38 Standard Costing PDF

Standard Costing 3
Learning Objectives
After studying this chapter, you should be able to
) Describe how unit input standards are developed,
and explain why standard costing systems are
adopted.
) Explain the purpose of a standard cost sheet.
) Compute and journalize the direct materials and
direct labour variances, and explain how they are
used for control.
) Compute overhead variances in three different ways,
and explain overhead accounting.
) Calculate mix and yield variances for direct materials
and direct labour.
Sec 1_Ch-03_Sandard Costing.indd 3.1 1/12/2011 3:48:39 PM

3.2 Problems and Solutions: Advanced Management Accounting
INTRODUCTORY THEORY
Standard costing system is a costing system that:
(i) traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities
of inputs allowed for actual output produced, and
(ii) allocates overhead costs on the basis of the standard overhead costs rates times the standard quantities of
the allocation bases allowed for the actual outputs produced.
Establishing Standards
Developing and establishing standards requires significant inputs from various sources. Three potential sources of
quantitative standards are as follows:
1. Historical experience
2. Engineering studies
3. Input from operating personnel
Classification of Standards
Standards
Ideal Standards
Basic Standards
Normal Standards

Can be achieved only if
Used only when they are likely
everything operates perfectly Can be achieved under normal
to remain constant over a long
and demands maximum level of operating conditions
period of time
efficiency
Standard cost is a carefully determined cost of a unit of output. According to CIMA official terminology standard
cost is: A predetermined calculation of how much costs should be under specified working conditions. It is built
up from an assessment of the value of cost elements and correlates technical specifications and the qualification of
minerals, labour and other costs to the prices and/or usage rates expected to apply during the period in which the
standard cost is intended to be used. Its main purpose is to provide basis for control through variance accounting for
the valuation of stock and work-in-progress and in some cases, for fixing selling prices.
Objectives for Adopting Standard Costing System

1. Cost Management
2. Planning and Control
3. Decision-making
4. Product Costing
Variance Analysis and Accounting
Variance analysis is the analysis of the cost variances and its component parts and explanation of these
variances. Cost variance is the difference between a standard cost and the comparable actual cost incurred
during a period.
Classification of Variances
Direct Material Price Variance = Actual Quantity (Standard Price Actual Price)
Direct Material Usage Variance = Standard Price (Standard Quantity Actual Quantity)

Standard Costing 3.3
Variances
Controllable Uncontrollable

Which can be controlled by the (i) Which are beyond the control of
departmental head departmentl heads, e.g. price
Timing of Price Variance Computation

The direct material price variance can be computed at one of two points:
1. When the direct materials are issued for use in production, or
2. When they are purchased.
Computing the price variance at the point of purchase is preferable. It is better to have information on variances
earlier than later. The more timely the information, the more the likeliness of a proper managerial action.
Timing of the Computation of the Direct Material Usage Variance

The direct material usage variance should be computed as direct materials are issued for production. To facilitate
this process, many companies use three forms:
1. A standard bill of materials,
2. Color-coded excessive usage forms, and
3. Color-coded returned material forms.
Direct Labour Rate Variance = Actual Time (Standard Rate Actual Rate)
Direct Labour Efficiency Variance = Standard Rate (Standard Time Actual Rate)
Responsibility for the Direct Material Variances

The responsibility for controlling the direct material price variance is usually lies with the purchasing manager.
The production manager is responsible for direct material usage. However, at times, the cause of the variance is
attributable to other individuals and factors outside the production area. For example, purchase of low quality
direct material may give a bad output. In this case, the responsibility should be assigned to purchasing rather than
production.
Responsibility for the Direct Labour Variances

Direct labour rates are largely determined by such external forces as labour market and union contracts. When direct
labour rate variances occur, they often do so because an average wage rate is used for the rate standard or because
more skilled and more highly paid labourers are used for less skilled task. However, the use of direct labour is
controllable by the production manager. For this reason, responsibility for the direct labour rate variance is generally
assigned to the individuals who can take good decision for allocation of labour.
The same is true of the direct labour efficiency variance. However, as is true of all variances, once the cause is
discovered, responsibility may be assigned elsewhere.
Variable Overhead Efficiency Variance

The variable overhead efficiency variance is directly related to the direct labour efficiency variance. If variable
overhead is truly driven by direct labour hours, then like the direct labour efficiency variance, it is caused by
efficient or inefficient use of direct labour. If more (or fewer) direct labour hours are used the standard calls for then
the total variable cost will increase (or decrease).
Responsibility for Variable Overhead Expenditure Variance and

Variable Overhead Efficiency Variance
Ability to control is a prerequisite for assigning responsibility. Price changes of variable overhead items are generally
beyond the control of supervisors. If price changes are small, the expenditure variance is primarily a matter of the

efficient use of overhead in production, which is controllable by production supervisors. Accordingly, responsibility
for the variable overhead expenditure variance is generally assigned to production departments.
The reasons for unfavourable variable overhead variance are similar to direct labour efficiency variance.
Responsibility for the variable overhead efficiency variance should be assigned to the production manager.
Variance Analysis Overhead Costs

1. Variable Overhead Variance = (Standard Variable Overhead Actual Variable Overhead)
2. Variable Overhead Expenditure Variance = (Budgeted Variable Overhead for Actual Hours Actual
Variable Overhead)
3. Variable Overhead Efficiency Variance = Standard Variable Overhead Per Hour (Standard Hours for
Actual Output Actual Hours)
Variable Overhead Expenditure Variance

It is similar to the price variances of direct materials and direct labour though there some conceptual differences.
Variable overhead is not a homogenous input it is made up of a large number of individual items such as indirect
materials, indirect labour, electricity, maintenance, and so on.
A variable overhead expenditure variance can arise because prices for individual variable items have increased
or decreased. The variable overhead expenditure variance is also affected by how efficiently overhead is used. The
waste or inefficiency in the use of variable overhead increases the actual variable overhead cost. This increased cost,
in turn, is reflected in an increased actual variable overhead rate. Thus, even if the actual prices of the individual
overhead items were equal to the budgeted or standard prices, an unfavourable variable overhead expenditure
variance could still take place.
Fixed Overhead Variances

1. Total Fixed Overhead Variance = Absorbed Fixed Overhead Actual Fixed Overhead
2. Fixed Overhead Expenditure Variance = Budgeted Overhead Actual Overhead
3. Fixed Overhead Volume Variance = Standard Rate of Absorption Per Unit (Actual Production Budgeted
Production)
4. Fixed Overhead Capacity Variance = Standard Rate of Absorption Per Hour (Actual Hours Capacity
Budgeted Hours Capacity)
5. Fixed Overhead Efficiency Variance = Standard Rate of Absorption Per Hour ( Standard Hours Required
Actual Hours)
SFOR SH
AFOH
Spending
Variance
BFOH
Volume
Variance
SH SH (D)
Standard Hours
Graphical representation of fixed overhead variances

Points to Remember
Advantages and Disadvantages of Standard Costing

Advantages:
Basis for measuring operating performance and cost control
Helps in price fixation
Facilitates evaluation of jobs
Facilitates estimation of cost of new product
Helps in inventory valuation
Useful in measurement of profit
Supports business planning, budgeting and managerial decisions
Aids in standardization of products, operations and processes
Defines the responsibilities of departmental managers
Sets a uniform basis for comparison of all elements of costs.
Disadvantages:
Variation in price
Varying level of output
Changing standard of technology
Misleads technical people
Revision of standard
Cannot reflect value in exchange.
Direct Material Mix and Yield Variance

The mix variance is the difference in the standard cost of the actual mix of inputs used and the standard cost of the
mix of inputs that should ideally have been used.
A yield variance occurs whenever the actual yield (output) differs from the standard yield. For direct materials,
the sum of the mix and yield variances equals the direct material usage variance.
Direct Material Mix Variance = Total Actual Quantity (Standard Cost Per Unit of Standard Mix Standard
Cost Per Unit of Standard Mix)
or, Standard Price (Revised Actual Quantity Actual Quantity)
Direct Material Yield Variance = Standard Price of Yield (Actual Yield Standard Yield)
or, Standard Price (Standard Quantity Revised Actual Quantity)
Direct Labour Mix and Yield Variance

The direct labour mix and yield variance is calculated in the same way as the direct material mix and yield
variance.
Direct Labour Mix Variance = Total Actual Time (Standard Rate of Standard Labour Standard Rate of Actual
Labour)
or, (Revised Actual Hours Actual Hours) Standard Rate
Direct Labour Yield Variance = Standard Rate (Total Standard Time Total Actual Time)
or, Standard Rate ( Standard Hours Revised Actual Hours)
Question 1: Calculate Material Price Variance and Material Usage Variance:
Standard (1 FG) Actual (1 FG)
Kg Rate Amount (`) Kg Rate Amount (`)
18,000 10 1,80,000 20,000 12 2,40,000
5,000 20 1.00.000

After analysing, it was found that out of 25,000 unit, 5,000 units were purchased as an emergency order at higher
rate @ ` 20.
Solution:
Material Price Variance = (S.P. A.P.) A.S.
= (10 12) 20,000 + (10 12) 5,000
= ` 50,000 Adverse
Material Usage Variance = Excess price variance + (S.Q. A.Q.) S.P.
due to emergency order
= (12 20) 5,000 + (18,000 25,000) 10
= ` 1,10,000
Question 2: A manufacturing concern which has adopted standard costing furnishes following information:
Standard Material for 70 kg of Finished Products 100 kg
Price of materials ` 1 per kg
Actual: Output 2,10,000 kg
Materials used 2,80,000 kg
Cost of materials ` 2,52,000
Calculate (a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance.
Solution:
Data for Material Variance (2,10,000 kg)
Standard (Output 2,10,000 kg) Actual (Output 2,10,000 kg)
Qty. Rate Amount (`) Qty. Rate Amount (`)
3,00,000 kg 1 3,00,000 2,80,000 0.90 2,52,000
Statement of Variance
Sl. No. Particulars Basis Amount (`)
1. Material Usage Variance (Std.Qty. A.Qty.) S.P. 20,000 Favourable
(3,00,000 2,80,000) 1
2. Material Price Variance (S.P. A.P.) A.S. 28,000 Favourable
(1 0.90) 2,80,000
3. Material Cost Variance (Material Usage + Material Price Variance) 48,000 Favourable
i.e. SCAC
Question 3: From the data given below, calculate the material price variance, the materials usage variance and
material cost variance.
Consumption per 100 Units of Product
Raw material Standard Actual
A 40 units @ ` 50 per unit 50 units @ ` 50 per unit
B 60 units @ ` 40 per unit 60 unit @ ` 45 per unit
Solution:
Data for Material Variances

Standard Actual
Item Qty. Rate Amount (`) Item Qty. Rate Amount (`)
A 40 50 2,000 A 50 50 2,500
B 60 40 2,400 B 60 45 2,700
4,400 110 5,200

Statement of Variances
1. Material Price Variance (S.P. A.P.) A.Q.
A (50 50) 50 = 0
B (40 45) 60 = 300 Adverse 300 (Adverse)
2. Material Usage Variance (S.Q A.Q.) S.R

A (40 50) 50 = 500 500 (Adverse)
B (60 60) 40 = 0
Material Cost Variance = Material Price Variance + Material Usage Variance

= 300 A + 500 A
= ` 800 (Adverse)
OR
Material Cost Variance = Standard Cost Actual Cost
= 4,400 5,200
= ` 800 (Adverse)
Question 4: From the following information, compute (a) Cost Variance (b) Price and (c) Usage Variance.
Standard Actual
Quantity Unit Price Total Quantity Unit Price Total
(Kg) (`) (`) (Kg) (`) (`)
Material A 10 2.00 20.00 5 3.00 15.00
Material B 20 3.00 60.00 10 6.00 60.00
Material C 20 6.00 120.0 15 5.00 75.00
Total 50 4.00 200.00 30 5.00 150.00
Solution:
Data for Material Variance
Budgeted/Standard (1 FG) Actual (1 FG)
Amount (`) Item Qty. Rate Amount (`)
A 10 2 20 A 5 3 15
B 20 3 60 B 10 6 60
C 20 6 120 C 15 5 75
200 110 150
1. Material Price Variance (S.R. A.R.) AQ
A (2 3) 5 = 5 Adv
B (3 6) 10 = 30 Adv 20 (Adverse)
C (6 5) 15 = 15 Fav
2. Material Usage Variance (S.Q. A.S.) S.R.
A (10 5) 2 = 10F
B (20 10) 3 = 30F 70 Favourable
C (20 15) 6 = 30F
3. Material Cost Variance M.P.V. + M.U.V.
20 Adverse + 70F 50 Favourable
Question 5: Mixers Ltd. is engaged in producing a standard mix using 60 kgs of chemical X and 40 kg of chemical
Y. The standard loss of production is 30%. The standard price of X is ` 5 per kg and of Y is ` 10 per kg. The actual
mixture and yield were as follows:

X 80 kgs @ ` 4.50 per kg and Y 70 kgs @ ` 8.00 per kg. Actual yield is 140 kgs. Calculate material variances,
price and usage.
Solution:
Data of Material Variance
Budgeted Standard Actual
Raw Material Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
(`) (`)
X 60 5 300 120 5 600 80 4.5 360
Y 40 10 400 80 10 800 70 8 560
100 kg 700 200 1,400 150 920
(M.P.V.) X (5 4.5) 80 = 40F
Y (10 8) 70 = 140F 180F
2. Material Usage Variance (S.Q. A.Q.) S.R.
(M.U.V.) X (120 80) 5 = 200F
Y (80 70) 3 = 100F 300F
3. Material Cost Variance M.P.V. + M.U.V. = SC AC 480F
Question 6: Standard Chemical Co. Ltd produces a certain chemical, the standard material cost being:
40% material X at ` 45 per kg
60% material Y at ` 120 per kg
A standard loss of 10% is expected in production.
During January 1995, 200 kg of material X and Y were mixed:
84 kg material X at ` 46 per kg, 116 kg material Y at ` 118 per kg and produced 182 kg of the chemical. Calculate
the following variance for the month:
(i) Material Price;
(ii) Material;
(iii) Material
Solution:
Budgeted (90 FG) Standard (182 FG) Actual (182 FG)
Material Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
(`) (`) (`)
X 40 kg 20 1,200 80.88 20 1,618 90 18 1,630
Y 60 kg 30 1,800 121.33 30 3,640 110 34 3,740
100 3,000 202.2 (WI) 5,258 200 5,360
(M.P.V.) X (20 18) 90 = 180F
Y (30 34) 110 = 440(A) 260 (A)
(M.U.V.) X (80.88 90) 20 = 182.4(A)
Y (121.33 110) 30 = 340F 157F
3. Material Cost Variance M.P.V. + M.U.V.
(SC AC) 102 (A)
260A + 157.50 F

For WI
For 90 we need input = 100
100
____
For 1 we need input = 182
90
= 202.2
40% of 202.2 = 80.88
60% of 202.2 = 121.33
Question 7: Vinak Ltd. produces an article by blending two basic raw materials. It operates a standard costing
system and the following standards have been set for raw materials:
Material Standard Mix Standard Price per kg
A 40% ` 4.00
B 60% ` 3.00
The standard loss in processing is 15%. During April, 1980, the company produced 1,700 kg of finished
output. The position stock and purchases for the month of April, 1980 is as under:
Material Stock on 1.4.80 of Stock on 30.4.80 Purchased during April 1980
kg kg kg Cost (`)
A 35 5 800 3,400
B 40 50 1,200 3,000
Calculate the following Variances:

(i) Material Price Variance (ii) Material Usage Variance (iii) Material Yield Variance (iv) Material Mix Variance (v)
Total Material Cost Variance.
Solution:
Standard
for Actual
Material
Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
(`) (`) (`)
A 40 4 160 800 4 3,200 808 830 4.2394 3,518.75
B 60 3 180 1200 3 3,600 1212 1,190 2.5168 2,995
100 340 6800 2,020 6,513.75
1. Material Price Variance (S.R. A.R.) A.Q.
A (4 4.2394) 830 = 199A
B (3 2.5168) 1190 = 575F 376 (Fav.)

A (800 830) 4 = 120A
B (1200 4190) 3 = 30F 90 (Adv.)
3. Material Yield Variance (Standard Ratio for total standard quantity Standard ratio for
total actual quantity) S.R.
A (800 808) 4 = 32A
B (1200 1212) 3 = 36F 68 (Adv.)
4. Material Mix Variance (Standard Ratio for actual mix Actual ratio for actual mix)
S.R.
A (808 830) 4 = 88A
B (1212 1190) 3 = 66 Fav. 22 (Adv.)
5. Material Cost Variance Material price variance + Material Usage Variance 286 (Fav.)
376 Fav. + 90 Adv.

35 4 + 795 4.25
_________________
Material A `
35 + 795
3518.85
_______
= ` = 4.239
830
Material B
_______________
40 3 + 1150 2.5
=`
____
2995
40 + 1150 1190
= ` 2.5168
Question 8: Modern Tiles Ltd manufactures plastic tiles of standard size of 6 6 1/8. From the following
information, you are required to calculate following variances for direct materials:
I. The cost variance in total:
1. The cost variance sub-divided into (a) price (b) usage, and
2. The usage variance analysed to show (a) mixture (b) yield.
A standard mix of the compound 20,000 square feet required to produce an output of tiles of 1/8 thickness is as
follows:
Direct Materials Qty. (kg) Price (` per kg)
A 600 1
B 400 2
C 500 3
During December 1991, eight mixes were processed and actual materials consumed were as follows:
Direct Materials Qty. (kg) Price (` per kg)
A 5,000 2
B 2,900 4
C 4,400 5
Actual production for December was 6,20,000 tiles.

Solution:

Budgeted (80,000) Standard (6,20,000) S.Q. for Act. Mix Actual (6,20,000)
Materials Qty. Rate Amount Qty. Rate Amount Qty. Qty. Rate Amount
(`) (`) (`)
A 600 1 600 4650 1 4,650 4,920 5,000 2 10,000
B 400 2 800 3100 2 6,200 3,280 2,900 4 11,600
C 500 3 1,500 3875 3 11,625 4,100 4,400 5 22,000
1,500 2,900 22,476 12,300 43,600
Sl. No. Particulars Basis Amount
(M.P.V.) A (1 2) 5000 = 5000A 19,600 (Adv.)
B (2 4) 2900 = 5800F
C (3 5) 4400 = 8800A
(M.U.V.) A (4650 5000) 1 = 350A
B (3100 2900) 2 = 400F
C (3875 4400) 3 = 1575A 1,525 (Adv.)

3. Material Mix Variance (S.Q. for actual mix Actual Quantity) S.R.
A (4920 5000) 1 = 80Adv.
B (3280 2900) 2 = 750F 220 (Adv)
C (4100 4400) 3 = 900A
4. Material Yield Variance (standard quantity Standard ratio for actual quantity)
S.R.
A (4650 4920) 1 = 270A
B (3100 3280) 2 = 360A 1,305 (Adv)
C (3875 4100) 3 = 675A
5. Material Cost Variance M.P.V. M.U.V.
19,600 A + 1525 A 21,125 (Adv.)
Working Note
Calculation of Budgeted No. of Tiles
4
20,000 Sq. ft
A ___________
__ 20,000 12 12 sq.inch
No. of Tiles = a = = = 80,000 units
6 6 sq. in. 36 3 sq.inch
Question 9: From the data given below, calculate:

Particulars X Y
Qty. (kg) Value Qty. (kg) Value
Raw material purchases 2,000 kg ` 4,000 5,000 ` 6,250
Issue to works 2,150 kg 3,950
Works stock of material:
Opening 300 kg 1,000
Closing 200 kg 1,250
Standard Price: Material X ` 1.90 per kg, Material Y ` 1.30 per kg.
Standard Usage: Material X Material Y
Product A 1 kg 1 kg
Product B 0.5 kg 1 kg
Output during the period:
Product A 1,130 units, Product B 2,550 units.
The following data is given
1. Calculate the individual material price variances for the two materials X and Y assuming that price variances
are calculated at the time of purchase.
2. Calculate the individual material usage variances for material X and Y assuming that there was no work in
progress either at the commencement or at the end of the period.
Solution:
Data for material variance
Budgeted/Standard Standard
Raw Material
Qty. (W.N. 1) Rate Amount (`) Qty. (W.N. 2) Rate Amount (`)
X 2,405 1.90 4,569.5 2,250 2 4,500
Y 3,680 1.30 4,784 3,700 1.25 4,625
1. Material Price Variance (S.R A.R.) A.Q. purchaser
Material X (1.90 2) 2,000 200 (Adv.)
Material Y (1.30 1.25) 5,000 250 (fav.)
2. Material Usage Variance (S.Q A.Q.) S.R.
Material X (2,405 2,250) 1.90 294.50 (Fav.)
Material Y (3,680 3,700) 1.30 26 (Adv.)

Working Note 1:
Calculation of Standard Quantity of Raw Material Required
Material X No. of products Material required for/unit of product
= 1,130 1 + 2,550 0.5
= 1,130 + 1,275 = 2,405 kg
Material Y = 1,130 1 + 2,250 1 = 3,680 kg
Working Note 2:
Calculation of Actual Quantity Consumed
Material X (kg) Y (kg)
Opening Stock at works 300 1,000
Issue to works by purchase department 2,150 3,950
() Closing stock at works 200 1,250
Actual consumption 2,250 3,700
Question 10 (Break up of Material Cost Variances when standard mix and actual usage are given): X Ltd is
producing floor covers in roll of standard size measuring 3 m wide and 30 m long by feeding raw materials to a
continuous process machine. Standard mixture fixed for a batch of 900 sq. m of floor cover is as follows:
2,000 kg of material A at ` 1.00/kg
800 kg of material B at ` 1.50/kg
20 gallons of material C at ` 30/gallon.
During the period, 1505 standard size rolls were produced from the material issued for 150 batches. The actual
usage and the cost of materials were:
3,00,500 kg of material A at ` 1.10/kg
1,19,600 kg of material B at ` 1.65/kg
3,100 gallons of material C at ` 29.50/gallon.
Present the figures to management showing the break-up of material cost variances arising during the period.
Solution:
Data for Variance
Budgeted Actual
Q R A Q R A
A 2,000 1 2,000 3,00,500 1.1 3,30,550
B 800 1.5 1,200 1,19,600 1.65 1,97,340
C 20 30 600 3,100 29.5 91,450
10 FG 3,800 150.5 lot FG 6,19,340
Standard
Q R A
A 3,01,000 1 3,01,000
B 1,20,400 1.5 1,80,600
C 3,010 30 90,300
150 lot FG 5,71,900
Material Price Variance:

= (SR AR) AQty
A = (1 1.1) 3,00,500 = (30,050)
B = (1.5 1.65) 1,19,600 = (17,940)
C = (30 29.5) 3,100 = 1,550
46,440 (Adverse)

Material Usage Variance:

= (SQ AQ) SR
A = (3,01,000 3,00,500) 1 = 500
B = (1,20,400 1,19,600) 1.5 = 1200
(2,700)
_______
C = (3,010 3,100) 30 = Adverse.
(1,000)
Material Cost Variance:
= SC AC
= MPV + MUV
= (46,440) + (1,000) = (47,440) Adverse.
Question 11: 1 kg of product K requires two chemicals A and B. The following were the details of product K
for the month of June 1987:
1. Standard mix Chemical A 50% and Chemical B 50%.
2. Standard price per kilogram of Chemical A ` 12 and Chemical B ` 15.
3. Actual input of Chemical B 70 kilograms.
4. Actual price per kilogram of Chemical A ` 15.
5. Standard normal loss 10% of total input.
6. Materials cost variance total ` 650 adverse.
7. Materials yield variance total ` 135 adverse.
Required: Calculate:
1. Material mix variance total
2. Material usage variance total
3. Material price variance total
4. Actual loss of actual input
5. Actual input of Chemical A
6. Actual price per kilogram of Chemical B
Solution:
Standard Standard Actual
Material Qty. (kg) Rate (`/kg) Amount Ratio for Qty. (kg) Rate Amount
(`) Actual Mix (`/kg) (`)
A 50 12 600 55 40 15 600
B 50 15 750 55 70 20 1,400 (B.f.)
100 for 90G 1,350 110 110 (W.N. 2) 2,000
Statement of Requirement
1. Material Mix Variance = (55 40) 12 + (55 70) 15
= 15 12 + (15 15)
= 15 3 = 45
= 45 (Adverse)
2. Material Usage Variance = (S.Q. A.Q.) S.R.
= (50 40) 12 + (50 70) 15
= 180 (Adverse)
3. Material Price Variance = (S.R. A.R.) A.Q.
= (12 15) 40 + (15 20) 70
= 420 (Adverse)

4. Actual Loss = (110 90) = 20 kg

5. Actual Input of Chemical A = 110 70 = 40 kg
1,400
_____
6. Actual Price per Kg of B= ` = ` 20/kg
70
Working Note 1
M.C.V = S.C. A.C.
650 = 1,350 A.C.
Actual Cost = 1,350 + 650 = 2,000
Working Note 2
Material Yield Variance = (Total Standard Quantity Total Actual Quantity) Standard Weighted Avg. Rate
1,350
135 = (100 T.A.Q.) _____
100
13,500
______
= 100 T.A.Q.
1,350
10 = 100 T.A.Q.
Total Actual Quantity = 100 + 10
= 110 kg
Question 12: The following data is provided.
Particulars A B
Standard Price/Unit ` 12 ` 15
Actual Price/Unit ` 15 ` 20
Standard Input (kgs) 50 ?
Actual Input (kgs) ? 70
Material Price Variance ? ?
Material Uses Variance ? ` 300 Adv.
Material Cost Variance ? ?
Required: Calculat\e the missing data indicated by the question marks from the above table.
Material mix variance for both products together was ` 45 adverse.

