CHAPTER 6

STANDARD COST & VARIANCES

ANALYSIS
Questions.5[ACCA JUNE 2012]
Lock Co makes a single product – a lock – and uses marginal costing. The standard cost card for one unit
is as follows:
Standard cost card $
Selling price 80
–––
Direct materials (4 kg at $3 per kg) 12
Direct labour (2 hours at $10 per hour) 20
Variable overhead (2 hours at $2 per hour) 4
–––
Marginal cost 36
–––
A junior member of the accounts team produced the following variance statement for the month of May.
Budget Actual Variances
(1,000 units) (960 units)
$ $ $
Sales 80,000 76,800 3,200 Adv
Less: Marginal cost
Direct materials (12,000) (11,126) 874 Fav
Direct labour (20,000) (18,240) 1,760 Fav
Variable overheads (4,000) (3,283) 717 Fav
––––––– ––––––– ––––
Contribution 44,000 44,151 151 Fav
––––––––– ––––––––– ––––––––
Lock Co used 3,648 kg of materials in the period and the labour force worked – and was paid for – 1,824
hours. Until now, Lock Co has had a market share of 25%. In the month of May, however, the market
faced an unexpected 10% decline in the demand for locks.
Required:
(a) Prepare a statement which reconciles budgeted contribution to actual contribution in as much
detail as possible. Do not calculate the sales price and the labour rate variances, since both of these
have a value of nil. Clearly show all other workings.

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QUESTION.6-(Material+Labor+V.Overhead+F.Overhead Cost-Variances)
ABC Limited makes and sells a single product Jay for which the standard cost is as follows
Shs per unit
Direct materials ( 4 kilograms at shs 12,000 per kg 48,000
Direct labour ( 5 hours at shs 7,000 per hour) 35,000
Variable production overhead ( 5 hour at shs 2,000 per hour) 10,000
Fixed production overhead (5 hours at shs 10,000 per hour ) 50,000
143,000
The variable production overhead is deemed to vary ith the hours worked. Overhead is obsorced into
production on the basis of standard hours of production and the normal volume of production for the
period just ended was 20,000 units (100,000 standard hours of production.
For the period under consideration the actual results were.
Production of Jay 18,000 units
Direct material used – used 76 000 kg at a cost of 836,000,000
Direct labour cost incurred – for 84000 hours works 604.800,000
Variable production overhead incurred 172,000,000
Fixed production overhead incurred 1,030,000,000
You are required
i. To calculate and show , by element of cost , the standard cost for the output for the period
ii. To calculate and list the relevant variances in a way which reconciles the standard cost
within the actual )( Note : Fixed production overhead sub-variances of capacity and volume
efficiency ( productivity ) are not required)
iii. To comment briefly on the usefulness to management of statement such as that given in
your answer to (b) above.

QUESTION.15
Briefly explain how material mix and material yield variance arise
Kibaha juice Company has established the following standard mix for producing 9 liter of juice named
Tamu (A standard loss of 10% of input is expected)
Liquid Quanty(Litres) Price per litres Amount
Tshs Tshs
A 5 7 35
B 3 5 15
C 2 2 4
TOTAL 10 54
Actual output for Tamu for the month of April 2014 was 92,700 litres
53,000 Litres of Liquid A at tshs 7 per litre 371,000
28,000 Litres of Liquid B at tshs 5.30 per litre 148,400
19,000 Litres of Liquid C at tshs 2.20 per litre 41,800
100,000 561,20
Actual output for the month of April, 2014 was 92,700 Litres
REQUIRED
For the month of April, 2014, calculate and show detailed analysis of:-
i. Material price variance
ii. Material mix variance
iii. Material yield variance
iv. Material usage variance

