STANDARD COSTING MODIFIED (PDF) (1)

SARVAGYA INSTITUE OF COMMERCE 1
CHAPTER – “STANDARD COSTING”
INDEX FOR THE CHAPTER

S. NO. TOPICS COVERED QUESTION
NUMBER
1. MATERIAL COST VARIANCES
2. LABOUR COST VARIANCES
3. OVERHEAD COST VARIANCES
4. SALES VARIANCES
5. QUESTIONS OF MISSING VALUES
6. STANDARD COSTING WITH OPERATING STATEMENT /
RECONCILIATION STATEMENT
7. STANDARD COSTING WITH PROCESS COSTING
8. STANDARD COSTING WITH BUDGETARY CONTROL
9. PREPARATION OF STANDARD COST SHEET
10. CALCULATION OF BUDGETARY CONTROL RATIOS
11. FINDING OUT REASONS FOR FALL IN PROFIT BETWEEN
TWO YEARS
12. MARKET SIZE VARIANCE AND MARKET SHARE
VARIANCE
13. PLANNING AND OPERTAIONAL VARIANCE Vs
TRADDITIONAL APPROACH
14. APPLICATION OF LEARNING CURVE IN STANDARD
COSTING
15. SINGLE PLAN AND PARTIAL PLAN
16. BALANCE SCORE CARD
17. THREE WAY METHOD OF ANALYSIZING THE
OVERHEADS
18. CONTROLLABLE AND NON – CONTROALLABLE
VARIANCES
19. INVESTIGATION OF VARIANCES
20. MISC. TOPICS:
RE- WORK VARIANCE
SCRAP VARIANCE
Meaning - It is a specialized technique of costing under which standard cost are predetermined, actual costs are
compared with such predetermined cost, the variations between the two are noted and analysed as to their
causes so that corrective measures may be taken.
CIMA – “The standard cost is a predetermined cost which is calculated from the management’s standard of
efficient – operation and the relevant necessary expenditure”
From the above definition it’s cleared that the standard costing techniques comprises of:
(i) Ascertainment and use of standard costs for each element of cost
(ii) Comparison of actual costs with standard costs and measuring variances.
(iii) Ascertainment of reasons of variances for taking appropriate action.
COMPILED BY ADHISH BHANSALI (M.COM./FCA) MO. NO 9829279730

CLASSES – CA FINAL; CWA FINAL, ACCA, CIMA, MBA (FINACE)
Differences between standard costing and historical costing =>

Standard costing Historical costing
(1) It is a predetermined cost It is recorded after costing
(2) It is an ideal cost It is an actual or incurred cost
(3) It is a future cost. It can be used for cost control It is related to past, cannot be used for cost control
(4) It is used for the measurement of operational It is used to ascertain the profit or loss incurred
efficiency of the enterprises during a particular period
Difference between standard and estimated costing:

Standard costing Estimated costing
It is scientifically used and it is a regular system based upon It is used as statistical data and it is based on
estimation and survey lot of guesswork.
Its object is to ascertain what the cost should be Its object is to ascertain what the cost will be
It is a continuous process of costing and takes into account all It is used for a specific use. i.e. fixing sale
the manufacturing process price
It is used where standard costing in a operation It is used where standard costing is not in
operation
It is more accurate than estimated cost It is not accurate as it is based on past
experience
Difference between Budgetary control and standard costing:

Standard costing Budgetary control
(1) Standard costing can’t operate without It can operate even without following the standard costing
following the budgetary control.
(2) In this standards are fixed for material, In this many types of budgets are prepared.
wages, overheads and sales only
(3) It is intensive in its application It is extensive in its application
(4) in can be used in a manufacturing concern It can be used in a trading or financial concern only.
only
(5) It in not expensive It is more expensive
(6) Standards are fixed regarding cost per unit or Budgets are fixed for total cost for sales during a period.
sales price.
(7) In this necessary entries are passed for In this no accounting entry is passed for variation between
variances budgets and actual
(8) It is meant to control cost and targets are It is required for financial control and budgets are fixed to
fixed for cost per unit decide maximum limit of expenditure.
(9) It cannot be used for one type of cost It can be prepared for only few types of cost

MATERIAL COST VARIANCES
Material cost variance
Material price variance Material usage variance
Material mix variance Material yield variance
(1) Material cost variance (MCV) = TSC – TAC/ (SQ x SR) – (AQ x AR)
TSC = Total standard cost for actual output
TSC = Total standard cost x actual output
Standard output
TAC = Total actual cost
(2) Material price variance (MPV) = AQ (SP - AP)
Point of purchase: At the time of consumption:

AQ (SP - AP) AQ (SP - AP)
AQ = Actual quantity AQ = Actual quantity consumed
purchased SP = Standard price
SP = Standard price AP = Actual price
AP = Actual price
Note:
(a) If question is silent, then MPV will always calculated on consumption basis.
(b) How to calculate actual quantity consumed:
Consumed = Opening stock + Purchases – closing stock
(c) If in the question quantity issued to production is given, then consumption will calculate as under:
Consumed = Opening stock + Issued to production – Closing stock
(3) Material usage variance (MUV) = SP (SQ - AQ)

SQ = Standard quantity for actual output
SQ = Standard quantity x actual output
Standard output
AQ = Actual quantity

(4) Material Mix Variance (MMV) = SP(RSQ - AQ)

RSQ = Revised standard quantity
RSQ = Standard quantity x total actual quantity
Total Standard quantity
RSQ is always calculated on the basis of input
(5) Material sub usages variances (MSUV) = SP (SQ - RSQ)
(6) Material yield variance MYV) = SC (AY - RSY)

SC = Standard cost per unit
SC = Total Standard cost

Standard Output
RSY = Revised Standard yield
RSY = Standard yield x total actual quantity
Total Standard quantity
AY = Actual yield / Actual output
Verification rules:
(i) MCV = MPV+ MUV
(ii) MUV = MMV+ MSUV
(iii) MYV = MSUV
So, MUV = MMV+ MYV
 MCV and MYV is to be calculated on total basis and all other variances on individual material wise.
LABOUT COST VARIANCES
Labour cost variance
Labour rate variance Labour idle time Labour efficiency variance

variance
Labour mix variance Labour yield variance
(1) Labour cost variance (LCV) = TSC – TAC

OR
(SH x SR) – (AH x AR)

TSC = Total standard cost x Actual output
Standard output
TAC – Total actual cost
(2) Labour rate variance (LRV) = AH (SR - AR)

AH = Actual hours paid
SR = Standard rate
AR = Actual rate
(3) Labour efficiency variance (LEV) = SR (SH - AH)

SH = Standard hours for actual output
SH = Standard hours x Actual output
Standard output
AH = Actual hours worked
(4) LITV (Labour idle time variance) = Idle time x SR

Idle time = Hours paid – Hours worked
(5) Labour mix variance / Labour gang composition variance

LGCV = SR (RSH - AH)
RSH = revised Standard hours
RSH = Standard hours x Total actual hours

Total Standard hours
(6) Labour revised efficiency variance (LREV) = SR (SH – RSH)
(7) Labour yield variance (LYC = SC (AY – RSY)

SC = Standard cost per unit
SC= Total standard cost
Total standard output
RSY = Revised standard yield
RSY = Standard yield x total actual hours
Total standard hours
Verification of labour variance:
LCV = LRV + LEV
LEV = LMV + LYV
LREV = LYV
Sometime s due to abnormal wastage of time there is idle time variance. In this case
LCV = LRV+ LITV + LEV
OVERHEADS COST VARIANCES
(A) Variable overhead variance = >

Standard Rate = Total budgeted variable overheads
(Hourly basis) Total budgeted hours
Standard rate = Total budgeted variable overheads

(Unit basis) Total budgeted units
(a) Hours basis: =>

(1) Variable overheads cost variance = TSC – TAC

(2) Variable overhead expenditure variance = AH (SR - AR)
(3) Variable overheads efficiency variance =SR (SH - AH)

SH = Standard hours for actual output
(b) Unit Basis:-

(1) Variable overhead variance = TSC – TAC
(2) Variable overhead expenditure variance = SQ x SR – AQ x AR

SQ = Standard quantity for actual hours worked
(B)FIXED OVERHEAD VARIANCES:
Fixed overhead cost variance

[a - e]
Fixed overhead expenditure / Fixed overhead volume

Budget variance variance
[d - e] [a -d]
Fixed overhead Fixed overhead Fixed overhead calendar

efficiency variance capacity variance variance
[a – b] [b – c] [c – d]
Hours basis Unit basis

(a) RFO SH x SR AQ x SR
(b) SFO AH x SR SQ x SR
(c)PFO RBH x SR RBQ x SR
(d)BFO BH x SR BQ x SR
(e) AFO AH x AR AQ x AR
RFO = Revised fixed overheads/ Recovered fixed overheads
SFO = Standard fixed overheads
PFO = Possible fixed overheads BFO = Budgeted fixed overheads
AFO = Actual fixed overheads SH = Standard hours for actual output
SQ = Standard quantity for actual hours RBH = Revised budgeted hours
RBH = Budgeted hours x Actual days
Budgeted days
RBQ = Revised budgeted quantity