Solution:
Material Standard Standard Ratio Actual
for Actual Mix
Qty. (kg) Rate Amount Qty. (kg) Rate Amount
A 50 12 600 50 40 15 600
B 50 (W.N. 1) 15 750 50 70 20 1400
100 1,350 100 (70 + x) 2,000
Working Note 1
Material Usage Variance = (S.Q. A.Q.) S.R.
300 Adv. = (S.Q. 70) 15
20 = S.Q. 70
S.Q. = 20 + 70 = 50
Working Note 2
Material Mix Variance = (S.R. for Actual Mix A.R. for Actual Mix) S.R. = 45
Working Note 3
MPV = A (12 15) 70 = 210 A
B (15 20) 70 = 350 A

Question 13: The following information is provided.

Standard Wages: Grade X: 90 Labourers at ` 2 per hour
Grade Y: 60 Labourers at ` 3 per hour
Actual Wages: Grade X: 80 Labourers at ` 2.50 per hour
Grade Y: 70 Labourers at ` 2.00 per hour
Budgeted Hours 1,000; Actual Hours 900; Budgeted Gross Production 5,000 units;
Standard loss 20%; Actual Loss 900 units.
Required: Calculate the labour variances from the above information.
Solution:
Data for Labour Variances
Budgeted (4000) Standard (4100) Actual (4100 units)
Material Lab. Hrs Rate Amount Lab. Hrs Rate Amount Lab. Hrs Rate Amount
`/hr ` (W.N. 2) (`) (`)
X 90 1,000 2 1,80,000 92,250 2 1,84,500 80 900 = 2.50 1,80,000
= 90,000 72,000
Y 60 1,000 3 1,80,000 61,500 3 1,84,500 70 900 = 2.00 1,26,000
= 60,000 63,000
1,35,000 3,60,000 1,53,750 3,69,000 1,35,000 3,06,000
1. Labour rate variances (S.R. A.R.) Actual payment hours
Grade X (2 2.50) 72,000 = 36,000A
Grade Y (3 2) 63,000 = 63,000F 27,000 (Fav.)
2. Labour efficiency variance (Standard hour Actual work hr.) Standard rate
Grade X (92,250 72,000) 2 = 40,500F
Grade Y (61,500 63,000) 3 = 4500F 36,000 (Fav.)
Working Note 1
Calculation of Net Production
Budgeted (Units) Actual (Units)
Gross Production 5,000 5,000
() Loss (Normal) 1,000 9,00

(20% of 5,000)
Net Production 4,000 4,100
We should assume that Budgeted gross & actual gross production will be same.
Working Note 2
Calculation of Revised Budgeted Hrs.
X 4,000 F.G. 90,000 Lab. Hr.
90,000
______
1 F.G. Lab. hr.
4,000
90,000
______
4100 F.G. 4,100 Lab. hr.
4,000
= 92,250 Lab. Hr.
Y 4,000 F.G. 60,000 Lab. Hr.
60,000
______
1 F.G. Lab. Hr.
4,000

60,000
______
4100 F.G. 4,100 Lab. Hr.
4,000
= 61,500 Lab. Hr.
Question 14: A gang of workers usually consists of 10 men, 5 women and 5 boys in a factory. They are paid at
standard hourly rates of ` 1.25 , Re 0.80 and Re 0,70, respectively. In a normal working week of 40 hours the gang
is expected to produce 1,000 units of output.
In a certain week, the gang consisted of 13 men, 4 women and 3 boys. Actual wages were paid at the rates of `
120, Re 0.85 and Re. 0.65, respectively. Two hours were lost due to abnormal idle time and 960 units of output were
produced. Calculate various labour variances.
Solution:
Question 15: The details regarding the composition and the weekly wage rates of labour force engaged on a job
scheduled to be completed in 30 weeks are as follows:
Standard Actual
Category or Workers
No. of Labourers Weekly wage rate No. of Labourers Weekly wage rate
per Labourer (`) per Labourer (`)
Skilled 75 60 70 70
Semi-skilled 45 40 30 50
Unskilled 60 30 80 20
The work is actually completed in 32 weeks.

Required: Calculate the various labour variances.
Solution:
Data for Labour Variance
Budgeted (1000) Revised Budgeted (960) Actual (960) Actual
Working
Lab Hr. Rate Amount Lab Hr. Rate Amount Lab Hr. Rate Amount Hours
(`) (`) (`)
Men 400 1 400 384 1 384 520 3 1,560 494
Women 200 2 400 192 2 384 160 4 640 152
Boys 200 3 600 192 3 576 120 5 600 114
1,400 1,344 2,800
Statement of Labour Variance

1. Labour Cost Variance (S.C. A.C.)
1344 2800 1,456 (Adv.)
2. Labour Rate Variance (S.R. A.R.) Actual Pay. Hrs
Men (1 3) 520 = 1040 Adv.
Women (2 4) 160 = 320 Adv. 1,600 (Adv)
Boys (5 5) 120 = 240 Adv.
3. Labour Efficiency Variance (Standard Hrs. Act. Wor. Hours) S.R.

Men (384 494) 1 = 110 A.
Women (192 152) 2 = 80 F. 204 (Fav.)
Boys (192 114) 3 = 234 F.
4. Labour Adle Hour Variance Men 13 2 1 = 26 A

Women 4 2 2 = 16 A 60 (Ad.)
Boys 3 2 3 = 18 A

Question 16: The following of the two departments are given below:
Dept. A Dept. B
Actual gross wages ( direct) ` 2,000 ` 1,800
Standard hours produced 8,000 6,000
Standard rate per hour 30 Paise 35Paise
Actual Hours Worked 8,200 5,800
Required: Calculate each of the three wage variance for the two department.
Solution:
Data for Labour Variance
Budget/Revised Actual
Standard Ratio for
Category Time Rate Amount Qty. Rate Amount
Actual Mix (weeks)
(weeks) (`/week) (`) (`)
Skilled 2,250 60 1,35,000 2,240 70 1,56,800
2,250
2,400 5760
5,400
Semi-skilled 1,350 40 54,000 960 50 48,000
1,350
1,440 5,760
5,400
Unskilled 1,800 30 54,000 2,560 20 51,200
1,800
1,920 5,760
5,400
5,400 2,43,000 5760 5,760 2,56,000
Statement of Labour Variances

1. Labour cost variance Std. Cost Act. Cost 13,000 (Adv.)
2,43,000 2,56,000 = 13,000 (Adv.)
2. Labour rate variance (S.R. A.R.) Act. Pay. Hrs
Skilled (60 70) 2240 = 22400A
Semi-skilled (40 50) 960 = 9600A 6,400 (Adv.)
Unskilled (30 20) 2,560 = 25600F
3. Labour efficiency variance (S.Q. A.Q.) S.R.
Skilled (2,250 2,240) 60 = 600F.
Semi-skilled (1,350 960) 40 = 15,600F. 6,600 (Adv.)
Unskilled (1,800 2,560) 30 = 22,500A
4. Labour mix variance (S. Ratio for Actual Mix Actual Ratio for Actual Mix) S.R.
Skilled (2,400 2,240) 60 = 9,600F.
Semi-Skilled (1,440 960) 40 = 19,200 Fav.
Unskilled (1,920 2,560) 30 = 19,200 Adv. 9,600 (Fav.)
5. Labour yield variance (Standard Ratio for Standard Quantity Standard Ratio for
Actual Quantity) S.R.
Skilled (2,250 2,400) 60 = 9000A.
Semi-Skilled (1350 1440) 40 = 3600A. 16,200 (Adv.)
Unskilled (1800 1920) 30 = 3600A.
Question 17: The following data is given:

Particulars Budget Actual
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.

Required: Calculate variable overheads variances and give necessary journal entries to record transactions.
Solution:
Budget Standard Actual

Q R A Q R A Q R A
Labour 8,000 1.25 10,000 7,200 1.25 9,000 7,000 1.3071 9,150
Hours 400 FG 360 FG 360 FG
V.O/H. Cost Variance:

= SC AC = 9,000 9,150 = (150) Adv.
V.O/H. Efficiency Variance:
= (SH AH) SR = (7,200 7,000) 1.25 = 250 Fav.
V.O/ H. Exp. Variance:
= (SR AR) AW Hr
= (1.25 1.3071) 7,000 = (400) Adv
Question 18: In Department A of a plant, the following data are submitted for the week ended 31st March 1993:
Standard output for 40 hours per week 1,400 units
Budgeted fixed overheads ` 1,400
Actual output 1,200 units
Actual hours worked 32 hours
Actual fixed overheads ` 1,500
Required: You are required to prepare a statement of variances.
Solution:
Data for Variance: B Hr RR BOV Actual
40 35 1,400 1,500
AH S Hr Rec
32 34.2857 34.2857 35
Budgeted Hrs = 40
Budgeted O/P = 1,400
Budgeted F O/H = 1,400
Recovery rate/hr = 35
Recovery rate/Unit =`1
Actual Hrs = 32
Actual O/P = 1,200
Budgeted Hrs for actual O/P = 34.2857 = Std Hrs
Actual O/H = 1,000
Actual recovery = 1,200
Fixed O/H Vol. Variance
= (Recov. O/H Budgeted O/H)
= 1,200 1,400 = (200) Adv
Fixed O/H Exp Variance =
= (Budgeted O/H Actual O/H)
= 1,100 1,000
= (100) Adv.

F O/H Efficiency Variance

= (S Hr Actual Hr) RR
= (34.2857 32) 35 = 80 Fav.
F O\H Capacity Variance
= (Act Working Hr Budgeted Hr)RR
= (32 40)35 = (280) Adv.
Question 19: AB Company limited 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
Operating hours 60,000 60,000
Fixed overheads 45,000 50,000
Variable overhead (`) 60,000 68,000
Working days 25 26
Required: To work out the relevant variances.
Solution:
Basic Calculations:
Budgeted Hours
______________
Standard time per unit =
Budgeted Units
30,000
______
= = 1 hour
30,000
Total Standard Overhead Rate per hour:
Budgeted Overheads
_________________
=
Budgeted Hours
1,05,000
________
= = ` 3.50 per hour
30,000
Standard Fixed Overhead Rate per hour
Budgeted Fixed Overheads
______________________
=
Budgeted Hours
60,000
______
= =`2
30,000
OCV = Recovered Overheads Actual Overheads
Recovered Overheads = Standard Hours for Actual Output Standard Rate
= 32,500 ` 3.50 = 1,13,750
OCV = 1,13,750 1,18,000 = ` 4,250 (Adverse)
Total Overhead Cost Variance may be segregated into (i) Variable Overhead Cost Variance and (ii) Fixed Overhead
Cost Variance.
Variable Overhead Cost Variance = Recovered V. Overheads Actual V. Overheads
= 32,500 hrs. ` 2 ` 68,000
= ` 3,000 (Adverse)
Fixed Overhead Cost Variance = Recovered Overheads Actual Overheads
= 32,500 hrs. ` 1.50 ` 50,000
= ` 48,750 ` 50,000
= ` 1,250 (Adverse)
The Fixed Overhead cost variance can be segregated into (i) Expenditure Variance and (ii) Volume Variance.

Expenditure Variance = Budgeted Overheads Std. Overheads

= ` 45,000 ` 50,000 = ` 5,000 (A)
= Recovered Overheads Budgeted Overheads
= 32,500 hrs. ` 1.50 ` 45,000
= ` 48,750 ` 45,000
= ` 3,750 (Favourable)
Fixed Overhead Volume Variance can be segregated into Efficiency Variance and Capacity Variance.
Efficiency Variance = Recovered Overheads Std. Overheads
Or Standard Rate (Standard Hours for Actual Output Actual Hours)
= 1.5 (32,500 33,000) = ` 750 (Adverse)
Capacity Variance = Standard Rate (Actual Hours Budgeted Hours)
= 1.50 (33,000 30,000)
= ` 4,500 (Favourable)
Capacity Variance may further be divided into (i) Calendar Variance and (ii) Revised Capacity Variance.
Calendar Variance = Extra /Deficit hours worked were 25 while actual days worked. The total number of extra
hours worked therefore, will be 1,200, i.e. 30,000/2,500
= 1, 200 ` 1.5 = ` 1,800 (Favourable)
Revised Capacity Variance is the Capacity Variance left after segregating Calendar Variance. In other words, Revised
Capacity Variance can be calculated as follows:
Revised Capacity Variance = Capacity Variance Calendar Variance
= ` 4,500 (F) ` 1,800 (F)
= ` 2,700 (F)
Alternatively , Calendar Variance may also be calculated as follows:
Calendar Variance = Possible Overheads Budgeted Overheads
= 31,200 hrs. ` 1.50 45,000
= ` 46,800 45,000
= 1,800 (Favourable)
Revised Capacity Variance = Standard Overheads Possible Overheads
= ` 1.5 33,000 ` 1.5 31,200
= ` 49,500 ` 46,800 = ` 2,700(F)
Verification:
OCV = FOCV + VOCV
= ` 1,250 (A) + ` 3,000 (A) = ` 4,250 (A)
FOCV = FOEXPV + FOVV
= ` 5,000 (A) + ` 3,750 (F) = ` 1,250 (A)
FOVV = ` FOCAPV + FOEFFV
= ` 4,500 (F) + ` 750 (A) ` 3,750(F)
= Calendar Variance + Revised Capacity Variance
FOCAPV = ` 1,800 (F) + ` 2,000 (F) = ` 4,500 (F)
Question 20: Consider the following data.
Hrs. 20,000 20,100
Output (units) 5,000 5,200
Fixed Overhead(`) 10,000 10,200
Required: Calculate the fixed overhead variables.

Data for Fixed OH Variances

Budgeted Output Recovery Rate Budget fixed OH
5,000 2 10,000
Actual Recovered Actual Expenditure

5,200 10,400 10,200
Statement of Fixed OH Variances

1. Fixed OH cost variances Recovered Actual 200 Fav.
2. Fixed OH volume variances Budget Recovered 400 Fav.
3. Fixed OH Expenditure variances Budget Actual 200 Adv.
Question 21:
Budgeted no. of working days 24
Budgeted no. of hours per month 12,000
Fixed overhead rate Re. 0.50 per hour
Actual no. of working days in June 25
Compute the calendar variance

Solution:
Calendar Variance = (Actual days Budgeted days) Recovery Rate Per day
= (25 24) 250 (W.N. 1)
= 1 250
= ` 250 Favourable.
Working Note 1
Calculation of Recovery Rate
Budget no. of hours per month = 12,000 hrs.
fixed OH rate = 0.50/ hr.
Budget fixed OH (In a month) = ` 6,000
Total fixed Budget OH
__________________________ 6,000
_____
Recovery Rate per day = = = ` 250/day
No. of working days in a month 24
Question 22: You are given the following data:
Budgeted Actual
Fixed overhead for July ` 10,000 10,500
Units of production in July 5,000 4,500
Standard time for one unit 4 hours
Actual hours worked 20,100 hours
Calculate all variances relating to fixed overheads.

Solution
Data for Fixed Overhead (OH) Variances
Budgeted Hour for Budgeted Output Recovery Rate Budgeted Fixed Overhead
5,000 4 = 20,000 ` 0.50/hr 10,000
Budget Hour for Actual Output Recovered Actual Expenditure

20,000 9,000 10,500
4,500 = 18,000
5,000

Statement of Fixed OH Variances

1. Fixed OH volume variances Recovered Budget
9,000 10,000 1,000 (Adv.)
2. Fixed OH expenditure variances Budget Actual
10,000 10,500 500 (Adv.)
3. Fixed OH cost variances Recovered Actual

9,000 10,500 1,500 (Adv.)
Question 23: Fixed overhead as per budget, i.e. estimated ` 5,000

Budgeted hours, i.e. estimated 10,000
Actual hours worked 7,000
Actual fixed overhead 5,600
Required: Compute the expenditure and volume variances.
Solution:
Data for Fixed Overhead Variances
Budgeted Hours Recovery Rate Budget fixed Overhead
10,000 ` 0.50/hr. ` 5,000
Actual Hours Recovered Actual fixed overhead

7,000 3,500 ` 5,600
Statement of Fixed Overhead Variances

1. Fixed overhead Expenditure variance Budget Actual
` 5,000 ` 5,600 600 (Adv.)
2. Fixed overhead volume variance Recovered Budget
` 3,500 ` 5,000 1500 (Adv.)
3. Fixed overhead total variance Recovered Actual
` 3,500 ` 5,600 2100 (Adv.)
Question 24:
Budgeted Output Product Budgeted Hour Actual Hour Actual Output
A 10 8 A
B 2
C 8 20 C
D 50 40 D
E 10
F 8 15 F
G 12 15 G
100
Budgeted overhead = `10,000

Actual overhead = ` 12,500.
Required: Calculate the fixed overhead volume and Exp variance.

Solution:
Data for fixed OH variances
Budgeted Hour for Budgeted output Recovery Rate Budget fixed Overhead
100 (7) 100 10,000
Budgeted hour for Actual Output Recovered Actual

88 (10 + 8 + 50 + 8 + 12) 8,800 12,500
Statement of fixed overhead variances

1. Fixed overhead expenditure variances Budget Actual
10,000 12,500 2,500 (Adv.)
2. Fixed overhead volume variances Recover Budget
8,800 10,000 1,200 (Adv.)
Note: If a company produces different products and every product does not consume equal budgeted hours, it is
better to apportion high part of fixed OH to the product which has high budgeted hours. (The product here
means actual output).
In other words, we can say recovery should be on the basis of budgeted hours for actual outputs.
If a company produces different products and every product consumes equal budgeted hours, overhead may
be recovered either on the basis of actual output or budgeted hours for actual output.
Question 25: 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 ` 1,44,000 per month. The standard time required to manufacture one unit of
product is 4 hours.
In April 1998, the company worked 26 days of 840 machine hours per day and produced 5,305 units of output.
The actual fixed overheads were ` 1,42,000.
Required: To compute
1. Efficiency variance
2. Revised capacity variances
3. Calendar variance
4. Expense variance
5. Volume variance
6. Total fixed overheads variance
Budgeted Hours for Recovery Rate Budget Fixed Overhead (`) Actual Working Hrs. (`)
Budgeted Output
24,000 Hr. (6,000 Unit) ` 6 / hr. 1,44,000 21,840 Hrs.
Budgeted hour for Actual Output Recovered Actual

(S. Hr) (`) (`)
21,220 (4 5,305) 1,27,320 (21,220 6) 1,42,000
1. Efficiency variance (S. Hr A.W.Hr) R.R
= (21.220 21,840) 6 3,720 (Adv.)
2. Revised Capacity variance Total Cap. variance Calendar Variance
12,960 5,760 (W.N. 1) 18,720 (Adv.)

3. Calendar variance (Actual days Bud. days)

= (26 25) 5,760
= 5,760 5,760 (Fav.)
4. Expenses variance Budgeted Actual
1,44,000 1,42,000 2,000 Fav.
5. Volume variance Recovered Budgeted
1,27,320 1,44,000 16,680 (Adv.)
6. Total fixed overhead variance Recovered Actual
1,27,320 1,42,000 14,680 (Adv.)
Working Note 1
Calculation of Total Capacity Variance
Total Capacity Variance = (Actual Working Hr Budgeted Hour) R.R.
= (21,840 24,000) 6
= 12,960 Adverse
Question 26: The following figures are extracted from the books of a company:
Output ( in units) 6,000 6,500
Hours 3,000 3,300
Overhead
Cost-fixed 1,200 1,250
Variable 6,000 6,650
Number of days 25 27
Required: Compute and analyse the overhead variances.
Note: Assume 8 Working Hour Per day, Budgeted Hours = 20 8, Actual Hour = 21 8.
Solution:
Budgeted Hours for Recovery Rate Budgeted Fixed Overhead Actual working Hours for
Budgeted output (`) Actual output
3,000 Hrs ` 0.4 / hr. 1,200 3,300
Standard Hours. Recovered Fixed OH (`) Actual Fixed Overhead (`)

3,250 3,250 0.40 = 1,300 1,250
1. Fixed OH Volume Variances Recover Budget
1,300 1,200 100 Fav.
2. Fixed OH Expenditure Variances Budget Actual
1,200 1,250 50 Adv.
3. Fixed OH Cost Variance Recover Actual
1,300 1,250 50 Fav.
4. Fixed OH Efficiency Variance (S. Hr. A.W.Hr) R.R.
= (3,250 3,300) 0.40 20 Adv.
5 Fixed OH Capacity Variance (A.W.Hr Bud. Hr) R.R.
= (3,300 3,000) 0.40 120 Fav.
6. Fixed OH Calendar Variance (Actual Work Days Budgeted days) R.R./day
96 Fav.
1,200
= (27 24)
25

7. Fixed OH Balanced Capacity Variance Total Capacity Variance Calendar Variance

= 120 Fav. 96 Fav. 24 Fav.
8. Variable OH Variable Standard variable OH for Actual Output Actual
variable OH Actual Output
6,000
= 6,500 - 6,650
6,000
= 6,500 6,650 150 Adv.
Question 27: The following information was obtained from the records of a manufacturing unit using Standard
Costing System:
Production Standard 4,000 units Actual 3,800 units
` `
Working days 20 21
Fixed overhead 40,000 39,000
Variable overhead 12,000 12,000
Required: Calculate the following overhead variances:

(a) Variance overhead variance (b) Fixed overhead variance.
(i) Expenditure Variance (b) Volume Variance (c) Efficiency Variance (iv) Calendar variance.
Solution:
Data for Overhead Variances
Budgeted Hours Recovery Rate Budgeted fixed OH Actual working Hrs.
(4,000 Units)
20 8 Hrs = 160 Hrs ` 250/hr. ` 40,000 21 8 Hrs = 168 Hrs
Budgeted Hours for actual output Recovered Actual
160 ` 38,000 ` 39,000

4,000 3,800 152 Hours.

1. Variable OH Variances Standard Variable OH for actual output Actual variable OH for
actual output
12,000 600 (Adv.)
4,000 3,800 12,000 = 11,400 12,000

2. Fixed OH Variance Recovered Actual

38,000 39,000 = 1,000 1,000 (Adv.)
3. Fixed OH Expenditure Variance Budget Actual

40,000 39,000 1,000 (Fav.)
4. Fixed OH Volume Variance Recovered Budged

38,000 40,000 2,000 (Adv.)
5. Fixed OH Efficiency Variance (Standard Working Hr Actual Working Hour) R.R./hr.

