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Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

STANDARD COSTING

Introduction:

It is a tool of cost control. Under standard costing, performance standards are set for all areas of operation within the organisation. This is done in consultation with various departmental heads. When actual performance takes place, actual data is compared with standards. If there is a difference between actuals and standards, the difference is calculated and analysed to find reasons thereof. Deviation of actuals from standards are called variances. Such variances may be favourable or adverse for the business.

MATERIAL COST VARIANCES:

Material standards are set in relation to material price and material quantity. If more than one material is used, standard is also set as regards the mix ratio between materials. This is done in consultation with production manager and purchase manager. Suppose it is decided that for making one unit of product, 5 kgs of raw materials should be used at Rs.12 per kg. Then, standard material cost = 5 kgs x Rs.12 per kg. = Rs.60 When actual production takes place, actual data is compared with standard. Suppose one unit of product was actually produced using 6.5 kgs of material purchased at Rs.15 per kg. Actual material cost = 6.5 kgs x Rs.15 per kg = Rs.97.5

This variance can be further analysed to find its reasons as under:

Price

Y

(Rs. Per kg)

AP

SP

15

12     0 5 6.5 X SQ AQ Quantity (Kgs.)

Various material variances are calculated as under:

 1) Total material cost variance = SQ x SP – AQ x AP 2) Material price variance = (SP – AP) x AQ 3) Material usage variance = (SQ – AQ) x SP

In case more than one material is used, Material usage variance is further analysed as:

1. Material yield / sub-usage variance = (SQ – SQ in actual input) SP

2. Material mix variance = (SQ in actual input – AQ) SP

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Notes:

1. While solving the problem, prepare the following table:

Usage Yield
Mix
Ratio
SQ
SQ in total
input
AQ
SP
AP
M1
XX
XX
XX
XX
M2
XX
.
.
XX
XX
XX
Input
XX
Total input
Total input
(-) Loss
XX
.
XX
Output
XX
Actual output
Actual output

2. Given quantity ratios are to be entered in ratio column.

3. Material is a variable cost and so, given ratios are to be applied to actual output to get standard quantity for actual output. (Standard always depends on actual output)

4. If any of the above variances are negative, they are said to be adverse and if positive, they are said to be positive.

5. Total material cost variance = Material price variance + Material usage variance

6. Material usage variance = Material yield variance + Material mix variance

Illustration 1 80 Kgs of material A at a standard price of Rs 2 per Kg and 40 Kgs of material B at a standard price of Rs 5 per Kg were to be used to manufacture 100 Kg of a chemical. During a month 70 Kgs of material A priced at Rs 2.10 per Kg. and 50 Kg. of material B priced at Rs 4.50 per Kg. were actually used and the output of the chemical was 102 Kgs. Find out the material variances. Solution:
Usage
Yield
Mix
Ratio
SQ
SQ in
AQ
SP
AP
total
input
A
80
81.6
80
70
2
2.1
B
40
40.8
40
50
5
4.5
Input
120
122.4
120
120
(-) Loss
20
20.4
18
Output
100
102
102

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Total Material Cost Variance = (SQ X SP) – (AQ X AP)

 A = (81.6 X 2) – (70 X 2.1) B = (40.8 X 5) – (50 X 4.5) = 16.2 (Favourable) = 21 (Adverse) 4.8 (Adverse)

Material Price

Variance = (SP – AP)AQ

 A = (2-2.1) 70 = 7 (Adverse) B = (5-4.5) 50 = 25 (Favourable) 18 (Favourable)

Material usage variance = (SQ – AQ) SP

 A (81.6 – 70) 2 = = 23.2 (Favourable) B (40.8 – 50) 5 = = 46 (Adverse)

Material yield variance/Sub usage variance = (SQ – SQ in total input)SP

 A = (81.6 – 80) 2 = 3.2 (Favourable) B = (40.8 – 40) 5 = 4 (Favourable)

7.2 (Favourable)

 Material Mix Variable = (SQ in total input – AQ) SP A = (80 – 70)2 = 20 (Favourable) B = (40 – 50)5 = 50 (Adverse) 30 (Adverse)

Price variance occurs at the time of purchase. It occurs on the entire quantity purchased. However, it may be calculated immediately at the time of purchase on quantity purchased or it may be calculated later, as and when materials are used. If price variance is calculated at the time of purchase, Material price variance = (SP – AP of purchases) AQ purchased

If price variance is calculated at the time of consumption, Material price variance = (SP – AP of consumption) AQ consumed

Material usage variance occurs at the time of usage (i.e. consumption) and so it is always calculated at the time of consumption and is based on quantity consumed.

