
Standard Rate)
[(AH – AH#) X SR]
Or
[(AH* X SR) – (AH* X SR)]
Labour Efficiency Variance
[Standard Cost of Standard
Time for Actual Production –
Standard Cost of Actual
Time]
(The difference between the
Standard Hours specified for
actual production and
Actual Hours worked at
Standard Rate)
[(SH – AH#) X SR]
Or
[(SH X SR) – (AH* X SR)]

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Labour Mix Variance Or Labour Yield Variance Or

Gang Variance
[Standard Cost of Actual Time
Worked in Standard
Proportion – Standard Cost of
Actual Time Worked]
(The difference between the
Actual Hours Worked in
Standard Proportion and
Actual Hours worked in
actual proportion, at
Standard Rate.)
[RSH – AH*) X SR]
Or
[(RSH X SR) – (AH# X SR)]
Sub-Efficiency Variance
[Standard Cost of Standard
Time for Actual Production –
Standard Cost of Actual Time
Worked in Standard
Proportion]
(The difference between the
Standard Hours specified
for actual production and
Actual Hours worked in
Standard Proportion at
Standard Rate)
[(SH – RSH) X SR]
Or
[(SH X SR) – (RSH X SR)]

Alternate Formula Alternate Formula

[Total Actual Time Worked (hours) X [Average Standard Rate per hour of Standard
{Average Standard Rate per hour of Standard Gang X {Total Standard Time ( hours) Less
Gang Less Average Standard Rate per hour of Total actual time worked (hours)}]
Actual Gang@ }

@ On the basis of hours worked

Note :
SH = Standard Hours = Expected time (Time allowed) for Actual Output
AH* = Actual Hours paid for
AH# = Actual Hours worked
RSH = Revised Standard Hours = Actual Hours (worked) rewritten in Standard Proportion
SR = Standard Rate per Labour Hour
AR = Actual Rate per Labour Hour Paid
In the above idle limit : Actual Hours Worked = Actual Hours Paid
Note: Idle Tune is a period for which a workstation is available for production but is not used due to e.g.
shortage of tooling, material or operators. During Idle Time, Direct Labour Wages are being paid but
no output is produced. The cost of tins can be identified separately in an Idle Time Variance, so that it
is not 'hidden' in an adverse Labour Efficiency Variance.
Some organizations face Idle Tune on regular basis. In this situation the Standard Labour Rate may
include an allowance for the cost of the expected idle tune. Onlv the impact of anv unexpected or
abnormal Idle Tune would be included ui the Idle Tune Variance.

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OVERHEAD COST VARIANCE:-

Variable Overhead Cost This is the difference between the actual variable overhead
Variance paid and the standard variable overhead.
Variable Overhead ExpenditureThis is difference between the actual rate of variable overhead
Variance and standard variable overhead rate.
Variable Overhead Efficiency This is the difference between the actual hours worked and
Variance standard hours required for the actual volume of work.
Fixed Overhead Cost Variance This is the difference between the actual fixed overhead
incurred and absorbed toed overhead.
Fixed Overhead Cost Variance This is the difference between the actual fixed overhead
incurred and absorbed fixed overhead.
Fixed Overhead Expenditure This the difference between the actual fixed overhead incurred
Variance and budgeted fixed overhead.
Fixed Overhead Volume Variance in fixed overhead which arises due to the volume of
Variance production.
Fixed Overhead This is die difference between the actual hours worked and die
Efficiency Variance standard hours required.
Fixed Overhead Capacity This is the difference between the budgeted capacity and die
Variance actual hours worked.
Fixed Overhead Calendar This is the difference between the actual number of days and
Variance budgeted number of working days.
Variable Overhead Cost Variance
Variable Overhead Cost Variance
(Standard Variable Overheads for Production – Actual Variable Overheads)

Variable Overhead Expenditure Variable Overhead Efficiency Variance

(Spending) Variance
(Standard Variable Overheads for Actual (Standard Variable Overheads for Production)
Hours# ) Less
Less (Standard Variable Overheads for Actual
(Actual Variable Overheads) Hours#)
[(SR – AR) X AH#] [(SH – AH#) X SR ]
Or Or
[(SR X AH#) - (AR X AH#)] [(SH - SR) - (AH# X SR)]
# Actual Hours (Worked)

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Fixed Overhead Variances

Fixed Overhead Variances
(Absorbed Fixed Overheads) Less (Actual Fixed Overheads)

Fixed Overhead Expenditure Variances Fixed Overhead Volume Variances

(Budgeted Fixed Overheads) (Absorbed Fixed Overheads)
Less Less
(Actual Fixed Overheads) (Budgeted Fixed Overheads)
Or Or
(BH X SR) – (AH X AR) (SH X SR) – (BH X SR)

Fixed Overhead Capacity Fixed Overhead Calendar Fixed Overhead Efficiency

Variances Variances Variances
SR (AH - BH) Std. Fixed Overhead rate per SR (AH - SH)
Or day (Actual no. of Working Or
(AH X SR) – (BH X SR) days – Budgeted Working (AH X SR) – (SH X SR)
days)

Fixed Overhead Efficiency Variances

(Absorbed Fixed Overheads) – (Budgeted Fixed Overheads for Actual Hours)
Or
(Standard Fixed Overhead Rate per Hour X Standard Hours for Actual Output) –
(Standard Fixed Overhead Rate per Hour X Actual Hours)
Or
Standard Fixed Overhead Rate per Hour X (Standard Hours for Actual Output - Actual Hours)

Fixed Overhead Capacity Variances

(Budgeted Fixed Overheads for Actual Hours) – (Budgeted Fixed Overheads)
Or
(Standard Fixed Overhead Rate per Hour X Actual Hours ) – (Standard Fixed Overhead Rate
per Hour X Budgeted Hours)
Or
(Standard Fixed Overhead Rate per Hour X (Actual Hours - Budgeted Hours)

Fixed Overhead Volume Variances (when rate per unit is given)

(Absorbed Fixed Overheads) – (Budgeted Fixed Overheads)
Or
(Standard Fixed Overhead Rate per Unit X Actual Output) – (Standard Fixed Overhead Rate
per Unit X Budgeted Output)
Or
(Standard Fixed Overhead Rate per Unit X (Actual Output - Budgeted Output)

