Standard Costing 2

STANDARD COSTING WITH SOLUTIONS
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 (A)
Material Usage Variance = Excess price variance due to emergency order + (S.Q. – A.Q.) × S.P.
= (12 – 20) × 5,000 + (18,000 – 25,000) × 10
= ` 1,10,000 (A)
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 48,000 Favourable
Variance) i.e. SC–AC
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 (A)
OR
Material Cost Variance = Standard Cost – Actual Cost
= 4,400 – 5,200
= ` 800 (Adverse)
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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 (`)
Material A 10 2 20 5 3 15
Material B 20 3 60 10 6 60
Material C 20 6 120 15 5 75
Total 50 4 200 30 5 150
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 30 150
1. Material Price Variance (S.R. – A.R.) × AQ
A.→ (2 – 3) × 5 = 5 (A)
B.→ (3 – 6) × 10 = 30 (A) 20 (A)
C.→ (6 – 5) × 15 = 15 (F)
2. Material Usage Variance (S.Q. – A.S.) × S.R.
A.→ (10 – 5) × 2 = 10 (F)
B.→ (20 – 10) × 3 = 30 (F) 70 (F)
C.→ (20 – 15) × 6 = 30 (F)
3. Material Cost Variance M.P.V. + M.U.V.
20 (A) + 70 (F) 50 (F)
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Question 6: 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 kg Stock on 30.4.80 kg Purchased during April 1980
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:
Data for Material Variances
Material Budgeted Standard Standard Actual
for Actual
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 1,212 1,190 2.5168 2,995.00
100 340 2,000 6,800 2,020 6,513.75
Sl. Particulars Basis Amount (`)
A: (4 – 4.2394) × 830 = 199 (A)
B: (3 – 2.5168) × 1190 = 575 (F) 376 (F)
2. Material Usage Variance (S.Q. – A.Q.) × S.R.
A: (800 – 830) × 4 = 120 (A)
B: (1,200 – 4,190) × 3 = 30 (F) 90 (A)
3. Material Yield Variance (Standard Ratio for total standard quantity – Standard ratio for
total actual
quantity) × S.R.
A: (800 – 808) × 4 = 32 (A)
B: (1,200 – 1,212) × 3 = 36 (F) 68 (A)
4. Material Mix Variance (Standard Ratio for actual mix – Actual ratio for actual mix) ×
S.R.
A: (808 – 830) × 4 = 88 (A)
B: (1,212 – 1,190) × 3 = 66 (F) 22 (A)
5. Material Cost Variance Material price variance + Material Usage Variance 286 (F)
376 (F) + 90 (A)
Actual price per kg.

Material A:- ` 35 × 4 + 795 × 4.25
35 + 795
= `3518.85 = ` 4.239
830
Material B:- ` 40 × 3 + 1150 × 2.5
40 + 1150
= ` 2995 = ` 2.5168
1190
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Question 7: 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: Data for Material Variance
Materials Budgeted (80,000) Standard (6,20,000) S.Q. for Actual (6,20,000)
Act. Mix
Materials Qty. Rate (`) Qty. Rate (`) Qty. Qty. Rate (`)
A 600 1 600 4,650 1 4,650 4,920 5,000 2 10,000
B 400 2 800 3,100 2 6,200 3,280 2,900 4 11,600
C 500 3 1,500 3,875 3 11,625 4,100 4,400 5 22,000
1500 2900 22,475 12,300 43,600
S.. No. Particulars Basis Amount (`)
1. Material Price Variance (S.R. – A.R.) × A.Q.
(M.P.V.) A.→ (1 – 2) × 5000 = 5000(A)
B.→ (2 – 4) × 2900 = 5800(A) 19,600 (A)
C.→ (3 – 5) × 4400 = 8800(A)
2. Material Usage Variance (S.Q. – A.Q.) × S.P.
(M.U.V.) A.→ (4650 – 5000) × 1 = 350(A)
B.→ (3100 – 2900) × 2 = 400(F)
C.→ (3875 – 4400) × 3 = 1575(A) 1,525 (A)
3. Material Mix Variance (S.Q. for actual mix – Actual Quantity) × S.P.
A.→ (4920 – 5000) × 1 = 80(A)
B.→ (3280 – 2900) × 2 = 760(F) 220 (A)
C.→ (4100 – 4400) × 3 = 900(A)
4. Material Yield Variance (Standard quantity – Standard ratio for actual quantity) ×
S.P.
A.→ (4650 – 4920) × 1 = 270(A)
B.→ (3100 – 3280) × 2 = 360(A) 1,305 (A)
C.→ (3875 – 4100) × 3 = 675(A)
5. Material Cost Variance M.P.V. – M.U.V.
19,600(A) + 1525(A) 21,125 (A)
Working Notes:
Calculation of Budgeted No. of Tiles
NO. of Tiles= A/a = 20,000 Sq. Ft/6 X 6 sq. inch = 20,000 X12 X 12 sq. inch/36 X sq inch = 80,000
units.
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Question 8: 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 4,569.50 2,250 2.00 4,500
Y 3,680 1.30 4,784.00 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 (A)
Material Y.→ (1.30 – 1.25) × 5,000 250 (F)
2. Material Usage Variance (S.Q – A.Q.) × S.R.
Material X.→ (2,405 – 2,250) × 1.90 294.50 (F)
Material Y.→ (3,680 – 3,700) × 1.30 26 (A)
Working Notes:
1. Calculation of Standard Quantity of Raw Material Required
Material X: No. of products × Material required/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) = 3,380 kg
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
2,450 4,950
(–) Closing stock at works 200 1,250
Actual consumption 2,250 3,700
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Question 9: (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
Qty Rate Amount (`) Qty Rate Amount (`)
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
1 lot 3,800 150.5 lot 6,19,340
Standard
Qty Rate Amount (`)
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 5,71,900
Material Price Variance:

A = (1 –1.1) 3,00,500 = 30,050 (A)
(1.5 – 1.65) 1,19,600 = 17,940 (A)
C = (30 – 29.5) 3,100 = 1,550(F)
= 46,440 (A)
Material Usage Variance= (SQ – AQ) SR
A: (3,01,000 – 3,00,500) × 1 = 500(F)
B: (1,20,400 – 1,19,600) × 1.5 = 1200(F)
C: (3,010 -3,100) X 30 =2,700
(1,000) (A)
Material Cost Variance:
= SC – AC
Or MPV + MUV
= (46,440) + (1,000) = (47,440) (A).
Question 10: 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:
Material mix variance total
Material usage variance total
Material price variance total
Actual loss of actual input
Actual input of Chemical ‘A’
Actual price per kilogram of Chemical ‘B’
Solution:
Data for Material Variance
Standard Actual
Material Qty. Rate Amount Standard Qty. (kg) Rate Amount
(kg) (`/kg) Ratio for (`/kg)
(`) (`)
Actual Mix
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= (Standard Ratio for Actual Mix – Actual Ratio for Actual Mix) ×
Standard Rate
= (55 – 40) × 12 + (55 – 70) × 15
= (15 × 12) + (–15 × 15)
= – 15 × 3 = – 45
= 45 (A)
2. Material Usage Variance= (S.Q. – A.Q.) × S.R.
= (50 – 40) × 12 + (50 – 70) × 15
= 180 (A)
3. Material Price Variance= (S.R. – A.R.) × A.Q.
=(12 – 15 ) X 40 + (15 – 20) X 70
= 470 (A)
4. Actual Loss = (110 – 90) = ` 20/kg
5. Actual Input of Chemical A = 110 – 70 = ` 40/kg
6. Actual Price per Kg of Chemical B = ` 1,400/70 = ` 20/ kg
Working Notes:
. M.C.V = S.C. – A.C.
- 650 = 1,350 – A.C.
Actual Cost = 1,350 + 650 = 2,000
2. Material Yield Variance = (Total Standard Quantity – Total Actual Quantity) × Standard Weighted
Avg. Rate
-135 = (100 – T.A.Q) X 1,350/100
- 13,500
1,350 = 100 – T.A.Q.
- 10 = 100 – T.A.Q.
Total Actual Quality = 100 + 10
= 110 kg
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Question 12: 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
Y 90,000 72,000 2.00
60 × 1,000 = 3 1,80,000 61,500 3 1,84,500 70 × 900 = 1,26,000
60,000 63,000
1,50,000 3,60,00 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 = 36,000
(A) 27,000 (F)
Grade Y.→ (3 – 2) × 63,000 = 63,000 (F)
2. Labour efficiency variance (Standard hour – Actual work hrs.) × Standard
rate
Grade X.→ (92,250 – 72,000) × 2 = 40,500 (F)
Grade Y.→ (61,500 – 63,000) × 3 = 4500 (F) 36,000 (Fav.)
Working Notes:
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.
2. Calculation of Revised Budgeted Hrs.
X: 4,000 F.G. = 90,000 Labour Hrs.
1 F.G 90,000 LAbour Hrs.
4,000
4100 F.G. = 90,000
4,000 X 4,100 Labour Hr.
= 92,250 Labour Hrs.
Y: 4,000 F.G. = 60,000 Labour Hrs.
1 F.G 60,000 LAbour Hrs.
4,000
4100 F.G = 60,000 X 4,100 Labour HRs.
4,000
= 61,500 Labour Hrs
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Question 13: 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, ` 2 and ` 3, 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 ` 3,
` 4 and ` 5, respectively. Two hours were lost due to abnormal idle time and 960 units of output were
produced. Calculate 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
600 576 600
Boys 200 3 1,400 192 3 1,344 120 5 2,800 114
Statement of Labour Variance

1. Labour Cost Variance (S.C. – A.C.)
1344 – 2800 1,456 (A)
2. Labour Rate Variance (S.R. – A.R.) × Actual Payment Hrs
Men: (1 – 3) × 520 = 1040 (A)
Women: (2 – 4) × 160 = 320 (A) 1,600 (A)
Boys: (5 – 43) × 120 = 240 (A)
3. Labour Efficiency Variance (Standard Hrs. – Actual Working Hours) × S.R.

Men: (384 – 494) × 1 = 110 (A)
Women: (192 – 152) × 2 = 80 (F) 204 (F)
Boys: (192 – 114) × 3 = 234 (F)
4. Labour Idle Time Variance (Idle Time × S.R.)

Men: 13 × 2 × 1 = 26 (A) 60 (A)
Women: 4 × 2 × 2 = 16 (A)
Boys: 3 × 2 × 3 = 18 (A)
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Question 16: 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 No. of Labourers Weekly wage rate No. of Weekly wage rate
Workers per Labourer (`) Labourers 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
Category Budget/Revised Actual
Category Time Rate Amount Standard Ratio for Qty. Rate Amount
(weeks) (`/week) (`) Actual Mix (weeks) ( `)
Skilled 2,250 60 1,35,000 2,250 2,240 70 1,56,800
Semi-skilled 1,350 40 54,000 _ 960 50 48,000
Unskilled 1,800 30 54,000 2,400 (5400 × 5,760 2,560 20 51,200
1,350 5,760
_
1,440 ( 5400 × 5,760
1,800
_
1,920 (5400 × 5,760
5760
5400 2,43,000 5760 5,760 2,56,000
Statement of Labour Variances
No.
1. Labour cost Standard Cost – Actual Cost 13,000 (A)
variance 2,43,000 – 2,56,000 = 13,000 (Adv.)
2. Labour rate (S.R. – A.R.) × Actual Payment Hrs

variance Skilled: (60 – 70) × 2240 = 22400 (A)
Semi-skilled: (40 – 50) × 960 = 9600 (A) 6,400 (A)
Unskilled: (30 – = 25600 (F)
3. Labour (S.Q. – A.Q.) × S.R

efficiency Skilled: (2,250 – 2,240) × 60 = 600 (F)
variance Semi-skilled: (1,350 – 960) × 40 = 15,600 (F) 6,600 (A)
Unskilled: (1,800 – 2,560) × = 22,500 (A)
4. Labour mix (S. Ratio for Actual Mix – Actual Ratio for Actual Mix) × S.R.
variance Skilled: (2,400 – 2,240) × 60 = 9,600 (F)
Semi-Skilled: (1,440 – 960) × 40 = 19,200 (F)
Unskilled: (1,920 – 2,560) × 30 = 19,200 (A) 9,600 (F)
5. Labour (Standard Ratio for Standard Quantity – Standard Ratio for Actual Quantity) × S.R.
yield Skilled: (2,250 – 2,400) × 60 = 9000(A)
variance Semi-Skilled: (1350 – 1440) × 40 = 3600(A) 16,200 (A)
Unskilled: (1800 – 1920) × 30 = 3600(A)
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Question 18: 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 `) 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 (400 FG) Standard (360 FG) Actual (360 FG)
Hrs Rate Amount Hrs Rate Amount Hrs Rate Amount
( `) `) (`)
Labour 8,000 1.25 10,000 7,200 1.25 9,000 7,000 1.3071 9,150
Variable Overhead Cost Variance:

= SC – AC = 9,000 – 9,150 = 150 (A)
Variable Overhead Efficiency Variance:
= (SH – AH) SR = (7,200 – 7,000) 1.25 = 250 (F)
Variable Overhead Exp. Variance:
= (SR – AR) Actual Working Hours
= (1.25 – 1.3071) 7,000 = 400 (A)
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Question 21: 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: Prepare a statement of variances.
Solution:
Fixed Overhead Volume Variance
= (Recovered Overhead – Budgeted Overhead)
= 1,200 – 1,400 = 200 (A)
Fixed Overhead Expenditure Variance
= (Budgeted Overhead – Actual Overhead)
= 1,100 – 1,000 = 100 (A)
Fixed Overhead Efficiency Variance
= (Standard Hours – Actual Hours) RR
= (34.2857 – 32) 35 = 80 (F)
Fixed Overhead Capacity Variance
= (Actual Working Hours – Budgeted Hours) Recovery Rate
= (32 – 40)35 = (280) (A)
Question 25:
Budgeted no. of working days 24
Budgeted no. of hours per month 12,000
Fixed overhead rate ` 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 (F)
Working Notes:
1. Calculation of Recovery Rate
2. Budgeted hours per month = 12,000 hrs.
3. fixed – overhead rate = 0.50/hr.
4. Budget fixed – overhead (In a month) = ` 6,000
5. Recovery Rate per day
= Total fixed Budget Oh 6,000
No. of Working days in a month 24 = `250/day
Budgeted hours, i.e. estimated
Actual hours worked
Actual fixed overhead
Required: Compute the expenditure and volume variances.
Solution:
Statement of Fixed Overhead Variances