Illustration 2 Eskay Ltd. produces an article by blending two basic raw materials. The following standards have been set up for raw materials:

 Material Standard Mix Standard price per kg. A 40% Rs 4.00 B 60% Rs 3.00

The standard loss in processing is 15% During Sept 1990, the company produced 1,700 Kg of finished output.

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

The position of stock and purchases for the month of Sept 1990 is as under:

 Material Stock on stock on Purchased during 1.9.90 30.9.90 Sept, 90. Kg Kg Kg Cost Rs A 35 5 800 3,400 B 40 50 1,200 3,000

Calculate the materials variances. Assume first in first out method for the issue of material. The opening stock is to be valued at standard price.

Solution:

 A B Qty CPU Amount Qty CPU Amount Op. Stock 35 4 140 40 3 120 (+) Purchases 800 4.25 3400 1200 2.5 3000 835 3540 1240 3120 (-) Clg. Stock 5 4.25 21.25 50 2.5 125 Consumed 830 3518.75 1190 2995

Usage Yield
Mix
Ratio
SQ
SQ in
AQ
SP
AP
total
Input
A
40
800
808
830
4
3518.75/830
B
60
1200
1212
1190
3
2995/1190
Input
100
2000
2020
2020
(-) loss
15
300
320
Output
85
1700
1700

Total Material cost variance = SQ X SP – AQ x AP

A (800 X 4) – (830 X 3518.75/830) = 318.75 (Adverse)

=

B (1200 X 3) – (1190 X 2995/1190) = 605

=

(Favourable)

Material Price Variance:

286.25 (Favourable)

 (A)If calculated at the time of purchase=(SP–AP of purchase)AQ purchased. A (4 – 4.25) 800 = = 200 (Adverse) B (3 – 2.5) = 1200 = 600 (Favourable) 400 (Favourable) (B) If calculated at the time of consumption=(SP–AP of consumption)AQ

Consumed

 A (4 – 3518.75/830) 830 = = 198.75 (Adverse) B (3 – 2995/1190) 1190 = = 575 (Favourable)

376.25 (favourable)

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Materials usage variable = (SQ – AQ) SP

 A (800 – 830) 4 = = 120 (Adverse) B (1200 – 1190)3 = = 30 (Favourable) 90 (Adverse)

Material yield variance = (SQ – SQ in total input) SP

A (800 – 808)4

B (1200 – 1212)3

=

=

Material Mix variance= (SQ in total Input – AQ) SP

A (808 – 830) 4

B (1212 - 1190) 3 = 66 (Favourable)

=

=

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

LABOUR COST VARIANCES:

Labour standards are set as regard time and wage rate. If there are more than one type of worker, standards are also made for the composition of the various types of workers. This is done in consultation with production manager and personnel manager. Suppose it is decided that to manufacture one unit of a product, a worker should take 6 hours and he should be paid at Rs.2.50 per hour. So, standard labour cost per unit = 6 hours x Rs.2.5 per hour = Rs.15 When actual production takes place, actual data is compared with standard. Suppose one unit of product was actually produced in 8 hours paid at Rs.3 per hour. Actual labour cost per unit = 8 hours x Rs.3 per hour = Rs.24. Total labour cost variance = 15-24 = Rs.9 (adverse) This variance can be further analysed as follows: Y
Wage rate
(Rs. Per hr)
AR
3
SR
2.5
0
6
8
X
SH
AH
Time (hours)

Various labour variances are calculated as under:

1. Total labour cost variance = SH x SR – AH p x AR

2. Labour Wage rate variance = (SR – AR) AH p

3. Labour usage variance = (SH – AH p ) SR

If idle time has taken place, then labour usage variance is further divided into labour efficiency variance and labour idle time variance. If there are more than one category of workers, usage variance is further divided into efficiency variance, mix variance (and also idle time variance, if there be). This is done as under:

1. Labour efficiency/yield/sub-usage variance = (SH – SH in total AH w ) SR

2. Labour mix variance = (SH in total AH w - AH w ) SR

3. Labour idle time variance = (AH w – AH p ) SR = idle time x SR

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

NOTES:

1.