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Fixed Overhead Volume Variances (when rate per hour is given)

(Absorbed Fixed Overheads) – (Budgeted Fixed Overheads)
Or
(Standard Fixed Overhead Rate per Hour X Standard Hours for Actual Output) – (Standard
Fixed Overhead Rate per Hour X Budgeted Hours)
Or
(Standard Fixed Overhead Rate per Hour X (Standard Hours for Actual Output - Budgeted
Hours)
Or
(Standard Fixed Overhead Rate per Hour X (Standard Hours per unit X Actual Output –
Standard Hour per unit X Budgeted Output)
Or
(Standard Fixed Overhead Rate per Hour X Standard Hours per unit) X (Actual Output -
Budgeted Output)
Or
Standard Fixed Overhead Rate per Unit X (Actual Output – Budgeted Output)

OBJECTIVES OF STANDARD COSTING

The objectives of standard costing technique are as follows:
To provide a formal basis for assessing performance and efficiency.
To control costs by establishing standards and analysis of variances.
To enable the principle of management by exception' to be practiced at the detailed,
operational level.
To assist in setting budgets.
The standard costs are readily available substitutes for actual average unit costs and can be
used for stock and work-in-progress valuations, profit planning and decision making and as a
basis of pricing where 'cost-plus' systems are used.
To assist in assigning responsibility for non-standard performance in order to correct
deficiencies or to capitalise on benefits.
To motivate staff and management.
To provide a basis for estimating.
To provide guidance on possible ways of improving performance.

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BASIC CONCEPT BASED PROBLEMS

Q.1 Calculate Material Cost Variance from the following information :

Standard Actual
Output 100 units 200 units
Quantity of Material required per unit of output 2 Kg per unit 3 Kg per unit
Price Rs. 4 per Kg Rs. 3 per Kg
Solution
Step 1 – Standard Qty for Actual Output (SQ) = 200 X 2 = 400 Kg
Step 2 – Actual Qty for actual Output (AQ) = 200 X 3 = 600 Kg.
Step 3 – MCV = (SQ X SP) – (AQ X AP) = (400 X Rs. 4) – (600 X Rs. 3) = Rs. 200 (A)

Q.2 Calculate Material Cost Variance from the following information :

Standard : Material for 100 units 300 Kg.
Cost of Materials Rs. 1500
Actual : Material Purchased for 800 units 3000 Kg.
Cost of Materials Rs. 18000
Closing Stock of Material 500 Kg
Solution
Step 1 – Standard Qty for Actual Output (SQ) = (300 Kg / 100 units) X 800 units = 2400 Kg
Step 2 – Actual Qty for actual Output (AQ) = 3000 Kg – 500 Kg = 2500 Kg.
Step 3 – Standard price (SP) = Rs. 1500/ 300 Kg = Rs. 5
Step 4 - Actual price (AP) = Rs. 18000/ 3000 Kg = Rs. 6
Step 5 – Material Cost Variance (MCV) = (SQ X SP) – (AQ X AP)
= (2400 X Rs. 5) – (2500 X Rs. 6) = Rs. 3000 (A)

Q.3 Calculate Material Price Variance from the following information :

Standard Actual
Output 100 units 200 units
Quantity of Material required per unit of output 2 Kg per unit 3 Kg per unit
Price Rs. 4 per Kg Rs. 3 per Kg

Solution
AQ = 200 X 3 = 600 Kg
Material Price Variance = (SP – AP) X AQ = (Rs. 4 – Rs. 3) X 600 = Rs. 600 (Favourable)

Q.4 Calculate Material Usage Variance from the following information :

Standard Actual
Output 100 units 200 units
Quantity of Material required per unit of output 2 Kg per unit 3 Kg per unit
Price Rs. 4 per Kg Rs. 3 per Kg
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Solution
SQ = 200 X 2 = 400 Kg., AQ = 200 X 3 = 600 Kg
Material Usage Variance = (SQ – AQ) X SP =(400 Kg - 600 Kg) X Rs. 4 = Rs. 800(Adverse)

Q.5 Tulsian Ltd. provides you the following information.

The standard material cost of producing 100 units has been predetermined as 200 kg @ Rs. 4 per Kg.
In a particular cost period the actual data was as follows :
Actual output 200 units
Opening Stock of material 300 Kg
Purchases of Materials 700 Kg for Rs. 2,100
Closing Stock of materials 400 Kg
Required : Calculate all material cost variances if method used for the issue of material is (a)
FIFO (b) LIFO (c) Weighted Average.
Solution:
Step 1 –Standard Qty for Actual Output = (Standard Qty / Standard Output) X Actual output
= (200 / 100) X 200 = 400 kg
Step 2 - Actual Qty for Actual Output = Opening Stock + Purchases - Closing Stock
= 300 kg + 700 kg - 400 kg = 600 kg
Step 3 - Actual Cost of Actual Qty and Actual Price per kg
(i) Under FIFO Method : (300 x Rs 4) + (300 x Rs 3) = Rs 2,100
Actual Price = Rs 2,100 / 600 = Rs 3.50
(ii) Under LIFO Method : 600 x Rs 3 = Rs 1,800
Actual Price = Rs 1,800 / 600 = Rs 3
(iii) Under Weighted Average Method : ■

= [{(300xRs4) + (700 x Rs. 3)} / 1,000] X 600

= Rs. 1,980 Actual Price per kg = Rs 1,980 / 600 = Rs 3.30
Step 4 - Material Price Variance = (SP - AP) x AQ
Under FIFO Method : MPV = (Rs 4 - Rs 3.50) x 600 = Rs 300 (F)
Under LIFO Method : MPV = (Rs 4 - Rs 3) x 600 = Rs 600 (F)
Under Weighted Average Method : MPV = (Rs 4 - Rs 3.30) x 600 = Rs 420 (F)
Step 5 - Material Usage Variance = (SQ - AQ) x SP
= (400 - 600) x Rs 4 = Rs 800 (A)
Step 6 - Material Cost Variance = (SQ x SP) - (AQ x AP)
Under FIFO Method : MCV = (400 x Rs 4) - (600 x Rs 3.50)
= Rs 1,600 - Rs 2,100 = Rs 500 (A)
Under LIFO Method : MCV = (400 x Rs 4) - (600 x Rs 3)
= Rs 1,600 - Rs 1,800 = Rs 200 (A)
Under Weighted Average Method : MCV = (400 x Rs 4) - (600 x Rs 3.30)
= Rs 1,600 - Rs 1,980 = Rs 380 (A)