Sl. No. Particulars Basis Amount
1. Fixed overhead Expenditure variance Budgeted – Actual
` 5,000 – ` 5,600 600 (A)
2. Fixed overhead volume variance Recovered – Budgeted
1500 (A)
3. Fixed overhead total variance
` 3,500 – ` 5,000
Recovered – Actual 2100 (A)
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Question 28:
Budgeted Output 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:
Statement of fixed overhead variances
Sl. No. Particulars Basis Amount
1. Fixed overhead expenditure variances Budgeted – Actual
10,000 – 12,500 2,500 (A)
2. Fixed overhead volume variances Recovered – Budgeted
8,800 – 10,000 1,200 (A)
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.
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Question30: 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: Compute
1:- Efficiency
variance
2:-Revised capacity variances
3:- Calendar variance
4:- Expense variance
5:- Volume variance
6:- Total fixed overheads variance
1. Efficiency variance (S. Hr – A.W.Hr) × R.R
= (21.220 – 21,840) × 6 3,720 (A)
2. Revised Capacity variance Total Cap. variance – Calendar Variance 18,720 (A)
12,960 – 5,760 (W.N. – 1)
3. Calendar variance (Actual days – Budgeted days) Standard 5,760 (F)

Rate/day
= (26 – 25) × 5,760 = 5,760
4. Expenses variance Budgeted – Actual 2,000 (F)

1,44,000 – 1,42,000
5. Volume variance Recovered – Budgeted 16,680 (A)

1,27,320 – 1,44,000
6. Total fixed overhead variance Recovered – Actual 14,680 (A)

1,27,320 – 1,42,000
Working Note1
Calculation of total Capacity Variance
Total Capacity Variance = (Actual Working Hours – Budgeted Hour) X Recovery Rate
= (21,840 – 24,000) X 6
= 12,960 Adverse
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Question 31: The following figures are extracted from the books of a company:
Particulars Budget Actual
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.

1. Fixed OH Volume Variances Recoverd – Budgeted 100 (F)
1,300 – 1,200
2. Fixed OH Expenditure Variances Budgeted – Actual 50 (A)

1,200 – 1,250
3. Fixed OH Cost Variance
Recovered – Actual 50 (F)
1,300 – 1,250
4. Fixed OH Efficiency Variance (S. Hrs – A.W.Hrs) × Recovery Rate 20 (A)

= (3,250 – 3,300) × 0.40
5 Fixed OH Capacity Variance (A.W.Hrs – Bud. Hrs) × Recovery Rate 120 (F)
= (3,300 – 3,000) × 0.40
6. Fixed OH Calendar Variance (Actual Work Days – Budgeted days) × R.R./day 96 (F)
1,200
_
= (27 – 25) ×
25
7. Fixed OH Balanced Total Capacity Variance – Calendar Variance 24 (F)

Capacity Variance = 120 Fav. – 96 Fav.
8. Variable OH Variable Standard variable OH for Actual Output – Actual 150 (A)
variable OH Actual Output
6,000
_
= × 6,500 – 6,650
6,000
= 6,500 – 6,650
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Question 32: 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:

Variance overhead variance (b) Fixed overhead variance.
Expenditure Variance (b) Volume Variance (c) Efficiency Variance (iv) Calendar variance.
No.
1. Variable OH Variances Standard Variable OH for actual output – Actual variable OH 600 (A)
for actual output
12,000
4000 × 3,800 – 12,000 = 11,400 – 12,000
2. Fixed OH Variance Recovered – Actual 1,000 (A)

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

40,000 – 39,000
4. Fixed OH Volume Variance Recovered – Budged 2,000 (A)

38,000 – 40,000
5. Fixed OH Efficiency Variance (Standard Working Hr – Actual Working Hour) × R.R./hr. 4,000 (A)
(152 – 168) × ` 250/hr.
6. Fixed OH Calendar Variance (Actual Working days – Budgeted Working days) × R.R. per 2,000 (F)
day
40,000
(21 – 20) ×
2
Question 33: A Cost Accountant of a company was given the following information regarding the overheads for
February 1987:
Overheads cost variance ` 1,400 adverse.
Overheads volume variance 1,000 adverse.
Budgeted hours for February 1987 1,200 hours.
Budgeted overheads for February 1987 ` 6,000.
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 Overhead 800 hrs.

_
Actual Rate
4. Overheads Capacity Variance (Actual hrs worked) × Recvoery Rate
6,000 2,000 (A)

_
5. Overheads Efficiency Variance (800 – 1,200) ×
1,200
6. Standard hours for actual production (Standard Hr. – Act. worked Hr.) × R.R. 1,000 (F)
(1,000 – 800) × 5
W.N. – 3 1,000 hrs.
Question 34: 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
24,000 units
Production for April 2005 amounted to 210 batches. The relevant statistics follows
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
Particulars Budgeted (1 FG) Standard (21,000) Actual (21,000)
(`) (`) (`)
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
Sl. Particulars Basis Amount
No. (` )
1. Material Price Variance (4.50 – 4.70) × 13,000 2,600 (A)
(S.P. – A.P.) × A.Q.
2. Material Usage Variance (S.Q. – A.Q.) × S.P. 1,800 (A)

(1,26,00 – 13,000) × 4.50
3. Material Cost Variance S.C. – A.C. 4,400 (A)

56,700 – 61,100
4. Labour Rate Variance (S.R. – A.R.) × Actual Working Hours 1,584 (A)
(8.25 – 8.45) × 7920
5. Labour Efficiency Variance (Standard Hrs. – Actual Working Hours) ×. S.R. 2,970 (A)
(7,560 – 7,920) × 8.25
6. Labour Cost Variance S.C. – A.C. 4,554 (A)

62,370 – 66,924
7. Variable OH Expenditure Variance (S.R. – A.R.) × Actual Working Hours 1,626 (F)
(4.75 – 4.545) × 7,920
8. Variable OH Efficiency Variance
(Standard Hrs. – Actual Working Hours) × S.R. 1,636 (A)
(7,560 – 7,920) × 4.545
9. Variable OH Cost Variance
S.C. – A.C. 10 (A)
35,910 – 36,000
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Question 35: 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 Amount (`)
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:
1:- Direct Material Cost Variance
2:- Material Usage Variance
3:- Wage Rate Variance
4:- Idle Time Variance
5:- Fixed Expenses Expenditure Variance
6:- Fixed Expenses Capacity Variance
7:- Total Cost Variance.
8:- Material Price Variance
9:- Direct Labour Cost Variance
10:- Labour Efficiency Variance
11:- Variable Expenses Variance
12:- Fixed Expenses Volume Variance
13:- Fixed Expenses Efficiency Variance
Solution:
Particulars Budgeted (1 Unit) Standard (3,500) Actual (3,500)
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
1. Material Cost Variance S.C. – A.C. 1400 (A)
1,75,000 – 1,80,000
2. Material price Variance (S.R. –A.R>) X AQ 9000 (A)

(50 – 52.50) X 3600
3. Material usage Variance (S.Q. –A.Q.) X S.R. 5,000 (A)

(3,500 – 3,600) X 50
4. Labour Cost Variacne S.C. –A.C. 1,100 (A)

21,000 – 22.100
5. Wage Rate Variance (S.R. –A.R>) X A.P. Hrs 1,700 (A)

(3 – 3.25) X 6,800
6. Labour Efficiency Variance (S.Hrs – A.W. Hrs) X S.R 1,800 (F)

(7,000 – 6,400) X 3
7. Idle time Variance Idle Hrs. X S.R. 1,200 (A)

(400 X 3)
8. Variable Expenses Variances S.C> -A.C.
70,000 – 62,000 8000 (F)
9 Fix OH Expenditure Variance Budget –Actual

1,92,000 – 1,88,000 4000(F)
10 FIx OH Volumne Variance Recovered – Budget
1,40,000 – 1,92,000 52,000(A)
11 Fixed Exp.(OH) Capacity Variance (A. W. HRs – Bud.. Hrs) X R.R. 64,000 (A)
(6,400 – 9,600) X 20
12 Fixed Expenses(OH) Efficiency Variance (S.Hrs-A.W.Hrs)X R.R. 12,000(F)
(7,000 – 6,400) X 20
13. Total Cost Variance
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Question 36: 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
Qty. Rate Amount (`) Qty. Rate Amount (`) Qty. Rate Amount (`)
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>) X A.Q. 3,801 (F)
(6 – 5.70) X 12,670
2. Labour Rate Variance (S.R> - A.R> ) X A.Pay Hr 650 (F)