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Question.16
The Organic Bread Company (OBC) makes a range of breads for sale direct to the public. The production
process begins with workers weighing out ingredients on electronic scales and then placing them in a
machine for mixing. A worker then manually removes the mix from the machine and shapes it into loaves
by hand, after which the bread is then placed into the oven for baking.
All baked loaves are then inspected by OBC’s quality inspector before they are packaged up and made
ready for sale. Any loaves which fail the inspection are donated to a local food bank.
The standard cost card for OBC’s ‘Mixed Bloomer’, one of its most popular loaves, is as follows:
$
White flour 450 grams at $1·80 per kg 0·81
Wholegrain flour 150 grams at $2·20 per kg 0·33
Yeast 10 grams at $20 per kg 0·20
–––– ––––
Total 610 grams 1·34
–––– ––––
Budgeted production of Mixed Bloomers was 1,000 units for the quarter, although actual production was
only 950 units. The total actual quantities used and their actual costs were:
Kg $ per kg
White flour 408·5 1·90
Wholegrain flour 152·0 2·10
Yeast 10·0 20·00
––––––
Total 570·5
––––––
Required:
(a) Calculate the total material mix variance and the total material yield variance for OBC for the
last quarter.
(7 marks)
(b) Using the information in the question, suggest THREE possible reasons why an ADVERSE
MATERIAL YIELD
variance could arise at OBC.

Question .17 ( NBAA Adapted MAY 2015 )

Mohamed Ltd manufactures special meat pies, which it sells in bulk to delicatessen shops. The only
variable cost is raw materials , which consists of three types of raw meat. The standard cost of the raw
materials used in the manufacture of each 100 kilograms of special meat pie is as follows.

Raw materials Kilogram Standard Price per kilogram in Tshs

Type A 25 2
Type B 60 3
Type C 40 4
Total Input 125
Normal Loss ( 20 % of Input ( 25)
Output 100

In preparing its budget for 2014, the company assumed that there would be a market in Tanzania for
125,000kilograms of special meat pie and that Mohamed’s product would have a 40% share of this
market. The budget also assumed a selling price of Tshs 6 per kilogram for Company product. However ,
during 2014 both Mohamed and its competitors were adversely affected by diminishing consumer

pg. 3
confidence in meat products. The actual total market size was only 110,000 kilograms of special meat pie
( instead of anticipated 125,000 kilograms ) and Mohamed sold only 33,000 kilograms of its products
The managing Director of the company recently explained how his company attempted to respond to the
difficulties which is faced in 2014. Fist, we reduce our selling price from Tshs 6 to Tshs 5.90. This was a
modest price reduction in comparison with those of our smaller of falling market prices for some of the
types of meat which we use as raw material for ur product. With benefit of hindsight, we should perhaps
have done more to increase consumers confidence in the safety and quality of meat products in general
and our own product in particular
The actual raw materials used by Mohamed Ltd in 2014 were as follows:
Raw materials Kilograms Actual Price per kilogram in Tshs
Type A 8,880 Tshs 1.7
Type B 19,200 Tshs 3
Type C 12,000 Tshs 4
Total Input 40,000

The company had no opening or closing stocks of raw materials or finished product
REQUIRED
Calculate
(a) Raw material price, raw materials mix and raw materials yield variances (12marks )
(b) Sales Price and Sales Volume Variances

Questions.18
Kazimoto Company uses a standard costing system. The standard cost card for one of its product shows
the following material standards:
Material Kilogram Standard price (Tshs) Amount (Tshs)
A 20 70 1,400
B 5 40 200
C 25 20 500
Total material cost per unit 2,100
The standard kilogram mix cost Tshs42 (Tshs2, 100/50kg). The standard mix should produce 40 kgs of
finished product, and the standard cost of finished product per kilogram is Tshs 52.50 (shs. 2,100/40kgs)
Direct materials of 500,000 kilograms were used as follows:
Material
A 230,000Kg@shs 80
B 50,000kg@shs 35
C 220,000kg@shs 25
The output of finished output was 390,000kiligrams.
Required
Product analysis showing price, and yield and variances