RBQ = Budgeted quantity x Actual days

Budgeted days
Note: - If in the question information about budgeted and actual days is not given then fixed overhead calendar
variance is not calculated and fixed overhead capacity variance is to be calculate by using the following
formula:
Fixed overhead capacity variance = SFO – BFO
SALES VARIANCES
Based on value Based on margin/ profit
Sales value variance Sales margin variance
Sales value Sales value Sales margin Sales margin

price variance volume variance price variance volume variance
Sales value Sales value Sales margin

mix variance Sales margin
quantity variance quantity
mix variance
variance
(A) Based on value

(1) Sales value variance = Total actual sales - Total budgeted sales
(2) Sales value price variance = AQ (AP - SP)
(3) Sales Value volume variance = SP (AQ - BQ)
(4) Sales Value mix variance = SP (AQ - RBQ)
(5) Sales value quantity variance = SP (RBQ - BQ)
RBQ = Budgeted quantity x Total actual quantity
Total budgeted quantity
(B)Based on Margins / Based on profits

Standard profit = Standard selling price – Standard cost
Actual profit = Actual selling price – Standard cost
(1) Sales Margin variance = Total actual margin – Total budgeted margin
(2) Sales Margin price variance = AQ (AP - SP)
Sales margin price variance = Sales value price variance
(3) Sales Margin volume variance = SP (AQ - BQ)
(4) Sales Margin Mix variance = SP (AQ - RBQ)
(5) Sales Margin quantity variance = SP (RBQ - BQ)

AP =Actual profit
SP = Standard profit
AQ = Actual quantity
BQ = Budgeted quantity
TOPIC: QUESTIONS RELATED TO CALCULATION OF VARIANCES

Q. 1 The standard material cost to produce one tonne of chemical X is:
300Kgs. of material A @ `10 per Kg.
400Kgs. of material B @ `5 per Kg.
500Kgs. of material C @ `6 per Kg.
During a period, 100 tonnes of chemical X were produced from the usage of:
35 tonnes of material A at a cost of ` 9,000 per tonne
42 tonnes of material B at a cost of ` 6,000 per tonne
53 tonnes of material C at a cost of ` 7,000 per tonne
Calculate material variances.
SOLUTION:
Standard Actual
Quantity Price Amount Quantity Price Amount
A 300 10 3,000 35,000 9 3,15,000
B 400 5 2,000 42,000 6 252000
C 500 6 3000 53000 7 371000
1200 8000 1,30,000 9,38,000
(-) 200 (-) 30,000
Output 1000 1,00,000
(i) MCV = TSC – TAC (ii) MPV = AQ (SP-AP)

8000
TSC 1,000 1,00,000 = 8,00,000 A = 35,000 (10 – 9) = 35,000 (F)
= 8,00,000 – 9,38,000 = 1,38,000 (A) B = 42,000 (5 – 6) = 42,000 (A)
C = 53,000 (6 – 7) = 53,000 (A)
60,000 (A)
(iii )MUV = SP (SQ – AQ) (iv) MMV = SP (RSQ – AQ)
Calculation of SQ: Calculation of RSQ:
300 300
A= 1,00,000 = 30,000 A=  1,30,000 = 32,500
1000 1200
400 400
B = 1,000 1,00,000 = 40,000 B = 1200 1,30,000 = 43,333
500 500
C = 1,000 1,00,000 = 50,000 C=  1,30,000 = 54,167
1200
A = 10 (30,000 – 35,000) = 50,000 (A) A = 10 (32,500 – 35,000) = 25,000 (A)
B = 5 (40,000 – 42,000) = 10,000 (A) B = 5 (48,333 – 42,000) = 6665 (F)
C = 6 (50,000 – 53,000) = 18.000 (A) C = 6 (54,167 – 53,000) = 7002 (F)
78,000 (A) 11, 333 (A)
(v) MYV = SC (AY – RSY)
SC = 8,000 / 1,000 = 8
1,000
RSY =  1,30,000 = 1,08,333
1,200
= 8 (1,00,000 – 1,08,333) = 66,664 (A)