(4.40 – 4.30) X 6,500
975 (A)
3. Variable OH Expenditure Variance (S.R> -A.R.) X A.W. Hr
(3 – 3.15 ) X 6,500
4,020(A)
4. Material Usage Variance (S.Q. –A.Q>) X S.R.
(12,000 – 12,670) X 6
2,200(A)
5. Labour Efficiency Variance (S. HR – A.W.Hr ) X S.R.
(6,000 – 6,500) X 4.40
1,500(A)
6. VOH Efficiency Variance (S. Hr – A.W. Hr ) X S.R.
(6,000 – 6,500) X3
215(A)
7. Material Cost Variance S.C. – A.C.
72,000 – 72,215
8. Labour Cost Variance 1,550(A)
S.C. – A.C.
26,400 – 27, 950
9. Variable OH Cost Variance S.C – A.C. 2,475(A)
18,000 – 20,475
Working Notes:
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 Hrs.
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Question 37:- 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 ` 0.07 adverse as
compared to the total standard cost per unit of ZED of ` 21.
Required:
Compute the following
Standard quantity of raw material per unit of ZED.
Standard direct labour rate per hour.
Standard direct material cost per unit of ZED.
Standard direct labour cost per unit of ZED.
Standard total material cost for the output.
Actual total direct labour cost for the output.
Material price variance.
Labour rate variance.
Labour efficiency variance.
Variable overhead expenditure variance.
Variable overheads efficiency variance.
Note: Key calculation should form part of the answer.
= 6,500 Hr.
Solution:- Statement of Missing Variances
S.No. Particulars Basis Amount
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 Z.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.) X AQ 2000(F)
(3 – 2.5 ) X 4000
H LAbour Rate Variance (S.R. -A.R.) X A. Day. Hrs 450(A)
( 5 – 5.25 ) X 1,800
I Labour efficiency variance S. Hrs – A.W. Hrs ) X S.R. 1,000(A)
(1,600- 1,800) X5
J Varaicne OH Expenditure Variance (S.R. – A.R.) X A. W. Hrs. 180(F)
( 1 – 0.90) X 1800
K Variable OH Efficiency variance (S. Hrs – A.W. Hrs) X S.R. 200(A)
1600 – 1800) X1
Working Notes:
1. Data for Resource Variance
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 hours 1,600 5 8,000 8 1,800 5.25 9,450 9.45 (B.f )
Variable overhead hours 1,600 1 1,600 1.6 1,800 0.90 1,620 1.62
21 21.07(W.N.3)
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
3. Over all cost variance = S.C. –
A.C. 0.07 = 21 – A.C.
Actual cost = 21 + 0.07
= ` 21.07
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Question 39: 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 ` 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, `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.
Solution: Data for Variance

Budgeted Standard Actual
(`) (`) (``)
Material 4 0.75 3 1,78,000 0.75 1,33,500 1,54,000 0.7 1,07,800
Labour 2 1.9 3.8 76,000 1.9 1,44,400 78,000 2.1 1,63,800
Variable overhead 2 1.2 2.4 76,000 1.2 91,200 78,000 1.141 89,000
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 (W.N. 3) 2,000 kg
standard allowed
3. The variable production overhead expenditure variance (W.N. 4) 4,600 (F)
4. The Actual Hours Worked (W.N. 1) 78,000 Hrs.
5. The number of standard hours allowed for the production (W.N. 5) 76,000 Hrs.
achieved
Variable overhead cost
Variance = SC – AC
2,200 = 91,200 – 78,000 × AR
9,12,000 – 2,200
78,000
Working Notes:
1. Calculation of Actual Hours
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Question 41: 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
10.00
Direct Labour (0.5 hour at ` 20 per 7.50
hour)
Manufacturing Overhead (75% of direct labour cost) 32.50
Total Cost
The following data was obtained from Zed Company’s record for April 1998
Particulars Debit Credit
Sales — ` 1,25,000
Sundry Creditor (For purchase of direct materials in April 1998) —
Direct Material Price Variance 3,250 `` 68,250
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
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Question 42: 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
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:
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:
Calculation of Different Variances
1. Material Price Variance (S.R. – A.R.) × A.Q. 200 (A)
(2 – 2.0235) × 8,500
2. Material Usage Variance (S.Q. – A.Q.) × S.R. 1,000 (F)
(9,000 – 8,500) ×2
3. Material Cost Variance S.C. – A.C. 800 (F)
(18,000 – 17,200)
4. Labour Rate Variance (S.R. – A.R.) × Actual Payment Hours 2,000 (A)
(2 – 2.1) × 20,000
5. Labour Efficiency Variance (S.Hr – Actual Working Hours) × S.R. 3,200 (F)
(21,600 – 20,000) × 2
6. Labour Cost Variance S.C. – A.C. 1,200 (F)
43,200 – 42,000
7. V – OH Expenditure variance (S.R. – A.R.) × Actual Working Hours 2,000 (A)
(1 – 1.1) × 20,000
8. Variable – OH Efficiency (Standard Working Hours – Actual Working 1,600 (F)
variance Hours) S.R.
(21,600 – 20,000) × 1
9. Variable overhead cost S.C. – A.C. 400 (A)

variance (21,600 – 22,000)
10. Fixed overhead expenditure Budgeted – Actual 200 (F)
variance (10,000 – 9,800)
11. Fixed overhead volume Recovered – Budgeted 1,000 (A)
variance (9,000 – 10,000)
12. Fixed overhead cost Recovered – Actual 800 (A)
variance (9,000 – 9,800)
(b) Statement of Bonus
(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
50% × 2 × (21,600 – 20,000) 1,600
Total Bonus payable 1,750

Working Notes:
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
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Question43: A company manufactures two products X and Y. Product X requires 8 hours to produce
while Y requires12 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.
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Question 45: The following is the information provided by Tulsian Ltd.
Product Budgeted Sales Budgeted Standard Cost Actual Sales Actual Actual Cost
Quantity Units Selling Price Per unit Quantity Units Selling Price Per unit
per unit (`) (`
per unit (`)
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
Budgeted Sale Standard Ratio Actual Sale
for actual mix
Product Qty. Rate Amount 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 Budgeted Sales – Actual Sales
(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 (A)
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) × 20 = 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 Notes:
1. Statement of Profit
Budget Actual
Sales Value 1,200 1,600 Sales Value 1,100 1,430
A: 60 × 20 400 (1,060) A: 44 × 25 330 (1,034)
B: 40 × 10 B: 66 × 5
Sales Value 900 1,600 Sales Value 704 1,430
A: 60 × 20 160 (1,060) A: 44 × 25 330 (1,034)
B: 40 × 10 B: 66 × 5
Less: Cost Less: Cost
Sales Value 540 Sales Value 396
Subject to Checking
Question 47: 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 ` 15.1and 9,000 units of C at ` 8.5.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
`
1. The materials budgeted to be used for each product were:
Products Materials
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 Quantity
Units Units 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
Alternative Solution (Sales Margin
Method) Basic Calculation
Budgeted Margin Actual Margin Actual Quantity X
Budgeted Price (``)
Product Qty. Rate (`) Amount (`) Qty. Rate (`) Amount (``)
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
Material Variances:
Basic Calculations
Standard and actual costs of material for actual output i.e. 11,000 untis of A, 5,000 units of B and
9,000 untis of C and standard cost of actual input material.
Material Standard Cost Actual Cost Actual quantity ×