Prepare the following table:

Usage Yield
Mix
Idle time
Ratio
SH
SH in
AH w
Idle
AH p
SR
AR
total
time
AH W
I
XX
XX
XX
XX
XX
XX
II
XX
.
.
XX
XX
XX
XX
XX
Total
XX
.
Total AH w
Total AH w
XX
XX
Output
XX
Actual output
Actual output

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.

The ratio of time in which workers should be utilised to manufacture a product is entered in the ratio column.

Labour is a variable cost and so, given ratios are to be applied to actual output to get standard time for actual output. (standard always depends upon actual output)

Labour time is measured in terms of labour hours and not hours. Labour hours = number of workers x number of hours.

If any of the above variances are negative, they are said to be adverse and if positive, they are said to be favourable.

Total labour cost variance = Labour rate variance + labour usage variance

Labour usage variance = Labour efficiency variance + Labour mix variance + Labour idle time variance.

Mix variance is also called gang variance

Efficiency variance is also called yield variance or sub-usage variance

Idle time is calculated based on standard ratio of workers and not actual ratio of workers.

In absence of idle time, AH w = AH p

Illustration 3. The following was the composition of a gang of workers in a factory during a particular month, in one of the production departments. The standard composition of workers and wage rate per hour were as below:

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

 Skilled: Two workers at a standard rate of Rs.20 per hour each. Semi-skilled: Four workers at a standard rate of Rs.12 per hour each. Unskilled: Four workers at a standard rate of Rs.8 per hour each.

The standard output of the gang was four units per hour, of the product. During the month in question, however, the actual composition of the gang and hourly wage rates paid were as under:

Nature of workers

No. of workers

Wage rate paid per worker per hour engaged

 Skilled 2 Rs.20 Semi-skilled 3 Rs.14 Unskilled 5 Rs.10

The gang was engaged for 200 hours during the month, which included 12 hours when no production was possible due to machine break-down.810 units of the product were recorded as output of the gang during the month. You are required to compute the total variance in labour cost during the month and analyse the variance into sub-variances. Solution:
Usage
Yield
Mix
Idle time
Ratio
SH
SH in total
AH w
AH W
Idle
AH P
SR
AR
Time
Skilled
2x1=2
405
376
376
2x12=24
2x200=400
20
20
Semi-
4x1=4
810
752
552
4x12=48
3x200=600
12
14
skilled
Unskilled
4x1=4
810
752
952
4x12=48
5x200=1000
8
10
Total
10
2025
1880
1880
120
2000
Output
4
810
810

Total Labour Cost variance = SH X SR – AH P X AR

 Skilled = 405 X 20 – 400 X 20 = 100 (Favourable) Semi-skilled = 810 X 12 – 600 X 14 = 1320 (Favourable) Unskilled = 810 X 8 – 1000 X 10 = 3520 (Adverse)

Labour wage rate variance = (SR – AR) AH p

 Skilled = (20 – 20) 400 = 0 Semi–Skilled = (12 -14) 600 = 1200 (Adverse) Unskilled = (8 – 10) 1000 = 2000 (Adverse) 3200 (Adverse)

Labour usage variance = (SH – AH p ) SR

 Skilled = (405 – 400)20 = = (810 – 600)12 = = (810 – 1000)8 = 100 (Favourable) 2520 (Favourable) 1520 (Adverse) Semi–Skilled Unskilled 1100 (Favourable)

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Labour Yield / Efficiency variance = (SH – SH in total AH w ) SR

 Skilled = (405 – 376) 20 = 580 (Favourable) 696 (Favourable) 464 (Favourable) Semi–skilled = (810 – 752) 12 = Unskilled = (810 - 752) 8 =

1740 (Favourable)

Labour Mix / Gang Variance = (SH in total AH w – AH w )SR

 Skilled = (376 – 376) 20 = = (752 – 552) 12 = 0 Semi-Skilled 2400 (Favourable) 1600 (Adverse) 800 (Favourable) Unskilled = (752 – 952) 8 =

Labour Idle time variance = (AHw – AHp)SR OR Idle time x SR

 Skilled = 24 x 20 = = 48 x 12 = 480 (Adverse) Semi-skilled 576 (Adverse) Unskilled = 48 x 8 = 384 (Adverse)

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Before the start of the year, budget for fixed overheads and output is prepared and recovery rate is determined as follows:

Fixed overheads recovery rate = Budgeted fixed overheads Budgeted output When actual production takes place, fixed overheads are recovered in the cost books based on fixed overheads recovery rate. Fixed overheads recovered = Fixed overheads recovery rate x Actual output The actual fixed overheads may not match with budgeted fixed overheads as well as recovered fixed overheads. Hence variances arise.

