Material Quantity Variance Formula: Difference between Standard and Actual Quantity used x Standard Rate 1 Standard quantity

allowed for production (per unit material consumption x actual units) 2 Actual quantity used in production VARIANCE Standard Rate per kg or meter or ltr Material quantity variance

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity purchased or used 1 Standard rate for purchases 2 Actual rate on purchases Variance Actual Quantity purchase / used Material price variance Labour hour/ efficency Variance Formula: Difference between Standard and Actual hours x Standard Rate 1 Standard hours allowed for production (per unit hour consumption x actual units) 2 Actual hours used in production VARIANCE Labour hour/ efficency Variance

Labour Price Variance Formula: Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance

Fatory over head Variance 1 Controllable Variance a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budgeted Factory overhead Fixed budgeted overhead Variable budgeted OH (Std. hours allowed x V.FOH rate) CONTROLLABLE VARIANCE 2 Volume Variance a) Budgeted Factory overhead 1 Fixed budgeted overhead 2 Variable budgeted OH (Std. hours allowed x V.FOH rate) -

b) Standard Factory overhead 1 Fixed Factory Overhead (Std. hours allowed x F.FOH rate) 2 Variable Factory overhead (Std. hours allowed x V.FOH rate) VOLUME VARIANCE

Material Quantity Variance Formula: Difference between Standard and Actual Quantity used x Standard Rate 1 Standard quantity allowed for production (per unit material consumption x actual units) (1,020,000 kgs / 120,000 units = 8.5 kgs per unit x 9,825 units) 2 Actual quantity used in production VARIANCE Standard Rate per kg or meter or ltr (Rs 9,690,000 / 1,020,000 kgs) Material quantity variance Unfav

83,513

88,450 4,938 9.50 46,906

Unfav

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity purchased or used 1 Standard rate for purchases 9.50 2 Actual rate on purchases (Rs 884,500 / 88,450) 10.00 Variance Actual Quantity purchase / used Material price variance Unfav Unfav 0.50 88,450 44,225

Labour hour/ efficency Variance Formula: Difference between Standard and Actual hours x Standard Rate 1 Standard hours allowed for production (per unit hour consumption x actual units)

(300,000 hours / 120,000 units = 2.5 hours per unit x 9,825 units) 2 Actual hours used in production VARIANCE Fav Standard Rate per hour (Rs 3,600,000 / 300,000 hours) Labour hour/ efficency Variance Fav

24,563 22,100 2,463 12.00 29,550

Labour Price Variance Formula: Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour (Rs 276,250 / 22,100 hours) VARIANCE Unfav Actual hours used Labour Price Variance Unfav

12.00 12.50 0.50 22,100 11,050

Fatory over head Variance 2 - Variance method 1 Controllable Variance a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in standard hours allowed Fixed budgeted overhead Variable budgeted OH

52,500 48,400

(Standard hours allowed x Variable per unit rate) CONTROLLABLE VARIANCE

33,880 4.50

2 Volume Variance a) Budgeted FOH 1 Fixed budgeted overhead 2 Variable budgeted OH (Standard hours allowed x Variable per unit rate) b) Standard FOH 1 Fixed Factory Overhead 2 Variable Factory overhead VOLUME VARIANCE

52,500 152,460

177,870 152,460

3.5 kgs 2.25 h

4 5

Kgs

Kgs Kgs

hours hours hours

100,900

52,500

###### Fav

204,960 104,060

204,960

Fav

330,330 125,370

Fatory over head Variance 2 - Variance method Controllable Variance a) Actual Factory overhead Fixed FOH Variable FOH b) Budgeted Factory Overhead: Fixed budgeted overhead Variable budgeted OH (Standard hours allowed x Variable per unit rate)

4,500 6,500

11,000

4,500 4,500 1.50 CONTROLLABLE VARIANCE

6,750

11,250 250 Fav

Volume Variance a) Budgeted FOH Fixed budgeted overhead Variable budgeted OH (Standard hours allowed x Variable per unit rate) b) Standard FOH Fixed Factory Overhead Variable Factory overhead

4,500 4,500 1.50

6,750

11,250

(Std. hours allowed x FFOH rate) (Std. hours allowed x VFOH rate) VOLUME VARIANCE

4,050 6,750 Unfav

10,800 450

3.5 kgs 2.25 h

4 5

Material Quantity Variance Formula: Difference between Standard and Actual Quantity x Standard Rate Standard quantity allowed for production (per unit material consumption x actual units) (7,200 Chairs x 12 m per chair) Actual quantity used in production Variance Standard Rate Material quantity variance Unfav Unfav