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Q.6 Calculate Labour Cost Variance from the following information :

Standard Actual
Output 100 units 200 units
Labour Hours required per unit of output 2 Hours per unit 3 Hours per unit
Price Rs. 4 per Hour Rs. 3 per Hour

Solution
Step 1 – Standard Hours for Actual Output (SH = 200 X 2 = 400 Hours
Step 2 – Actual Hours for actual Output (AH = 200 X 3 = 600 Hours
Step 3 – LCV = (SH X SR) – (AH X AR) = (400 X Rs. 4) – (600 X Rs. 3) = Rs. 200 (A)

Q.7 Calculate labour Cost Variance from the following information :

Standard : labour hours for 100 units 300 Hours
Cost of Labour Rs. 1500
Actual : labour hours for 800 units 2500 Hours
Cost of labour Rs. 15000
Solution
Step 1 – Standard Hours for Actual Output (SH)
= (300 hours / 100 units) X 800 units = 2400 hours
Step 2 – Actual hours for actual Output (AH) = 2500 hours
Step 3 – Standard Rate (SR) = Rs. 1500/ 300 Hours = Rs. 5
Step 4 - Actual Rate (AR) = Rs. 15000/ 2500 Hours= Rs. 6
Step 5 – Labour Cost Variance (LCV) = (SH X SR) – (AH X AR)
= (2400 X Rs. 5) – (2500 X Rs. 6) = Rs. 3000 (A)

Q.8 Calculate Labour Rate Variance from the following information :

Standard Actual
Output 100 units 200 units
Labour Hours required per unit of output 2 Hours per unit 3 Hours per unit
Price Rs. 4 per Hour Rs. 3 per Hour
Solution
AH = 200 X 3 = 600 Hours
Labour Rate Variance = (SR – AR) X AH = (Rs. 4 – Rs. 3) X 600 = Rs. 600 (Favourable)

Q.9 Calculate Labour Efficiency Variance from the following information :

Standard Actual
Output 100 units 200 units
Labour Hours required per unit of output 2 Hours per unit 3 Hours per unit
Price Rs. 4 per Hour Rs. 3 per Hour
Solution
SH = 200 X 2 = 400 Hours, AH = 200 X 3 = 600 Hours
Labour Efficiency Variance = (SH – AH) X SR = (400 Hours - 600 Hours) X Rs. 4
= Rs. 800 (Adverse)
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Q.10
A manufacturing department of a company employing 100 workers produced 1040 units in a 40 hours
week despite 5 % of the time paid was lost due to an abnormal reason. The standard wage rate per
hour was Rs. 6 but the actual wage rate per hour was Rs. 8. Calculate Idle Time variance.
Solution
Idle Time variance = Idle Hours X Standard Rate
= [5 % of ( 100 X 42)] X Rs. 6 = Rs. 1260

CLASS WORK

Q11 From the following data compute the material cost variances :
Name of the material Standard Actual
Qty. Price Qty. Price
(Units) (Rs.) (Units) (Rs.)
Zee 3,500 10 3,700 12
Wee 1,500 21 1,650 20
Tee 1,000 33 1,250 36
Q12. The standard cost of a certain chemical mixture was :
40% Material A at Rs. 200 per ton.
60% Material B at Rs. 300 per ton.
A standard loss of 10% is expected in production. During the period the following materials were
used :
90 tons Material A at the cost of Rs.180 per ton.
110 tons Material B at the cost of Rs. 340 per ton.
The weight produced was 182 tons of good production.
Calculate
(i) Material price variance (ii) Material usage variance
(iii) Material mix variance; and (iv) Material yield variance.

Q13. The standard material inputs required for 1,000 kgs. of a finished product are given below :
Material Quantity Standard rate per kg.
(in kgs.) (in Rs.)
P 450 20
Q 400 40
R 250 60
Standard input 1,100
Standard loss ___100
Standard output 1,000
Actual production in a period was 20,000 kgs. of the finished product for which the actual
quantities of material used and the prices paid thereof are as under:
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Material Quantity used Purchase Price per Kg. (in Rs.)

P 10,000 19
Q 8,500 42
R 4,500 65
Calculate the :
(i) Material Cost Variance;
(ii) Material Price Variance;
(iii) Material Usage Variance;
(iv) Material Mix Variance;
(v) Material Yield Variance;
Present a reconciliation among the Variances.

Q 14 The following information is available from the cost records of Vatika & Co. For the month of
August, 2013:
Material purchased 24,000 kg Rs1,05,600
Material consumed 22,800 kg
Actual wages paid for 5,940 hours Rs29,700
Unit produced 2,160 units.
Standard rates and prices are:
Direct material rate is Rs 4.00 per unit
Direct labour rate is Rs 4.00 per hour
Standard input is 10 kg. for one unit
Standard labour requirement is 2.5 hours per unit.
Calculate all material and labour variances for the month of August, 2013.
(PRACTICE MANUAL)

Q15. Eskay Ltd., produces an article by blending two basic raw materials. The following standards
have been set up for raw materials :
Material Standard Mix Sstandard Price per Rs.
A 40% Rs.4.00
B 60% Rs.3.00
The standard loss is processing is 15%.. During September, 1990, The company produced 1,700
kg. of finished output.
The position of stock and purchases for the month of September, 1990, is as under:
MaterialStock on Stock on Purchased during
1.9.90 30.9.90 September, '90
Kg. Kg. Kg. Cost Rs.
A 35 5 800 3,400
B 40 50 1,200 3,000

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Calculate the following valances :

(a) Materials price variance (b) Materials usage variance
(c) Materials yield variance (d) Materials mix variance
(e) Total materials cost variance.
Assume first in first out method for issue of material. The opening stock is to be valued at
standard price.