(152 168) ` 250/hr. 4,000 (Adv.)
6. Fixed OH Calendar Variance (Actual Working days Budgeted Working days) R.R. per
day
40,000 2,000 Fav.
(21 20)
20

Question 28: A Cost Accountant of a company was given the following information regarding the overheads for
February 1987:
1. Overheads cost variance ` 1,400 adverse.
2. Overheads volume variance 1,000 adverse.
3. Budgeted hours for February 1987 1,200 hours.
4. Budgeted overheads for February 1987 ` 6,000.
5. Actual rate of recovery of overheads ` 8 per hour.
Required: To assist the cost accountant in computing the following for February 1986
1. Overheads expenditure variance
2. Actual overheads incurred
3. Actual hours for actual production
4. Overheads capacity variance
5. Overheads efficiency variance
6. Standard hours for actual production.
Solution:
Statement of Required Information
1. Overhead Expenditure Variance W.N. 1 400 A.
2. Actual Overhead incurred W.N. 2 6,400
3. Actual Hours for Actual production Actual - OH 800 hrs.
Actual Rate
4. Overheads Capacity Variance (Act. Work. Hr. Bud. Hr) R.R.

6,000 2,000 Adv.
(800 1,200)
1,200
5. Overheads Efficiency Variance (Standard Hr. Act. Wor. Hr.) R.R.
(1,000 800) 5 1,000 Fav.
6. Standard hours for actual production W.N. 3 1,000 hrs.
Working Note 1
Calculation of Expenditure Variance
Overhead Variance = Expenditure Variance + Volume Variance
1,400 = Expenditure Variance 1,000
Expenditure Variance = 1,400 + 1,000
= 400 Adverse
Working Note 2
Calculation of Actual Overhead
Overhead Expenditure Variance = Budgeted Actual
400 = 6,000 Actual
Actual OH Expenditure = 6,000 + 400
= ` 6,400
Working Note 3
Calculation of Standard Hour for Actual Production
Overhead volume variance = Recovered Budgeted
1,000 = Recovered 6,000
Recovered = ` 5,000
Again overhead

Recovered = Standard hour Recover Rate

5,000 = Standard Hour ` 5
Standard Hour = 1,000 hr.
Question 29: The Dearborn Company manufactures product X in standard batches of 100 units. A standard cost
system is in use.The standard costs for a batch are as follows:
Raw materials 60 kg @ ` 4.50/ kg ` 270
Direct labour 36 hr @ ` 8.25/ hour ` 297
Variable overhead 36 hr @ ` 4.75/ hour ` 171
` 738
Standard output per month 24,000 units
Production for April 2005 amounted to 210 batches. The relevant statistics follows
Raw material used 13,000 kg
Cost of Raw material used ` 61,100
Direct labour cost ` 66,924
Variable Overhead ` 36,000
Actual hours worked 7,920
The management has noted that actual costs per batch deviate somewhat from standard costs per batch.
Required: Prepare a statement which will contain a detailed explanation of the difference between the actual costs
and standard costs.
Solution:
Data for Resource Variance
Budgeted (1 FG) Standard (21,000) Actual (21,000)
Particulars Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
(`) (`) (`)
Mat (kg) 0.6 4.50 2.7 12,600 4.50 56,700 13,000 4.70 61,100
Labour (hrs.) 0.36 8.25 2.97 7,560 8.25 62,370 7,920 8.45 66,924
V OH (hours) 0.36 4.75 1.71 7,560 4.75 35,910 7,920 4.545 36,000
1. Material Price Variance (4.50 4.70) 13,000 2,600 (Adv.)
(S.R. A.R.) A.Q.
(1,26,000 13,000) 4.50 1,800 (Adv.)
3. Material Cost Variance S.C. A.C.
56,700 61,100 4,400 (Adv.)
4. Labour Rate Variance (S.R. A.R.) Act Wor. Hrs.
(8.25 8.45) 7920 1,584 (Adv.)
5. Labour Efficiency Variance (Standard Hrs. A.W.Hr) . S.R.
(7,560 7,920) 8.25 2,970 (Adv.)
6. Labour Cost Variance S.C. A.C.
62,370 66,924 4,554 (Adv.)
7. Variable OH Expenditure Variance (S.R. A.R.) Act W. Hrs.
(4.75 4.545) 7,920 1,626 Fav.
8. Variable OH Efficiency Variance (Stan. Hrs. A.W. Hrs.) S.R.
(7,560 7,920) 4.545 1,636 Adv.
9. Variable OH Cost Variance S.C. A.C.
35,910 36,000 10 Adv.

Question 30: A Ltd., operates a system of standard costs. Following information is available:
Actual: `
Materials Consumed 1,89,000
(3,600 units at ` 52.50 per unit)
Direct Wages 22,100
Fixed Expenses 1,88,000
Variable Expenses 62,000
Output during the period was 3,500 units of finished product.
For the above period, the standard production capacity was 4,800 units and the break up of standard cost per unit
was as under:
Particulars `
Materials (one unit @ 50 per unit) 50
Direct wages 6
Fixed expenses 40
Variable expenses 20
Total standard cost per unit 116
The standard wages per unit is based on 9,600 hours for the above period at a rate of ` 3.00 per hour. 6,400 hours
were actually worked during the above period, and in addition, wages for 400 hours were paid to compensate for
idle time due to breakdown of a machine and overall wage rate was ` 3.25 per hour.
Required: Compute the following variances with appropriate workings:
(a) Direct Material Cost Variance (b) Material Price Variance
(c) Material Usage Variance (d) Direct Labour Cost Variance
(e) Wage Rate Variance (f) Labour Efficiency Variance
(g) Idle Time Variance (h) Variable Expenses Variance
(i) Fixed Expenses Expenditure Variance (j) Fixed Expenses Volume Variance
(k) Fixed Expenses Capacity Variance (l) Fixed Expenses Efficiency Variance
(m) Total Cost Variance.
Solution:
Budgeted (1 Unit) Standard (3,500) Actual (3,500)
Particulars
Qty. Rate Amount (`) Qty. Rate Amount (`) Qty. Rate Amount (`)
Mat (unit) 1 50 50 3,500 50 1,75,000 3,600 52.50 1,89,000
Labour (hrs.) 2 3 6 7,000 3 21,000 6,800 3.25 22,100
V OH (hrs.) 2 10 20 7,000 10 70,000 6,400 9.6875 62,000
Data for Overhead Variances

Budgeted Hrs Recovery Rate Budgeted Fixed OH Actual Working Hrs.
9,600 ` 20 / hrs. 1,92,000 6,400
Budgeted Hrs for actual output Recovered Actual

7,000 ` 1,40,000 1,88,000
(a) Material Cost Variance S.C. A.C.
1,75,000 1,89,000 14,000 A.

(b) Material Price Variance (S.R. A.R.) A.Q.

(50 52.50) 3,600 9,000 A.
(c) Material Usage Variance (S.Q. A.Q.) S.R
(3,500 3,600) 50 5,000 A.
(d) Labour Cost Volume S.C. A.C.
21,000 22,100 1,100 A.
(e) Wage Rate Variance (S.R. A.R.) A.P. Hrs
(3 3.25) 6,800 1,700 A.
(f) Labour Efficiency Variance (S. Hr. A.W.Hr) S.R.
(7,000 6,400) 3 1,800 Fav.
(g) Idle Time Variance Idle Hr x. S.R.
400 3 1,200 Adv.
(h) Variable Expenses Variances S.C. A.C.
70,000 62,000 8,000 F.
(i) Fix. OH Expenditure Variance Budget Actual
1,92,000 1,88,000 4,000 F.
(j) Fix OH Volume Variances Recovered Budget
1,40,000 1,92,000 52,000 Adv.
(k) Fixed Expenses (OH) Capacity Variance (A.W.Hr Bud. Hr) R.R.
(6,400 9,600) 20 64,000 Adv.
(l) Fixed Expenses (OH) Efficiency Variance (S.Hr. A.W.Hr) R.R.

(7,000 6,400) 20 12,000 Fav.
(m) Total cost variance
Question 31: Z Ltd uses standard costing system in manufacturing of its single product M. The standard cost per
unit of M is as follows:
`
Direct materials: 2 m @ ` 6 per m 12.00
Direct labour: 1 hour @ ` 4.40 per hour 4.40
Variable overhead: 1 hour @ ` 3 per hour 3.00
19.40
During July, 1993, 6000 units of M were produced and the related data are as under:
Direct material acquired 19000 m @ ` 5.70 per m.
Material consumed 12670 m. `
Direct labour - ? Hours@ ` ? per hour 27,950
Variable overheads incurred 20,475
The variable overheads efficiency variance is ` 1,500 adverse. Variable overheads are based on direct labour hours.
There was no stock of raw material in the beginning.
Required: Compute the missing figures and work out all the relevant variance.
Solution:
Budgeted (1 FG) Standard (6,000) Actual
(`) (`) (`)
Mat (Meter) 2 6 12 12,000 6 72,000 12,670 5.70 72,215
Labour (hrs.) 1 4.40 4.40 6,000 4.40 26,400 6,500 (W.N. 1) 4.3 27,950
V OH (hrs.) 1 3 3 6,000 3 18,000 6,500 (W.N. 1) 3.15 20,475

1. Material price variance (S.R. A.R.) A.Q.
(6 5.70) 12,670 3,801 F.
2. Labour Rate Variance (S.R. A.R.) A.Pay.Hr
(4.40 4.30) 6,500 650 F.
3. Variable OH Expenditure Variance (S.R. A.R.) A.W.Hr
(3 3.15) 6,500 975 A.
(12,000 12,670) 6 4,020 A.
5. Labour Efficiency Variance (S. Hr A.W.Hr) S.R.
(6,000 6,500) 4.40 2,200 A.
6. VOH Efficiency Variance (S. Hr A.W.Hr) S.R.
(6,000 6,500) 3 1,500 A.
72,000 72,215 215 A.
26,400 27,950 1,550 A.
9. Variable OH Cost Variance S.C. A.C.
18,000 20,475 2,475 A.
Working Note 1
Calculation of Actual Working Hours
Variable OH Efficiency variable = (S. Hr. A.W.Hr) S.R.
1,500 = (6,000 A.W.Hr) 3
500 = 6,000 A.W.Hr
Actual working hour = 6,000 + 500
= 6,500 Hr.
Question 32: Mr M provide the following information relating to 1,000 units of product ZED during the month
of April, 1993:
Standard price per kg of raw-material `3
Actual total direct material cost ` 10,000
Standard direct labour hours 1,600
Actual direct labour hours 1 ,800
Total standard direct labour cost ` 8,000
Standard variable overhead per direct labour hour `1
Standard variable overhead per unit of ZED ` 1.60
Total standard variable overhead ` 1,600
Actual total variable overheads ` 1,620
The material usage variance is ` 600 adverse and the overall cost variance per unit of ZED is Re. 0.07 adverse as
compared to the total standard cost per unit of ZED of ` 21.
Required: Compute the following
A. Standard quantity of raw material per unit of ZED.
B. Standard direct labour rate per hour.
C. Standard direct material cost per unit of ZED.
D. Standard direct labour cost per unit of ZED.
E. Standard total material cost for the output.
F. Actual total direct labour cost for the output.

G. Material price variance.

H. Labour rate variance.
I. Labour efficiency variance.
J. Variable overhead expenditure variance.
K. Variable overheads efficiency variance.
Note: Key calculation should form part of the answer.
= 6,500 Hr.
Solution:
Statement of Missing Variances
A Standard Quantity of Raw Material/unit 3,800/1,00 in (W.N. 1) 3.8 kg
B Standard Direct Labour Rate/hour 8,000/1,600 (W.N. 1) 5.00
C Standard Direct Material Cost/Unit 11,400/1,000 (W.N. 1) 11.40
D Standard Direct labour Cost/Unit of 2 E.D. 8,000/1,000 (W.N. 1) 8
E Standard total material cost for the output W.N. 1 11,400
F Actual Total Direct labour cost for output W.N. 1 9,450
G Material Price Variance (S.R. A.R.) A.Q
(3 2.5) 4,000 2,000 F.
H Labour Rate Variance (S.R. A.R.) A. Day. Hr. 450 A.
(5 5.25) 1,800
I Labour Efficiency Variance (S. Hr A.W.Hr) S.R.
(1,600 1,800) 5 1,000 A.
J Variable OH Expenditure Variance (S.R. A.R.) A.W.Hr
(1 0.90) 1,800 180 F.
K Variable OH Efficiency Variance (S. Hr A.W.Hr) S.R.
(1,600 1,800) 1 200 A
Working Note 1
Standard/Budget (1,000 FG) Actual (1,000 FG)
Qty. Rate Amount Cost per Unit Qty. Rate Amount Cost per unit
Material 3,800 3 11,400 11.4 (B.f.) 4,000 (W.N. 2) 2.5 10,000 10
Labour Hr. 1,600 5 8,000 8 1,800 5.25 9,450 9.45 (B.f)
V OH Hr. 1,600 1 1,600 1.6 1,800 0.90 1,620 1.62
21 21.07 (W.N. 3)
Working Note 2
Material Usage Variance = (S.Q. A.Q.) S.R.
600 = (3,800 A.Q.) 3
200 = 3,800 A.Q.
A.Q. = 3,800 + 200 = 4,000 kg
Working Note 3
Over all cost variance = S.C. A.C.
0.07 = 21 A.C.
Actual cost = 21 + 0.07
= ` 21.07

Question 33: K Limited uses standard costs and flexible budgets for control purposes. The following information
is given:
1. Standard and budgeted data
The standard material allowed per unit is 4 kg at a standard price of Re. 0.75 per kg.
Budgeted direct labour hours for a four week period were 80,000 hours at a budgeted cost of ` 1,52,000.
Budgeted variable production overhead for 80,000 hours was ` 96,000.
2. Details for four-week period ended 29th April 1988 were:
Incurred: `
Direct wages 1,63,800
Variances:
Direct wages rate, Re 0.20 per hour adverse.
Direct Materials price (Calculated on purchases at time of receipt at Re. 0.05 per kilogram) ` 9,000 favourable.
Direct material usage ` 1,500 adverse.
Variable production overhead ` 2,200 favourable.
Variable production overhead efficiency ` 2,400 adverse Production, 38,000 units. There were no stocks at
beginning of period, but there were 26,000 kg of direct materials in stock at 29th April 1988.
Required: State for the period
The number of kilograms of direct material purchased.
The number of kilograms of direct material used above the standard allowed.
The variable production overhead expenditure variance.
The actual hours worked.
The number of standard hours allowed for the production achieved.
Data for Variance
M 4 0.75 3 1,78,000 0.75 1,33,500 1,80,050 0.7 1,26,000
L 1.9 1.9 78,000 2.1 1,63,800
V O/H 1.2 1.2 78,000
Statement of Required Information

1. Number of kilogram of direct material purchases (W.N. 1) 1,80,000 kg
2. The number of kilograms of direct material used above the standard allowed (W.N. 3) 2,000 kg
3. The variable production overhead expenditure variance (W.N. 4) 4,600 Fav.
4. The Actual Hours Worked (W.N. 1) 7,800 Hrs.
5. The number of standard hours allowed for the production achieved (W.N. 5) 76,000 Hrs.
Direct Wages Paid = 1,63,800

LRV = (SR AR) A Hr = (0.2) Adverse/ Hr.
Bud. Rate = 1.9
Actual Paid = 2.1
Actual Wages = 1,63,800 = 78,000
Hour 2.1
MPV = (SR AR) AQ

= (0.75 0.7) AQ = 9,000

AQ = 1,80,000
MUV = (SQ AQ) SR = (1,500) Adverse.
1500 = (SQ 1,80,000) 0.75
SP = 1,78,000.
V O/H Exp. Variance = V O/H Cost Efficiency
= 220 (2,400) = 4,600 Favorable.
Working Note 1
Calculation of Actual Hours
Budgeted labour cost
Budgeted lab. Rate per hour =
Budgeted Hour
1,52,000
= = Rs. 1.90
80,000
Rate Variance = 0.20 Adverse
Actual Rate = ` (1.90 + 0.20)
= ` 2.10
Actual Wages = ` 1,63,800
Wages 1,63,800
Actual Hours = =
Rate 2.10
= 7,800 Hrs
Working Note 2
Calculation of Actual Quantity Purchased
M.P.V. 9,000 Favourable
(S.R. A.R.) Actual Quantity purchased = 9,000
0.05 A. Quantity purchased = 9,000
9,000
Actual quantity purchased = = 1,80,000Kg
0.05
Working Note 3
Material Usage Variance = 1,500 A.
(S.Q. A.Q.) S.R. = 1,500
Excess quantity consumed S.R. = 1,500
- 1,500
Excess quantity consumed =
0.75
= 2,000 Kg
Working Note 4
Calculation of Variable OH Expenditure Variance
Variable cost variance = V. OH Exp. variance + V. OH. Efficiency Variance
2200 = Expen. variance + (2,400)
V. OH. Expenditure Variance = 4,600 Fav.
Working Note 5
Calculation of Standard Hours

V. OH Efficiency variance = (S. Hr A.W.Hr) S.R.

2,400 = (S.Hr 78,000) 1.2
-2,400
S. Hr = + 78,000
1.2
= 76,000
Question 34: On 1st April, 1998, ZED company began the manufacture of a new electronic gadget. The company
installed a standard costing system to account for manufacturing costs. The standard costs for a unit of the product
are as under:
`
Direct Material (3 kg at ` 5 per kg) 15.00
Direct Labour (0.5 hour at ` 20 per hour) 10.00
Manufacturing Overhead (75% of direct labour cost) 7.50
Total Cost 32.50
The following data was obtained from Zed Companys record for April 1998
Particulars Debit Credit
Sales ` 1,25,000
Sundry Creditor (For purchase of direct ` 68,250
materials in April 1998)
Direct Material Price Variance 3,250
Direct Material Usage Variance 2,500
Direct Labour Rate Variance 1,900
Direct Labour Efficiency Variance 2,000
The actual production in April 1998 was 4,000 units of the gadget, and the actual sales for the month was 2,500
units.
The amount shown above for direct materials price variance applies to materials purchased during April 1998.
There was no opening stock of raw materials on 1st April, 1998.
Required: Calculate for April 1998 the following:
(i) Standard direct labour hours allowed for the actual output achieved.
(ii) Actual direct labour hours worked.
(iii) Actual direct labour rate.
(iv) Standard quantity of direct materials allowed (in kg)
(v) Actual quantity of direct materials used (in kg)
(vi) Actual quantity of direct materials purchased (in kg)
(vii) Actual direct materials price per kg (May 98)
Question 35: A Ltd. has a manufacturing division which makes a product to which the following details relate:
Particulars Per unit
Materials 5 kgs at ` 2 ` 10
Direct labour 12 hours at ` 2 ` 24
Variable overheads 12 hours at ` 1 ` 12
Relevant fixed overhead are budgeted at ` 10,000 per month and planned output is 2,000 units per month. The
selling price is ` 55 per unit.
An incentive scheme is in operation in the division concerned, whereby employees are paid a bonus of 15% of
the standard cost of materials saved and 50% of direct labour time saved values at standard direct labour hour rate.
During a recent month when output was 1,800 units, the following actual results were recorded:

Particulars `
Direct material used (8,500 kg) 17,200
Direct wages (20,000 hours) 42,000
Variable Overhead 22,000
Fixed overhead 9,800
91,000
Net profit 4,000
Sales 95,000
Required:
(a) Calculate the variance, which occurred during the month.
(b) Calculate the total bonus payments to employees in the division.
Solution:
(a) Calculation of Different Variances
(2 2.0235) 8,500 200 Adv.
(9,000 8,500) 2 1,000 F.
(18,000 17,200) 800 F.
4. Labour Rate Variance (S.R. A.R.) A.P.Hr
(2 2.1) 20,000 2,000 A.
5. Labour Efficiency Variance (S.Hr A.W.Hr) S.R.
(21,600 20,000) 2 3,200 F.
43,200 42,000 1,200 F.
7. V OH Expenditure variance (S.R. A.R.) A.W.Hr
(1 1.1) 20,000 2,000 A.
8. Variable OH Efficiency variance (S.W.Hr A.W.Hr) S.R.
(21,600 20,000) 1 1,600 F.
9. Variable overhead cost variance S.C. A.C.
(21,600 22,000) 400 A.
10. Fixed overhead expenditure variance Budget Actual
(10,000 9,800) 200 F.
(9,000 10,000) 1,000 A.
12. Fixed overhead cost variance Recovered Actual
(9,000 9,800) 800 A.
(b) Statement of Bonus

Particulars Amount (`)
(i) 15% of S.C. of Material saved
(S.Q. A.Q) S.C. 15%
(9,000 8,500) 2 15% 150
(ii) 50% of S.C. of lab. Hrs. saved 1,600

50% 2 (21,600 2,000)
Total Bonus payable 1,750

Working Note
Data for Resource Variances
Budgeted Output Recovery Rate Budgeted fixed-overhead Actual Hrs.
(`)
2,000 units ` 5 / unit 10,000 20,000
or or
24,000 hrs. ` 0.4167 / hr.
Standard hrs./units Recovered (`) Actual (`)

21,600 Hrs 9,000 9,800
or (21,600 0.4167)
1,800 units
Question 36: A company manufactures two products X and Y. Product X requires 8 hours to produce while Y
requires 12 hours. In April, 2004, of 22 effective working days of 8 hours a day, 1,200 units of X and 800 units of
Y were produced. The company employs 100 workers in production department to produce X and Y. The budgeted
labour hours are 1,86,000 for the year.
Required: Calculate Capacity, Activity and Efficiency ratio and establish their relationship.
Solution: Statement Showing Different Ratios

Standard Hours 19,200
1. Efficiency Ratio = Actual Working Hours = = 1.0909
17,600
Actual Working Hours 17,600
2. Capacity Ratio = Budgeted Hours = = 1.135
15,500
Standard Hours 19,200
3. Volume Ratio = Budgeted Hours = = 1.238
15,500
Relationship
Volume Ratio = Efficiency Ratio Capacity Ratio
S.Hr A.W.Hr S.Hr
= = = 1.238
A.W.Hr Bud.Hr Bud.Hr
Hence, all ratios provide more than one results. This indicates the favourable position in respect of efficiency as
well as capacity.
Working Note 1
Calculation of Budget Hours per month, Actual working Hours and standard hours.
1,86,000
Budgeted labour Hours = = 15,500 Hours
12
Actual Working Hours = No. of days Hrs Working per days No. of workers
= 22 days 8 Hr./day 100
= 17,600 hours.
Standard Hours = Standard hours for X + Standard Hours for Y
= 12,000 8 + 8,000 12
= 19,200 hours.
Question 37: The following is the information provided by Tulsian Ltd.
Product Budgeted Budgeted Standard Actual Actual Actual

Sales Selling Cost Sales Selling Cost
Quantity Price per unit Per unit Quantity Price per unit Per unit
Units ` Units ` `
A 60 20 15 44 25 16
B 40 10 4 66 5 5

Required:
1. Calculate all the sales variances
(a) on sales value basis
(b) on sales margin value basis
2. Reconcile the standard profit with actual profit.
Solution:
Data for Sales Variance
Product Budgeted Sale Standard Ratio Actual Sale
Qty. Rate Amount (`) for actual mix Qty. Rate Amount (`)
A 60 20 1,200 66 44 25 1,100
B 40 10 400 44 66 5 330
1,600 110 1,430
Statement of Sales Variances

1. Sales Value Variance B.S. A.S.
(1,600 1,430) 170 A.
2. Sales Price Variance (B.S.P.A.S.P.) A.Q.
A (20 25) 44 = 220 F
B (10 5) 66 = 330 A 110 F.
3. Sales Volume Variance (B.Q. A.Q) B.S.P.
A (60 44) 20 = 320 A
B (40 66) 10 = 260 F 60 A.
4. Sales Mix Variance (S.R. for Actual Mix Actual Ratio for Act Mix)
B.S.P.
A (66 44) 20 = 440 A 220 A
B (44 66) 10 = 220 F
5. Sales Yield Variance (S.R. for Bud. Mix Standard Ratio for T.A.
Mix.) B.S.P.
A (60 66) 210 = 120 F
B (40 44) 10 = 40 F 160 F
Reconciliation Statement
Budgeted profit 540
Adjust Sales Variance:
Sales price variance 110 A.
Sales Volume Variance 60 A.
Adjust cost variances:
(1060 1034) 26 F
Actual profit 396
Working Note 1
Statement of Profit
Budget Actual
Sales Value 1,600 Sales Value 1,430
A 60 20 = 1,200 A 44 25 = 1,100
B 40 10 = 400 B 66 5 = 330
Less : Cost (1,060) Less: Cost (1,034)
A 60 15 = 900 A 44 16 = 704
B 40 4 = 160 B 66 5 = 330
Profit 540 Profit 396
Subject to Checking

Question 38: The following in the information given:
Product A Product B
Budgeted Sales Quantity (units) ? 400
Actual Sales Quantity 500 ?
Budgeted Selling Price per unit ` 12 ` 15
Actual selling Price per unit ` 15 `20
Sales Price Variance ? ?
Sales Volume Variance 1200(F) ?
Sales Value Variance ? ?
Required: Compute the missing figure indicated by the question from the above table.
Sales Mix Variance for Both the Products Together was ` 450 (F)
F Denotes Favorable.
Solution:
Statement showing required missing figures
Sl. No. Particulars Basis Figures

1. Budgeted Sales quantity of A W.N. 1 400 Units
2. Actual Sales quantity of B W.N. 1 800 Units
3. Sales price variance (B.P. A.P.) Act. Quantity
A (12 15) 500 = 1,500 F
B (15 20) 800 = 4,000 F ` 5,500 F.
4. Sales Volume Variance of B (B.Q. A.Q.) B.S.P.
(400 800) 15 ` 6,000 F.
5. Sales Value Variance B.S.P. A.S.P.
A 4,800 7,500 ` 2,700 F.
B 6,000 16,000 ` 10,000 F.
Working Note 1
Data for Sales Variances
Qty. Rate Amount (`) Ratio Qty. Rate Amount (`)
A 400 (W.N. 2) 12 4,800 650 500 15 7,500
B 400 15 6,000 650 800 20 16,000
1,300
10,800 1300 23,500
(W.N. 3)
Working Note 2
Calculation of Budgeted Quantity of A
Sales Volume Variance = (B.Q. A.Q.) S.R.
1,200 = (B.Q. 500) 12
100 = B.Q. 500
B.Q. = 100 + 500
= 400
Working Note 3
INCOMPLETE
Act be total Actual mix of product A and B.