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Question.20
Masauko Ltd uses standard costing system in manufacturing of its single product ‘M’ the standard cost
per unit of m is as follows
Direct material 2 metres at Tshs 6,000/= per matre Tsh 12,000
Direct labour 1 hour at Tshs 4,400 per hour 4,400
Variable overhead 1 hour at Tshs 3,000 per hour 3,000
During July 2009, 6,000 units of ‘M’ were produced and the related data are as shown below,
Direct Material required 19,000 metres at Tshs 5,700 per metre
Material Consumed 12,670 metres
Direct labour at Tshs per hour Tshs 27,950,000
Variable overhead incurred Tshs 20,475,000
The variable overhead efficiency variance is Tshs 1,500,000/= adverse
Variable overheads are based on direct labour hour and there were no stock of raw material at the
beginning.
Required:-
Show all relevant variance

Question.24 [SALES MIX VARIANCES]

CABCo operates an absorption costing system and sells three products B, R, and K which are
substitute for each other . the following standard selling price and cost data relate to these three
products.
Product Unit selling price Direct material / unit Direct labour / unit
B Shs 14.00 3 kgs @ shs 1.80/kg 0.5 hours @ shs
6.5 / hour
R Shs 15.00 1.25kgs @ Shs 3.28/kg 0.8 hours @ shs
6.5/ hours
K Shs18.00 1.94 kgs @ shs 2.25/kg 0.7 hours @ shs
6.50/ hour.
Budgeted fixed production overhead for the last period was shs 81,000. This was absorbed on a
machine hour basis. The Standard machine hours for each product and the budgeted levels of
production and sales for each product for the last period are as follows:
Product B R K
Standard machine hours per unit 0.3 hours 0.6 hours 0.8 hours
Actual production and sales( unit) 10,000 13,000 9,000
Actual volumes and selling prices for the three products in the last period ware as follows:
Product B R K
Actual selling price per unit Shs 14.50 Shs 15.50 Shs 19.00
Actual production and sales( units) 9,500 13,500 8,500
Required:
Calculate the following variances for overall sales for the last period :
(i) Sales price variance
(ii) Sales volume profit variance
(iii) Sales mix profit
(iv) Sales quantity profit variance

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Question.25 ACCA JUNE 2014
Valet Co is a car valeting (cleaning) company. It operates in the country of Strappia, which has been
badly affected by the global financial crisis. Petrol and food prices have increased substantially in the last
year and the average disposable household income has decreased by 30%. Recent studies have shown that
the average car owner keeps their car for five years before replacing it, rather than three years as was
previously the case. Figures over recent years also show that car sales in Strappia are declining whilst
business for car repairs is on the increase.
Valet Co offers two types of valet – a full valet and a mini valet. A full valet is an extensive clean of the
vehicle, inside and out; a mini valet is a more basic clean of the vehicle. Until recently, four similar
businesses operated in Valet Co’s local area, but one of these closed down three months ago after a
serious fire on its premises. Valet Co charges customers $50 for each full valet and $30 for each mini
valet and this price never changes. Their budget and actual figures for the last year were as follows:
Budget Actual
Number of valets:
Full valets 3,600 4,000
Mini valets 2,000 3,980
$ $ $ $
Revenue 240,000 319,400
Variable costs:
Staff wages (114,000) (122,000)
Cleaning materials (6,200) (12,400)
Energy costs (6,520) (9,200)
–––––––– ––––––––
(126,720) (143,600)
–––––––– ––––––––
Contribution 113,280 175,800
Fixed costs:
Rent, rates and depreciation (36,800) (36,800)
–––––––– ––––––––
Operating profit 76,480 139,000
–––––––– ––––––––
The budgeted contribution to sales ratios for the two types of valet are 44·6% for full valets and 55% for
mini valets.
REQUIRED:
(a) Using the data provided for full valets and mini valets, calculate:
(i) The total sales mix contribution variance
(ii) The total sales quantity contribution variance.
(b) Briefly describe the sales mix contribution variance and the sales quantity contribution
variance.
(c) Discuss the SALES performance of the business for the period, taking into account your
calculations from part (a) AND the information provided in the scenario