Cost

Volume Expenditure/Budget Actual fixed

(A)

Fixed overheads cost variance = (R) – (A) Fixed overheads volume variance = (R) – (B) Fixed overheads expenditure/budget variance = (B) – (A)

If information about budgeted and actual hours is also given:

In such case, volume variance can be further divided into efficiency and capacity variance. Find standard hours for actual output. Find standard rate per hour.

Efficiency

Capacity  Standard hours for actual output

actual hours

budgeted hours

= (standard hours for actual output – actual hours) Std. rate / hour

= (Actual hours – budgeted hours) Std. rate / hour

If information about budgeted and actual days is given:

In such case also, volume variance can be further divided into efficiency and capacity variance. Find standard days for actual output. Find standard rate per day.

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Efficiency

Capacity  Standard days for actual output

actual days

budgeted days

= (standard days for actual output – actual days) Std. rate / day

= (Actual days – budgeted days) Std. rate / day

If information about budgeted and actual hours as well as days is given:

In such case, volume variance can be further divided into efficiency, capacity and calendar variance. Find standard hours for actual output. Find standard hours in actual days. Find standard rate per hour.

Efficiency Capacity Calendar Standard hours for actual output

Actual hours

Standard hours in actual days

budgeted hours

= (standard hours for actual output – actual hours) Std. rate / hour

= (Actual hours – Standard hours in actual days) Std. rate / hour

= (standard hours in actual days – Budgeted hours) std. rate / hour

Illustration 4. The following information is available from the records of a factory:

Fixed overhead for June Production in June (units) Standard time per unit(hours) Actual hours worked in June Compute:

Budget

Rs 10,000

2,000

10

Actual

Rs 12,000

2,100

22,000

 i) Fixed overhead cost variance ii) Expenditure variance iii) Volume variance iv) Capacity Variance v) Efficiency variance.

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Solution:

 Budget Actual Fixed overheads (Rs.) 10,000 12,000 Output (units) 2,000 2,100 Hours 2000 x 10 = 20,000 22,000

Step 1 Fixed overheads recovery rate = Budgeted fixed overheads Budgeted output = Rs. 10000 = Rs.5/unit

2000 units Step 2 Fixed overhead recovered = Recovery rate x Actual output

= Rs.5/unit x 2,100 units = Rs.10,500

Cost

Volume Expenditure Rs.10,000

Rs.10,500

Rs.12,000

Step 3 Std. hrs for actual output Output

std hrs. 1
10
2,100
?(21,000)

Step 4 Std. rate per hour = Budgeted fixed overheads Budgeted hours = Rs.10,000 = Rs.0.5/hr.

20,000hrs.

Efficiency

Capacity  Standard hours for actual output

21,000

actual hours

22,000

budgeted hours

20,000

= 10,500 – 12,000 = 1,500 (Adverse).

= 10,500

- 10,000 = 500 (Favourable)

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

= 10,000 – 12,000 = 2,000 (Adverse)

= (Std hrs actual output – Actual hrs) std rate per hr.

= (21,000 – 22,000) 0.5 = 500 (Adverse)

= (Actual hrs. – Budgeted hrs.) Std. rate per hour

= (22,000 - 20,000) 0.5 = 1000 (Favourable)

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

In case of variable overheads, budgets or standards are set on per unit basis. Thus, if in the question, we are given that variable cost of Rs.10000 is budgeted for an output of 500 units, it is to be understood that the variable overheads budgeted is Rs.20 per unit and not Rs.10000 in total. Thus, if the actual quantity is not 500 units, standard will be revised for actual output.