Q16. 100 skilled workmen, 40 semi-skilled workmen and 60 unskilled workmen were to work for 30
weeks to get a contract job completed. The standard weekly wages were Rs.60, Rs.36 and Rs.24
respectively. The job was actually completed in 32 weeks by 80 skilled 50 semi-skilled and 70
unskilled workmen who wer paid Rs.65, Rs.40 and Rs.20 respectively as weekly wages.
Find out the labour cost variance, labour rate variance, labour mix variance and labour
efficiency variance.

Q17. The budgeted variable overheads for March are Rs.3,840. Budgeted production for the month is
38,400 units. The actual variable overheads incurred were Rs.3,830 and actual production was
38,640 units. Calculate variable production overhead variance.

Q18. From the following prepare variance analysis of a particular department for a months :
Variable overhead items : (actual) Rs.
Material handling 8,325
Idle time 850
Re-work 825
Overtime premium 250
Supplies 4,000
14,250
Fixed overhead items : (actual) Rs.
Supervision 1,700
Depreciation-Plant 2,000
Depreciation-Equipment 5,000
Rates 1,150
Insurance 350
10,200
Normal capacity 10,000 standard hours, budgeted rate Rs. 1.70 per standard hour for variable
overhead and Rs.1 per standard hour for fixed overhead. Actual level 8,000 standard hours.

Q19. The following data has been collected from the cost recorded of a unit for computing the various
fixed overhead variances for a period :
Number of budgeted working days 25
Budgeted man-hours per day 6,000
Output (budgeted) per man-hour (in units) 1
Fixed overhead cost as budgeted Rs.1,50,000
Actual number of working days 27
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Actual man-hours per day 6,300

Actual output per man-hour (in units) 0.9
Actual fixed overhead incurred Rs.1,56,000
Calculate fixed overhead variance : (a) Expenditure variance : (b) Calendar variance
(c) Capacity variance, (d) Efficiency variance (e) Volume variance and (f) Fixed cost variance.

Q20. Majestic Auto Ltd. is manufacturing and selling three standard products. The company has a
standard cost system and analyses the variances between the budget and the actual periodically.
The summarised working result for 2005-06 were as follows :
Product Budget Actual
Selling price Cost per No. of units Selling price Cost per No. of
per unit (Rs.) unit (Rs.) sold per unit (Rs.) Unit (Rs.) units sold
A 50 32 10,000 48 30 12,000
B 40 24 14,000 42 25 12,000
C 30 18 16,000 31 20 15,00
(a) Calculate the variance in profit during the period.
(b) Analyses the variance in profit into : (a) Sales price variance (ii) Sales volume variance,
(iii) Cost variance (iv) Sales margin quantity variances (v) Sales margin mix variances.

Q21. Standard Corporation products three products : A, B and C. The master budget called for the sale
of 10,000 units of A at Rs.12;6,000 units of B at Rs.15 and 8000 units of C at Rs.9. In addition, the
standard variable cost for each product was Rs.7 for A, Rs.9 for B and Rs.6 for C. In fact, the firm
actually produced and sold 11,000 units of A at Rs. 11.50,5,000 units of B at Rs.15.10 and 9,000
unit of C at Rs.8.55.
Calculate Sales Value Variances.

Q22. Modern decors Ltd. had budgeted the following sales for the month of August, 2006.
Product A : 800 units @ Rs.100 p.u.
Product B : 700 units @ Rs.200 p.u.
The actual sales for months were as follows :
Product A : 900 units @ Rs.119 p.u.
Product B : 800 units @ 180 p.u
The costs per unit of products A and B were Rs. 80 and Rs. 170 respectively.
You are required to compute the different variances to explain the difference between the
budgeted and actual profits.
(PRACTICE MANUAL)

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HOME WORK

Q23. UV Ltd. presents the following information for November, 2013: Budgeted production of
product P = 200 units. Standard consumption of Raw materials = 2 kg. per unit of P. Standard
price of material A = Rs 6 per kg.
Actually, 250 units of P were produced and material A was purchased at Rs 8 per kg and
consumed at 1.8 kg per unit of P. Calculate the Material Cost Variances
(PRACTICE MANUAL)
Solution:

Q24. KPR Limited operates a system of standard costing in respect of one of its products which is
manufactured within a single cost centre. The Standard Cost Card of a product is as under:

Standard Unit cost (Rs)

Direct material 5 kg. @ Rs 4.20 21.00
Direct labour 3hours® Rs 3.00 9.00
Factory overhead Rs 1.20 per labour hour 3.60
Total manufacturing cost 33.60
The production schedule for the month of June, 2013 required completion of 40,000 units.
However, 40,960 units were completed during the month without opening and closing work-
in-process inventories.
Purchases during the month of June, 2013, 2,25,000 kg. of material at the rate of Rs 4.50 per
kg. Production and Sales records for the month showed the following actual results.
Material used 2,05,600 kg.
Direct labour 1,21,200 hours;

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cost incurred Rs 3,87,840

Total factory overhead cost incurred Rs 1,00,000
Sales 40,000 units
Selling price to be so fixed as to allow a mark-up of 20 per cent on selling price.
Required:
(i) Calculate material variances based on consumption of material.
(ii) Calculate labour variances and the total variance for factory overhead.
(iii) Prepare Income statement for June, 2013 showing actual gross margin.
(iv) An incentive scheme is in operation in the company whereby employees are paid a bonus
of 50% of direct labour hour saved at standard direct labour hour rate. Calculate the
Bonus amount.
(PRACTICE MANUAL)
Solution
(i) Material variances:
(a) Direct Material Cost Variance
=Standard Cost - Actual Cost
= (40,960 units X 5 kg.x Rs 4.20) - (2,05,600 kg.x Rs4.50)
= Rs 8,60,160 -Rs 9,25,200 = Rs 65,040 (A)
(b) Material Price Variance = Actual Qty. (Std. Price - Actual Price)
= 2,05,600 kg. (Rs 4.20 – Rs 4.50) = Rs 61,680 (A)
(*Material variances are calculated on the basis of consumption)
(c) Material Usages Variance
= Std. Price (Std. Qty. - Actual Qty.)
= Rs 4.20 (40,960 units x 5 kg. - 2,05,600 kg.) = Rs 3,360 (A)
(ii) Labour Variances and Overhead Variances:

(a) Labour Cost Variance

= Standard cost - Actual cost
= (40,960 units X 3 hours X Rs 3) - Rs 3,87,840 = Rs19,200 (A)
b) Labour Rate Variance
= Actual Hours (Std. Rate - Actual Rate)
= 1,21,200 hours (Rs 3 -Rs 3.20) = Rs 24,240 (A)
(b) Labour Efficiency Variance
= Std. Rate (Std. Hour - Actual Hour)
= Rs3 (40,960 units x 3 hour - 1,21,200 hour) = Rs 5,040 (F)
(d) Total Factory Overhead Variance
= Factory Overhead Absorbed - Actual Factory Overhead
= (Actual Hours x Std. Rate) - Actual Factory Overhead
= (40,960 units x 3 hours x Rs1.20) - 100,000 = Rs 47,456 (F)

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(iii) Preparation of Income Statement

Calculation of unit selling price (Rs)
Direct material 21.00
Direct labour 9.00
Factory overhead 3.60
Factory cost 33.60
Margin 25% on factory cost 8.40
Selling price 42.00
Income Statement
(Rs) (Rs)
Sales (40,000 units @ Rs 42) 16,80,000
Less: Standard cost of goods sold (40,000 units x Rs33.60) 13,44,000
3,36,000
Less: Adverse Variances:
Material Price variance 61,680
Material Usage variance 3,360
Labour Rate variance 24,240 89,280
2,46,720
Add: Favourable variances:
Labour efficiency variance 5,040
Factory overhead 47,456 52,496
Actual gross margin 2,99,216

(iv)

Labour hour saved (Rs)

Standard labour hours (40,960 units x 3 hours) 1,22,880
Actual labour hour worked 1,21,200
Labour hour saved 1,680

Q25. Following are the details of the product Phomex for the month of April 2013:
Standard quantity of material required per unit 5 kg
Actual output 1000 units
Actual cost of materials used Rs 7,14,000
Material price variance Rs 51,000 (Fav)
Actual price per kg of material is found to be less than standard price per kg of material by Rs 10.
You are required to calculate:
(i) Actual quantity and Actual price of materials used.
(ii) Material Usage Variance
(iii) Material Cost Variance.
(PRACTICE MANUAL)

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Solution:
(i) Actual Quantity and Actual Price of material used
Material Price Variance = Actual Quantity (Std. Price - Actual Price) = Rs51,000
Or, AQ(SP-AP) = Rs 51,000
Or, 10 AQ = Rs 51,000
Or, AQ = 5,100 kgs
Actual cost of material used is given i.e.
AQxAP = Rs 7,14,000
Or, 5,100 AP = Rs 7,14,000
AP = Rs 140
Since Actual price is less by Rs 10
So, Standard Price = Rs 140 + Rs 10 = Rs 150 per kg
Actual Quantity = 5,100 kgs
Actual Price = Rs 140/kg
(ii) Material Usage Variance
Std. Price (Std. Quantity - Actual Quantity)
Or, SP(SQ-AQ) =Rs 150 (1,000 units x 5 kg -5,100 kg)
= Rs 15,000 (A)
(iii) Material Cost Variance = Std. Cost - Actual Cost
= (SPxSQ)-(APxAQ)
= Rs 150x5,000-Rs 140x5,100
= Rs 7,50,000-Rs 7,14,000
= Rs 36,000 (F)
OR
Material Price Variance + Material Usage Variance
Rs 51,000 (F) + Rs15,000 (A)= Rs 36,000 (F)
Q26 Jigyasa Pharmaceuticals Ltd. is engaged in producing dietary supplement 'Funkids' for growing
children. It produces 'Funkids' in a batch of 10 kgs. Standard material inputs required for 10 kgs.
of 'Funkids' are as below:

Material Quantity (in kgs.) Rate per kg. (in Rs)

Vita-X 5 110
Proto-D 3 320
Mine-L 3 460

During the month of March, 2014, actual production was 5,000 kgs. of 'Funkids' for which the
actual quantities of material used for a batch and the prices paid thereof are as under:

Material Quantity (in kgs.) Rate per kg. (in Rs)

Vita-X 6 115
Proto-D 2.5 330
Mine-L 2 405

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You are required to calculate the following variances based on the above given information for
the month of March, 2014 for Jigyasa Pharmaceuticals Ltd.:
(i) Material Cost Variance;
(ii) Material Price Variance;
(iii) Material Usage Variance;
(iv) Material Mix Variance;
(v) Material Yield Variance.
(PRACTICE MANUAL)
Solution:

Material SQ x SP ACT x SP ACT x AP RSQ x SP

Vita-X Rs 2,75,000 (2,500 Rs 3,30,000 (3,000 Rs 3,45,000 (3,000 Rs 2,62,460 (2,386
kg. 110) kg. xRs 110) kg. xRs 115) kg. xRs 110)

Proto-D Rs 4,80,000 (1,500 Rs 4,00,000 (1,250 Rs 4,12,500 (1,250 Rs 4,58,240 (1,432

kg. xRs 320) kg. xRs 320) kg. xRs 330) kg. xRs 320)

Mine-L Rs 6,90,000 (1,500 Rs 4,60,000 (1,000 Rs 4,05,000 (1,000 Rs 6,58,720 (1,432

kg. xRs 460) kg. xRs 460) kg. xRs 405) kg. xRs 460)