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QUESTION 26.ACCA JUNE 2013
Block Co operates an absorption costing system and sells three types of product Commodity 1,
Commodity 2 and Commodity 3. Like other competitors operating in the same market, Block Co is
struggling to maintain revenues and profits in face of the economic recession which has engulfed the
country over the last two years. Sales prices fluctuate in the market in which Block Co operates.
Consequently, at the beginning of each quarter, a market specialist, who works on a consultancy basis for
Block Co, sets a budgeted sales price for each product for the quarter, based on his
expectations of the market. This then becomes the ‘standard selling price’ for the quarter. The sales
department itself is run by the company’s sales manager, who negotiates the actual sales prices with
customers. The following budgeted figures are available for the quarter ended 31 May 2013.
Product Budgeted production Standard selling price Standard variable
and sales units per unit production costs per unit
Commodity 1 30,000 $30 $18
Commodity 2 28,000 $35 $28·40
Commodity 3 26,000 $41·60 $26·40
Block Co uses absorption costing. Fixed production overheads are absorbed on the basis of direct
machine hours and the budgeted cost of these for the quarter ended 31 May 2013 was $174,400.
Commodity 1, 2 and 3 use 0·2 hours, 0·6 hours and 0·8 hours of machine time respectively.
The following data shows the actual sales prices and volumes achieved for each product by Block Co for
the quarter ended 31 May 2013 and the average market prices per unit.
Product Actual production and Actual selling price Average market price
sales units per unit per unit
Commodity 1 29,800 $31 $32·20
Commodity 2 30,400 $34 $33·15
Commodity 3 25,600 $40·40 $39·10
The following variances have already been correctly calculated for Commodities 1 and 2:
Sales price operational variances
Commodity 1: $35,760 Adverse
Commodity 2: $25,840 Favourable
Sales price planning variances
Commodity 1: $65,560 Favourable
Commodity 2: $56,240 Adverse
Required:
(a) Calculate, for Commodity 3 only, the sales price operational variance and the sales price
planning variance.
(b) Using the data provided for Commodities 1, 2 and 3, calculate the total sales mix variance and
the total sales quantity variance.
(c) Briefly discuss the performance of the business and, in particular, that of the sales manager for
the quarter ended 31 May 2013.

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Question.32
The budgeted sales for Milano company for a period were
Product Units CM per unit TOTAL CM
X 8,000 20 160,000
Y 7,000 12 84,000
Z 5,000 9 45,000
20,000 289,000
The actual sales were
Product Units CM per unit TOTAL CM
X 6,000 15 90,000
Y 7,000 10 70,000
Z 9,000 10 90,000
22,000 250,000
You are required to calculate sales mix and yield variances
Assume that
Budgeted market share is 10%
Budgeted industry sales is 200,000
Actual industry sales is 275,000
Required :
Calculate market size and market share variance

Questions.34ACCA DEC 2012

Truffle Co makes high quality, hand-made chocolate truffles which it sells to a local retailer. All
chocolates are made in batches of 16, to fit the standard boxes supplied by the retailer. The standard cost
of labour for each batch is $6·00 and the standard labour time for each batch is half an hour. In
November, Truffle Co had budgeted production of 24,000 batches; actual production was only 20,500
batches. 12,000 labour hours were used to complete the work and there was no idle time. All workers
were paid for their actual hours worked. The actual total labour cost for November was $136,800. The
production manager at Truffle Co has no input into the budgeting process.
At the end of October, the managing director decided to hold a meeting and offer staff the choice of either
accepting a 5% pay cut or facing a certain number of redundancies. All staff subsequently agreed to
accept the 5% pay cut with immediate effect.
At the same time, the retailer requested that the truffles be made slightly softer. This change was
implemented immediately and made the chocolates more difficult to shape. When recipe changes such as
these are made, it takes time before the workers become used to working with the new ingredient mix,
making the process 20% slower for at least the first month of the new operation.
The standard costing system is only updated once a year in June and no changes are ever made to the
system outside of this.
Required:
(a) Calculate the total labour rate and total labour efficiency variances for
November, based on the standard cost provided above.
(b) Analyse the total labour rate and total labour efficiency variances into
component parts for planning and operational variances in as much detail as
the information allows.
(c) Assess the performance of the production manager for the month of
November.