Sales Mix Variance = 450 F.

(S.R. for Actual Mix Actual Ratio Actual Mix) B.S.P. = 450
(0.5x 500) 12 + [0.5 (x 500)] 15 = 450
6x 6,000 + 7.5x 15x + 7,500 = 450
13.5x 15x = 450 + 6,000 7,500
1.5x = 1,950
1,900
_____
x =
1.5
Question 39: Stand Cost Corporation produces three products: A, B and C. The master budget called for the sale of
10,000 units of A at ` 12. 6000 units of B at ` 15 and 8,000 units of C at ` 9. In addition, the standard variable cost for
each product was ` 7 for A, ` 9 for B and ` 6 for C. In fact, the firm actually produced and sold 11,000 units of A at `
11.50, 5,000 units of B at ` 15.10 and 9,000 units of C at ` 8.55.The firm uses two input to produce each of the products
X and Y. The standard price per unit of material X is ` 2 and for a unit of material Y is Re 1. The materials budgeted
to be used for each product were:
Materials
Products X Units Y Units
A 2 3
B 4 1
C 1 4
The firm actually used 54,000 units of X at a cost of ` 1,09,620 and 72,000 units of Y at a cost of ` 73,000.
Required: Determine the mix, quantity and rate variances for sales as well as the yield, mix and price variance
for materials.
Solution:
Sales Variances (Sale Value Method)
Budgeted Sales Actual Sales
Product Qty. Rate (`) Amount (`) Oty. Rate Amount (`) Actual
Units Units (`) Quantity
Budgeted Price
A 10,000 12 1,20,000 11,000 11.50 1,26,500 1,32,000
B 6,000 15 90,000 5,000 15.10 75,500 75,000
C 8,000 9 72,000 9,000 8.55 76,950 81,000
24,000 2,82,000 25,000 2,78,950 2,88,000
Computation of Sales Variances:

(1) Sales Value Variance = Actual Sales Budgeted Sales
= ` 2,78,950 ` 2,82,000 = ` 3,050(A)
(2) Sales Price Variance = Actual quantity (Actual price Budgeted price)
= ` 2,78,950 ` 2,88,000 = ` 9,050(A)
(3) Sales Quantiy Variance = Budgeted price (Actual Qty. Budgeted Qty.)
= ` 2,88,000 ` 2,82,000 = ` 6,000 (F)
(4) Sales Mix variance = Total actual Qty. (Budgeted price of actual mix budgeted price of budgeted mix)
` 2,88,000
___________ ` 2,82,000
___________
= 25,000 = 25,000 units ` 11.52 ` 11.75)
25,000 units 24,000 units
= ` 5,750(A)
(5) Sales Sub Quantity Variance = Budgeted price of budgeted mix
(Total actual quantity Total budgeted qty.)
= ` 11.75 (25,000 -24,000)
= ` 11.750(F)

Check
Sales Value Variance = Sales price variance + Sales quantity variance
` 3,050(A) = ` 9,050(A) + ` 6,000(F)
Sales Quantity Variance = Sales mix variance + Sales sub-quantity variance
` 6,000(F) = ` 5,750(A) + ` 11,750(F)
Alternative Solution (Sales Margin Method)
Basic Calculation:
Actual Margin Actual Quantity X
Budgeted Margin
Budgeted Margin
Qty. Rate Amount Qty. Rate Amount
Product `
Units ` ` Units ` `
A 10,000 5 50,000 11,000 4.50 49,500 55,000
B 6,000 6 36,000 5,000 6.10 30,500 30,000
C 8,000 3 24,000 9,000 2.55 22,950 27,000
24,000 1,10,000 25,000 1,02,950 1,12,000
Computation of Variance:
Sales margin variance = Actual margin Budgeted margin
= ` 1,02,950 ` 1,10,000
= ` 7,050(A)
Sales price margin variance = Actual quantity (Actual margin Budgeted margin)
= ` 1,02,950 ` 1,12,000 = ` 9,050(A)
Sales margin mix variance = Total actual quantity (Budgeted margin of actual mix budgeted margin of
budgeted mix)
= 25,000 units
___________
(
` 1,10,000
` 1,12,000 ___________
25,000 units 24,000 units )
= ` 2,583 (A)
Sales margin sub quantity variance = Budgeted margin of budgeted mix X
(Total actual Qty. Total budgeted qty.)
` 1,10,000
___________
= (25,000 units 24,000 units)
24,000 units
= ` 4,583(F)
Material Variances:
Basic Calculations
Standard and actual costs of material for actual output, i.e. 11,000 units of A, 5,000 units of B and 9,000 units of C
and standard cost of actual input material.
Actual quantity
Standard Cost Actual Cost
Standard price
Material
Qty Rate Amount Qty. ` Rate Amount
Units ` ` Units `
X 51,000 2 1,02,000 54,000 1,09,620 1,08,000
Y 74,000 1 74,000 72,000 73,000 72,000
1,25,000 1,76,000 1,26,000 1,82,620 1,80,000
11,000 2 + 5,000 4 + 9,000 1 = 51,000

11,000 3 + 5,000 1 + 9,000 4 = 74,000

Computation of variances:
Material cost Variance = Standard cost Actual cost
= ` 1,76,000 1,82,620 = ` 6,620 (A)
Material Price variance = Actual quantity (Standard price Actual price)
= ` 1,80,000 ` 1,82,620 = ` 2,620(A)
Material mix variance = Total quantity (Standard price of standard mix Standard price of actual mix)
= 1,26,000 units ( ` 1,76,000

____________
1,25,000 units

` 1,80,000
____________
)
1,26,000 units
= ` 2,592(A)
Material yield variance = Standard price of standard mix X

(Total standard quantity Total actual quantity)
` 1,76,000
____________
= (` 1,25,000 ` 1,26,000)
1,25,000 units
= ` 1,408 (A)
Check:
Material Cost Variance = Material price variance + Material mix variance + Material yield variance
` 6,620(A) = ` 2,620(A) + ` 2,592(A) +` 1,408(A)
Question 40: Ravi, Richard, Rahim and Roop Singh are regional salesmen distributing the product of Super Perfumes
Ltd. The selling price of the product is ` 400 per unit. The sales quota and the standard selling expenses for the year
are:
Sales man Sales Quota Standard selling exp.
` `
Ravi 7,50,000 2,25,000
Richard 9,00,000 2,47,500
Rahim 11,50,000 2,87,500
Roop Singh 6,00,000 2,25,000
Actual data for the year were as follows:

Ravi Richard Rahim Roopsingh
Days on field work 200 175 225 250
km covered 20,000 18,000 18,000 30,000
` ` ` `
Sales 8,00,000 10,00,000 10,50,000 5,20,000
Salary 80,000 80,000 80,000 80,000
Free Samples 9,000 7,500 5,375 8,000
Post and Stationary 8,000 9,000 10,000 6,000
Other expenses. 9,000 5,000 4,000 10,000
The salesmen are allowed conveyance allowance of ` 1.50 per km and a daily allowance of ` 80 per day for the
days spent on fieldwork. Ravi gets a commission of 6% on sales and others are given a commission of 5% on sales.
Corporate sales office expenses are chargeable at the rate of ` 30 per unit sold in the case of Ravi and Richard and
` 40 per unit in the case of Rahim and Roop Singh.
Required: Prepare a schedule showing the selling cost variances by salesmen.

Solution
Working Note:
Particulars Ravi Richard Rahim Roop Singh
(1) Standard sales units: 1,875 2,250 2,875 1,500
Sales quota/` 400
(ii) Standard selling expenses per unit(`) 120 110 100 150
(std. selling expenses/Std. sales units)
(iii) Actual sales units: 2,000 2,500 2,625 1,300
Actual sales/`, 400
(iv) Actual selling costs ` ` ` `
Daily allowance 16,000 14,000 18,000 20,000
Conveyance allowance 30,000 27,000 27,000 45,000
Salaries 80,000 80,000 80,000 80,000
Free samples 9,000 7,500 5,375 8,000
Postage and stationery 8,000 9,000 10,000 6,000
Other expenses 9,000 5,000 4,000 10,000
Commission on sales 48,000 50,000 52,500 26,000
Corporate sales office expenses 60,000 75,000 1,05,000 52,000
Total actual selling cost 2,60,000 2,67,500 3,01,875 2,47,000
(v) Standard selling cost 2,40,000 2,75,000 2,62,500 1,95,000
(Actual units sold Std. selling expenses per unit)
Since all the selling expenses have been related to sales units, only one variance can be calculated by comparing
the standard and actual selling costs as is shown in the schedule below:
Schedule showing the selling cost variance by salesman
Ravi Richard Rahim Roop Singh Total

Particulars ` ` ` ` `
Standard selling 2,40,000 2,75,000 2,62,500 1,95,000 9,72,500
Expenses (Refer to Working Note (v)
Actual Selling
Expenses (Refer to Working Note (iv) 2,60,000 2,67,500 3,01,875 2,47,000 10,76,375
Selling cost variance (20,000) 7,500 (39,375) (52,000) (1,03,875)
(A) (A) (A) (A) (A)
A = Adverse
F = Favourable = 1,300
Question 41: Global Ltd is engaged in marketing of wide range of consumer goods, A, B, C and D are the zonal
sales officers for four zones. The company fixes annual sales target for them individually.
You are furnished with the following:
1. The Standard costs of sales target in respect A, B, C and D are ` 5,00,000, ` 3,75,000, ` 4,00,000 and `
4,25,000, respectively.
2. A, B, C and D respectively earned ` 29,900, ` 23,500, ` 24,500 and ` 25,800 as commission at 5% on
actual sales affected by them during the previous year.
3. The relevant variances, as computed by a qualified cost accountant, are as follows:
Particulars A B C D
Sales price variance 4,000 (F) 6,000(A) 5,000(A) 2,000(A)
Sales Volume variance 6,000(A) 26,000(F) 15,000(F) 8,000(F)
Sales margin mix variance 14,000(A) 8,000(F) 17,000(F) 3,000(A)
= Adverse variance and (F) = Favorable variance.

Required:
1. Compute the amount of sales target fixed and the actual amount of contribution earned in case of each of the
zonal sales officer.
2. Evaluate the overall performance of these zonal sales officers taking three relevant base factors and then
recommend whose performance is the best.
Solution:
Statement of Zone-Wise Sales Target Fixed and the Actual Amount of Contribution Earned
Particulars (`000)
Zonal Sales Officers A B C D
Commission Earned 29.9 2.523.5 24.5 25.8
Actual Sales (Commission earned 100/5) 598 470 490 516
Sales Price Variance 4(F) 6(F) 5(A) 2(A)
Sales Volume Variance 6(A) 26(F) 15(F) 8(F)
Sales 600 450 480 510
Target Budgeted Sales
Standard Cost of Sales Target 500 375 400 425
Standard Budgeted Margin 100 75 80 85
Sales Margin Mix Variance 14(A) 8(F) 17(F) 3(A)
Sales Price Variance 4(F) 6(A) 5(A) 2(A)
90 77 92 80
Note: The problem does not provide information about sales margin quantity variance. Hence, for computing actual
contribution the sales margin variances has been assumed to be zero.
Evaluation of the Performance
Base Factor Zonal Sales Officers
A B C D
1. Efficiency in achieving target sales:
(a) Whether target achieved No Yes Yes Yes
Actual Sales 598100 470100 490100 516100
Target Sales 600 450 480 510
ActualSales to Target Sales Ratio 99.67 104.4 102.08 101.18
Ranking IV I II III
2. (a) Contribution earned
(in `000) 90 77 92 80
(b) Ranking II IV I III
3. (a) Standard Margin
Sales Target Ratio 16.67 16.67 16.67 16.67
(b) Actual Margin (i)
(c) Actual Sales Ratio(%) 15.05 16.38 18.78 15.50
(d) Ranking IV II I III
(e) Recommendation: The above review of performance of four officers based on three base factors, clearly
depicts that the performance of Mr C is the best.
Statement Zone-Wise Target Fixed and the Actual
Amount of Contribution Earned
1. Efficiency in achieving target sales: A B C D
(A) Whether target achieved No Yes Yes Yes
Actual Sales 598100 470100 490100 516100

Target Sales 600 450 480 510

ActualSales to Target Sales Ratio 99.67 104.4 102.08 101.18
Ranking IV I II III
2. (a) Contribution earned
(in `000) 90 77 92 80
(b) Ranking II IV I III
3. (a) Standard Margin
Sales Target Ratio 16.67 16.67 16.67 16.67
(b) Actual Margin (i)
(c) Actual Sales Ratio(%) 15.025 16.38 18.78 15.50
(d) Ranking IV II I III
Question 42: Goodwill Ltd. manufactures readymade shirts of a specific quality in lots to each special order from
its overseas customers.
The standard costs for one dozen of shirts are:
`
Direct material (24 metres @ ` 11) 264
Direct labour (3 hours @ ` 49) 147
Overheads (3 hours @ ` 40) 120
Standard cost per dozen 531
During July, 1993 it worked on three orders, for which the months job cost records show the following:
Lot No. Units Materials Used Hours Worked
45(UK) 1,700 Doz. 40,440 meters 5,130
46(US) 1,200 Doz. 28,825 meters 2,890
47(CAN) 1,000 Doz. 24,100 meters 2,980
Additional Information:
(a) The company bought 95,000 m of material during July at a cost of ` 10,64,000. The material price variance
is recorded when materials are purchased. All inventories are carried at cost.
(b) Direct labour during July amounted to ` 5,50,000. The employees were paid at ` 50 per hour.
(c) Overheads during the month amounted to ` 4,56,000.
(d) A total of ` 57,60,000 was budgeted for overheads for the year 1993-94, based on estimated production of
the plants normal capacity of 48,000 dozen shirts annually.
Overheads at the level of production are 40% fixed and 60% variable. Overhead is applied on the basis of
direct labour hours
(e) There was no work in progress at the beginning of July. During July, lot numbers 45 and 47 were completed.
All materials were issued for lot number 46 which was 80% complete as regards conversion.
Required:
(A) Computation of standard cost of production of the shirts per dozen as well as in total for lot numbers 45,46
and 47.
(B) Find out the variation in quantity of material used and labour hours worked for each lot as well as in total.
(C) Calculate the material price variance; labour rate variance; variable overhead efficiency variance and fixed
overheads volume variance.

Solution:
Computation of Standard Cost of Producing of Shirts per Dozen as
well as in Total (Lot Nos. 45, 46, 47)
Lot No. Cost per Dozen (`) Dozens Total Standard Cost (`)
45(UK) 531 1,700 9,02,700
46 (Us) 477.60 (in Progress) 1,200 5,73,120
47(CAN) 531 1,000 5,31,000
TOTAL 20,06,820
Cost of Lot No. 46
(Material100% complete) ` 264.00
Conversion cost (Labour and Overhead 80% complete) ` 213.60
` 477.60
Statement of Variation Between Standard
Quantity of Material and Actual Quantity of Material
Used for Each Lot as well as in Total
Lot No. Output in Dozens Std. Qty (in Mtrs.) Total Std. Qty Total Actual Qty Variations
Per dozen (in Mtrs) (in mtrs) (in Mtrs)
1 2 3 4=23 5 6=54
45 (UK) 1,700 24 40,800 40,440 360(F)
1,200 24 28,800 28,285 25(A)
1,000 24 24,000 24,100 100(A)
Total variation 93,600 93,365 235(F)
Statement of Variation between Standard Labour Hours and Actual Labour Hours Workers for Each Lot As Well
As in Total
Lot No. Output in Dozens Std. Labour Hour Total Std. Total Actual Variations
Per dozen Labour Hour Labour Hours (in Hours)
1 2 3 4 5 6=54
45(UK) 1,700 3 5,100 5,130 30(A)
46 (US) 1,200 3 2,880 2,890 10(A)
47(CAN) 1,000 3 3,000 2,980 200(F)
Total variation 10,980 11,000 20(A)
(C) Material Price Variance = Actual Qty ( Standard Rate Actual Rate)
` 10,64,000
__________
at the Point of Purchase = 95,000 m ` 11 m
9,50,000
= ` 10,45,000 ` 10,64,000
= ` 19,000 (A)
Labour Rate Variance = Actual hours (Standard rate Actual rate)
= ` 11,000(A)
Variable Overhead = Std. Variable Overhead Rate (Std. Hours for Actual
production efficiency variance Actual Hours)
= ` 24 (10,980 11,000)
= ` 480 (A)
Standard Variable Overhead Rate per hour = 60% of ` 40 = ` 24
Fixed Overhead volume Variance = Standard Fixed Overhead Rate per hour (Std. Hours for
Actual Production Budgeted Hours)
= ` 16 (10,980 hours 12,000hours)
= ` 16,320
(A) = Adverse (F) = Favourable
Standard Fixed Overhead Rate per hours = 40% of ` 40 ` 16.

Question 43: A company manufacturing two products uses standard costing system. The following date relating to
the month of October have been furnished to you:
Products
Particulars
A (`) B (`)
Standard cost per unit:
Direct Materials 2 4
Direct Wages 8 6
Fixed Overheads 16 12
26 22
Unit processed/ In Process:
Beginning of the month: 4,000 12,000
End of the month : All materials applied
And 80% complete in respect of labour and overheads 8,000 12,000
Units completed and transferred to ware house during the month 16,000 20,000
The following were the actual costs recorded during the month:
Direct Materials purchased at standard price amount to ` 2,00,000 and the actual cost of which is ` 2,20,000.
Direct materials used for consumption at standard price amount to ` 1,75,000. Direct wages for actual hours worked
at standard wage rates were ` 4,20,000 and at actual wage rates were ` 4,12,000. Fixed overheads budgeted were
` 8,25,000 and the actual fixed overheads incurred were ` 8,50,000.
Required: Calculate the following for the month of October.
(i) Direct materials price variance at the point of consumption and at the point of purchase.
(ii) Direct materials usage variance.
(iii) Direct wages rate variance.
(iv) Direct wages efficiency variance.
(v) Fixed overheads expenditure variance.
(vi) Fixed overheads volume variance.
(vii) Standard cost of work-in-progress at the end of the month.
Solution:
Working Note 1
Statement of Equivalent Production (FIFO)
Material Labour
Product A Opening W.I.P. 4,000 Opening W.I.P. 4,000 2,000
(100%, 50%) Current 12,000 12,000 12,000
Introduced 20,000 Transferred 16,000
Closing W.I.P. 8,000 8,000 6,400
(100%, 80%)
24,000 24,000 20,000 20,400
Product B O.P. W.I.P. 12,000 O.P. W.I.P. 12,000 6,000
Introduced 20,000 Current 8,000 8,000 8,000
Transferred 20,000
W.O.W.I.P. 12,000 12,000 9,600
32,000 32,000 20,000 23,600
Working Note 2
Let per kg of material = ` 1/kg
Labour Rate = ` 1/hr.

Particulars Product A Product B

Material 2 kg 1 = 2 4 kg 1 = 4
Labour 8 hr 1 = 8 6 hr 1 = 6
Overhead 8 hr 2 = 16 6 hr 2 = 12
Working Note 3
Data for Resource Variance (A and B)
Material Qty. Rate Amount Qty. Rate Amount Qty. Rate Amount
(`) (`) (`)
A 2 kg 2 kg 20,000
= 40,000 kg
B 4 kg 4 kg 20,000
= 80,000 kg
6 kg 1 6 1,20,000 kg 1 1,20,000 1,75,000 kg 1.1 1,92,500
Labour
A 8 Hr 8 20,400
B 6 Hr 6 23,600
14 Hr 1 14 3,04,800 1 3,04,800 4,20,000 0.921 4,12,000
Working Note 4
Data for Fixed Overhead Variance
Budgeted Hour Recovery Rate Budgeted Overhead Actual Working Hrs.
4,12,500 2 8,25,000 4,20,000
Standard Hr. for Actual Output Recovered Actual Overhead

3,04,800 3,04,800 2 = 6,09,600 8,50,000
1. Material Price Variance (S.P. A.P.) A.Q.Pur.