Hence, first find budgeted variable overheads per unit Budgeted variable overheads per unit = budgeted variable overheads Budgeted output

Find standard variable overheads for actual output Standard variable overheads for actual output = Budgeted variable overheads per unit x actual output

Illustration 5. AB company Ltd is having Standard Costing system in operation for quite some time. The following data relating to the month of April, 1994 is available from the cost records:

 Budgeted Actual Output (in units) 30,000 32,500 Variable overheads (Rs) 60,000 68,000

You are required to work out the relevant variance (on the basis of output)

Solution:

= Rs.60000

= Rs.2/unit

30,000 units

Standard variable overheads for actual output = Rs.2/unit x 32,500 units = Rs.65,0000.

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

SALES VARIANCES:

Sales budgets are prepared for the period in respect of sales quantity and selling price. The actual sales for the period are directly compared with budgeted sales. However, while comparing, it is to be checked that the length of the period of budget and actual data is same. i.e. if budgeted sales are given for one year but actual sales are only for a quarter, then they cannot be directly compared and hence, budgets are adjusted for actual period and then compared. Notes:

1. Prepare the following table: Volume
Quantity
Mix
 SSQ SSQ in total ASQ ASQ SSP ASP A XX XX XX XX B XX XX XX XX C XX XX XX XX TOTAL XX TOTAL ASQ TOTAL ASQ

2. Various sales variances are calculated as under:

a) Total sales variance = SSQ x SSP – ASQ x ASP

b) Sales price variance = (SSP – ASP) ASQ

c) Sales volume variance = (SSQ – ASQ) SSP

3. If there are more than one product being sold, sales volume variance is further divided into the following:

a) Sales quantity / sub-volume variance = (SSQ – SSQ in total ASQ) SSP

b) Sales mix variance = (SSQ in total ASQ – ASQ) SSP

4. Total sales variance = sales price variance + sales volume variance

5. Sales volume variance = Sales quantity variance + sales mix variance

6. Since sales is an income, negative variance denotes favourable variance and positive variance denotes adverse variance.

Illustration 6. PH Ltd furnishes the following information relating to budgeted sales and actual sales for April 1991 :

Product

Sales Quantity Units

Selling Price Per unit Rs

 Budgeted Sales: A 1,200 15 B 800 20 C 2,000 40

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Actual Sales

 A 880 18 B 880 20 C 2,640 38

Calculate the following variances:

 i) Sales Quantity Variances ii) Sales Mix Variances iii) Sales Price Variance iv) Total Sales Variance. Solution: Volume
Quantity
Mix
 SSQ SSQ in Actual sales ASQ SSP ASP A 1200 1320 880 15 18 B 800 880 880 20 20 C 2000 2200 2640 40 38 4000 4400 4400

Total Sales Variance = SSQ x SSP – ASQ x ASP

A = (1200 x 15) – (880 x 18)

B = (800 x 20) - (880 x 20)

C = (2000 x 40) – (2640 x 38)

= 2160 (Adverse) = 1600 (Favourable) = 20320 (Favourable) 19760 (Favourable)

Sales price Variance = (SSP – ASP) ASQ.

A = (15 – 18) 880 = 2640 (Favourable)

B = (20 – 20) 880 =

C = (40 – 38) 2640= 5280 (Adverse)

0

Sales Volume variance = (SSQ – ASQ) SSP.

A = (1200 – 880) 15

B = ( 800 –

C = (2000 – 2640) 40 = 25600 (Favourable)

= 1600 (Favourable)

880) 20

22400 (Favourable)

Sales Qty/Sale Volume variance = (SSQ – SSQ in Actual Sales) SSP.

A = (1200 – 1320) 15 = 1800 (Favourable)

= 1600 (Favourable)

B = (800 – 880) 20

C = (2000 – 2200) 40 = 8000 (Favourable)

11400 (Favourable)

Sales mix Variance = (SSQ in Actual Sales – ASQ) SSP.

 A = (1320 – 880) 15 = 6600 (Adverse) B = ( 880 – 880) 20 = 0

C = (2200 – 2640) 40 = 17600 (Favourable)

11000 (Favourable)

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

PROFIT VARIANCES:

Variance in profit arises due to cost as well as sales. Let us consider the following example:

2000 units were budgeted to be sold @ Rs.30 each. Cost budgeted was Rs.24 per unit. 1900 units were sold @ Rs.32 each. Cost incurred was Rs.25 Budgeted profit = 2000 (30 – 24) = Rs.12000 Actual profit = 1900 (32 – 25) = Rs.13300 Increase in Profit = Rs.1,300 Variance in profit = Rs.1300 (favourable)

This variance in profit of Rs.1,300 is due to cost factor and sales. To analyse the effect of cost on profit, keep selling price constant.