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QUESTION.35 ( NBAA NOV 2015 )
Umeme Company uses standard costing partly for departmental evaluation purposes. Prime costs
variances that were presented to the management for departmental evaluations purposes were presented as
follows
PRICE/RATE VARIANCE EFFICIENCY VARIANCE
IN TZS IN TSH
Raw materials 280,000 Adverse 96,000 Adverse
Direct labour 58000Adverse 240,000 Favourable

When the meeting deliberation started, the new Management Accountant informed the meeting that it was
improper to evaluate the procurement and the factory performances based on the traditional variances
because these variances conceal a competent that should be attributed to planning errors. He said that
when the planning variances are established, each of the two departments become accountable only for
the operating variance component. His conked was mainly spurred by the events that took place in month
ended which must have significantly rendered irrelevant all assumption that were made at the time of
setting standards and budgets . He explained his conked as follows
The standard for raw materials equals to TZS 160 per finished unit was based on the understanding that
each unit will require 2 kilograms and each kilogram is purchased at TZS 80. The procurement manager
purchased 140,000 kilograms at a total cost equal to TZS 11,480,000 because the type of raw materials
that was targeted was not available. It has now been established that the prevailing prices of the type of
raw material that the procurement manager purchased was TZS 81 per kilogram it has also been
established that this raw material was of high quality and for this reason, this should have reduced
materials usage by 2 % of the quantity that was allowed per finished unit. The factory used 121,000
kilograms to produce 60,000 units
The standard for direct labour equal to TZS 12 per finished unit was based on the assumption that each
finished unit was required 0.01 lbour hours and this would have influenced and average rate to TZS
12,000 per hour. This din’t take into account the fact that some operations would require skilled labour
rate per hour is higher than the assumed rate. If what has been said was considered, the average direct
labour rate should have been TZS 12,150 per hour. Apart from this the mix of skilled and unskilled labour
would have as well increased labour efficiency by 4 % of the hours that were allowed per finished unit. In
the period ended direct labour hours cost was TZS 7,018,000 and this was for 580 labour hours that were
used for output of 60,000 units finished units were achieved
Management was impressed by the presentation and wants you to decompose each variance reported into
planning and operational variances
REQUIRED : Using the information available , analyze each of the raw materials and direct labour
variances into planning and operational variances.

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QUESTION.35 ACCA JUNE 2015 + LEARNING CURVE
Bokco is a manufacturing company. It has a small permanent workforce but it is also reliant on temporary
workers,whom it hires on three-month contracts whenever production requirements increase. All buying
of materials is the responsibility of the company’s purchasing department and the company’s policy is to
hold low levels of raw materials in order to minimise inventory holding costs. Bokco uses cost plus
pricing to set the selling prices for its products once an initial cost card has been drawn up. Prices are then
reviewed on a quarterly basis. Detailed variance reports are produced each month for sales, material costs
and labour costs. Departmental managers are then paid a monthly bonus depending on the performance of
their department.
One month ago, Bokco began production of a new product. The standard cost card for one unit was drawn
up to include a cost of $84 for labour, based on seven hours of labour at $12 per hour. Actual output of
the product during the first month of production was 460 units and the actual time taken to manufacture
the product totalled 1,860 hours at a total cost of $26,040.
After being presented with some initial variance calculations, the production manager has realised that the
standard time per unit of seven hours was the time taken to produce the first unit and that a learning rate
of 90% should havebeen anticipated for the first 1,000 units of production. He has consequently been
criticised by other departmentalmanagers who have said that, ‘He has no idea of all the problems this has
caused.’
REQUIRED:
(a) Calculate the labour efficiency planning variance and the labour efficiency operational variance
AFTER takingaccount of the learning effect.
Note: The learning index for a 90% learning curve is –0·1520 (5 marks)