(a) At the time of purchase (1 1.10) 2,00,000
(S.P. A.P.) A.Q. Consumed 20,000 A.
(b) At the time of consumption (1 1.10) 1,75,000
17,500 A.
(1,20,000 1,75,000) 1 55,000 A.
3. Wages Rate Variance (S.R. A.R.) A.P.Hr
(1 0.981) 4,20,000 8,000 F.
4. Wages Efficiency Variance (S.Hr. A.W.Hr) S.R.
= (3,04,800 4,20,000) 1 1,15,200 A.
5. Fixed overhead Expenditure variance Budget Actual
8,25,000 8,50,000 25,000 A.
6. Fixed overhead Volume Variance Recovered Budget
6,09,600 8,25,000 2,15,400 A.
7. Standard cost of work in progress at the end A. [[2X100% + (8+16) 80%] 8000 1,69,600
of month
B. [[4X100% + (6+12) 80%] 12,000 2,20,800
Question 44: File and Smile Associates undertake to prepare income tax returns for individual for a fee. Their
advice to their clients is to pay the proper tax and relax. In order to arrive at the proper scales of fees and assess their

own performance, they have a good system. They use the weighted average method and actual costs for financial
reporting purposes. However for internal reporting they use a standard cost system. The standards on equivalent
performance have been established as follows:
Labour per return 5 hrs @ ` 40 per hour
Overhead per return 5 hrs @ ` 20 per hour
For March 1988 performance, budgeted overhead is ` 98,000 for the standard labour hours allowed.
The following additional information pertains to the month of March 1988.
March 1 Return in Process(25% complete) 200 Nos.
Return started in March 825 Nos.
March 31 Return in Process ( 80% complete) 125 Nos.
Cost Data
March1 Return in Process
Labour ` 12,000
Overheads 5,000
March 1 to 31 Labour ( 4,000 hrs) 1,78,000
Overhead 90,000
Required: Compute
(a) For each cost element equivalent units of performance and the actual cost per equivalent unit.
(b) Actual cost of return in process on March 31.
(c) The standard cost per return and
(d) The total labour rate and labour efficiency variance as well as total overhead volume and overhead budget
variances.
Solution:
(a) Statement of Cost (Weighted Avg.)
Labour Overhead
Current 1,78,000 90,000
Opening Cost 12,000 5,000
Total A 1,90,000 95,000
Qty. (WN1) B 1,000 1,000
Rate (` PU) A B 190 95
(b) Calculation of Actual cost of closing W.I.P.

Labour 190 100 19,000
Overhead 95 100 9,500
28,500
(c) Standard Cost

Labour 5 Hr 40 200
Overhead 5 Hr 20 100
300
(d) Statement of Variances

1. Labour Rate Variance (S.R. A.R.) A.P.Hr
18,000 A
1,78,000
40 4,000 4,000


2. Labour Efficiency Variance (S.Hr A.W.Hr) S.R.

(4,750 4,000) 40 30,000 A
3. Overhead Volume Variance Received Budget
95,000 98,000 3,000 A
4. Overhead Budget/Expenditure Variance Budget Actual
98,000 90,000 8,000 F.
Working Note 1
Statement of Equivalent Production (Weighted Avg. Method)
Particulars Lab. OH
OP. W.I.P. 200 Transferred 900 900 900
Units Started 825 Clo. W.I.P. (80%) 125 100 100
1,025 1,025 1000 1000
Working Note 2
Statement of Equivalent Production (FIFO) for Variance Analysis
Labour Overhead
OP. W.I.P. (25 k) 200 OP. W.I.P. 200 150 150
Current 700 700 700
Units Started 825 Transferred 900
Clo. W.I.P. (80%) 125 100 100
1,025 1,025 950 950
Working Note 3
Budgeted Hour Recovery Rate Budgeted Fixed OH A.W.Hr
49,000 20 98,000 4,000
Standard Hour Recovered Actual Overhead

5 Hr 950 = 4,750 4,750 20 = 95,000 90,000
Question 45 (Standard Process Costing including Reconciliation Equivalent production FIFO method): A processing
company uses Standard Process Costing method. The standard process cost card is as follows:
` per kg of finished product
Direct mat.-2 kg @ ` 10 per kg 20
Direct labour- 3 hrs @ ` 20 per hour 60
Fixed overhead (Recovered on labour hours) 90
Total 170
Budgeted output for the period is 1,000 kg
Actual production and cost data for the period are as follows:
Actual production from Current Input 950 kg
Direct material 2900 kg at ` 32.000
Direct labour 3300 at ` 68,000
Fixed overheads ` 88,000
Stocks:
Op.W.I.P. 250 kg Degree of completion: Material-100% Labour and overhead 60%. Closing W.I.P 450 kgs.
Degree of completion: Material-100%, Labour and overheads 20% . Finished Stock-1,200 kgs.
The company uses FIFO method for valuation of stocks.

Required: Computation of cost variances in as much detail as possible and process Cost Reconciliation
statement.
Solution:
(10 11.034) 2,900 3,000 A.
(2,800 2,900) 10 1,000 A.
28,000 32,000 4,000 A.
4. Labour Rate Variance (S.R. A.R.) A. Pay. Hr
(20 20.60) 3,300 2,000 A.
5. Labour Efficiency Variance (S. Hr A.W.Hr) S.R.
(3,420 3,300) 20 2,400 F.
68,400 68,000 400 Fav.
7. Fixed OH Volume Variance Recovered Budget
1,02,600 90,000 12,600 F.
8. Fixed Overhead Efficiency Variance (S.Hr. A.W.Hr) S.R.
(3,420 3,300) 30 3,600 F.
9. Fixed Overhead Capacity Variance (A.W.Hr Bud. Hr) R.R.
(3,300 3,000) 30 9,000 F.
10. Fixed Overhead Expense Variance Budget Actual
90,000 88,000 2,000 F.
11. Fixed OH Recovered Actual
Cost Variance 1,02,600 88,000 14,600 F.
Working Note 1
Statement of Equivalent Production (FIFO)
Material Lab OH
OP. W.I.P. (100%, 250 Opening 250 100
60%) Current 950 950 950
Transferred 1,200
Introduced 1,400
Clo. W.I.P. (80%) 450 450 90
1,650 1,650 1,400 1,140
(Actual output for (Actual output for
mat.) labour)
Working Note 2
Standard Actual
Qty. Rate Amount (`) Qty. Rate Amount (`)
Material (kg) (1,400) 2,800 10 28,000 2,900 11.034 32,000
Labour (1,140) 3,420 20 68,400 3,300 20.60 68,000
Working Note 3
Budgeted Hour Recovery Rate Budgeted Fixed OH Actual Working Hour
3,000 (3 Hr 1,000) 30/- 90,000 (90 1,000) 3,300

Standard Hour Recovered Actual Overhead

3,420 (3 Hr 1140) 1,02,600 88,000
Question 46: A single product company has prepared the following cost sheet based on 8,000 units of output per
month:
`
Direct Materials 1.5 kg @ ` 24 per kg 36.00
Direct Labour 3 hrs @ ` 4 per hr 12.00
Factory Overheads 12.00
Total 60.00
The flexible budget for factory overheads is as under:
Output (units) 6,000 7,500 9,000 10,500
Factory Overheads ` 81,600 92,400 1,03,200 1,14,000
The actual results for the month of October 2002 are given below:
Direct Materials Purchased and consumed were 11,224 kg at ` 2,66,570.
Direct Labour hours worked were 22,400 and Direct Wages paid amounted to ` 96,320.
Factory overheads incurred amounted to ` 96,440 out of which the variable overhead is ` 2.60 per Direct Labour
hour worked.
Actual output is 7,620 units.
Work-in-process:
Opening WIP 300 units
Materials 100% complete
Labour and Overheads 60% complete
Closing WIP 200 units
Materials 50% complete
Labour and Overhead 40% complete
Required: Analyze the variances.
Solution:
(`)
(24 23.75) 11,224 2,806 F.
2. Material Usage Variance (S.Q. A.Q.) S.P.
(11,130 11,224) 24 2,256 A.
2,67,120 2,66,570 550 F.
4. Variable Overhead Price Variance (S.R. A.R.) A.W.Hr
???? 4,480 A
5. Variable Overhead Expenditure Variance (S.Hr A.W.Hr) S.R.
(22,560 22,400) 2.4 384 F.
6. Fixed overhead expenditure variance Budget Actual
38,400 38,200 200 F.
36,096 38,200 2,304 A.
8. Fixed overhead efficiency variance (S.Hr A.W.Hr) S.R.
(22,560 22,400) 1.6 256 F.

9. Fixed overhead capacity variance (Bud. Hr. A.W.Hr) S.R.

(24,000 22,400) 1.6 2,560 A.
10. Labour rate variance (S.R. A.R.) A.Pay.Hr
(4 4.3) 22,400 6,720 A.
11. Labour efficiency variance (S.Hr A.W.Hr) S.R.
(22,560 22,400) 4 640 F.
Working Note 1
Calculation of Variable OH Rate per unit
Change in overhead 92,400 81,600 10,800
Variable overhead per unit = = 7.2
Change in output = 7,500 6,000
=
1,500
Working Note 2
Statement of Equivalent Production
Particulars Material Lab OH
OP. W.I.P. (100%, 60%) 300 Opening 300 100
Current 7,320 950 950
Transferred 7,600
Introduced (B.f) 7,520 Clo. W.I.P. 200 100 80
(50%, 40%)
7,820 7,820 7,420 7,520
Working Note 3
Particulars Standard Actual
Material 7,420 1.5 = 11,130 24 2,67,120 11,224 23.75 2,66,570
Labour 7,520 3 = 22,560 4 90,240 22,400 4.3 96,320
Variable overhead 7.2
7,520 3 = 22,560 = 2.4 54,144 22,400 2.60 58,240
3
Working Note 4
Budgeted Hour Recovery Rate Budgeted fixed overhead Actual working hour
4.8
24,000 Hr (1,000 3) = 1.6 ` 38,400 22,400
3
Standard Hour Recovered Actual Fixed OH

22,560 (3 Hr 7,520) 22,560 1.6 = 36,096 96,440 58,240 = 38,200
Question 47: Standard cost sheet per unit of output is as under

Direct material 3 Pcs. @ ` 2.15 ` 6.45
Direct labour:
Dept A 2 hrs @ ` 1.75 3.50
Dept B 4 hrs @ ` 1.50 6.00 ` 9.50
Overheads:
Dept. A 2 hrs @ ` 0.50 1.00
Dept B 4 hrs @ ` 1.00 4.00 ` 5.00
Total ` 20.95

Transactions for the period are as under:

Materials purchased and consumed:
8,600 pcs. @ ` 2.50 each
Labour Time Spent
Dept. A. 5,200 hours
Dept. B. 12,000 hours
There is no change in labour rates:
Actual factory overheads are:
Dept. A. ` 3,000
Dept. B. ` 12,500
Units produced:
Dept. A. 2,800
Dept. B. 2,800
Budgeted overheads:
Dept. A. ` 3,000
Dept. B. ` 12,000
Pass the necessary Journal Entries to record the above transactions under single plan.
Required: Show the Standard Cost Card.
(b) Show the journal entries to record the transactions and disposal of the variances Narrations are not required
for journal entries).
Show (i) The Material Control Account (ii) The Work-in-progress Control Account.
Solution:
Journal Entry (Under Single Plan) in Department A
1. Material Control A/C Dr (S.R. A.Q) 18,490

Material Price Variance A/c Dr (S.R. A.R.) A.Q. 3,010
To creditors A/c 21,500
(Being Material purchased)
2. Creditors A/c Dr 21,500
To Bank 21,500
3. W.I.P. Control A/c Dr (S.Q. A.R.) 18,060
Material Usage Variance A/c. (S.Q. A.Q.) A.R. 430
To Material control A/c. (A.Q. A.R.) 18,490
(Being goods issued to production)
4. Wages Control A/c. Dr (S.R. A.W.Hr) 9,100
To wages payable A/c. (S.R. A.P.Hr) 9,100
(Being labour expenses due)
5. Wages payable A/c. Dr 9,100
To Bank A/c. 9,100
6. W.I.P. control A/c Dr. 9,800
To wages control A/c 9,100
To labour Efficiency variance A/c. 700
7. W.I.P. Control A/c Dr 2,800
Overhead cost variance A/c Dr 200
To Bank 3000
8. Department B A/c 30,660
To W.I.P. Control A/c 30,660
(Being balance of W.I.P. Control A/c of department A transferred to department B)

In Department B Journal Entry

1. W.I.P. Control A/c Dr 30,660
To Department A A/c. 30,660
2. Wages Control A/c Dr 18,000
Labour Rate variance A/c Dr NIL
To wages payable A/c 18,000
3. Wages Payable A/c Dr 18,000
To Bank 18,000
4. W.I.P. control A/c Dr. 16,800
Labour Efficiency variance A/c Dr 1,200
To wages control A/c 18,000
5. W.I.P. control A/c Dr 11,200
Overhead cost variance A/c Dr 1,300
To Bank 12,500
Question 48 (Incomplete Ledger-Variance Analysis Missing Figures): Upasana Ltd. manufactures paint. It uses
a standard costing system and the variances are reported to the management on fortnightly basis. A fire destroyed
some important records of the company. You have been able to collect the following information for a fortnight from
the spoiled papers/records as a result of consultation with accounting personnel:
(a) The paint required two types of raw materials RM1 and RM2.The standard quantity of RM2 in final
product is 5 liters and standard cost thereof is ` 36 per liter.
(b) The company purchased 200 kg of RM1 and 550 liters of RM2 during that fortnight .
(c) The standard wage rate is ` 24 per labour hour. Actual labour hours were 460 during that fortnight.
(d) Variances as disclosed from some spoiled papers are:
i. Price variance (RM2) ` 1,320 (A)
ii. Usage variance (RM1) ` 240 (F)
iii. Labour efficiency variance ` 1,440 (A)
iv. Some incomplete ledger entries for the fortnight reveal
` `
1. Sundry Creditors Purchase of raw materials 25,440
2. RM2
Opening balance 3,600 Closing balance 8,280
3. RM1
Opening balance 0 3,600
Closing balance 1,200
4.Works-in progress
Opening balance 0
RM2 14,400 Closing balance 0
5. Wages
Paid and outstanding 10,350
Required: Compute meaningful variances to be presented to the management.

Solution:
Key computation for ascertaining missing figure:
1. Standard cost of RM2 in one unit of final product .
5 l at ` 36 = ` 180
14,400
______
Actual output of point = = 80 units of paint.
180

2. Standard quantity of RM 2 required for production of 80 units of paint.

80 5 = 400 l or 14,400 / 36 = 400 l
3. AQ of RM 2 purchased =550 l
Opening balance 3,600 /36 = 100 l
Add: Purchased 550
650
Less: Closing balance 8,280/36 = 230
AQ of RM 2 consumed = 420 l
4. Actual rate per liter of RM 2
This can be ascertained by means of price variance.
Price variance = AQ (SR AR )
1,320 A = 550 (36 AR )
Less: 1,320 = 19,800 550 AR
19,800 + 1,320
_____________
AR = = ` 38.40 per l
550
1. Standard Rate per kg. of RM 1
i.e., ` 4,800/200 kg = ` 24 per kg of RM 1
2. AQ of RM 1 issued to production of 80 units of paint. This can be ascertained by means of usage variance of RM
1.
Usage variance = SR (SQ AQ)
240 = 24 (SQ 150)
240 = 24 SQ 3,600
3,600 + 240
__________
SQ = = 160 kg
24
8. Actual Rate per kg. of RM 1.
Total cost of purchase of Raw materials = 25,440
Less: Actual purchase cost of RM 2 = 550 38.40 = 21,120
Actual purchase cost of RM 1: 200 kg = 4,320
Actual Rate per kg of RM 1 = ` 4,320 / 200 kg = ` 21.60 per kg
9. Actual Rate per labour hour = ` 10,350 / 460 hours
= ` 22.50 per labour hour.
10. SH for actual production of 80 units of paint:
This can be ascertained by means of labour Efficiency Variance (LEV).
LEV = SR (SH AHP)
1,440 A = 24 (SH 460)
() 1,440 = 24 SH 11,040
11,040 + 1,440
_____________
SH = = 400
24
Solution: 1. Material Variances:
SC ` AC `
RM 1. 160 kg at ` 24 = 3,840 RM 1. 150 kg. at ` 21.60 3,240
RM 2. 400 litres at ` 36 = 14,400 RM 2. 420 38.40 16,128
18,240 19,368
(a) Price Variance = AQ (SR AR) RM 1 = 150 (24 21.60) = 360 F
RM 2 = 420 (36 38.40) = 1.008 A
` 648 A
(b) Usage Variance = Sr (SQ AQ)

RM 1 = 24 (160 150) = 240 F

RM 2 = 36 ( 400 420) = 720 A
480 A
(c) Material Cost Variance (MCV) = SC AC
18,240 19,368 = ` 1,128 A
Reconciliation : MCV = price V + usage V.
1,128 A = 648 A + 480 A
3. Labour variances:
SC ` AC `
400 hours at ` 24 = 9,600 460 22.50 = 10,350
(a) Labour Rate variances = AHP (SR AR)

= 460 (24 22.50) = 690 F
(b) Labour Effy. Variance = SR (SH AHP) = 24(400 460)
= 1,440 A
(c) Labour Cost Variance = SC AC = 9,600 10,350 = 750 A
Solution: Variance: 480,240,1,320,720, 690, 1,4440.
RECONCILIATION BASED QUESTION

Question 49: The budget output of a single product manufacturing company for 1984 85 was 5,000 units. The
financial results in respect of the actual out put of 4,800 units achieved during the year were as under:
Direct material 29,700
Direct wages 44,700
Variable overheads 72,750
Fixed overheads 39,000
Profit 36,600
Sales 2,22,750
The standard wage rate is ` 4.50 per hour and the standard variable overhead rate is ` 7.50 per hour. The cost
accounts recorded the following variances for the year:
Variances Favourable Adverse
` `
Material Price 300
Material usage 600
Wage Rate 750
Labour Efficiency 2,250
Variable Overhead Expenses 3,000
Variable Overhead Efficiency 3,750
Fixed Overhead Expense 1,500
Selling Price 6,750
Required:
Prepare a statement showing the original budget.
Prepare the standard product cost sheet per unit.
Prepare a statement showing the reconciliation of originally budgeted profit and the actual profit.

Solution:
Statement showing standard cost sheet per unit and Original Budget
Particulars Standard cost per unit Original Budget (`)
(`) 5,000 units
Material (See WN 1) 6 30,000
Labour (See WN 2) 9 45,000
Variable overhead (See WN 3) 15 75,000
Fixed overhead (See WN 4) 7.5 37,500
Total Cost 37.5 1,87,500
Prorit 7.5 37,500
Selling price (See WN 5) 45 2,25,000
Statement of Reconciliation (Marginal)

Particulars `
Budgeted Profit 37,500
Sales Variance:
Price Variance 6,750 F.
Volume Variance 3,000 A.
(B.Q. A.Q.) (F.C. + Pro.P.U.)
200 (7.5 + 7.5)
Cost Variances:
Material Cost Variance 900 A
Labour Cost Variance 1,500 A
Variable Overhead Cost Variance 750 A
Fixed Overhead Expenditure Variance 1,500 A
Fixed Overhead Volume Variance N.A.
Actual Profit 36,600
Working Note 1
M.C.V. = M.P.V. + M.U.V.
= 300 600
= 900
M.C.V. = Standard Cost Actual Cost
900 = Standard Cost 29,700
S.C. = 28,800
Budget Cost P.U. Actual output = 28,800
28,800
______
Budget Cost P.U. = =6
4,800
Working Note 2
Labour Cost Variance = C.R.V. + C.E.V.
= 750 + ( 2,250)
= 1,500
L.C.V. = S.C. A.C.
1,500 = S.C. 44,700
S.C. = 44,700 1,500
S.C. = 43,200
S.C. implies labour cost for actual output

Working Note 3
V OH Cost Variance = V. OH Exp. Variance + V OH Volume Variance
= 3,000 + ( 3,750)
= 750
V OH Cost Variance = S.C. A.C.
750 = S.C. 72,750
S.C. = 72,000
Standard cost = Budgeted cost for actual output
72,000 = Budgeted cost per unit 4,800
72,000
______
Budgeted Cost per unit = = 15
4,800
Working Note 4
Fixed - OH Expenditure Variance = Budgeted - OH Actual - OH
1,500 = Bud - OH 39,000
Budgeted Overhead = 1,500 + 39,000
= 37,500
Working Note 5
Sales Price Variance = (B.S.P. A.S.P.) A.Qty
6,750 = B.S.P. (
2,22,750
________
4,800
4,800 )
6,750 ________
______ 2,22,750
B.S.P. = +
4,800 4,800
6,750 + 2,22,750
_______________
B.S.P. =
4,800
B.S.P. = ` 45
Working Note 6
Sales margin volume variance = Change in Qty Budgeted Contribution per unit
Budget Actual
Quantity 5,000 4,800
S.P. 45 45
V.C. (M + C + OH) 30 30
Total Contribution 75,000 72,000
Less: Fixed Cost 37,500 37,500
Profit 37,500 34,500
= (B.Q. A.Q.) Bud. Cont. P.U.

= (5,000 4,800) (7.5 + 7.5)
= 3,000 A
Question 50: The Summarised results of a company for the two years ended December 31st are given below for 2
years
(` in lakh) (` in lakh)
Sales 770 600
Direct Material 324 300
Direct wages 137 120
Variable Overheads 69 60
Fixed Overheads 150 80
Profit 90 40

As a result of re-organization of production methods and extensive campaigning, the company was able to
secure an increase in the selling Price by 10% during year 2 as compared to the previous year.
In year 1, the company consumed 1,20,000 kg. Of raw materials and used 24,00,000 hours of direct labour. In
year 2, the corresponding figures were 1,35,000 kg. Of raw material and 26,00,000 hours of direct labour.
Use the information given for the year 1 as the base year information to analyse the results of year 2 and to show,
in a form suitable to the management, the amount each factor has contributed by way of price, usage, and volume
to the change in profit in year 2.
Solution: Let Selling Price be ` 100 per unit for I year. Then
IInd year Ist Year
Sales 7,70,00,000 6,00,00,000
S.P. 110 100
Quantity Sold 7,00,000 6,00,000
Reconciliation Statement
Particulars Basis ` in lakh
Budgeted Profit 40
Sales Variance Price Variance (100 110) 7,00,000 70 F.
(B.S.P. A.S.P.) A. Qty
Volume Variance (B.Q. A.Q.) Bud. Pri. P.U 6.66F.
(6,00,000 7,00,000) 6.6666
Cost Variance Fixed OH Volume Variance
Received Budget (93.33 80) 13.33 F.
Fixed OH Expenditure Variance
(Budget Actual) 70 A.
Material Price Variance
(S.R. A.R.) A.Q. 13.5 F.
Material Usage Variance
(S.Q. A.Q.) S.R. 12.5 F.
Labour Rate Variance
(S.R. A.R.) A.P.Hr. 7 A.
Labour Efficiency Variance
(S.Hr A.Hr) S.R. 10 F.
Variable OH Expenditure Variance
(S.R. A.R.) A.W.Hr 4 A.
Variable OH Efficiency Variance
(S.Hr A.Hr) S.R. 5 F.
Actual Profit 90
Working Note 1
Material (` in lakh) (` in lakh) (` in lakh)
Qty. Rate Qty. Rate Qty. Rate
Amount Amount Amount
Material 1,20,000 250 300 1,40,000 250 350 1,35,000 240 324
Labour 24,00,000 5 120 28,00,000 5 140 26,00,000 5.269 137
V OH 24,00,000 2.5 60 28,00,000 2.5 70 26,00,000 2.65 69
480 540 530
Working Note 2
Data for fixed overhead variance
Budgeted Hour Recovery Rate Budgeted fixed overhead
6,00,000 13.33 80,00,000
Actual output Recovered Actual

7,00,000 93,33,333 1,50,00,000

Working Note 3
Calculation of Budget profit per unit
Qty. 6,00,000
S.P. 100
V.C. 80
Fixed Cost 80,00,000
6,00,000 20 80,00,000
Budgeted profit per unit =
6,00,000
1,20,00,000 80,00,000
= 6,00,000
40,00,000
= 6,00,000
Budgeted profit per unit = 6.666
Question 51: The standard cost sheet of a company based on the normal output of 30,000 units for a quarter is as
under:
`
Direct Materials 4 kg. @ ` 2 per kg. 8.00
Direct Wages 6 Hours @ ` 4 per hour 24.00
Overheads 50% of Direct Wages 12.00
Total Costs 44.00
Profit 6.00
Selling Price 50.00
The budgeted fixed overheads amount to ` 1,44,000 per quarter and it is included in the overhead cost given above.
On the basis of the budgeted activity of 36,000 units, the company estimated the profit for the second quarter of the
year as under:
`
Direct Material 2,88,000
Direct Wages 8,64,000
Overheads(50% of Wages) 4,32,000
Total Costs 15,84,000
Sales 18,00,000
Profit 2,16,000
The cost records revealed the following actual data for the second quarter of the year:
Production 25,000 units
Direct materials consumed 96,000 kg. At ` 2.25 per kg.
Direct wages paid, 1,60,000 hours at ` 4.10 per hour. Out of which 6,000
hours being idle time were not recorded on production.
Overheads ` 3,32,000 out of which ` 1,50,000 were fixed.
Sales 25,000 units at an average price of ` 51.50 per unit.
Required:
Prepare a statement of actual Profit/Loss for the second quarter of the year.
(i) Analyze the variance and present an operating statement reconciling the budgeted profit with actual profit.