Standard price
Qty Rate (`) Amount (`) Qty. Amount (`) 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
Question 50: 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.
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 ` 1,90,000 ` 95,000
Qty. (WN1) (B) 1,000 1,000
Rate (` p.u) (A) ÷ (B) ` 190 ` 95
(a)Calculation of Actual cost of closing W.I.P.
Labour (190 × 100) 19,000
Overhead (95 × 100) 9,500
28,500
(b) Standard Cost
Labour: 5 Hrs X 40 200
Overhad: 5 hHR X 20 100
300
(d) Statement of Variances
Sl. No. Particulars Basis Figures
1. Labour Rate Variance (S.R. – A.R.) × Actual Payment Hrs 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 Recovered overhead – Budget
overhead
95,000 – 98,000 3,000 (A)
4. Overhead Budget/Expenditure Budget overhead – Actual overhead
Variance 98,000 – 90,000 8,000 (F)
Working Notes:
1. Statement of Equivalent Production (Weighted Avg. Method)
Particulars Labour Overhead
Opening W.I.P. 200 Transferred 900 900 900
Units Started 825 Closing W.I.P. (80%) 125 100 100
1,025 1,025 1000 1000
Statement of Equivalent Production (FIFO) for Variance Analysis
Labour Overhead
Opening W.I.P. (25 k) 200 Opening W.I.P. 200 150 150
Current 700 700 700
Units Started 825 Transferred 900 100 100
Closing W.I.P. (80%) 125
1,025 1,025 950 950
Question 51: (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:
Stocks:
Opening 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:
S.NO. Particulars Basis `
1 Material Price Variance (S.P. – A.P. ) X A.Q. 3000(A)
(10 – 11.034) X 2900
2 Material usage variance (S.Q. – A.Q.) X S.R. 1000(A)
(2800 – 2900) X 10
3 Material cost variance S.C.- A.C. 4000(A)
28,000 – 32,000
4 Labour Rate variance (S.R. – A.R.) X A.pay. HRs 2000(A)
( 20 – 20,606) X 3300
5 Labour Efficiency variance (S. Hrs- a.W.Hour) X S.R. 2400(F)
(3,420 – 3,300) X 20
6 Labour cost variance S.C. – A.C. 400(F)
68,400 – 68,000
7 Fixed overhead volume variance Recovered – Budget 12,600 (F)
1,02,600 – 90,000
8 Fixed overhead efficiency variance (S. Hr. – A.W. Hr.) X S.R. 3600 (F)
(3,420- 3,300) X30
9 Fixed overhead capacity variance (A.W> Hr – Bud. Hr) X R.R. 9000 (F)
(3,300 – 3,000) X 30
10 Fixed overhead expense variance Budget – Actual 2000 (F)
90,000 – 88000
11 Fixed OH Recovered – Actual 14,600 (F)
Cost variance 1,02,600 – 88,000
Working Note 1
Statement of Equivalent Production (FIFO)
Material Labour & Overhead
OP. W.I.P. (100%, 60%) 250 Opening 250 — 100
Introduced 1,400 Current 950 950 950
Transferred 1,200
Closing W.I.P. (80%) 450 450
1,650 1,650 90
1,400 1,140
(Actual output for material) (Actual output for labour)
Working Note 2
Data for Resource Variance
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
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Question 52: 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:
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:
Sl. No. Particulars Basis Figures
(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)
3. Material Cost Variance S.C. – A.C.

2,67,120 – 2,66,570 550 (F)
4. Variable Overhead Expenditure Variance (S.R. – A.R.) × A.W.Hr

(2.4 – 2.6) × 22,400 4,480 (A)
5. Variable Overhead Efficiency 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)
7. Fixed overhead volume variance Recovered – Budget

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. Hrs

(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 – Overhead – Rate per unit
Change in overhead 92,400 – 81,000 10,800
Change in output 7,500 – 6,000 1,500
Working Note 2
Statement of Equivalent Production
Particulars Material Lab – OH
Opening W.I.P. 300 Opening 300 — 120
(100%, 60%) Current 7,320 7,320 7,320
Introduced (B.f ) 7,520 Transferred 7,620
Closing W.I.P. (50%, 40%) 200 100 80
7,820 7,820 7,420 7,520

Working Note 3
Particulars Standard Actual
Qty. Rate Amount (`) Qty. Rate Amount (`)
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 7,520 × 3 = 22,560 7.2 = 2.4 54,144 22,400 2.60 58,240
3
Question 53: Standard cost sheet per unit of output is as under

Direct material 3 Pcs. @ ` 2.15 `6.45
Direct labour:
3.50
Department A 2 hrs @ ` 1.75
6.00
Department B 4 hrs @ ` 1.50 ` 9.50
Overheads: 1.00
Department A 2 hrs @ ` 0.50 4.00
` 5.00
Department B 4 hrs @ ` 1.00
Total
Transactions for the period are as under:
Materials purchased and consumed:
8,600 pcs. @ `2.50 each
Labour Time Spent
Department A. 5,200 hours
Department B. 12,000 hours
There is no change in labour rates:
Actual factory overheads are:
Department A` 3,000
Department B. ` 12,500
Units produced:
Department A. 2,800
Department B. 2,800
Budgeted overheads:
Department A. ` 3,000
Department 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
Particulars Amount (``) Amount (`)
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 3,000
To Bank
8. Department – B A/c Dr 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

Particulars Amount (`) Amount (`)
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
RECONCILIATION BASED QUESTION

Question 56: 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 Original Budget (`)
unit (`) 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
Profit 7.5 37,500
Selling price (See WN 5) 45 2,25,000
Statement of Reconciliation (Marginal)

Budgeted Profit 37,500

Sales Variance:
Price Variance 6,750 (F)
Volume Variance: (B.Q. – A.Q.) × (F.C. + Pro. P.U.) 3,000 (A)
200 × (7.5 + 7.5)
Cost Variances:
Material Cost Variance: Material price variance 300 (A)
Material usage variance 600 (A) 900 (A)
Labour Cost Variance: Wage rate variance 750 (F)
Labour efficiency variance 2,250 (A) 1,500 (A)
Variable Overhead Cost Variance: Variable overhead expenses 3,000 (F)
Variable overhead efficiency variance 3750 (A) 750 (A)
Fixed Overhead Expenditure Variance 1,500 (A)
Fixed Overhead Volume Variance N.A.
Actual profit 36,600
Budget Actual
Quantity 5,000 4,800
Selling Price per unit 45 45
Variable cost per unit (Material + Labour + Overhead) 30 30
Contribution per unit 15 15
Total Contribution 75,000 72,000
Less: Fixed Cost 37,500 37,500
Profit 37,500 34,500
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Question 57: 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
Sales Price 110 100
Quantity Sold 7,00,000 6,00,000
Reconciliation Statement
Particulars Basis ` in lakh
Budgeted Profit 40
Sales Variance Price Variance = (B.S.P. – A.S.P.) × A. Qty = (100 – 110) × 7,00,000 70 (F)
Volume Variance = (B.Q. – A.Q.) × Budgeted Price p.u. 6.66 (F)
= (6,00,000 – 7,00,000) × 6.6666
Cost Variance Fixed Overhead Volume Variance

Recovered Overhead – Budgeted Overhead (93.33 – 80) 13.33 (F)
Fixed Overhead Expenditure Variance
(Budgeted Overhead – Actual Overhead) 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 Overhead Expenditure Variance = (S.R. – A.R.) × A.W. Hr 4 (A)
Variable Overhead Efficiency Variance = (S.Hr – A. Hr) × S.R. 5 (F)
Actual Profit 90
Working Notes:
Budget Standard Actual
Material Qty. Rate (` in lakh) Qty. Rate (` in lakh) Qty. Rate (` in lakh)
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
Variable Overhead 24,00,000 2.5 60 28,00,000 2.5 70 26,00,000 2.65 69
480 540 530

