VARIANCE ANALYSIS – Problems

Problem 1

a. Ganesh purchased & used 800 tons of a chemical at Rs 40/ton whereas the std price
per ton was Rs 48 Calculate MPV
b. Std matl allowed to produce 100 units of Finished product is 20kgs at Rs 10/kg
Actual output 7200 units
Actual material used 1600 kgs
Compute Material quantity variance
c. The standards prevailing in X co for their only product were as follows
Matl X – 50 kgs at Rs 10/kg
Matl Y - 150 kgs at Rs 6/kg
Standard loss 30%

Actual results were

Matl X- 80 kgs at Rs 12/kg
Matl Y- 160 kgs at Rs 5/kg
Actual prodn – 210 kgs of output
Calculate MMix var & MYield var

Problem 2

The Std Metal co Ltd manufactures a single product, the std mix of which is, Matl X 60% at Rs
20 & Matl Y 40% at Rs 10
Normal loss in production is 20% of input. Due to shortage of Matl X the std mix was changed.
Actual results for June were
Amt (Rs)
Matl X 210 kgs at Rs 20 4200
Matl Y 190kgs at Rs 9 1710
Input 400 kgs 5910
Loss 70 kgs
Output 330 kgs
Calculate Material variances

Problem 3

The following is the data of S ltd for January 2007

Standards for labour –

Rate – Rs 50/lab hr
Hours set per unit – 10 hours

Actual data for the month

Units produced - 1000
Hours worked – 12000
Actual labour cost – Rs 720000
Calculate Labour variances
Problem 4
A factory worked for 6000 labour hrs during a week. 200 hours were lost due to power failure.
The sundry works done by workers were equal to 6400 hours. The std rate per hr was Rs 15 &
actual wage rate was Rs 20/hr. Calculate Labour variances
Problem 5

The following data is available for the month of January

PARTICULARS BUDGETED ACTUAL

No of working days 25 27
Man hours per month 5000 5400
Output in units 500 525
Fixed OH Rs 2500 Rs 2400

Calculate FOH Variances

CASE STUDY

The Situation

Coverdrive Ltd is a company which manufactures high quality cricket bats. The business was
originally formed in the 1980’s by Steve Howe and Steven Ambrose and for some years
operated as a partnership. It is located in Whitby, North Yorkshire.

The company now has a budgeted turnover of Rs.2.75m with an anticipated profit for the
current year of Rs.0.4m.

You work for Dunn and Musgrave a firm of accountants and consultants and Coverdrive Ltd is
one of your clients. Your role is in the business advisory unit and you have recently installed a
monthly management accounting reporting system based on standard costing techniques.

In early February 2002 you receive the attached memo from Pauline Dunn your firm’s senior
regarding the reporting system.
Memo

From: Pauline Dunn 5 February 2002

To: Planning Assistant

Re: Coverdrive Ltd

As you are aware we recently installed a standard costing system at Coverdrive Ltd.

The details attached show the budget for the month of January, together with the standard
specification for each product in the range.

Also shown is the budgeted fixed and variable overhead for the period.

Yesterday I called in at Coverdrive and Steven Ambrose supplied me with a printout from the
computer showing a summary of actual output, hours worked, direct wages paid, material
usage and material prices incurred; together with actual fixed and variable overheads for the
period.

I have arranged a meeting for next Wednesday 12 February, to discuss the figures for the
month of January.

Could you please prepare the following schedules by Tuesday am, so that we can review these
prior to the meeting:
 Budgeted operating statement for January.

 Actual operating statement for the period.

 The control ratios, with brief comments on the figures.

 A variance analysis report showing the variances outlined in the model above – highlighting
any areas for concern.

 A reconciliation of budget to actual profit for the month.

 The breakeven point in Rs. turnover and % capacity for both the budget and actual
positions.

Coverdrive Ltd Budget Date January 2002

Production and Sales in Units Selling Price Standard Hours per Unit
Rs.
Coverdrive “Special” 1250 70 4
Coverdrive “Super” 1000 60 3.5
Coverdrive “Classic” 1250 55 3

Standard direct labour rate per hour Rs.6

Standard material usage per unit of output:

“Special” 1.4
“Super” 1.3
“Classic” 1.2

Standard price per unit of material Rs.10

Budgeted fixed costs for month Rs.33550

Budgeted variable overhead for month Rs.30500

Coverdrive Ltd – Computer Printout 4/2/02

Actual output and sales in units:

“Special” 1275
“Super” 1100
“Classic” 1220

Actual selling prices were as budgeted.

Actual hours worked (direct labour):

“Special” 5228
“Super” 3740
“Classic” 3721
Cost code: 100.01 Direct Labour

“Special” Rs.31629
“Super” Rs.22814
“Classic” Rs.22512

Cost code: 100.02 Direct Material:

Cost Usage
Units of Material
“Special” Rs.18160 1798
“Super” Rs.14342 1420
“Classic” Rs.15029 1488

Cost code: 100.03 fixed overhead Rs.34000

Cost code: 100.04 variable overhead Rs.31000

Allocated and apportioned as:

“Special” Rs.12654
“Super” Rs.8857
“Classic” Rs.9489