Solution:
STATEMENT OF ACTUAL PROFIT (LOSS)
(For the second quarter of the year)
`
1. Sales Revenue: 25,000 units ` 51.50 12,87,500
Direct Material 96,000 hours ` 225 2,16,000
Direct wages 1,60,000 hrs ` 4.10 6,56,000
Overheads 3,32,000
2. Total Cost 12,04,000
3. Profit (Loss) (1) (2) 83,500
OPERATING STATEMENT
(Reconciling the budgeted Profit with Actual Profit)
Particulars Working Actual
Variable
Notes `
Favourable Adverse
` `
Budgeted Profit (36,000 6) 2,16,000
Sales Variance 1(a)
Sales Volume margin variance 1 66,000
Sales Price Variance 1(b) 37,500
Net variance 32,500
3. Profit before adjustment of
Cost variance (1) ( 2) 1,87,500
1. Material
Price 2(i) (a) 8,000 24,000
Usage 2(i) (b)
2. Labour
Rate 2(ii) (b) 16,000
Efficiency 21(ii) (c) 16,000
Idle time 2(ii) (d) 24,000
Variable Overhead Expenditure 3 (iii) 2,800
Efficiency 3(iv) 4,800
Fixed Overhead
Expenditure 3(vi) 6,000
Efficiency 3(vii) 3,200
Capacity 3(viii) 20,800
10,800 1,14,800 1,04,000

Actual Profit (2) (3) 83,500
Working Notes:
1. Sales Variance Based on Profit
(a) Sales Value variance
a. Statement of actual profit (Loss) (For the second quarter of the year)
`
Direct material 96,000hrs. ` 2.25 2,16,000
Direct wages1,60,000 hrs. 6,56,000
Overheads 3,32,000
2. Total Cost 12,04,000
3: Profit (loss) (1) (2) 83,500

Operating statement (Reconciling the budgeted profit with actual profit)

Working Varia ble
Particulars Notes Actual
Favourable (`) Adverse (`)
1: Budgeted Profit (36,000 6) 2,16,00
2: Sales variances 1(a)
(i) Sales Volume margin
Variance 1 ( c) 66,000
(ii) Sales price variance 1 (b) 37,500
(iii) Net variance 32,500
3. Profit before adjustment
of cost variances (i) (2) 1,87,500
1. Material
Price 2 (1) (a) 24,000
Usage 2 (1) (b) 8,000
Labour
Rate 2 (ii) (b) 16,000
Efficiency 2 1(ii) I 16,000
Idle time 2 (ii) (d) 24,000
Variable Overhead Expenditure 3(iii) 2,800
Efficiency 3 (iv) 4,800
Fixed overhead
Expenditure 3 (vi) 6,000
Efficiency 3 (vii) 3,200
Capacity 3 (viii) 20,800
10,800 1,14,800 1,04,000
Actual profit (2) (3) 83,500
Working Notes
1: Sales Variances Based on Profit:
(a) Sales Value Variances = Budgeted Profit Actual Profit
= 2,16,000 83,500
= ` 1,32,500 (Adverse)
(b) Sales Price Variance = Actual Qty. Sold X (Std. Price Actual Price)
Question 52: The Standard Cost Card of producing one unit of Item Q is as under:
Direct Material A 12 kg. @ ` 10 = ` 120
B 5 kg. @ ` 6 = ` 30
Direct Wages 5 hrs @ ` 3 = ` 15
Fixed Production Overheads = ` 35
Total Standard Cost = ` 200
Standard Gross Profit = ` 50
Standard Sale Price = ` 250
Fixed Production Overhead is absorbed an expected annual output of 13,200 units.

Actual results for the month of September, 1997 are as under:
Actual Production: 1,000 unit
Sales 1,000 unit @ ` 250 = 2,50,000
Direct Material A 11,000 kg., 1,21,000
B 5,200 kg., = 28,600
Direct Wages 5,500 hrs = 17,500
Fixed Overheads = 39,000
2,06,100
Gross Profit = 43,900

Required: Calculate all variances. Material price variance is taken out at the time of receipt of material.
Material purchased were: 12,000 kg of A @ ` 11 and 5,000 Kg of B @ ` 5.50
Solution:
Basic data:
(1) Statement showing standard and actual costs of material
For 1,000 units of output and standard cost in actual input
Actual cost Standard cost of actual input =
Standard Cost
(Actual quantity Standard price)
Qty. Price Amount Qty. Price Amount Actual Standard Amount
Matrials (kg) (`) (`) (`) (`) (`) Qty.(Kg) Price/kg (`)
(`)
A 12,000 10 1,20,000 11,000 11 1,21,000 11,000 10 1,10,000
B 5,000 6 30,000 5,200 5.50 28,600 5,200 6 31,200
1,50,000 1,49,600 1,41,200
1,000 units
__________
1. Standard yield (units) = 16,200 kg = 952.941764 units aprox.
17,000 kg
2. Statement showing standard and actual labour cost of 1000 units
Produced and standard cost of actual labour hrs.
Hours Rate P.h. Amount Hours Rate P.h Amount Hours Rate p.h. Amount
(`) (`) (`) (`) (`)
5,000 3 15,000 5,500 3,1818 17,500 5,500 3 17,500
3. Overhead
Particulars Budgeted Actual
Fixed overhead (`) 38,500 39,000
Hours 5,500 5,500
Output (units) 1,100 1,000
Standard time p.u. (hrs) 5
Standard fixed overhead p.u. (`) 35
Standard fixed overhead rate p.h.(`) 7
Computation of material variances (Refer to Basic data 1):

Material Cost variance = Standard cost Actual cost
= ` 1,50,000 ` 1,49,600 = ` 400 (Fav.)
Material Price variance = Actual quantity (Std. price Actual price)
= 11,000 kgs. (` 10 ` 11) + 5,200 kgs. (` 6 ` 5.50)
= ` 11,000 (Adv.) + ` 2,600 (Fav.)
= ` 8,400 (Adv.)
Material Usage variance = Standard price (Standard quantity Actual quantity)
= ` (12,000 kgs 11,000 kgs)+ ` 6(5,000 kgs 5,200 kgs)
= ` 10,000 (Fav.) + ` 1,200 (Adv.)
= ` 8,400 (Adv.)
Std. price of
_____________ Std. price of
_______________
Material Mix variance =
std. mix per kg actual mix per kg
` 1,50,000 _________
__________ ` 1,41,200
= 16,000 kgs
17,000 kgs 16,200 kgs
= ` 1,741.18 (Fav.)

Material Yield Variance = Std. rate (Actual yield Std. yield)

= ` 150 {1,000 units 952.9411764 units}
= ` 7,058.82 (Fav.)
Material purchase variance:
= Actual quantity of material purchased (std. price per kg Actual price per kg.)
= 12,000 kg (` 10 ` 11) + 5,000 kg (` 6 ` 5.50)
= ` 12,000 (Adv.) + ` 2,500 (Fav.) = ` 9,500 (Adv.)
Computation of labour variance (Refer to Basis data 2):
Labour variance = (Standard cost Actual cost)
= ` 15,000 ` 17,500 = ` 2,500 (Adv.)
Labour rate variance = Actual hrs (Std. rate Actual rate)
= 5,500 (` 3 ` 3.1818)
= ` 1,000 (Adv.)
Labour efficiency variance = Std. rate p.h. (Std. hours Actual hours)
= ` 3(5,000 hrs. 5,500 hrs.)
= ` 1,500(Adv.)
Computation of fixed overhead variance
Total Fixed overhead variance:
= Fixed overhead absorbed Actual fixed overhead
= 1,000 units ` 35 ` 39,000
= ` 35,000 ` 39,000 = ` 4,000 (Adv.)
Fixed Overhead expenditure variance:
= Budgeted fixed overhead Actual fixed overhead
= ` 38,500 ` 39,000 = ` 500 (Adv.)
Fixed Overhead Volume variance:
= Std. fixed overhead rate per unit {Actual output Budgeted output)
= ` 35{1,000 units 1,100 units} = ` 3,500 (Adv.)
Efficiency variance:
= Std. fixed overhead rate per unit {Actual output Budgeted output}
= ` 35 {1,000 units 1,100 units} = ` 3,500 (Adv.)
Question 53: Jumbo Enterprises manufactures one product, and the entire product is sold as soon as it is produced.
There is no opening or closing stocks and work in progress is negligible. The company operates a standard costing
system . The standard cost card for the product is as follows:
Particulars `
Direct Material 0.5 kg. At ` 4 per kg. 2.00
Direct wages 2 hours at ` 2 per hour 4.00
Variable overheads 2 hours at ` 0.30 P.H. 0.60
Fixed overheads 2 hours at ` 3.70 P.H. 7.40
Standard Cost 14.00
Standard Profit 6.00
Standard selling Price 20.00
Selling and administration expenses are not included in the standard cost, and are deducted from profit as a
period cost.
Budgeted output for April 1987 was 5,100 units,
Actual results for April 1987 were as follows:

Production of 4,850 units was sold for ` 95,600

Material consumed in production amounted to 2,300 kg. At a total cost of ` 9,800
Labour hours paid for amounted to 8,500 hours at a cost of ` 16,800.
Actual operating hours amounted to 8,000 hours.
Variable overheads amounted to ` 2,600
Fixed overheads amounted to ` 42,300.
Selling and administration expenses amounted to ` 18,000.
Required: (a) Calculate all variances.(b) Prepare an operating statement for the month ended 30th April 1987.
Solution:
(a) Calculation of Variances:
(i) Material Price Variance = Actual quantity (std. rate Actual rate)
= ` 9,200 ` 9,800 = ` 600(A)
(ii) Material Usage Variance = Std. rate (Std. quantity Actual quantity)]
= ` 4(2,425 kg. 2,300kg.)
= ` 500(F)
(iii) Labour Rate Variance = Actual hours (Std. rate Actual rate)
= ` 17,000 ` 16,800 + ` 200(F)
(iv) Labour Efficiency Variance = Std. rate (Std. hours Actual hours)
= ` 2 (9,700 8,000)
= ` 3,400(F)
(v) Labour Idle Time Variance = Std. rate idle time
= ` 2 500 hrs = ` 1,000 (A)
(vi) Variable Overhead Expenditure variance
= (Budgeted variable overheads Actual variance Overheads)
= (8,000 hrs ` 0.30) ` 2,600
= ` 200 (A)
(vii) Variable Overhead Efficiency variance
= Std. rate (Std. hours Actual hours)
= ` 0.30 (9,700 8,000)
= ` 510(F)
(viii) Fixed Overhead Expenditure variance = (Budgeted fixed overheads Actual fixed overheads)
= (5,100 units ` 7.40) ` 42,300
= ` 4,560 (A)
(ix) Fixed Overheads Volume variance = Budgeted fixed overheads per hour
(Budgeted volume Actual volume)
= ` 7,40 (6,100 units - 4,850 units)
= ` 1,850 (A)
(X) Fixed overheads efficiency variance = Budgeted fixed overheads per hour
(Std. hrs Actual hours)
= ` 3.70(9,700 hrs. 8,000 hrs.)
= ` 6,290 (F)
(xi) Fixed overheads capacity variance: = Budgeted fixed overheads per hour
(Budgeted capacity Actual capacity)
= ` 3.70 (5,100 2) 8,000)
= ` 8,140 (A)

(xii) Sales Price Variance = Actual qty. (Budgeted rate Actual rate)
= ` 97,000 ` 95,600 = ` 1,400 (A)
(xiii) Sales volume variance = Std. profit per unit (Budgeted sales volume Actual Sales Volume)
= ` 6 (5,100 4,850)
= ` 1,500 (A)
(b) Operating Statement for the mo nth ended 30th April 1997:
Budgeted profit before selling & administration Amount
expenses ` `
(5,100 units ` 6) 30,600
Sales Variances:
Price 1,400(A)
Volume 1,500 (A) 2,900(A)
Actual sales minus standard cost of sales 27,700
Cost Variances: (F) (A)
` `
Material price 600
Material usage 500
Labour rate 200
Labour efficiency 3,400
Labour idle time 1,000
Variable overheads expenditure 200
Variable overheads efficiency 510
Fixed overheads expenditure 4,560
Fixed overheads efficiency 6,290
Fixed overheads capacity 8,140
10,900 14,500 3,600 (A)
Actual profit before selling& administration expenses 24,100
Less: Selling & administration expenses 18,000
Actual profit for the month 6,100
Note:A = Adverse F= Favourable
Check(not required):
` `
Sales 95,600
Less: Cost of materials 9,800
Labour 16,800
Varaible overheads 2,600
Selling & Admn.expenses 18,000 89,500
Net Profit 6,100
Question 54: The Britten Co. Ltd manufactures a variety of products of basically similar composition. Subjecting
the various raw materials to a number of standardised operations each major series of operations being carried out
in a different department carries out Production. All products are subjected to the same initial processing which is
carried out in departments A, B and C; the order and extent of further processing then depending upon the type of
end product to be produced.
It has been decided that a standard costing system could be usefully employed within Britten and a pilot scheme
is to be operated for six months based initially only on department B, the second department in the initial common
series of operations.
If the pilot scheme produces useful results then a management accountant will be employed and the system
would be incorporated as appropriate throughout the whole firm.
The standard cost per unit of output of department B is:

Particulars $ $
Direct labour (14 hours at ` 2 per hour) 28
Direct materials:
1. Output of department A ( 3 kg at ` 9 per kg) 27
2. Acquired by and directly input to department B material (4 kg at ` 5 per kg.) 20 47
Variable overhead (at ` 1 per direct labour hour worked) 14
Fixed production overheads:
1. Directly incurred by department B (note1) manufacturing overhead (per unit) 3
2. Allocated to department B general factory overhead (per unit) 8 11
Standard cost per unit ` 100
In the first month of operation of the pilot study (month 7 of the financial year), department B had no work in
progress at the beginning and the end of the month. The actual costs allocated to department B in the first month of
operation were:
Particulars ` `
Direct labour (6500 hours) 14,000
Direct materials:
1. Output of Department 21,000
A (1400 Kg) (Note 2)
II Material X (1900 Kg.) 11,500 32,500
Fixed overheads
1. Directly incurred manufacturing overhead 1,600
2. Allocated to department B (Note 3) 2,900 4,500
$59,000
Note 1: Based on normal monthly production of 400 units

Note 2: Actual cost of output of department A.
Note 3: Based and allocated to departments in accordance with labour hours worked.
The production manager feels that the actual costs of $59,000 for production of 500 units indicates considerable
inefficiency on the part of department B. He says, I was right to request that the pilot standard costing system be
carried out in department B as I have suspected that they are inefficient and careless this overspending of $9,000
proves I am right.
Required:
(a) Prepare a brief statement which clearly indicates the reasons for the performance of department B and the
extent to which that performance is attributable to department B.
The statement should utilize variance analysis to the extent it is applicable and relevant.
(b) Comment on the way the pilot standard costing system is currently being operated and suggest how its
operation might be improved during the study period.
Solution:
Material Standard Actual
Output of A 1,500 9 13,500 1,400 15 21,000
X Material 2,000 5 40,000 1,900 6.05 11,500
Labour Hr. 7,000 2 14,000 6,500 2.15 14,000
Variable OH 7,000 1 7,000 6,500 1.23 8,000
44,500 54,500


Budgeted Hour Recovery Rate Budgeted overhead
14 Hr 400 = 5,600 4,400/5,600 4,400 (11 400)
Actual WH is Actual
6500 4,500
Standard Hour Recovered
7000 (14 Hr x 500) 4,400/5,600 x 7,000 = 5,500
(a) Statement of performance

Amount ($)
Standard Cost 50,000
Controllable Variances Material Usage Variance (S.Q. A.Q.) A.R.
A (1,500 1,400) 9 = 900 F
B (2,000 1,900) 5 = 500 F 1,400 F
Labour Efficiency Variance

(S. Hr A.W.Hr) S.R. 1,000 F
(7,000 6,500) 2
Fixed Overhead Variances
(S.Hr A.Hr) S.R. 329 F
(7,000 6,500) 0.78
Variable OH Efficiency Variance 500 F
(S.Hr A.Q.Hr) S.R. = (7,000 6,500) 1
Uncontrollable Variances: Material Prices Variances (S.R. A.R.) A.Q.
Output of A (9 15) 1,400 = 7,000 A 9,000 A
Material X (5 6.05) 1,900 = 2,000 A
Labour Rate Variance (2 2.15) 6,500 975 A
Variable OH Expenses Variance (1 1.23) 6,500 1,495 A
Fixed OH Exp. Variance (4,400 4,500) 100 A
Fixed OH Capacity Variance (6,500 5,600) 0.7857 707 F
Actual Cost 59,000
Comment: It is better to apply the technique of standard witting not only on department B but also on other
department (i.e. within the company).
PLANNING AND OPERATING VARIANCE

Question 55: ABC Ltd produces jams and other products. The production pattern for all the products is similar first
the fruits are cooked at a low temperature and then subsequently blended with glucose syrup citric acid and pectin
are added henceforth to help setting.
There is huge competition in the market because of which margins are tight. The firm operates system of standard
costing for each batch of jam.
The standard cost data for a batch of jam are:
Fruit extract 400 kg @ ` 1 per kg
Glucose syrup 700 kg @ ` 2 per kg
Pectin 99 kg @ ` 1 per kg
Citric acid 1 kg @ ` 5 per kg
Labor 18 hrs. @ ` 2 per hour
Standard processing loss 3%
As a consequence of unfavorable weather in the relevant year for the concerned crop, Normal prices in the trade
were ` 2 per kg for fruit extract although good buying could achieve some, The actual price of Syrup had also gone
up by 20% from Standards. This was because of increase in customer duty of Sugar. The actual results for the batch
were:

Fruit extract 428 kg @ ` 4 per kg

Glucose syrup 742 kg @ ` 5 per kg
Pectin 125 kg @ ` 2 per kg
Citric acid 1 kg @ ` 6 per kg
Labour 20 hr @ ` 4 per hour
Actual output was 1164 kg of jam.
Required:
(a) Calculate the ingredients planning variances that are deemed uncontrollable;
(b) Calculate the ingredients operating variances that are deemed controllable;
(c) Calculate the mixture and yield variance;
Calculate the total Variance for the batch.
Solution:
Original Standard Revised Standard Actual
Material
Fruit Extract 400 1 400 400 2 800 428 4 1,712
Glucose Syrup 700 2 1,400 700 24 1,680 742 5 3,710
Pectin 99 1 99 99 1 99 125 2 250
Citric Acid 1 5 5 1 5 5 1 6 6
1,200 1,904 1,200 2,584 1296 5,678
Labour 18 2 36 18 2 36 20 4 80
1,940 2,620 5,758
(a) Statement of Uncontrollable Planning Variances

Ingredients Traditional Variance Planning Variances Operating Variances
(Original Actual) (Original Standard Revi. Stan.) (Revised Stand Actual)
Price Variance
Fruit Extract (D.M.) 400 1,712 = 1,312 A 400 800 = 400 A 800 1,712 = 912 A
Glucose Syrup 1,400 3,710 = 2,310 A 1,400 1,680 = 280 A 1,680 3,710 = 2,030 A
Pecting 99 250 = 151 A 99 99 = NIL 99 250 = 151 A
Citric Acid 56=1A 5 5 = NIL 5 6 = 1A
Labour Variance 35 80 = 44 A 36 36 = NIL 36 80 = 44 A
Question 56: POV Ltd uses a standard costing system to control and report upon the production of its single product.
An abstract from the original standard cost card of the product is as follows:
(`) (`)
Selling price per unit 200
Less: 4 kg materials @ ` 20 per kg 80
6 hours labour @ ` 7 per hour 42 122
Contribution per unit 78
For period 3: 2500 units were budgeted to be produced and sold but the actual production and sales were 2850
units.
The following information was also available:
(i) At the commencement of Period 3 the normal material became unobtainable and it was necessary to use an
alternative. Unfortunately, 0.5 kg per unit extra was required and it was thought that the materials would
be more difficult to work with.The price of the alternative was expected to be ` 16.50 per kg. In the event,
actual usage was 12450 kg at ` 18 per kg.

(ii) Weather conditions unexpectedly improved for the period with the result that a `0.50 per hour bad weather
bonus, which had been allowedfor in the original standard, did not have to be paid.Because of the difficulties
expected with the alternative material, management agreed to pay the workers ` 8per hour for period 3
only. During the period 18,800 hours were paid for.
After using conventional variances for some time, POV Ltd is contemplating extending its system to include
planning and operational variances.
Required:
(a) To prepare a statement reconciling budgeted contribution for the period with actual contribution, using
conventional material and labour variances;
(b) To prepare a similar reconciliation statement using planning and operational variances;
Solution:
Material Original Standard Revised Standard Actual
Qty. Rate Amount (`) Qty. Rate Amount (`) Qty. Rate Amount (`)
Material 2,850 4 = 11,400 20 2,28,000 12,825 16.5 2,11,612.50 12,450 18 2,24,100
(kg) (2,850 4.5)
Labour 6 2,850 = 17,100 7 1,19,700 17,100 6.5 1,11,150 18,800 8 1,50,400
(hrs.)
3,74,500
(a) Statement of Reconciliation (Planning and Operating Variances)

Amount (`)
Budgeted Contribution (2,500 78) 1,95,000
Sales Variances Sales Margin Price
Sales Margin volume (2,500 2,850) 78 27,300 F
Cost Volume Variance Total Planning Variance (b) 24,937.5 F

Total Operating Variance (b) 51,737.5 A
Actual Contribution (2,850 200 3,75,500) 1,95,500
(b) Statement of Variances

Traditional Variance Planning Variances
Operating Variances
Particulars (Original Actual (Original Standard
(Revised Stand Actual)
Standard) Revised Standard)
1. Material Cost Variance 2,28,000 2,24,100 = 2,28,000 2,11,612.5 = 2,11,612.5 2,24,100 =
3900 F 16,387.5 F 12,487.5 A
2. Material Price Variance (20 18) 12,450 = (20 16.5) 12,825 = (16.5 18) 12,450 =
24,900 F 44,887.5 F 18,675 A
3. Material Usage Variance (11,400 12450) 20 = (11,400 12,825) 20 = (12,825 12,450) 16.5 =
21,000 A 28,500 A 6,187.5
4. Labour Cost Variance 1,19,700 1,50,400 = 1,19,700 1,11,150 = 1,11,150 1,50,400 =
30,700 A 8,550 F 39,250 A
5. Labour Rate Variance (7 8) 18,800 = (7 6.5) 17,100 = (6.5 8) 18,800 =
18,800 A 8,550 F 28,200 A
6. Labour Efficiency Variances (17,100 18,800) 7 = (17,100 17,100) 7 = (17,100 18,800) 6.5 =
1,1900 A NIL 11,050 A
Total Variances 26,800 A 24,937.5 F 51,737.5 A
Question 57 (Growth, price-recovery, and productivity components): Oceano T-shirt company sells a variety of
T-shirts. Oceano presents the following data for its first two years of operations, 2003 and 2004. for simplicity,
assume that all purchasing and selling costs are included in the average cost per T-shirt and that each customer buys
one T-shirt.