Total Rs 14,45,000 Rs 11,90,000 Rs 11,62,500 Rs 13,79,420

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Q27. From the particulars given below compute : Material Price Variance, Material Usage Variance,
Labour Rate Variance, Idle Time Variance and Labour Efficiency Variance with full working
details.
I tone of material input yields a standard output of 1,00,000 units. The standard price of
material is Rs. 20 per kg. Number of employees engaged is 200. The standard wage rate per
employee per day is Rs. 6. The standard daily output per employee is 100 units. The actual
quantity of material used is 10 tones and the actual price paid is Rs. 21 per kg. Actual output
obtained is 9,00,000 units. Actual number of days worked is 50 and actual rate of wages paid is
Rs. 6.50 per day. Idle time paid for and included in above time is 1/2 day.
Solution
(a) Material Variances :
SC AC
10 tones at Rs. 20,000 10 tones at Rs.21,000
= Rs. 2,00,000 = Rs.2,10,000
9,00,000
SCAP  = 9 tones at Rs. 20,000 = Rs. 1,80,000
1,00,000
i) Material Price Variance = AQ (SR - AR)
= 10 (20,000 – 21,000) = Rs.10,000 A
ii) Material Usages Variance = SR (SQ – AQ)
= 20,000 (9 – 10) = Rs. 20,000 A
9,00,000
SQ =  = 9 tones should have been used for actual output of 9,00,000 units. Whereas 10
1,00,000
tones have been used. Excess usage resulted in adverse variance.
Note : Material Cost Variance = SCAP – AC
= 1,80,000 – 2,10,000 = Rs. 30,000 A
Reconciliation
Material cost variance Rs. 30,000 A = Price Variance Rs.10,000 A + Usage Variance
Rs. 20,000 A
b) Labour variances:
No. of employees: 200. Standard daily output per employee = 100 units. One day output for 200
employees = 200 x 100 = 20,000 units.
Days required = 45 days = 1000  16,667
600

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SCAP = 45 days x Rs.6 x 200 employees = Rs. 54,000

Actual Cost = 50 days x Rs.6.50 x 200 employees = Rs. 65,000
Actual No. of
days paid = 50 days x 200 employees = Rs.10,000 man days
Idle time = 200 × 1/2 day = 100 man days
Actual No. of days worker 9,900 man days
Standard Man days required man days
i) Labour Rate Variance = Actual days paid (SR - AR)
= 10,000 (6 – 6.50) = Rs. 5,000 A
ii) Idle Time Variance = SR x Idle Time
= 6 x100 man days = Rs. 600 A
iii) Labour Efficiency Variance = SR (Std man days - Actual man days worked)
= 6 (9,000 – 9,900) = Rs. 5,400 A
Actual days worked are more than the standard days required. Hence, it is adverse variance (i.e.,
labour is inefficient).
Note: Labour Cost Variance = SCAP – AC
= 54,000 – 65,000 = Rs. 11,000 A
Reconciliation : Labur Cost Variance Rs. 11,000 A
Labour Rate Variance Idle time variance Labour Efficiency Variance
Rs.5,000 A Rs. 600 A Rs.5,000 A

Q28. .V. Ltd. has furnished you the following data:

Budget Actual
No. of Working Days 25 27
Production in units 20,000 22,000
Fixed Overheads Rs 30,000 31,000
Budgeted fixed overhead rate is ? 1.00 per hour. In July 20X9, the actual hours worked were
31,500. Required; Calculate the following overhead variances:
Efficiency Variance, Capacity Variance, Calendar Variance, Volume Variance, Expenditure
Variance, Total Overhead Variance.
Solution:
Basic Calculations:
1.Budgeted Hours (BH) = Rs 30,000/71 = 30,000 hours
2.Standard hours for Actual output (SH) = 30000/ 22,000 = 33,000 hours
3.Revised Budgeted Hours (RBH) = (30000/25) x 27 = 32,400 hours
4.Actual Overhead Rate = 31,000/31500 = 0.984
BASIC CALCULATIONS FOR FIXED OVERHEAD VARIANCES
1. Absorbed Overheads (SH x SR) = 7 33,000
2. Standard Overheads (AH x SR) = 7 31,500
3. Revised Budgeted Overheads (RBH x SR) = 7 32,400
4. Budgeted Overheads (BH x SR) = 7 30,000
5. Actual Overheads 7 31,000
Computation of Variances
A. Fixed Overheads Efficiency Variance (1 - 2) = 7.33,000 - 7 31,500 = 7 1,500 (F)
B. Fixed Overheads Capacity Variance (2 - 3) = 7 31,500 - 7 32,400 = 7 900 (A)
C. Fixed Overheads Calendar Variance (3 - 4) = 7 32,400 - 7.30,000 = 7 2,400 (F)
D. Total Fixed Overheads Volume Variance (A + B + C)=7 3,000 (F)

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E. Fixed Overheads Expenditure Variance (4 - 5) = 7 30,000 - 7 31,000 = 7 1,000 (A)

F. Total Fixed Overheads Variance (D + E)=7 2,000 (F)

Q29 A company has a normal capacity of 120 machines, working 8 hours per day of 25 days in a
month. The fixed overheads are budgeted at Rs.1,44,000 per month. The standard time required
to manufacture one unit of product is 4 hours.
In April 1998, the company worked 24 days of 840 machine hours per day and produced 5,305
units of output. The actual fixed overheads were Rs.1,42,000.
Compute :
(i) Efficiency variance
(ii) Capacity variance
(iii) Calendar variance
(iv) Expense variance
(v) Volume variance
(vi) Total fixed overheads variance.ss
Sol WN : BA= 120 Machine × 25 days × 8 hours =6,000 units
4 hours
AQ
SQ 4 hours – 1 unit
24 x 840 hours – ?
24  840
 1  5,040 units (should have been produced)
4
RBQ For 25 days - 6000 units
For 24 days - ?
24
×6,000=5,760units
25
BFO = Rs. 1,44,000 AFO = Rs. 1,42,000
SR = BFO/BQ = Rs.1,44,000/6,000 units = Rs. 24 per unit
SFO = 5,305 units at Rs. 24 = Rs. 1,27,320 (should have been incurred)

i) Efficiency Variance = SR (AQ – SQ )

= 24 (5,305 – 5,040) = 6,360 F
Note:- AQ is more than SQ. Hence it is efficient and favorable variance.
ii) Capacity Variance = SR (SQ – RBQ )
24 (5,040 – 5,760) = 17,280 A
Note:- In view of calendar variance, the formula for Revised capacity variance may be adopted.
iii) Calendar variance = SR ( RBQ – BQ )
= 24 (5,760 – 6,000) = 5,760 A
Note: One day less worked than budgeted number of days. Hence it is adverse variance.
iv) Expense variance = BFO – AF9
1,44,000 – 1 ,42,000 = 2,000 F

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v) Volume variance = SR (AQ - BQ)