86,400 meters 87,300 meters 900 0.80 720

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity purchased Standard rate for purchases 0.80 Actual rate on purchases 0.78 Variance Actual Quantity purchased Material price variance Fav Fav 0.02 100,000 2,000

Q1

`qa 2

2 ms

Solution of Ex-2 Material Price Variance (At the time of purchases) Difference between Standard and Actual rate x Actual quantity purchased Standard rate for purchases 3.65 Actual rate on purchases 3.60 Variance Actual Quantity purchase Material price variance Fav Fav 0.05 2,000 100

Material Price Variance (at the time of issue) Difference between Standard and Actual rate x Actual quantity ISSUED Standard rate for purchases 3.65 Actual rate on purchases 3.60 Variance Actual Quantity issued Material price variance Fav 0.05 1,775 88.75

Solution of Ex -3 Difference between Standard and Actual hours x Standard Rate Standard hours allowed for production (2,000 units x 0.80 hours) 1,600 Actual hours used in production 1,580 Difference Standard Rate Labour hour/ efficency Variance 20 F 6.75 135 F

Labour Price Variance Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance 6.75 6.90 (0.15) u 1,580 (237) u

Fatory over head Variance

Controllable Variance
1 Actual Factory Overhead: a. Fixed Factory overhead 100,000 b. Variable Factory overhead 70,000 2 Budgeted Factory overhead: a. Fixed Factory overhead 100,000 b. Variable Factory overhead (49,500 x Rs 1.20) 59,400 CONTROLLABLE VARIANCE

170,000

159,400 10,600 Unfav

Volume Variance:
1 Budgeted Factory overhead: a. Fixed Factory overhead b. Variable Factory overhead (49,500 x Rs 1.20) 2 Standard Factory overhead: a. Fixed Factory overhead (49,500 x Rs 1.00) b. Variable Factory overhead (49,500 x Rs 1.20) Volume Variance 100,000 59,400 159,400

49,500 59,400 Unfav 108,900 50,500 Unfav

1 Normal Capacity

5,000 600

2 Actual hours worked

4,400

3 Std. hours allowed

4,500

Material Quantity Variance 1 Standard quantity allowed for production (per unit consumption x actual units) (2 kgs x 7000 units) 2 Actual quantity used in production Variance Standard Rate per kg Material quantity variance Material Price Variance 1 Standard rate for purchases 2 Actual rate on purchases Variance Actual Quantity purchase / issue Material price variance

14,000 14,400 400 UF 0.50 200 UF

0.50 0.51 0.01 UF 14,400 144 UF

Labour hour/ efficency Variance 1 Standard hours allowed for production (per unit hour consumption x actual units) (10,000 hours / 8,000 units = 1.25 x 7000) 2 Actual hours used in production Difference Standard Rate Labour hour/ efficency Variance Labour Price Variance

8,750 9,000 250 9.00 2,250

Formula: Difference between Standard and Actual rate x Actual hours used 1 Standard rate for payment of labour 2 Actual rate paid to labour (76,500 / 9,000 hours) Difference Actual hours used Labour Price Variance 9.00 8.50 0.50 F 9,000 4,500 F

Fatory over head Variance 2 - Variance method Controllable Variance a) Actual Factory overhead Fixed FOH Variable FOH b) Budgeted Factory overhead Fixed budgeted overhead Variable budgeted OH (Standard hours allowed x Variable per unit rate)

5,000 12,550

17,550

5,000 8,750 1.50 13,125 18,125 575 Fav

CONTROLLABLE VARIANCE

2 Volume Variance a) Budgeted Factory overhead Fixed budgeted overhead Variable budgeted OH (Standard hours allowed x Variable per unit rate)

5,000 8,750 1.50 13,125 18,125

b) Standard Factory overhead: a. Fixed Cost (Std. hours allowed x FFOH) b. Variable cost (Std. hours allowed x VFOH) Volume Variance

4,375 13,125

17,500 625 Unfav

U U

Quantity Schedule: Units in process (at start) Units put in to process Total Units completed & tansferred out Units in process (at end) 80 7,850 7,930 units (all material, 50% conversion) units units

7,830 100 7,930

units units (all material, 50% conversion) units

Equivalent Production Unit Material Units completed & transferred out Less: Opening stock Unit started & completed Add: Opening stock - work this period Add: Closing stock - work this period EPU Conversion 7,830 7,830 (80) (80) 7,750 100 7,850 7,750 40 50 7,840

Material Quantity Variance Formula:Difference between Standard and Actual Quantity x Standard Rate Standard quantity allowed for production (7,850 units x 24 kgs per unit) Actual quantity used in production Difference Standard Rate Material quantity variance

188,400 192,410 4,010 3 12,030 U

Material Price Variance Formula:Difference between Standard and Actual rate x Actual quantity used Standard rate for purchases 3