Questions.36 ACCA DEC 2013

Bedco manufactures bed sheets and pillowcases which it supplies to a major hotel chain. It uses a just-in-
time system and holds no inventories.
The standard cost for the cotton which is used to make the bed sheets and pillowcases is $5 per m2. Each
bed sheet uses 2 m2 of cotton and each pillowcase uses 0·5 m2. Production levels for bed sheets and
pillowcases for November were as follows:
Budgeted production Actual production
Levels (units) levels (units)
Bed sheets 120,000 120,000
Pillowcases 190,000 180,000
The actual cost of the cotton in November was $5·80 per m2. 248,000 m2 of cotton was used to make the
bed sheets and 95,000 m2 was used to make the pillowcases.
The world commodity prices for cotton increased by 20% in the month of November. At the beginning of
the month, the hotel chain made an unexpected request for an immediate design change to the
pillowcases. The new design required 10% more cotton than previously. It also resulted in production
delays and therefore a shortfall in production of 10,000 pillowcases in total that month.
The production manager at Bedco is responsible for all buying and any production issues which occur,
although he is not responsible for the setting of standard costs.
Required:
(a) Calculate the following variances for the month of November, for both bed sheets and pillow
cases, and in total:
(i) Material price planning variance;
(ii) Material price operational variance;
(iii) Material usage planning variance;
(iv) Material usage operational variance.
(b) Assess the performance of the production manager for the month of November.

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Questions.41[ACCA DEC 2010]
Carad Co is an electronics company which makes two types of televisions – plasma screen TVs and LCD
TVs. It operates within a highly competitive market and is constantly under pressure to reduce prices.
Carad Co operates a standard costing system and performs a detailed variance analysis of both products
on a monthly basis. Extracts from the management information for the month of November are shown
below:
Note
Total number of units made and sold 1,400 1
Material price variance $28,000 A 2
Total labour variance $6,050 A 3
Notes
(1) The budgeted total sales volume for TVs was 1,180 units, consisting of an equal mix of plasma screen
TVs and LCD screen TVs. Actual sales volume was 750 plasma TVs and 650 LCD TVs. Standard sales
prices are $350 per unit for the plasma TVs and $300 per unit for the LCD TVs. The actual sales prices
achieved during November were $330 per unit for plasma TVs and $290 per unit for LCD TVs. The
standard contributions for plasma TVs and LCD TVs are $190 and $180 per unit respectively.
(2) The sole reason for this variance was an increase in the purchase price of one of its key components,
X. Each plasma TV made and each LCD TV made requires one unit of component X, for which Carad
Co’s standard cost is $60 per unit. Due to a shortage of components in the market place, the market price
for November went up to $85 per unit for X. Carad Co actually paid $80 per unit for it.
(3) Each plasma TV uses 2 standard hours of labour and each LCD TV uses 1·5 standard hours of labour.
The standard cost for labour is $14 per hour and this also reflects the actual cost per labour hour for the
company’s permanent staff in November. However, because of the increase in sales and production
volumes in November, the company also had to use additional temporary labour at the higher cost of $18
per hour. The total capacity of Carad’s permanent workforce is 2,200 hours production per month,
assuming full efficiency. In the month of November, the permanent workforce were wholly efficient,
taking exactly 2 hours to complete each plasma TV and exactly 1·5 hours to produce each LCD TV. The
total labour variance therefore relates solely to the temporary workers, who took twice as long as the
permanent workers to complete their production.
Required:
(a) Calculate the following for the month of November, showing all workings clearly:
(i) The sales price variance and sales volume contribution variance;
(ii) The material price planning variance and material price operational variance;
(iii) The labour rate variance and the labour efficiency variance.
(b) Explain the reasons why Carad Co would be interested in the material price planning variance
and the material price operational variance.

pg. 11