= 24 (5;305 – 6,000) = 16,680 A
vi) Total fixed overhead variance = SFO – AFO
= 1 ,27,320 – 1 ,42,000 = 14,680 A
Reconciliation
Total fixed overhead variance 14,680 A = Expense variance 2,000 F + Volume variance
16,680 A – Effy. V. 6,360 F + Capacity V 17,280 A + Calendar V 5,760 A

Q30. The following data is given :

Budget Actuals
Production (in units) 400 360
Man hours to produce above 8,000 7,000
Variable overheads (in rupees) 10,000 9,150
The standard time to produce one unit of the product is 20 hours.
Calculate variable overhead variances and give necessary journal entries to record the
transactions.
Solution
Variable Overhead Variances:
BVO Rs.10,000
Standard Rate (SR) = = = Rs. 25 per unit
BQ 400 units
Actual Variable Overheads (AVO) = Rs.9,150
Standard Variable Overheads (SVO) = 360 units at Rs.25
= Rs.9,000 (should have been incurred on actual production).
SQ = 7,000/20 = 350 units (should have been produced for Actual Hours worked).
AQ = 360 units
SVOSP = 350 units at Rs. 25 = Rs. 8,750
a) VOH Variance = SVO - AVO
9,000 - 9,150 = 150 A
b) Exp. Variance = SVOSP - AVO
8,750 - 9,150 = 400 A
c) Efficiency Variance = SR (AQ – SQ)
25 (360 - 350) = 250 F
Reconciliation
VOH Variance = Exo. V + Effy. V.
150 A = 400 A + 250 F

Q31. Compute the following variances from the data given below :
(1) Total sales margin variance
(2) Sales margin volume variance
(3) Sales margin price variance
(4) Sales margin mix variance
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(5) Sales margin quantity (Sub-volume) variance.

Product Budgeted Actual Budgeted Actual Standard
Quantity quantity sale sale cost
units units price price per unit
per per
unit unit
Rs. Rs. Rs.
X 240 400 50 45 30
Y 160 200 25 20 15

Solution
Working Notes
1. Product Actual Standard Actual Actual Actual
SP Cost Profit Qty. Profit
per unit (AP)
X 45 –30 =15 x 400 = 6,000
Y 20 –15 =5 x 200 = 1 ,000
7,000

2. Product Budget Standard Budget Budget Budget

SP Cost Profit Qty. Profit
per unit (BP)
X 50 –30 = 20 x 240 = 4,800
Y 25 –15 = 10 x 160 = 1 ,600
400 6,400

3. Standard Profit
Product Actual Qty. SRP Standard Profit
A 400 20 8,000
B 200 10 2,000
600 10,000
4. Budgeted profit per umt on actual mix = 1000  16,667
600
5. Revised Standard Profit (RSP)
600
 16,000 Budgeted profit per unit of standard mix.
400
RSP = Total Actual Quantity x Rs. 16
= 600 x 16 = Rs. 9,600.
1. Total Sales Margin Variance = AP - BP
= 7,000 - 6,400 = Rs. 600 F

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2. Sales Margin Volume Variance = SRP (AQ - BQ)

X = 20 (406 - 240) = Rs. 3,200 F
Y = 10 (200 - 160) = Rs. _ 400 F
Rs. 3,600 F
Note: SRP = Standard Rate of Profit i.e., Budgeted Profit per unit.
3. Sales Margin Price Variance = AQ (ARP - SRP)
X = 400 (15 - 20) = Rs. 2,000 A
Y = 200 (5 - 10) = Rs. 1,000 A
Rs. 3,000 A
Note :- SRP = Actual Rate of Profit i.e., Actual profit per unit.
4. Sales Margin Mix Variance = SP - RSP
= 10,000-9,600=Rs.400 F
Note: If RSP is more than SP, it is adverse variance and vice versa.
5. Sales Margin Quantity (Sub-Volume Variance) = RSP– BP
=9,600-6,400= Rs.3,200F
Note : Alternatively 4 & 5 may be solved as follows :
4. Sales Margin Max Variance = Total Actual Quantity (Budgeted margin per unit on actual mix –
Budgeted margin per unit on budgeted mix)
600 (16.667 -16.00) = Rs. 400 F

5. Sales Margin Quantity (Sub-Volume) Variance =

Budgeted margin per unit on budgeted mix
(Total AQ - Total BQ)
16.00 (600 - 400) = Rs. 3,200 (F)
Total AQ is more than the total BQ and hence it is favourable variance.

ADVANCE PROBLEMS

Q32. Compute the missing data indicated by the Question Marks from the following :
_______________________________________________________________________
Particulars A B
_______________________________________________________________________
Standard Price/Unit Rs.12 Rs.15
Actual Price/Unit Rs. 15 Rs.20
Standard Input (kgs.) 50 ?
Actual Input (kgs.) ? 70
Material Price Variance ? ?
Material Usage Variance ? Rs. 300 Adverse
Material Cost Variance ? ?
_______________________________________________________________________

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Material mix variance for both products together was Rs. 45 . adverse.
Sol. 1. Standard input (kgs.) of Product B :
Material usage variance = SR (SQ-AQ)
Rs. 300 A = 15 (SQ-70)
1050  300
SQ   50 = 50 kg. Standard input of B
15
2. Actual Input (Kgs.)of Product A :
This can be ascertained with the help of material mix variance for both the products t Jgether
which was Rs. 45 adverse. Let A be the actual input in kgs. for Product A.
 Std. Cost of -Std. Cost of 
Material mix variance = AQ  
 Std. mix per kg. actual mix per kg 
12A  1,050 
Rs. 45 A = (A + 70 kg.) (Rs. 13.50) –  
 A  70 
- 45 = 13.50 (A + 70 - (12A + 1050) ss
- 45 = 13.5 A + 945 -12 A - 1050
- 45 = 1.5 A - 105
A = 105  45  40kg . Actual input of Product A
1.5
(See Notes 1 & 2 for workings and Note 3 for reconciliation).
3. (a) Material Price Variance of A = AQ (SR - AR)
= 40 kg. (12 - 15) = Rs. 120 A
(b) Material Price Variance of B = 70 (15 - 20) = Rs. 350 A
4. Material usage variance of A = SR (SQ - AQ)
= 12 (50 - 40) = Rs. 120 F
5. (a) Material cost variance of A = SC - AC
= 50 kgs. at Rs. 12 - 40 kgs.
at Rs. 15
= 600 - 600 = Nil
= 50 kgs. at Rs. 15 - 70 kgs.
at Rs. 20
= 750 - 1400 = Rs. 650 A
Note: 1 Standard .cost of Standard mix per kg. :