2003 2004
Number of T-shirts purchased 20,000 30,000
Number of T-shirts lost 400 300
Number of T-shirts sold 19,600 29,700
Average selling price `15 `14
Average cost per T-shirt `10 `9
Administrative capacity in terms of number of customers that can be served 40,000 36,000
Administrative costs `80,000 `68,400
Administrative cost per customer `2 `1,90
Administrative costs depend on the number of customers that Oceano has created capacity to support, not the
actual number of customers served.
Required: Calculate the growth price-recovery, and productivity components of changes in operating income
between 2003 and 2004.
Solution:
Balance Score Card
Last Year Profit (2003) Growth Price Productivity Current Year Profit (2004)
Revenue 2,94,000 A. (B.Q. A.Q.) B.S.P. C. 29,700 A 4,15,800
less : Cost
Material 2,00,000 B. 1,03,060.4 A D. 30,000 F. F. 3,061 F 2,70,000
Others 80,000 E. 11,600 F. 68,400
Profit 14,000 48,440 F 11,900 F 3,061 F 77,400
A. Revenue effect of Growth

= (B.Q. A.Q.) B.S.P.
= (19,600 29,700) 15
= 1,51,500 Fav.
B. Cost Effect of Growth
= (B.Q. A.Q.) B.V.C.
= (19,600 29,700) 10,204
= 1,03,060.4 A
C. Revenue effect of price
= (B.S.P. A.S.P.) A.Q.
= (15 14) 29,700
= 29,700 A.
D. Cost effect of price
M.P.V. = (S.R. A.R.) A.Q.
= (10 9) 30,000
= 30,000 F
E. Cost effect of Price (Fixed)
= fixed overhead expense variance
= Budget Actual
= 80,000 68,400
= 11,600 F.
F. Productivity (Material Usage Variance)
= (30,306.20 30,000) 10
= 3061 F.

Working Note 1
Material 20,000 10 2,00,000 30,306.12 10 3,03,061 30,000 9 2,70.000
Working Note 2
2,00,000
________
Material cost per unit of finished goods = = 10.204
19,600
Question 58 (Strategy, balanced scorecard service company): Snyder corporation is a small information systems
consulting firm that specializes in helping companies implement sales management software. The market for
Snyders products is very competitive .To compete, Snyder must deliver quality service at a low cost Snyder bills
clients in terms of units of work preformed. Which depends on the size and complexity of the sales management
system. Snyder presents the following data for 2002 and 2003.
Particulars 2002 2003
1. Units of work performed 60 70
2. Selling price ` 50,000 ` 48,000
3. Software implementation labor-hours 30,000 32,000
4. Cost per software implementation labour-hour ` 60 ` 63
5. Software implementation support capacity (in units work) 90 90
6. Total cost of software implementation support ` 3,60,000 ` 3,69,000
7. Software implementation support capacity cost per unit of work ` 4,000 ` 4,100
8. Number of employees doing software development 3 3
9. Total software development costs ` 3,75,000 ` 3,90,000
10. Software development cost per employee ` 1,25,000 ` 1,30,000
Software implementation labour-hour costs are variable costs. Software implementation support costs for
each year depend on the software implementation support capacity(defined in terms of units of work) that Snyder
chooses to maintain each year. It does not vary with actual units of work performed that year. At the start of each
year management uses its discretion to determine the number of software development employees. The software
development staff and costs have no direct relationship with the number of units of work performed.
1. Is Snyder corporations strategy one of product differentiation or cost leadership? Explain briefly.
2. Describe key elements you would include in Snyders balanced scorecard and your reasons for doing so.
Question 59: Following a strategy of product differentiation, Westwood corporation makes a high-end kitchen
range hood, KE8. Heres Westwoods data for 2002 and 2003.
2002 2003
1. units of KE8 produced and sold 40,000 42,000
2. Selling price `100 `110
3. Direct materials (square feet) 1,20,000 1,23,000
4. Direct material costs per square foot ` 10 ` 11
5. Manufacturing capacity for KE8 50,000 units 50,000 units
6. Conversion costs ` 10,00,000 ` 11,00,000
7. Conversion costs per unit of capacity ` 20 ` 22
(Row 6 Row 5)
8. Selling and customer-service capacity 30 customers 29 customers
9. Selling and customer- service costs ` 7,20,000 ` 7,25,000
10. Cost per customer of selling and customer service capacity ` 24,000 ` 25,000
(Row 9-Row 8)

Westwood produced no defective units and reduce direct material usage per unit of KE8 in 2003. Conversion
costs in each year are tied to manufacturing capacity. Selling and customer- service costs are related to the number
of customers that the selling and service functions are designed to support. Westwood has 23 customers in 2002 and
25 customers in 2003.
Required:
1. Calculate the growth price-recovery and productivity components that explain the change in operating income
from 2002 to 2003.
2. Suppose during 2003 the market for high-end kitchen range hoods grew at 3% in terms of number of units
and all increases in market share (that is increases in the number of units sold greater than 3%) are due to
Westwoods product differentiation strategy. Calculate how much of the change in operating income from
2002 to 2003 is due to the industry-market size factor cost leadership and product differentiation.
Solution:
1. Balance Score Card
Year 2002 (` in lakhs) Growth (`) Price (`) Productivity Year 2003 (` in lakhs) (19 kg)
Revenue 40 A. 2,00,000 F C. 4,20,000 F
Cost F. 30,000 F Cost:
Material 12 D. 1,23,000 A Material 13.53
Conversion 10 B. 60,000 A Conversion 11
Selling and distribution 7.20 E. 1,05,000 A. Selling & Distribution 7.25
Profit 10.80 1,40,000 F 1,92,000 F 30,000 F 14.42
A. Revenue effect of Growth

= (B.Q. A.Q.) B.S.P.
= (40,000 42,000) 100
= 2,00,000 F.
B. Cost effect on Growth
= (B.Q. A.Q.) B.V.C.
= (40,000 42,000) 30
= 60,000 A.
C. Revenue effect of price = (B.S.P. A.S.P.) A.Q.
= (100 110) 42,000
= 4,20,000 F.
D. Cost effect of price
= (S.R. A.R.) A.Q.
= (10 11) 1,23,000
= 1,23,000 A
E. Cost effect of price (fixed OH exp. variance)
= Budgeted Actual + Selling and Distribution
= (10,00,000 11,00,000) + (7,20,000 7,25,000)
= 1,00,000 A + 5,000 A
= 1,05,000 A.
F. Productivity (Material Usage Variance)
= (S.Q. A.Q.) S.R.
= (1,26,000 1,23,000) 10
= 30,000 F.

2. Statement of change in income

A. Market Size 84,000 F
B. Product Difference Policy
Market Share 56,000 F
Price 1,92,000 F
C. Cost Productivity 30,000 F
Change in Income 3,62,000 F
Working Note 1
Material 1,20,000 10 12,00,000 1,26,000 10 1,26,000 1,23,000 11 13,53,000
Question 60: A company manufacturers a product whose data for a period has been analysed as follows:
Standard Cost `
Direct materials-5 units at @ 3 15
Direct labour 5 hr @ 5 per hour. 25
Production overheads-5 hours at @ 4 20
Total 60
Profit margin is at 25% on sale price. Budgeted sales for the period is ` 39,200.
Actual Data
Sales ` 35,000
Direct materials ` 8,000
Direct wages ` 12,000
Analysis of variances
Adverse (`) Favorable (`)
Direct material
Price 800
Usage 405
Direct Labour
Rate 975
Efficiency 300
Production overhead
Expenditure 200
Volume 340
Assume that there is no change in stock and that there are no other overheads.
Required: Compute the following from the above details:
1. Actual production
2. Actual profit
3. Actual hours worked
4. Budgeted hours worked
5. Production overhead efficiency variance
6. Production overhead capacity variance
7. Sales price variance
8. Sales volume profit variance
9. Reconciliation between actual profit and budgeted profit.

Working Note 1
Budgeted cost & Profit
Material 15
Wages 25
Factory O/H 60
Profit 20
Selling price 80
Budget sales 39200
Budgeted Qty 490
Working Note 2
Material cost variance = M.P.V. + M.U.V.
SC AC = 800 + (405)
SC = 395 + 8000
Working Note 3
Standard cost = Budgeted cost Actual output
Actual output =
Working Note 4
Labour eff. variance = (5 hrs A.W. hrs)SR
300 = (5 hrs 507 A.W. hrs)5
AW hrs = 2595
Working Note 5
Production O/H expenditure variance = Budget Actual
200 = (` 20 490) Actual
Actual = ` 10,000
(ii) Statement of Actual profit
Actual sales 35,000
USS: Material 8,000
Labour 12,000
Variance O/H
Fixed O/H 10,000
Actual Profit 5,000
Working Note 6
Budgeted hrs = 5 hrs 490
B hrs (5 490)
A hrs ` 2,595
5 hrs (5 507)
Prodn overhead efficiency variance
= (5 hrs A.W. hrs) Rate
= (5 507 2,595) = 240 A
Fixed overhead capacity variance
= (A hrs B hrs) Rate pu
= (2595 2450)4 = 580
Sales margin price variance = (BSP ASP)AQ
= = 5560 F
Sales margin volume variance = (BQ AQ) B pr pu
= (490 507)20 = 340 A

Question 61: The standard cost sheet of a company based on the normal output of 30,000 units for a quarter is
as under:
`
Direct Materials 4 kg @ ` 2 per kg 8.00
Direct Wages 6 Hours @ ` 4 per hour 24.00
Overheads 50% of Direct Wages 12.00
Total Costs 44.00
Profit 6.00
Selling Price 50.00
The budgeted fixed overheads amount to ` 1, 44,000 per quarter and it is included in the overhead cost given
above. On the basis of the budgeted activity of 36,000 units, the company estimated the profit for the second quarter
of the year as under:
Particulars `
Direct Material 2,88,000
Direct Wages 8,64,000
Overheads(50% of Wages) 4,32,000
Total Costs 15,84,000
Sales 18,00,000
Profit 2,16,000
The cost records revealed the following actual data for the second quarter of the year:
Production 25,000 units
Direct materials consumed 96,000 kg at ` 2.25 per kg
Direct wages paid, 1,60,000 hours at ` 4.10 per hour. Out of which 6,000
hours being idle time were not recorded on production.
Overheads ` 3,32,000 out of which ` 1,50,000 were fixed.
Sales 25,000 units at an average price of ` 51.50 per unit.
Required:
(i) Prepare a statement of actual Profit/Loss for the second quarter of the year.
(ii) Analyze the variance and present an operating statement reconciling the budgeted profit with actual profit.
Solution:
STATEMENT OF ACTUAL PROFIT (LOSS)
`
1: Sales Revenue: 25,000 units ` 51.50 12,87,500
Direct Material 96,000 hours ` 225 2,16,000
Direct wages 1,60,000 hrs ` 4.10 6,56,000
Overheads 3,32,000
2: Total cost 12,04,000
3: Profit (Loss) (1) (2) 83,500
OPERATING STATEMENT
(Reconciling the budgeted Profit with Actual Profit)
Particulars Notes Working Variable Actual
Favourable adverse `
` `
Budgeted Profit (36,000 6) 2,16,000
Sales variance 1(a)
Sales volume margin variance 1 66,000
Sales price variance 1(b) 37,500 - -

Net variance 32,500

3. Profit before adjustment of
cost variance (1)( 2) 1,87,500
Material
Price usage 2(i) (a) 8,000 24,000
2. Lobour rate 2(i) (b)
Efficiency idle time
2(ii) (b) 16,000
21(ii) (c) 16,000
2(ii) (d) 24,000
Variable overhead expenditure 3 (iii) 2,800
Efficiency 3(iv) 4,800
Fixed overhead
Expenditure 3(vi) 6,000
Efficiency 3(vii) 3,200
Capacity 3(viii) 20,800
10,800 1,14,800 1,04,000
Actual profit (2)(3) 83,500
Working Note
1: Sales Variance Based on Profit
(a) Sales Value variance
a. Statement of Actual Profit (Loss)
`
Direct material 96,000 hrs ` 2.25 2,16,000
Direct wages 1,60,000 hrs 6,56,000
Overheads 3,32,000
2. Total cost 12,04,000
3. Profit (loss) (1)(2) 83,500
Operating statement
(Reconciling the budgeted profit with actual profit)
Working Variable Favourable Adverse Actual
notes ` ` `
1: Budgeted Profit (36,000 6) 2,16,00
2: Sales variances 1(a)
(i) Sales Volume margin Variance 1(c) 66,000
(ii) Sales price variance 1(b) 37,500
(iii) Net variance 32,500
3. Profit before adjustment
of cost variances (1) (2) 1,87,500
Material
Price 2 (1) (a) 24,000
Usage 2 (1) (b) 8,000
Labour
Rate 2 (ii) (b) 16,000

Efficiency 2 1(ii) I 16,000

Idle time 2 (ii) (d) 24000
Variable overhead expenditure 3(iii) 2,800
Efficiency 3 (iv) 4,800
Fixed overhead
Expenditure 3 (vi) 6,000
Efficiency 3 (vii) 3,200
Capacity 3 (viii) 20,800 -
10,800 1,14,800 1,04,000
Actual profit (2)(3) 83,500
Working Note
1: Sales Variances Based on Profit:
(a) Sales Value Variances = Budgeted Profit Actual Profit
= 2,16,000 83,500
= ` 1,32,500 (Adverse)
(b) Sales Price Variance = Actual Qty. Sold (Std. Price Actual Price)
Question 62: The following are budgeted figures for a department in a business for a normal 5-day week of 40
hours
Particulars `
Direct materials 40,000
Direct wages 10,000
The standard direct wage rate is ` 2.50 per hour and the budgeted production is 5,000 units sold at ` 20 per unit.
Wages are paid at hourly rate, and variable overheads are absorbed at the rate of 150% of direct wages.
During a particular week, 4 days are worked instead of 5 days owing to fall in demand for the product, but the
productivity of direct labour increased by 10%.
Present a profit statement in respect of this week and reconcile the budget profit with actual profit for the week.
Solution:
Statement of profit
Quantity (units) 5,000 4,400
Sales (`) 1,00,000 83,000
(5,000 20) (4,400 20)
Uss-Material 40,000 35,200
Labour 10,000 8,000
Variable O/H 15,000 13,200
Fixed O/H 20,000 20,000
Profit 15,000 11,600
Statement of reconciliation (Marginal)

Budgeted profit 15,000
Sales margin price variance 4
Sales margin volume variance (BQ AQ) B con pu
(5,000 4,400) 7

Labour efficiency variance (5 hrs A hrs) SR 8

(3,520 3,200) 2.5
Variable O/H efficiency variance (3,520 3,200) 3.75
Fixed O/H expenditure variance
Actual profit.
Question 63: S Ltd. operates a system of standard costing in respect of one of its products, which is manufactured
within a single cost center. The following information is available:
For one unit of product the standard materials input is 20 liters at a standard price of ` 2 per litre. The standard
wage rate is ` 6 per hour and 5 hours are allowed in which to produce one unit. Fixed production overhead is
absorbed at the rate of 100% of direct wages cost.
During the month just ended the following occurred:
Actual price paid for material purchased ` 1.95 per litre
Total direct wages cost was ` 1,56,000
Fixed production overhead incurred was ` 1,58,000
Variances Favourable (`) Adverse (`)
Direct material price (at the time of purchase) 8,000
Direct material usage 5,000
Direct labour rate 5,760
Direct labour efficiency 2,760
Fixed production overhead expenditure 8,000
Required: Calculate the following for the month:

Budgeted output in units,
Number of liters purchased,
Number of liters used above standard allowed,
Actual units produced,
Actual hours worked,
Average actual wage rate per hour.
Solution:
(a) direct material price variance = (SP - AP) AQ
8000 = (2 1.95) AQ
AQ = 160000 litre - point i
(b) direct material usage variance (SQ AQ) SP
-5000 = (SQ 160000)2
SQ = 157500
(c) Excess duty = AQ SQ = 2500 litre - point (iii)
(d) Direct labour rate variance = (SR AR) A Hrs
-5760 = SR A Hrs AR A Hrs
- 5760 = 6 (A Hrs) 156000
A Hrs = 25040 - point (v)
Actual wages
___________
(e) Average actual wage rate per hour =
Actual hrs
= 1,56,000/25,040
= ` 6.23 - point (vi)

(f) Budgeted output = Budgeted O/H / Budgeted O/H per unit

= 1,50,000/6 x 5
= 5,000 units - point (vii)
(g) Actual output = Recovered O/H / Recovery rate
= 100% x direct wage cost / 30
= 1,56,000/ 30
= 5,200 units.
Question 64: On 1st April, 1998, ZED company began the manufacture of a new electronic gadget. The company
installed a standard costing system to account for manufacturing costs. The standard costs for a unit of the product
are as under:
Direct Material (3 kg At ` 5 per kg) ` 15.00
Direct Labour (0.5 hour at ` 20 per hour) 10.00
Manufacturing Overhead (75% of direct labour cost) 7.50
Total Cost 32.50
The following data was obtained from Zed Companys record for April 1998:
Debit Credit
Sales ` 1,25,000
Sundry creditor (For purchase of direct materials in April 1998) ` 68,250
Direct material price variance 3,250
Direct material usage variance 2,500
Direct labour rate variance 1,900
Direct labour efficiency variance 2,000
The Actual Production in April 1998 was 4,000 units of the gadget, and the actual sales for the month was 2,500
units.
The amount shown above for direct materials price variance applies to materials purchased during April 1998.
There was no opening stock of raw materials on 1st April, 1998.
Required Calculate for April 1998 the following:
(i) Standard direct labour hours allowed for the actual output achieved.
(ii) Actual direct labour hours worked.
(iii) Actual direct labour rate.
(iv) Standard quantity of direct materials allowed (in kg)
(v) Actual quantity of direct materials used (in kg)
(vi) Actual quantity of direct materials purchased (in kg)
(vii) Actual direct materials price per kg (C.A. Final May 1998)
Solution:
(i) Standad direct labour hours allowed for the actural output achieved.
Actual number of units produced Standard direct labour hours
P.U. 4000 Units 0.5 hrs. = 2000 hrs.
(ii) Actual direct labour hours worked Direct Labour efficiency variance
= Standard rate per hour (Standard hrs. hor actual output Actual direct Labour hours worked)
` 2,000(F) = ` 20 (2000 hrs. - x)
` 2,000(F) = ` 40,000 20x
20x = 38,000
x = 38,000/20 = 1,900
Actual direct labour hours worked = 1,900 hrs.

(iii) Actual Direct labour rate

Direct labour rate variance
= Actual hours (Standard rate per labour hour Actual direct labour rate per hour)
` 1,900 (A) = 1,900 hrs. (` 20 - x)
` 1,900 = 38,000 1,900x
1,900x = 39,900
x = 39,900/1,900 = 21
Actual direct labour rate per hour = ` 21
(iv) Standard Quantity of direct materials (in Kgs.)
Actual number of units produced Std. quantity of direct material required P.U. (in kgs.)
= 4,000 Units 3 kgs. P.U. = 12,000 kgs
(v) Actual quantity of direct materials used (in Kgs)
Direct material usage variance
Std. price per kg of D material (Std. Qty. of Direct material for actual output Actual Qty. of direct materials
used for actual output)
` 2,500 (A) = ` 5{(4000 units 3 kgs) x}
2,500 = 60,000 5x
5x = 62,500
x = 62,500/5 = 12,500
Actual Qty. of direct materials used for actual output = 12,500 kgs
(vi) Actual quantity of direct materials purchased (in kgs)
Direct Material Price Variance
Actual Qty. of direct materials purchased (Std. price per kg Actual price per kg)
` 32,500(A) = (Actual Qty. of direct materials purchased ` 5) (Actual Qty. of direct materials Actual price
per kg.)
= ` 5 Actual Qty. of direct materials purchased ` 68,250
` 68,250 ` 3,250 = (` 5 Actual Qty. of direct materials purchased)
` 5 Actual Qty. of direct materials purchased = ` 65,000
Actual Qty. of direct materials purchased = 13000 kgs
(vii) Actual Direct materials price per kg
` 3,250 (A) = 13,000 kgs (` 5 Actual direct materials price per kg)
` 65,000 + ` 3,250 = 13000 kgs Actual Direct materials price per kg.
13,000 kgs Actual direct materials price per kg = 68,250
Actual direct materials price per kg = ` 5.25
Question 65: The following information is available from the record of Sunrise Ltd. which produces only one
product.
Budgeted Income Statement: January 2004
` ` `
Sales Revenue 1,00,000
(20,000 units at ` 5)
Production Costs:
Budgeted production
20,000 units

Direct Materials:
A (10,000 Kg. @ Re. 0.30) 3,000
B (10,000 Kg. @ Re. 0.70) 7,000
10,000
Direct Labour
Skilled (9,000 Hrs. @ ` 3.00) 27,000
Un-skilled (5,200 Hrs. @ ` 2.50) 13,000
40,000
Production Overhead:
Fixed 20,000
Variable (20,000 units @ Re. 0.50) 10,000
80,000
Add: Opening Stock (1,000 units @ ` 4.00) 4,000
84,000
Deduct Closing Stock (1,000 units @ ` 4,000
4.00)
During January 2004 production and sales were both above budget and the following income statement was
prepared:
Income Statement January 2004
Particulars ` ` `
Sales Revenue:
(14,000 units at ` 5) 70,000
(8,000 units at ` 4.75) 38,000
1,08,000
Production Costs:
Actual production
24,000 units
Direct Materials:
A (16,000 Kg @ ` 0.20) 3,200
B (10,000 Kg. @ ` 0.80) 8,000
11,200
Direct Labour:
Skilled (13,000 Hrs. @ ` 2.95) 38,350
Un-skilled (6,300 Hrs.@ ` 2.60) 16,380
54,730
Overhead Costs:
Fixed 18,020
Variable (24,000 units @ ` 0.625) 15,000
98,959
Add: Opening Stock 4,000
(1,000 units @ ` 4)
1,02,950

Less: Closing Stock 12,000

(3,000 units @ ` 4)
Cost of Goods Sold 90,950
During the period 1,000 abnormal idle hours for skilled labour due to machine breakdown, was reported.
In the above statement stock is valued at standard cost of ` 4 per unit.
Required: Prepare a standard costing statement analysing the differences between the budget and the actual
performance. In your analysis include calculations of the sales volume and sales price variances; direct material
price, mix yield and usage variances direct labour rate, idle time and efficiency variances; overhead expenditure
and volume variances. (C.A Final May 1995)
Working Notes:
I. Sales Variance
(1) Sales Volume Margin Variance
(Actual Sales Volume: Budgeted Volume) Standard Margin
= (22,000 units - 20,000 units) Re. 1 = ` 2,000 (F)
(2) Sales Margin Price Variance
Actual Sales Volume (Actual Selling Price Budgeted Selling Price)
= [14,000 units (` 5 ` 5] + [8,000 units (` 4.75 ` 5)] = ` 2,000 (A)
II. Material Variances
(1) Material Price Variance
(Standard price-Actual Price) Actual quantity
A: (0.30 0.20) 16,000 kg. = ` 1,600 (F)
B: (0.70 0.80) 10,000 kg. = ` 1,000 (A) = ` 600 (F)
(2) Material Mix Variance
Total Actual Quantity (S.C. of Std. mix per kg. S.C. of actual mix per kg.)
= 26,000 kg. [ ` 10,000

_________

` 11,800
_________
20,000 kg. 26,000 kg. ] = ` 1,200 (F)
(3) Material Yield Variance

Std, rate per kg. of output (Actual Yield-Std. Yield)
= 0.50 (24,000 kg. 26,000 kg.) = ` 1,000 (A)
III. Labour Variance
(1) Labour Rate Variance
(Std. rate p.h. Actual rate p.h.) Actual hours
Skilled Labour : (` 3 ` 2.95) 13,000 hrs. = ` 650 (F)
Unskilled Labour : (` 2..50 ` 2.60) 6,300 hrs. = ` 630 (A) = ` 20 (F)
(2) Labour Efficiency Variance
(Std. hrs. four Actual output Actual hours) Std. rate p.h.
Skilled Labour : (10,800 hrs. 12,000 hrs.) `3 = ` 3,600 (A)
Un-skilled Labour : (6,240 hrs 6.300 hrs.) ` 2.50 = ` 150 (A) = `3,750 (A)
(3) Idle Time Variance
(Idle hours Standard Wage rate p.h.) = ` 3,000(A)
Skilled Labour: 1,000 hours ` 3