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Question 63: 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 Amount Amount
Direct labour (14 hours at ` 2 per hour) 28
Direct materials:
27
1. Output of department A (3 kg at ` 9 per kg)
20 47
2. Acquired by and directly input to department B material × (4 kg at ` 14
5 per kg.)
Variable overhead (at ` 1 per direct labour hour worked)
Fixed production overheads:
3
1. Directly incurred by department B (note1) manufacturing 11
8
overhead (per unit)
2. Allocated to department B general factory overhead (per
unit) 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:
I. Output of Department 21,000
A (1400 Kg) (Note 2)
II. Material X (1900 Kg.) 11,500 32,500
Variable overheads 8,000
Fixed overheads 1,600
1. Directly incurred manufacturing overhead 2,900 4,500
2. Allocated to department B (Note 3) 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
Qty. Rate Amount Qty. Rate Amount
Output of A 1,500 9 13,500 1,400 15 21,000
X Material 2,000 5 10,000 1,900 6.05 11,500
Labour Hr. 7,000 2 14,000 6,500 2.1538 14,000
Variable – OH 7,000 1 7,000 6,500 1.2308 8,000
44,500 54,500
(a) Statement of performance
Amount (`)
Standard Cost Material Usage Variance = (S.Q. – A.Q.) × A.R. 50,000
Controllable Variances: 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 = 1000 (F)
Fixed Overhead Efficiency Variance =

(S. Hr – A. Hr) × S.R.
(7,000 – 6,500) × 0.7857 393 (F)
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 = 8,400 (A)
Material X.→ (5 – 6.05) × 1,900 = 2,000 (A) 10,400 (A)
Labour Rate Variance = (2 – 2.1538) × 6,500 1,000 (A)
Variable overhead Expenses Variance = (1 – 1.2308) × 6,500 1,500 (A)
Fixed Overhead Expenses Variance = (4,400 – 4,500) 100 (A)
Fixed Overhead 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 65: 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:
Material Original Standard Revised Standard Actual
Qty. Rate (`) Qty. Rate (`) Qty. Rate (`)
Fruit Extract 400 1 400 400 2 800 428 4 1,712
Glucose 700 2 1,400 700 24 1,680 742 5 3,710
Syrup 1 1
Pectin 99 5 99 99 5 99 125 2 250
Citric Acid 1 2 5 1 2 5 1 6 6
1,200 1,904 1,200 2,584 1296 5,678
18 36 18 36 20 4 80
Labour 1,940 2,620 5,758
(a) Statement of Uncontrollable Planning Variances
Ingredients Traditional Variance Planning Variances Operating Variances
(Original – Actual) (Original Standard – Revi. (Revised Stand – Actual)
Stan.)
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 5 – 6 = 1 (A) 5 – 5 = NIL 5 – 6 = 1 (A)
Labour Variance 35 – 80 = 45 (A) 36 – 36 = NIL 36 – 80 = 44 (A)
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Question66: 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:
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:
Original Standard Revised Standard Actual
Material Qty. Rate (`) Qty. Rate (`) Qty. Rate (``)
Material (kg) 2,850 × 4 = 11,400 20 2,28,000 12,825 (2,850×4.5) 16.5 2,11,612.50 12,450 18 2,24,100
Labour (hrs.) 6 × 2,850 = 17,100 7 1,19,700 17,100 6.5 1,11,150 18,800 8 1,50,400
3,47,700 3,22,762.5 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 – 3,74,500) 1,95,500
(b) Statement of Variances

PArticulars Traditional Variances Planning Operating
(original –Actrual Variacnes( original variances(Revised
Standard) standard – Revised stand- Actual)
standards)
1:- MAteiral Cost Variance 2,28,000-2,24,100 =3900(F) 2,28,000- 2,11,612.5-
2,11,612.5=16,387.5(F) 2.24,100=12,487.5(A)
2:- Material Price Variacne (20 -18) X 12,450 = (20-16.5) X 12,825 = (16.5 – 18) X 12,450 =
24,900(F) 44,887.5(F) 18,675(A)
3:- Material Usage variance (11,400 – 12450) X 20 = (11,400 – 12,825) X 20 (12,825-12,450) X 16.5=
21,000(A) = 28,500(A) 6,187.5(F)
4:- Labour Cost varaince 1,19,700 – 1,19,700- 1,11,150 – 1,50,400 =
1,50,400=30,700(A) 1,11,150=8,550(F) 39,250(A)
5:- Labour Rate variance (7 – 8) X 18,800 = 18,800(A) (7 – 6.5) X (6.5-8) X 18,800=28,200(A)
17,100=8,550(F)
6:- Labour Efficiency (17,100-18,800) X7 = (17,100 – 17,100) X 7 (17,100-18,800) X
Variances 11,900(A) = Nil 6.5=11,050(A)
Total Variances 29,800(A) 49,875(F) 51,737.5(A)
Question 68: (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
Administrative cost per customer `80,000 ` 68,400
`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
Revenue.→ 2,94,000 A. 1,51,500 (F) 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 F.
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
= 3062 F.
Working Notes:
Budget Standard Actual
Qty. Rate (` ) Qty. Rate (` ) Qty. Rate (` )
Material 20,000 10 2,00,000 30,306.12 10 3,03,061 30,000 9 2,70,000
Question 71: Following a strategy of product differentiation, Westwood Corporation makes a high-
end kitchen range hood, KE8. Westwood’s data for 2005 and 2006 follow:
2005 2006
1. Units of KE8 produced and sold 40,000 42,000
2. Selling price ` 100 ` 110
3. Direct materials (square feet) 120,000 123,000
4. Direct material cost per square foot
5. Manufacturing capacity for KE8
` 10 ` 11
6. Conversion costs 50,000 units 50,000 units
7. Conversion cost per unit of capacity (Row 6 ÷ Row 5) ` 1,000,000 ` 1,100,000
8. Selling and customer-service capacity ` 20 ` 22
9. Selling and customer-service costs 30 customer 29 customer
10. Cost per customer of selling and customer-service capacity (Row 9
÷ Row 8)
` 720,000 ` 725,000
` 24,000 ` 25,000
Westwood produced no defective units and reduced direct material usage per unit of KE8 in 2006. 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 (wholesalers) in 2005 and 25 customers in 2006.
Required:
Describe briefly the elements you would include in Westwood’s balanced scorecard.
Calculate the growth, price-recovery, and productivity components that explain the change in
operating income from 2005 to 2006.
Suppose during 2006, the market size for high-end kitchen range hoods grew 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 Westwood’s product- differentiation strategy. Calculate how much of the change in
operating income from 2005 to 2006 is due to the industry- market-size factor, cost leadership, and
product differentiation.
How successful has Westwood been in implementing its strategy? Explain.
Solution:
1. The balanced scorecard should describe Westwood’s product-differentiation strategy. Elements
that should be included in its balanced scorecard are:
Financial perspective: Increase in operating income from higher margins on KE8 and from growth
Customer perspective: Market share in the high-end market and customer satisfaction
Internal business process perspective: Manufacturing quality, order-delivery time, on-time
delivery, and new product features added, development time for new products and improvements in
manufacturing processes
Learning-and-growth perspective: Percentage of employees trained in process and quality
management and employee satisfaction ratings.
2. Operating income for each year is:
2005 2006
Revenues
(` 100 per unit × 40,000 units; ` 110 per unit × 42,000 units) ` 4,000,000 ` 4,620,000
Costs
Direct material costs
(` 10 per sq. ft. × 120,000 sq. ft.; ` 11 per sq. ft. × 123,000 sq. ft.) 1,200,000 1,353,000
Conversion costs
1,000,000 1,100,000
(` 20 per unit × 50,000 units; ` 22 per unit × 50,000 units)
Selling and customer-service costs 720,000 725,000
(` 24,000 per customer × 30 customers; ` 25,000 per customer × 29 customers)
Total costs 2,920,000 3,178,000
Operating income ` 1,080,000 `1,442,000
Change in operating income `362,000 F
Growth Component of Operating Income Change
Revenue effect of growth =Actual units of output – Actual units of output sold in 2005 × Selling
price in 2005
= (42,000 units − 40,000 units) × ` 100 per unit = ` 200,000 (F)
Cost effect of growth for variable costs = Units of input required to produce 2006 output in 2005
– Actual units of input used to produce 2005 output × Input price in 2005
Cost effect of growth for direct materials =(120.000 Sq.Ft X 42,000 units – 120,000Sq.Ft = `60,000 U
40,000 units
= (126,000 sq. ft. − 120,000 sq. ft.) × ` 10 per sq. ft. = ` 60,000 U
Cost effect of growth for fixed costs= Actual units of capacity in 2005 because adequate capacity exists
to produce 2006
output in 2005 – Actual units of capacity in 2005 × Price per capacity in 2005
Cost effects of growth for fixed costs are:
Conversion costs: (50,000 units − 50,000 units) × ` 20 per unit = ` 0
Selling and customer-service costs: (30 customers − 30 customers) × ` 24,000 per customer = ` 0
In summary, the net increase in operating income attributable to growth equals:
Revenue effect of growth