A 50 kgs. at Rs. 12 = Rs. 600

B 50 kgs. at Rs. 15 = Rs. 750
Total 100 kgs. = Rs. 1,350
Rs. 1350/100 = Rs. 13.50
Standard cost of Actual Mix of B
Rs. 15 x 70 kgs. = Rs.1.050
Note: 2 Standard cost of Actual Mix :
SC AM Amount (Rs.)
A 12 × A = 12A
B 15 x 70 = 1050
Total A+70 12A +1050

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Standard cost of Actual mix

Note: 3
___________________________________________________________________________________________________
SC AC
___________________________________________________________________________________________________
Kg. Price Amount Kg. Price Amount
(Rs.) Rs.
___________________________________________________________________________________________________
A 50 12 600 A 40 15 600
B 50 15 750 B 70 20 1,400
___________________________________________________________________________________________________
Input 100 1,350 Input 110 2,000
___________________________________________________________________________________________________
Material Mix Variance = SR (SPPAU – AQ
 110 
A = 12  50  40 
 100 
= 12 (55 – 40) =
180 F
B = 15 (55 – 70) =
250 F
45 A
Q33. Compute the missing data indicated by the question marks from the following :
Product R Product S
Sales Quantity
Standard (units) ? 400
Actual (nuits) 500 ?
Price (unit)
Standard Rs.12 Rs.15
Actual Rs.15 Rs.20
Sales price variance ? ?
Sales volume variance Rs.1,200 F ?
Sales value variance ?
Sales Mix variance for both the products together was Rs. 450F. “F” denotes Favorable.

Sol.
Standard Sales Actual Sales
Product Sales Qty. Price Amount Product Sales Price Amount
Units per Qty. Qty per
unit Rs. unit Rs.
R ? 12 ? R 500 15 7,500
S 4,00 15 6,000 S ? 20 ?
Missing Data is to be computed.
Product R : Sales price variance :
AQ (AR - SR)
500 (15 - 12) = Rs. 1,500 F
Sales Volume variance = Rs.1,200 F as given in question
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Sales Volume variance = SR (AQ – BQ)

1,200 F = (500 – BQ)
+ 1,200 = 6,000 – 12 BQ
12 BQ = 6,000 – 1,200 = 4,80
BQ = standard sales Qnty.
Sales Value variance = Sales price variance + Sales volu
me variance
= 1,500 F + 1,200 F
= Rs. 2,700 F.
Note: Now Actual Sales quantity of product S is to be ascertained. For this purpose, we have to take
the help of Sales Mix Variance of both the products together Rs. 450 F.
Standard Rate of Standard Mix
Product Standard Qnty. Standard rate Amount (Rs.)
R 400 12 4,800
S 400 15 6,000
Total 800 10,800
10,800
= Rs. 13.50 Standard price per unit of standard mix.
800
Actual Sales Quantity of Product S = N
Standard rate of actual Mix
Actual Qnty. x SR Amount

R 500 x 12 = 6,000
S N x 15 = 15 N
Total 500 + N 6,000 + 15 N
Standard rate of actual mix = 6,000 + 15 N
500+N

Sales Mix Variance = AQ (Standard rate of - Std. rate of)

(Actual mix Std. mix )
 6,00  15N 13.50 
450F = 500+N  
 500  N 1 
+ 450 = [6,000 + 15n - 13.5 (500 + n)]
450 = 6,000 + 15n, - 6,750 - 13.5n
450 = - 750 + 1.5 n
450 + 750 = 1.5n
n = 1,200  800 units. Actual Sales Quantity of Product S
1.5
Product S :
Sales price variance = AQ (AR – SR)
= 800 (20 – 15) = Rs. 4,000 F
Sales volume variance = SR (AQ – BQ)

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= 15 (800 – 400) = Rs. 6,000 F

Sales volue variance = Rs.10,000 F

Standard Sales (SS)6

Product AQ SR Amount
R 500 12 6,000
S __800 15 12,000
Total 1,300 18,000

RSS = 1,300 × 1..50 = Rs.17,550

Sales Mix Variance = 18,000 – 17,550 = 450 F
(as given in question)
Q.34 ABC Ltd. had prepared the following estimation for the month of April:-
Quantity Rate (Rs) Amount (Rs)
Material-A 800 kg. 45.00 36,000
Material-B 600 kg. 30.00 18,000
Skilled labour 1,000 hours 37.50 37,500
Unskilled labour 800 hours 22.00 17,600
Normal loss was expected to be 10% of total input materials and an idle labour time of 5% of
expected labour hours was also estimated
At the end of the month the following information has been collected from the cost
accounting department:
The company has produced 1,480 kg. finished product by using the followings:-
Quantity Rate (Rs) Amount (Rs)
Material-A 900 kg. 43.00 38,700
Material-B 650 kg. 32.50 21,125
Skilled labour 1,200 hours 35.50 42,600
Unskilled labour 860 hours 23.00 19,780
You are required to calculate:
(a) Material Cost Variance;
(b) Material Price Variance;
(c) Material Mix Variance;
(d) Material Yield Variance;
(e) Labour Cost Variance;
(f) Labour Efficiency Variance and
(g) Labour Yield Variance.
(PRACTICE MANUAL)

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Solution
Material SQ SP SQxSP RSQ RSQ x SP AQ AQxSP AP AQ x AP
(WN-1) (Rs) (Rs) (WN-2) (Rs) (Rs) (Rs) (Rs)
A 940 kg. 45.00 42,300 886 kg. 39,870 900 kg. 40,500 43.00 38,700
B 705 kg. 30.00 21,150 664 kg. 19,920 650 kg. 19,500 32.50 21,125
1645 kg 63,450 1550 kg 59,790 1550 kg 60,000 59,825

WN-1: Standard Quantity (SQ):

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End of Chapter

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