IV. Variable Overhead Variance

(1) Variable Overhead Expenditure Variance
(Variable Overhead recovered on actual output Actual Variable Overhead)
= (24,000 units ` 0.50) ` 15,000 = ` 3,000 (A)
V. Fixed Overhead Variances
(1) Fixe Overhead Expenditure Variance
(Budgeted Expenditure Actual Expenditure)
= (` 20,000 ` 18,020) = ` 1,980 (F)
(2) Fixed Overhead Volume Variance
(Budgeted Volume Actual Volume) Std. rate per unit
= (20,000 units 24,000 units) ` 1 = ` 4,000(F)
Statement reconciling Actual Profit and Budgeted Profit
Particular Reference of Favorable Variance Adverse Actual
working note
(as, per Budgeted income
statement)
I. Sales Variances
Sales Vol. Margin Variance 1 2,000
Sales Margin Price Variance 2` 2,000
Profit before adjustment of
cost variances 2,000
II. Material Variances
Price 1 600
MIX 2 1,200
Yield 3 1,000
Using variance 600(A) 1,400(A)
Labour
Rate Variance 16(A)
Efficiency Variance 300(A) 316(A)
Overhead
Expenditure Variance 600(F)
Volume Variance 510 (A) 90(F) 1,626
Question 66: The Standard Cost of producing one unit of Item Q is an under
Direct Material A 12 Kg. @ ` 10 120
B 5 Kg. @ ` 6 30
Direct Wages 5 Hrs. @ ` 3 15
Fixed Production Overhead 35
Total Standard Cost 200
Standard Gross Profit 50
Standard Sale Price 250
Fixed Production overhead is absorbed on expected annual output of 13,200 units.
External result for the month of September, 2004 are as under:
Internal production: 1,000 Units.
Sales (1,000 Unit @ ` 250) 2,50,000
Direct Material (A 11,000 Kg.) 1,21,000
(B 5,200 Kg.) 28,600
Direct Wages (5,500 Kg.) 17,500
Fixed Overhead 39,000
2,06,100
Cross Profit 43,900

You are required to calculate all variances. Material price variance is taken out at the time of receipt of Material
Initial purchased were: 12,000 Kg. of A @ ` 11 & 5,000 Kg. of B @ ` 5.50
(C.A. Final Nov 1997)
Statement showing standard and actual costs of material for 1,000 units of
output and standard cost of actual**
Standard cost Actual cost Standard cost of actual input
Standard price
Qty. Price Amount Qty. Price Amount Actual Standard Amount.
Qty. price/Kg.
Kg. ` ` Kg. ` ` Kg. ` `
12,000 10 1,20,000 11,000 11 1,21,000 11,000 10 1,10,000
5,000 6 30,000 5,200 550 28,600 5,200 6 31,200
1,50,000 1,49,600 1,41,200
1,000 units
__________
Standard yield (units) = 16,200 kg = 952.94176 units approx.
17,000 kg
STANDARD COSTING AND VARIANCE ANALYSIS

(2) Statement showing standard and actual labour cost of 1,000 units produced and standard cost of actual hrs.
Hours Rate Amount Hours Rate Amount Hours Rate Amount
p.h. p.h. p.h.
` ` ` ` ` `
5,000 3 15,000 5,500 3.1818 17,500 5,500 3 17,500
(3)
Particulars Budgeted Overhead
Finished overhead (`) 38,500
Hours 5,500
Output (units) 1,100
Standard time P.U. (hrs.) 5
Standard fixed overhead P.U. (`) 35
Standard fixed overhead rate P.H. (`) 7
(a) Material Variances
(1) Material cost variance
= Standard cost Actual cost
= ` 1,50,000 ` 1,49,600 = ` 400(F)
(2) Material Price variance
= Actual Quantity (Std. Price Actual Price)
= 11,0000 kg (` 10 ` 11) + 5,200 kg (` 6 ` 5.50)
= ` 11,000 (A) + ` 2,600 (F) = ` 8,400 (A)
(3) Material usage variance
= Standard price (Standard quantity Actual quantity)
= ` 10 (12,000 kg. 11,000 kg) + ` 6(5,000 kg 5,200 kg)
= ` 10,000 (F) + ` 1,200 (A) = ` 8,800 (F)

(4) Material mix variance

= Total actual quantity (Std. price of Std. Mix per Kg. Std. Price of actual mix per Kg.)
= 16,200 Kg. [ ________

` 1,50,000 _________

` 1,41,200
17,000 Kg 16,200 Kg. ]= ` 1741.18 (F)
(5) Material yield variance

= Std rate (Actual yield Std. Yield)
= ` 150 (1,000 Units 952.9412 Units) = ` 7058.82 (F)
(6) Material Purchase price variance
= Actual quantity of material purchased (Std. price per Kg. Actual price per Kg.)
= 12,000 Kg. (` 10 ` 11) + 5,000 Kg. (` 6 ` 5.50)
= ` 12,000 (A) + ` 2,500 (F) = ` 9,500 (A)
Labour Variances
(1) Labour cost variance
= (Standard cost Actual cost)
= ` 15,000 `, 7,500 = ` 7,500(A)
(2) Labour rate variance
= Actual hrs. (Std. rate Actual rate)
= 5,500 (` 3 ` 3.1818) = `1,000 (A)
(3) Labour efficiency variance
= Std. rate p.h. (Std. hours Actual hours)
= ` 3(5,000 hrs. 5,500 hrs) = ` 1,,,500 (A)
Based Overhead Variance
(1) Total fixed overhead variance
= Fixed overhead absorbed Actual fixed overhead
= (1,000 units ` 35) ` 39,000
= ` 35,000 ` 39,000 = `4,000 (A)
(2) Fixed overhead expenditure variance
= Budgeted fixed overhead Actual fixed overhead
= ` 38,500 ` 39,000 = ` 500 (A)
(3) Fixed overhead volume variance
= Std. fixed overhead rate per unit (Actual output Budgeted output)
= ` 35(1,000 units 1,100 units) = ` 3,500 (A)
(4) Efficiency variance
= Std. fixed overhead rate per unit (Actual output Budgeted output)
= ` 35(1,000 units 1,100 units) = ` 3,500 (A)
(b) Direct Material Variances
Production 7,500 Std. requirement
Op. Stock 600 7,200 units @ 1.5 Kg. = 10,800 kg.
+ Cl. Stock 300
Introduced 7,200
Std Qty. Actual S.P. Std. Qty. Actual AP Actual
Qty. SP Qty SP Qty AP
` ` ` ` `
10,800 12,000 6 64,800 72,000 6/50 78,000

Usage Variance ` 64,800 ` 72,000 = ` 7,200 A

Price Variance ` 72,000 ` 78,000 = ` 6,000 A
Total Variance ` 64,800 ` 78,000 = ` 13,200 A
(c) Direct Labour Variance
Production 7,500
Less: Op. Stock 450 Std. hours produced

7,230 4 = 28,920
Add: Cl. Stock 180
7,230
Std. Hours Actual SR Std. Hrs. Actual AR Actual

Hours SR Hrs. SR Hours AR
` ` ` ` `
28,920 29,000 6 1,73,520 1,74,000 6/25 1,81,250
Efficiency Variance (1,73,520 1,74,000) = 480 A

Rate Variance (1,74,000 1,81,250) = 7,250 A
Total Variance = 7,730 A
(d) Variable Overheads Variance
`
A = Charged to Production 28,920 Efficiency variance ` 80 A
28,920 1
B = Std. Cost of Actual Hours 29,000 Expenditure variance ` 7,000 A
29,000 1
C = Actual Overheads 36,000
A C Total V ` 7,080 A
(e) Fixed Overheads Variance
`
A = Charged to Production 28,920 3 86,760
B = Std. Cost of Act. Hrs. 29,000 3 87,000
C = Budget 96,000
D = Actual 94,000
Efficiency Variance (86,760 87,000) = ` 240 (A)
Volume Variance (86,760 94,000) = ` 9,240 (A)
Capacity Variance (87,000 96,000) = ` 9,000 (A)
Expenditure Variance (96,000 94,000) = ` 2,000 (F)
Total Variance (86,760 94,000) = ` 7,240 (A)
Question 67: The following information has been extracted from the books of a company using standard costing
system for November 2004:
Direct materials:
80 kgs. of materials were consumed. The purchase cost there of is ` 49,600. Standard price per kg. of direct material
` 60. The expected output is units per kg. of direct material.

Direct labour:
Budget for a 5-day week of 40 hour.
Grade A labour 8,000 hours @ ` 5 per hour.
Grade B labour 8,000 hours @ ` 4 per hour.
During November 2002, due to shortage of labour, the mix was changed as under
Grade A labour 6,000 hours @ ` 5 per hour.
Grade B labour 10,000 hours @ ` 4 per hour.
Analysis of working revealed:
Grade A labour 6,600 hours @ ` 5.20 per hours.
Grade B labour 11,000 hours @ ` 3.90 per hours.
where were 21 days in November 2004, out of which one day was holiday leaving 20 working days. In fact the
company actually worked 21 days in November 2004. However, power failure, machine breakdown, etc. resulted
in 240 idle hours of Grade A labour.
Variable overheads:
Standard cost per unit ` 2.50.
Actual overheads ` 15,750 for November 2004.
Fixed overheads.
Budget ` 4,40,000 per annum.
Budget production 62,500 units per annum.
Actual overheads for November 2004 ` 35,000.
Other data:
Budgeted weeks 50 in a year.
Actual production in November 2004 6,000 units.
Sales:
Budget 6,000 units @ ` 60 each.
Actual 4,800 units @ ` 62 each.
Analysis the variances in as much detail as possible. (I.C.W.A. Final Dec 1998)
Direct Material Variances
Output = 6,000 units
Standard quantity = 6,000/8 = 750 kgs.
1. Direct Material Cost Variance
(Std. units Std. price) (Actual units Actual price)
= (750 60) (800 62)
= 45,000 49,600 = 4,600 (A)
2. Direct Material Price Variance
Actual Qty. (Std. price per kg. Actual price per kg.)
= 800(60 62) = 1,600 (A)
3. Direct Material Usage Variance
Std. price per kg. (Std. Qty. Actual Qty.)
= 60 (750 800) = 3,000 (A)
Price Variance + Usage Variance = Cost Variance
= ` 1,600 (A) + ` 3,000 (A) = ` 4,600 (A)
II. Direct Labour Variances
Budgeted no. of days
= 50 weeks 5 days/per week = 250 days
Budgeted production = 62,500 units.

Production per day (62,500 units / 250 days) = 250 units

Production for 20 days
= 250 units 20 days = 5,000 units
Std. Time per unit
= 16,000 hrs./5,000 units = 3.2 hrs.
Std. hrs. for actual production
= 6,000 units 302 hrs. = 19,200 hrs.
Std. Hours
Revised Std. hours
Actual hrs. on job in revised Std. ratio
Actual hrs.
Actual hrs.
1. Direct Labour Cost Variance

(Std. hrs Std. rate) (Actual hrs. Actual rate)
Grade A = (9,600 hrs. ` 5) (6,600 hrs. ` 5.20)
= ` 48,000 ` 34,320 = ` 13,680 (F)
Grade B = (9,600 hrs. ` 4) (11,000 hrs. ` 390)
= ` 38,400 ` 42,900 = ` 4,500 (A) = ` 9,180 (F)
2. Direct Labour Rate Variance
Actula time (Std. rate Actual rate)
Grade A = 6,600 (5 5.20) = 1,320 (A)
Grade B = 11,000 (4 3.90) = 1,100 (F) = 220 (A)
3. Direct Labour Efficiency Variance
Std. rate (Std. time for actual output Actual time)
Grade A = 5(7,200 6,360) = 4,200 (F)
Grade B = 4(12,000 11,000) = 4,000 (F) = 8,200 (F)

4. Direct Labour Mix Variance

Std. rate (Revised Std. time Actual time)
Grade A = 5(7,200 6,510) = 3,450 (F)
Grade B = 4(10,850 11,000) = 600 (A) = 150 (F)
5. Direct Labour Yield Variance
Std. rate (Revised Std. hours Actual hrs. on Job in revised Std. ratio)
Grade A = 5(7,200 6,510) = 3,450 (F)
Grade B = 4(12,000 10,850) = 4,600 (F) = 8,050 (F)
6. Idle Time Variance
Std. Rate (Actual hours on Job Actual hours)
Grade A = 5(6,360 6,600) = 1,200 (F)
Grade B = 4(11,000 11,000) = (Nil) = 1,200 (A)
7. Direct Labour Revision Variance
Std. rate (Std. hrs. Revised Std. hrs.)
Grade A = 5(9,600 7,200) = 12,000 (?F)
Grade B = 4(9,600 12,000) = 9,600 (A) = 2,400 (F)
III. Variable Overhead Variances
Std. variable overhead rate per hour = ` 2.50/3.2 hr.
= Re. 0.78125 per hr.
1. Variable Overhead Cost Variance
(Std. hrs. for actual output Std. variable overhead rate per hour) Actual overhead
= (19,200 0.78125) 15,750
= 15,000 15,750 = 750 (A)
2. Variable Overhead Expenditure Variance
(Actual hrs. for actual output Std. variable overhead rate per hour) Actual overhead
= (17,360 0.78125) 15,750
= 13,563 15,750 = 2,187 (F)
IV. Fixed Overhead Variances
Std. Fixed overhead
= 62,500 units 3.2 hrs. = 2,00,000 hrs.
Std. Fixed overhead rate per hour
= ` 4,40,000/2,00,000 hrs. = R.s 2.20 per hour
Budgeted hours in actual days
= = 16,800 hrs.
1. Fixed Overhead Cost Variance

(Std. hrs. for actual production Std. fixed overhead rate) Actual fixed overheads
= (19,200 2.20) 35,000
= 42,240 35,000 = 7,240 (F)
2. Fixed Overhead Expenditure Variance
Budgeted overheads Actual overheads
= (16,000 2.2) 35,000
= 35,200 35,000 = 200 (F)
3. Fixed Overhead Volume Variance
Std. rate per hour (Std. hrs. Budgeted hrs.)
2.20 (19,200 16,000) = 7,040 (F)

V. Sales Variances
Standard Quantity = 6,000 units.
Actual Quality = 4,800 units.
Selling price per unit = 60
1. Sales Value Variance
(Std Qty. Std. Selling price) (Actula Qty. Actual Selling Price)
= (6,000 60) (4,800 62)
= 3,60,000 2,97,600 = 62,400 (A)
2. Sales Price Variance
Actual Qty. (Std. selling price Actual selling price)
= 4,800(60 62) = 9,600 (F)
3. Sales Volume Variance
Std. Selling Price (Std. Qty. Actual Qty.)
= 60(6,000 4,800) = 72,000 (A)
Summary of Variances
Variances
Particulars Favourable Adverse Total
1. Direct Material
(a) Price 1,600
(b) Usage 3,000
4,600
Direct Material Cost Variance 4,600 (A)
2. Direct Labour
(a) Rate 220
(b) Efficiency
Mix 150
Yield 8,050
Idle time 1,200
Revision 2,400
10,600 1,420
Direct Labour Cost Variance: 9,180 (F)
3. Variable Overhead
(a) Expenditure 2,187
(b) Efficiency 1,437
1,437 2,187
Variable Overhead Cost Variance 750 (A)
4. Fixed Overhead
(a) Expenditure 200
(b) Volume 7,040
7,240
Fixed Overhead Cost Variances 7,240 (F)
5. Sales Variances
(a) Price 9,600
(b) Volume 72,000
9,600 72,000
Sales Value Variance 62,400 (A)

Question 68: The following information is available in respect of Y Ltd. for a week:
(a) 400 kg of raw material were actually used in producing product EXE. The purchase cost thereof being
` 24,800. The standard price per kg of raw material is ` 60. The expected output is 12 units of product
EXE from each kg of raw material. Raw material price variance and usage variance as computed by cost
accountant are ` 800 (adverse) and ` 600 (adverse), respectively.
(b) The week is of 40 hours. The standard time to produce one unit of EXE is 30 minutes. The standard wage
rate is ` 5 per labour hour. The company employs 60 workers who have been paid hourly wage rate as
under:
Number of worker: 6 8 46
Hourly Wage Rate (`): 4.80 5.20 5.00
(c) Budgeted overheads for a four weekly period is ` 81,600. The actual fixed overheads spent during the said
week are ` 19,800.
(d) Entire output of EXE has been sold at its standard selling price of ` 15 per unit.
Required:
(i) Compute the variances relating to labour and overheads.
(ii) Prepare a statement showing total standard costs, standard profit, and actual profit for the week.
Solution:
Working Notes:
1. Computation of Standard Quantity and Cost of Raw Material required for actual output.
Actual Output of E E 4,680 units
Standard Output per kg. of Raw Material 12 units
Standard Quantity of Raw Material required for actual output (4,680 units/ 12 units) 390 kgs
Standard Cost of Raw Material (390 Kgs. @ ` 60) ` 23,400
2. Tabulation of Data for computation of labour variances.
Standard Labour for actual output Actual Labour for actual output
Standard Time Rate per Amount Std. Cost for Actual Time Rate per Amount
(Hours) hour (`) (`) actual hours (`) (Hours) hour (`)
(`)
2,340* 5 11,700 12,000 240 4.80 1,152
320 5.20 1,664
1,840 5.00 9,200
2,340 11,700 12,000 2,400 12,016
*4,680 units hrs.

3. Tabulation data for computation of fixed overhead variance.
Particulars Budgeted data Actual data
Fixed Overhead (for One Week) (`) 20,400
Labour hours (60 workers 40 hrs. per week) 2,400
Output (Units) 4,800
Standard Rate per hour (`) 8.50
Standard Rate per Unit (`) 4.25
(i) Computation of labour and overhead variances
1. Labour Cost Variance
(Standard Cost of Labour Actual Cost of Labour)
= ` 11,700 ` 12,016 = ` 316
2. Labour Rate Variance
Actual hours (Standard Rate Actual Rate)
= ` 12,000 ` 12,016 = ` 16

3. Labour Efficiency Variance

Standard Rate per hour (Standard hours Actual hours paid)
= ` 11,700 ` 12,000 = ` 300
4. Total fixed overhead cost variance
(Fixed overhead absorbed Actual Fixed Overhead)
= [(4,680 units `4.25)- ` 19,800] = ` 90
` 19,800 ` 19,800
5. Fixed Overhead Volume Variance
Standard Fixed Overhead per unit (Actual Output Budgeted Output)
= ` 4.25 (4,680 units 4,800 units) = ` 510
6. Fixed Overhead Expenditure Variance
(Budgeted Fixed Overhead Actual Fixed Overhead)
= ` 20,400 ` 19,800 = ` 600
(ii) Statement showing total standard costs, standard profit and actual profit for the week.
Sales (4,680 units @` 15) 70,200
Less: Standard Cost
Direct Material 23,400
Direct Labour 11,700
Overheads (4,680 units @ ` 4.25) 19,890 54,990
Standard Profit 15,210

Less: Adjustment for Variance
Raw Material
Price Variance 800(A)
Usage Variance 600(A) 1,400(A)
Labour
Rate Variance 16(A)
Efficiency Variance 300(A) 316(A)
Overhead
Expenditure Variance 600(F)
Volume Variance 510(A) 90(F)
13,584
Actual Profit
BALANCE SCORE CARD

Balanced Scorecard is a strategic-based performance management system that typically identifies objectives and
measures for four different perspectives, the financial perspective, the customer perspective, the process perspective,
and the learning and growth perspective.
Development

Strategy Translation Process, Vision and Strategy

Strategy is defined by Kaplan and Norton as:
Choosing the market and customer segments the business unit intends to serve, identifying the critical internal
and business processes that the unit must excel at to deliver the value propositions to customers in the targeted
market segments, and selecting the individual and organizational capabilities required for the internal, customer,
and financial objectives.
Strategy translation means specifying objectives, measures, targets, and initiatives for each perspective.

Common Characteristics of Balanced Scorecards

Performance measures used in the balanced scorecard approach tend to fall into the four groups financial, customer,
internal business processes, and learning and growth. Internal business processes are what the company does in an
attempt to satisfy customers.
Financial Perspective
(i) Establishes long term and short term financial performance objective
(ii) Describes the economic consequences of actions taken in other three perspectives.
It has three strategic themes:
9 Revenue Growth
9 Cost Reduction
9 Asset Utilization
Customer Perspective:
9 Increase market share
9 Increase customer retention
9 Increase customer acquisition
9 Increase customer satisfaction
9 Increase customer productivity
Performance value:
9 Decrease price
9 Decrease post purchase functionality
9 Improve product quality
9 Increase delivery reliability
9 Improve product image and reputation
Process Perspective:
9 Increase the no. of new product
9 Increase proprietary products
9 Decrease product development cycle time.

Operations:
9 Increase product quality
9 Increase process efficiency
9 Decrease process time
Post sales service:
9 Increase service quality
9 Increase service efficiency
9 Decrease service time.
Responsibility Accounting Model & Essential Elements
1. Assigning Responsibility
2. Establishing performance measures or Benchmarks
3. Evaluating Performance
4. Assigning Rewards

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Standard Costing 3

Sec 1_Ch-03_Sandard Costing.indd 3.1 1/12/2011 3:48:39 PM

Objectives for Adopting Standard Costing System

Variance Analysis and Accounting

Sec 1_Ch-03_Sandard Costing.indd 3.2 1/12/2011 3:48:41 PM

Timing of Price Variance Computation

Timing of the Computation of the Direct Material Usage Variance

Responsibility for the Direct Material Variances

Responsibility for the Direct Labour Variances

Variable Overhead Efficiency Variance

Responsibility for Variable Overhead Expenditure Variance and

Sec 1_Ch-03_Sandard Costing.indd 3.3 1/12/2011 3:48:41 PM

Variance Analysis Overhead Costs

Variable Overhead Expenditure Variance

Fixed Overhead Variances

Graphical representation of fixed overhead variances

Sec 1_Ch-03_Sandard Costing.indd 3.4 1/12/2011 3:48:41 PM

Advantages and Disadvantages of Standard Costing

Direct Material Mix and Yield Variance

Direct Labour Mix and Yield Variance

Sec 1_Ch-03_Sandard Costing.indd 3.5 1/12/2011 3:48:41 PM

Data for Material Variances

Sec 1_Ch-03_Sandard Costing.indd 3.6 1/12/2011 3:48:43 PM

2. Material Usage Variance (S.Q A.Q.) S.R

Material Cost Variance = Material Price Variance + Material Usage Variance

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Calculate the following Variances:

2. Material Usage Variance (S.Q. A.Q.) S.R.

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Actual production for December was 6,20,000 tiles.

Data for Material Variance

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Question 9: From the data given below, calculate:

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Material Price Variance:

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Material Usage Variance:

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4. Actual Loss = (110 90) = 20 kg

Material mix variance for both products together was ` 45 adverse.

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Question 13: The following information is provided.

() Loss (Normal) 1,000 9,00

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The work is actually completed in 32 weeks.

Statement of Labour Variance

3. Labour Efficiency Variance (Standard Hrs. Act. Wor. Hours) S.R.

4. Labour Adle Hour Variance Men 13 2 1 = 26 A

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Statement of Labour Variances

Question 17: The following data is given:

The standard time to produce one unit of the product is 20 hours.

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Budget Standard Actual

V.O/H. Cost Variance:

Required: You are required to prepare a statement of variances.

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F O/H Efficiency Variance

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Expenditure Variance = Budgeted Overheads Std. Overheads

Required: Calculate the fixed overhead variables.

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