Cost effect of growth
Direct material costs ` 60,000 (A) ` 200,000 (F)
Conversion costs 0 60,000 (A)
Selling and customer-service costs 0
Change in operating income due to growth ` 140,000 (F)
Price-Recovery Component of Operating-Income Change
Revenue effect of = Selling price − Selling price

price recovery in 2006 in 2005 × Actual units of output
= (` 110 per unit − ` 100 per unit) × 42,000 units = ` 420,000 (F)
Cost effect of = Input – Input × Units of input
price recovery price price required to produce
for variable costs in 2006 in 2005 2006 output in 2005
Direct material costs: (`11 per sq. ft. − ` 10 per sq. ft.) × 126,000 sq. ft. = ` 126,000 (A)
Cost effect of = Price per − Price per × Actual units of capacity in
price recovery unit of unit of 2005, because adequate capacity
for fixed costs capacity capacity exists to produce 2006 output in 2005
Cost effects of price recovery for fixed costs are:

Conversion costs: (` 22 per unit − 20 per unit) × 50,000 units = `100,000 (A)
Selling and cust.-service costs: (` 25,000 per cust. − ` 24,000 per cust.) × 30 customers = ` 30,000 (A)
In summary, the net increase in operating income attributable to price recovery equals:
Revenue effect of price recovery ` 420.000(F)
Cost effect of price recovery
Direct material costs `126,000(A)
Conversion costs 100,000(A)
Selling and customer-service costs 30,000(A) 256.000(A)
Change in operating income due to price recovery `164,000(F)
Productivity Component of Operating-Income Change

Cost effect of = Actual units of – Units of input ×
productivity for input used to produce required to produce
variable costs 2006 output 2006 output in 2005
Cost effect of = (123,000 sq. ft. − 126,000 sq. ft.) × ` 11 per sq. ft. = ` 33,000
(F) productivity for
direct materials
Cost effect of = Actual units – Actual units of capacity in ×
productivity for of capacity 2005, because adequate
fixed costs in 2006 capacity exists to produce
2006 output in 2005
Cost effects of productivity for fixed costs are:
Conversion costs: (50,000 units − 50,000 units) × ` 20 per unit = ` 0
Selling and customer-service costs: (29 customers − 30 customers) × ` 25,000/customer = ` 25,000
(F)
In summary, the net increase in operating income attributable to productivity equals:
Cost effect of productivity: ` 33,000 (F)
Direct material costs 0
Conversion costs 25,000 (F)
Selling and customer-service costs
Change in operating income due to productivity
` 58,000 (F)
A summary of the change in operating income between 2005 and 2006 follows:
Income Revenue Revenue Cost Effect of Income
Statement and and Cost Productivity Statement
Amounts in Cost Effects of Component Amounts in
2005 Effects Price-Recovery in 2006 2006
of Growth Component
Component in 2006
in 2006
(1) (2) (3) (4) (5) = (1) + (2) + (3) + (4)
Revenue ` 4,000,000 ` 200,000 (F) `420,000 (F) — ` 4,620,000
Costs 2,920,000 60,000 (A) 256,000 (A) ` 58,000 (F) 3,178,000
Operating income ` 1,080,000 ` 140,000 (F) ` 164,000 (F) ` 58,000 (F) ` 1,442,000
` 362,000 (F)
Change in operating income
3. Effect of the industry-market-size factor on operating income

Of the increase in sales from 40,000 to 42,000 units, 3%, or 1,200 units (0.03 × 40,000), is due to growth in
market size,and 800 units (2,000 − 1,200) are due to an increase in market share. The change in Westwood’s
operating income from the industry-market-size factor rather than specific strategic actions is:
$140.000(column 2 of preceding table) X 1,200 units ` 84,000(F)

2,000 units
The analysis of operating income indicates that a significant amount of the increase in operating
income resulted from Westwood’s successful implementation of its product-differentiation strategy. The
company was able to continue to charge a premium price for KE8 while increasing market share.
Westwood was also able to earn additional operating income from improving its productivity.
Question 73: The CEO of your company has been given the following statement showing the results
for a recent month:
Particulars Master Budget Actual
Units produced & sold 10,000 9,000
` `
Sales 8,00,000 7,00,000
Direct material 2,00,000 1,84,000
Direct Wages 3,00,000 2,62,000
Variable overhead 1,00,000 94,000
Fixed overhead 1,00,000 98,000
Total cost 7,00,000 6,38,000
Net Surplus 1,00,000 62,000
The standard cost of the product is as follows:
Direct material (1 kg. @ ` 20/kg)
Direct Wages (1 hour @ ` 30/hour)
Variable overhead (1 hour @ ` 10/hour)
Actual results for the month revealed that 9,800 kg. of material was used and 8,800 labour hours
were recorded.
(i) Prepare a flexible budget for the month and compare with the actual results.
(ii) Calculate material volume and variable overhead efficiency variances.
Solution:
Particular Master Budget Budget Flexible Actual Variance
Units 10,000 9,000 9,000
Total (`) Per Unit (`) Total (`) (`)
Sales 20,000 (A)
8,00,000 80 7,20,000 7,00,000
Direct Material
Direct Wages 3,00,000 30 2,70,000 2,62,000 8,000 (F)
Variable Overhead 1,00,000 10 90,000 94,000 4,000 (A)
Total Variable Cost 6,00,000 60 5,40,000 5,40,000 —
Contribution 2,00,000 20 1,80,000 1,60,000 20,000 (A)
Fixed Overhead 1,00,000 10 1,00,000 98,000 2,000 (F)
Net Profit 1,00,000 10 80,000 62,000 18,000 (A)
(ii) Calculation of Variances:

Material Volume Variance: SP (SQ – AQ) = 20 (9,000 – 9,800) = 16,000 (A)
Variable Overhead efficiency variance SR (SH – AR) = 10 (9,000 – 8,800) = 2,000 (F)
---------------------------------------------------------------------------------------------------------------------------------------
Question 80: The following information relates to a manufacturing concern:
Standard Amount (`)
Material A 24,000 kgs @ ` 3 per kg. 72,000
Material B 12,000 kgs @ ` 4 per kg 48,000
2,40,000
Wages 60,000 hours @ ` 4 per hour
60,000
Variable overheads 60,000 hours @ `1 per hour 1,20,000
Fixed overheads 60,000 hours @ ` 2 per hour 5,40,000
Total Cost 60,000
Budgeted profit 6,00,000
Budgeted sales 12,000
Budgeted production (units)
Actual Amount (`)

Sales (9,000 units) 4,57,500
Material A consumed 22,275 kgs. 62,370
Material B consumed 10,890 kgs. 44,649
Wages paid (48,000 hours) 1,91,250
Fixed Overhead 1,20,900
Variable overhead 45,000
Labour hours worked 47,700
Closing work in progress 900 units
Degree of completion:
Material A and B 100%
Wage and overheads 50%
Required:
(i) Calculate all the material and labour variances.
(ii) Calculate variable overhead expenditure and efficiency variances, fixed overhead expenditure
and volume variances and sales price and sales volume variances.
Solution:
Statement of Equivalent Production in Units
Particulars Materials Wages &
% age Units % age Units
Units Completed 100% 9,000 100% 9,000
Closing W.I.P. 100% 900 50% 450
Equivalent Units 9,900 9,450
Material Variances
Standard quantity for actual output ** Actual quantity X Actual
x
Material A 19,800 @ 3 59,400 22,275 @ 2.8* 62,370
Material B 9,900 @ 4 39,600 10,889 @ 4.1* 44,649
29,700 99,000 33,165 1,07,019
Actual Cost/Actual Quantity

Standard Quantity for actual output = (std qty/budgeted prod) × actual output
Question 78: X uses traditional standard costing system. The inspection and setup costs are actually `
1,760 against a budget of ` 2,000. ABC system is being implemented and accordingly, the number of
batches is identified as the cost driver for inspection and setup costs. The budgeted production is 10,000 units
inbatches of 1,000 units, whereas actually, 8,800 units were produced in 11 batches.
(i) Find the volume and total fixed overhead variance under the traditional standard costing system.
(ii) Find the total fixed overhead cost variance under the ABC system.
Solution:
(a)(i) Traditional Standard Costing System
Budgeted Actual
Overhead Cost/unit 2,000/10,000 = 0.2 1,760/8,800 = 0.2
Variance=absorbed Budget Overhead – actual overhead
= 0.2 X 8,800 – 1760
= 1,760 – 1,760 = 0
Fixed Overhead expenditure Budgeted Oh-Actual OH
variance
= 2,000 – 1,760 =240(F)
Std absorption Rate = = ` 0.2 per unit
2000/10000
Fixed Over head volume =Std absorption rate X(Budget unit
variance s-Actual units)
=0.2X (10,000-8,800)=240(A)
Varification:
Total Fixed Overhead variance = Expenditure Variance + Volume Variance
= 240(F) + 240(a) = 0
(ii)
Budget Actual ABC Standard
Total Cost(`) 2000 1760 1800
Production (units) 10000 8800 8800
No. of batches 10 11 9
Batch Size (units/batch) 1000 800 1000
Cost/batch 200 160 200
Under ABC 8800 units should have been produced in standard batch size of 1000 units/batch
No. of batches=8800/100=8.8=9 since no. fraction is possible
Std Cost under ABC=budgeted cost/batch X ABC std no of batches = 200 X 9 = 1800
Under ABC, variability is with respect to batches and not units
Absorbed Overheads= 9 batches X Std rate per batch = 9 X 200 = ` 1800
Actual Over heads = ` 1760
Total Overhead cost variance = ` 40 (F).

Standard Costing 2

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STANDARD COSTING WITH SOLUTIONS

Question 1: Calculate Material Price Variance and Material Usage Variance:

Solution: Data for Material Variances

Material Cost Variance = Material Price Variance + Material Usage Variance

Calculate the following Variances:

Actual price per kg.

1 lot 3,800 150.5 lot 6,19,340

Material Price Variance:

Statement of Labour Variance

3. Labour Efficiency Variance (Standard Hrs. – Actual Working Hours) × S.R.

4. Labour Idle Time Variance (Idle Time × S.R.)

2. Labour rate (S.R. – A.R.) × Actual Payment Hrs

3. Labour (S.Q. – A.Q.) × S.R

Variable Overhead Cost Variance:

Statement of Fixed Overhead Variances

Budgeted overhead = `10,000

3. Calendar variance (Actual days – Budgeted days) Standard 5,760 (F)

4. Expenses variance Budgeted – Actual 2,000 (F)

5. Volume variance Recovered – Budgeted 16,680 (A)

6. Total fixed overhead variance Recovered – Actual 14,680 (A)

Required: Compute and analyse the overhead variances.

Sl. No. Particulars Basis Amount (`)

2. Fixed OH Expenditure Variances Budgeted – Actual 50 (A)

4. Fixed OH Efficiency Variance (S. Hrs – A.W.Hrs) × Recovery Rate 20 (A)

7. Fixed OH Balanced Total Capacity Variance – Calendar Variance 24 (F)

Required: Calculate the following overhead variances:

4000 × 3,800 – 12,000 = 11,400 – 12,000

2. Fixed OH Variance Recovered – Actual 1,000 (A)

3. Fixed OH Expenditure Variance Budget – Actual 1,000 (F)

4. Fixed OH Volume Variance Recovered – Budged 2,000 (A)

2. Actual Overhead incurred W.N. 2 6,400

3. Actual Hours for Actual production Actual Overhead 800 hrs.

6,000 2,000 (A)

W.N. – 3 1,000 hrs.

Raw materials 60 kg @ ` 4.50/kg ` 270

2. Material Usage Variance (S.Q. – A.Q.) × S.P. 1,800 (A)

3. Material Cost Variance S.C. – A.C. 4,400 (A)

6. Labour Cost Variance S.C. – A.C. 4,554 (A)

2. Material price Variance (S.R. –A.R>) X AQ 9000 (A)

3. Material usage Variance (S.Q. –A.Q.) X S.R. 5,000 (A)

4. Labour Cost Variacne S.C. –A.C. 1,100 (A)

5. Wage Rate Variance (S.R. –A.R>) X A.P. Hrs 1,700 (A)

6. Labour Efficiency Variance (S.Hrs – A.W. Hrs) X S.R 1,800 (F)

7. Idle time Variance Idle Hrs. X S.R. 1,200 (A)

9 Fix OH Expenditure Variance Budget –Actual

2. Labour Rate Variance (S.R> - A.R> ) X A.Pay Hr 650 (F)

Solution: Data for Variance

Statement of Required Information

Direct material used (8,500 kg) 17,200

9. Variable overhead cost S.C. – A.C. 400 (A)

Total Bonus payable 1,750

Standard hrs./units Recovered (`) Actual (`)

Actual profit 396

Material Standard Cost Actual Cost Actual quantity ×

2. Material Usage Variance (S.Q. – A.Q.) × S.P.

3. Material Cost Variance S.C. – A.C.

4. Variable Overhead Expenditure Variance (S.R. – A.R.) × A.W.Hr

5. Variable Overhead Efficiency Variance (S.Hr – A.W.Hr) × S.R.

6. Fixed overhead expenditure variance Budget – Actual

7. Fixed overhead volume variance Recovered – Budget

8. Fixed overhead efficiency variance (S.Hr – A.W.Hr) × S.R.

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

10. Labour rate variance (S.R. – A.R.) × A.Pay. Hrs