Actual rate on purchases Difference Actual Quantity Material price variance

3.04 0.04 192,410 7,696.40 U

Labour hour/ efficency Variance Formula:Difference between Standard and Actual hours x Standard Rate Standard hours allowed for production (7,840 units x 6 hours per unit consumption) Actual hours used in production Difference Standard Rate Labour hour/ efficency Variance

47,040 46,830 210 6.50 1,365 F

Labour Price Variance Formula:Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance 6.50 6.60 0.10 46,830 4,683 U

Fatory over head Variance 2 - Variance method 1 Controllable Variance a) Actual amount of factory overhead Fixed FOH

11,250

Variable FOH

25,090

b) Budget allowance based in standard hours allowed Fixed budgeted overhead 11,250 Variable budgeted OH (Standard hours allowed x 47,040 Variable per unit rate) 0.50 23,520 CONTROLLABLE VARIANCE Note: Standard hours allowed = 7,840 units x 6 =47,040 hours Standard variable rate = Rs. 22,500 / 45,000 hours = 0.50

2 Volume Variance a) Budget allowance based in standard hours allowed b) Overhead charged to production Standard hours allowed x 47,040 Total Standard Factory overhead rate 0.75 VOLUME VARIANCE Note: Total FOH rate = Rs. 33,750 / 45,000 hours = 0.75

erial, 50% conversion)

erial, 50% conversion)

antity used

36,340

34,770 1,570

,040 hours hours = 0.50

34,770

35,280 510

Required no.1: Standard quantity allowed of material: Actual production Per unit standard consumption of material Standard quantity allowed 4,000 6 24,000 units lbs lbs

Required no.2: Actual quantity used of material: Standard quantity allowed add: unfavourable quantity variance Actual quantity used Required no. 3: Standard hours allowed: Actual production Per unit standard consumption of labour Standard hours allowed Required no. 4: Actual hours worked: Standard hours allowed Less: Favourable labour efficiency variance Actual hours allowed 4,000 hours (200) hours 3,800 hours 4,000 1 4,000 units hour hours 24,000 1,000 25,000 lbs lbs lbs

Note: Favourable hours = Rs. 800 efficiency variance / Rs. 4 per hour = 200 hours Required no. 5: Actual direct labour rate: Standard direct labor rate Add: unfavourable labor rate variance Actual direct labour rate 4 0.20 4.20

Note: Unfavourable rate = Rs. 760 labor rate variance / 3,800 actual hours worked = 0.20

Required no. 6: Actual Factory overhead Standard factory overhead (4,000 units actual production x Rs. 3 per unit FOH rate) Add: unfavourable FOH variance Actual Factory overhead

ual hours worked

12,000 500 12,500

Material Quantity Variance 1 Standard quantity allowed for production (per unit material consumption x actual units) (05 Kgs per unit x 9,680 units) 2 Actual quantity used in production VARIANCE Standard Rate per kg or meter or ltr Material quantity variance Unfav Unfav

48,400 50,820 2,420 9 21,780

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity purchased or used 1 Standard rate for purchases 9.00 2 Actual rate on purchases 9.10 Variance Actual Quantity purchase / used Material price variance Unfav Unfav 0.10 50,820 5,082

Labour hour/ efficency Variance 1 Standard hours allowed for production (per unit hour consumption x actual units) (3.5 hours per unit x 9,680 units) 2 Actual hours used in production VARIANCE Standard Rate per hour Labour hour/ efficency Variance Unfav

33,880 41,000 7,120 6 42,720

Unfav

Labour Price Variance Formula: Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance Unfav 6.00 6.25 0.25 41,000 10,250

Unfav

Fatory over head Variance 1 Controllable Variance a) Actual Factory overhead 1 Fixed FOH 2 Variable FOH b) Budgeted Factory overhead: 1 Fixed budgeted overhead 2 Variable budgeted OH (Standard hours allowed x 33,880 Variable per unit rate) 4.50 CONTROLLABLE VARIANCE

52,500 48,400

100,900

52,500

152,460

204,960 104,060

2 Volume Variance a) Budgeted FOH 1 Fixed budgeted overhead 2 Variable budgeted OH (Standard hours allowed x Variable per unit rate) b) Standard FOH 1 Fixed FOH 2 Variable FOH

52,500 33,880 4.50

152,460

(Std. hours allowed x Std. FFOH rate) (Std. hours allowed x Std.VFOH rate) VOLUME VARIANCE

177,870 152,460 Fav

3.5 kgs 2.25 h

4 5

Kgs Kgs Kgs

hours hours hours

Fav

204,960

330,330 125,370