 Budget Actual Selling Price 30 30 - Cost 24 25 Profit 6 5

Therefore, if cost increases by Re. 1, profit decreases by Re.1. Increase in cost

is Re.1 (adverse) and decrease in profit is also Re.1 (adverse). This means that profit variance due to cost is same as cost variance. In the above example, Profit variance due to cost = cost variance=(24–25) X 1900* = 1900 (adverse)

* In all the cost variances, the given ratio was always revised for actual output.

Variance in profit due to sale can be analysed in two parts – Selling price and sales volume.

Let us analyse the effect of change in selling price on profit. For this, keep the cost constant.

 Budget Actual Selling Price 30 32 Cost 24 24 Profit 6 8

Therefore, if selling price increases by Rs.2, profit also increases by Rs.2. Change in selling price is Rs.2 (favourable) and change in profit is also Rs.2 (favourable). Thus, profit variance due to selling price is same as selling price

variance.

Profit variance due to selling price = sales price variance = (SSP – ASP) X ASQ.

= (30 – 32) X 1900 = 3800 (favourable)

Effect of change in sales volume on profit:

Keep cost and selling price constant. Let us analyse the effect of change in sales quantity on profit.

 1 unit 2 units Selling price (@ Rs.30 p.u.) Cost (@ Rs.24 p.u.) Profit 30 60 24 48 6 12

Increase in sales due to change in quantity is Rs.30 but increase in profit is Rs.6 only. Thus sales volume variance is Rs.30 (Favourable) but profit variance due to sales volume is Rs.6 (favourable) and so not the same.

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

 Thus, Sales volume variance = (SSQ – ASQ) x SSP Profit variance due to sales volume = (SSQ – ASQ) x Std. Profit

In the above example, Profit variance due to sales volume = (2000 – 1900) 6 = 600 (adverse)

Total variance in profit = profit variance due to cost + profit variance due to

selling price + profit variance due to sales volume = 1900 (adverse) + 3800

(favourable) + 600 (adverse) = 1300 (Favourable)

Illustration 7 The standard

company are given below together with the budgeted sales and unit selling

cost data of three products X, Y and Z manufactured by a

 price for 1995-96: X Y Z Budgeted sales (Units) 25,000 20,000 15,000 Selling price per unit ( Rs) 40 60 80 Cost per Unit(Rs) 28 48 64

The cost department of the company gathered the following details for 1995-

96:

X

Y

Z

 Actual Sales (Units) Average sales realisation per unit (Rs) Actual cost per unit (RS) 20,000 42 30 22,000 16,000 56 81 50 63 You are required to determine: a) the Budgeted profit and the actual profit for 1995-96; b) the variance in profit analysed into i) Cost Variance; ii) Price Variance Sales iii) Volume Variance. Sales Solution SSP Std. cost Std. Profit SSQ Profit X 40 28 12 25000 300000 Y 60 48 12 20000 240000 Z 80 64 16 15000 240000 Budgeted profit 780000 ASP Actual cost Actual ASQ Profit profit X 42 30 12 20000 240000 Y 56 50 6 22000 132000 Z 81 63 18 16000 288000 Actual profit 660000

Profit variance due to cost = (Std. cost – Actual cost) ASQ

X (28-30) 20000 = 40000 (Adverse)

Y (48-50) 22000 = 44000 (Adverse)

Z (64-63) 16000 = 16000 (favourable) 68000 (Adverse)

=

=

=

Prof. Zulesh/R.C.C./P.C.C./COSTING/STANDARD COSTING

Profit variance due to sales price=Sales price variance=(SSP–ASP) ASQ

 X (40-42) 20000 = = 40000 (favourable) Y (60-56) 22000 = = 88000 (Adverse) Z (80-81) 16000 = = 16000 (Favourable)

Profit variance due to sales volume = (SSQ – ASQ) Std. profit

X (25000-20000)12=

Y (20000-22000)12= 24000 (Favourable)

Z = (15000-16000)16= 16000 (Favourable)

=

=