Q.2 Eskay Ltd. produces an article by blending 2 basic raw materials. The following standards have been set
up 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 September, 1990, the company produced 1,700 kg of finished
output. The position of stock and purchases for the month of September, 1990 is as under:
Material Stock on 1.9.90 Stock on 30.9.90 Purchased during September,90
KG Cost (`)
A 35 5 800 3400
B 40 50 1200 3000
Calculate the following variances:
(a) MPV (b) MUV (c) MYV (d) MMV (e) Total materials cost variances.
Assume first in first out method for the issue of material. The opening stock is to be valued at standard price.
SOLUTION:
Standard Actual
A 40 4 160 35 4 140
B 60 3 180 795 4.25 120
100 340 40 3 120
1150 2.5 2875
2020 6513.75
(-) 15 320
85 1,700
Consumption of A = opening Stock + purchase - (1) MCV = TSC – TAC
C/S 340
TSC 85  1,700 = 6,800
35
= 35 + 800 – 5 = 830 = 6513.75 – 286 .25 (F)
795
40
B = 40 + 1200 – 50 = 1190
1150
(ii)MPV = AQ (SP-AP) (iii) MUV = SP (SQ – AQ)
35 (4 – 4) = Nil Calculation of SQ:
795 (4 – 4.25) = 198.5 (A) 40
A = 851,700 = 800
40 (3 – 3) = Nil 60
1150 (3 – 2.5) = 575 (F) B =  1,700 = 1,200
85
376.25 (F) 4 (800 – 830) =120 (A)
3 (1200 – 1190) = 30 (F)
(iv) MMV = SP (RSQ – AQ) 90 (A)
Calculation of RSQ:
40 (v) MYV = SC (AY – RSY)
A=  2020 = 808
100 SC = 340 / 85 = 4
60
B =  2,020 = 1212 85
RSY = 1,00 2,020 = 1,717
100
4 (808 – 830) = 88 (A) 4 (1,700 – 1,717) = 68 (A)
3 (1212 – 1190) = 66 (F)
22 (A)

Q.3 From the data given below, calculate:

(a) Individual material price variances for the two materials X and Y assuming that price variances are
calculated at the time of purchase;
(b) Individual material usage variances for materials X and Y, assuming that there was no work – in – progress
either at the commencement or at the end of the period.
X Y
Qty. Value Qty. Value
Raw material purchases 2,000 4,000 5,000 6,250
Issues to works 2150 - 3,950 -
Works stock of mat.
Opening 300 1,000
Closing 200 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
Solution:
MPV (Point of purchase) = AQ (SP – AP)
X = 2,000 (1.90 – 2) = 200 (A)
Y = 5,000 (1.30 – 1.25) = 250 (F)
50 (F)
MUV = SP (SQ – AQ)

Calculation of SQ:
1 1
X – A 1 1,130 = 1,130 Y- A = 1 1,130 = 1,130
.50 1
B
1
 2,550 = 1,275 B =  2,550 = 2,550
1
2,405 3680
Calculation of AQ:
X = 300 + 2150 – 200 = 2250 1.90 (2405 – 2250) = 294.5 (F)
Y = 1000 + 3950 – 1250 = 3700 1.30 (3680 – 3700) = 26 (A)
268.5 (F)
Q.4 S.V. Ltd manufactures BXE by mixing three raw materials. For every batch of 100 kg of BXE, 125 kg of
raw materials are used. In April 2007, 60 batches were prepared to produce an output of 5,600 kg of BXE. The
standard and actual particulars for April 2006 are as under:-
Raw material Standard Actual Quantity
purchased
Mix Price per kg. ` Mix Price per kg. `
kg
% %
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,200

Calculate all Material variances.

Answer: (i) Material cost variance = 17,500 (A) (ii) Material price variance = 3,000 (A)
(iii) Material usage variance = 14,500 (A) (iv) Material mix variance = 7,500 (A)
(v) Material yield variance = 7,000 (A)
Solution:
Standard Actual
A 62.5 20 1,250 4,500 21 94,500
B 37.50 10 375 1,500 8 12,000
C 25.00 5 125 1,500 6 9,000
125 1,750 7,500 1,15,500
(-) 25 (-) 1,900
100 5,600
(i) MCV = TSC – TAC (ii) MPV = AQ (SP-AP)
TSC
1750
 5,600 = 98,000 4,500 (20 – 21) = 4,500 (A)
100
1,500 (10 – 8) = 3,000 (F)
= 98,000 – 1,15,000 = 17,500 (A)
1,500 (5 – 6) = 1,500 (A)
3,000 (A)
(iii) MUV = SP (SQ – AQ) (iv) MMV = SP (RSQ – AQ)
Calculation of SQ: Calculation of RSQ:
625 62.5
A = 1005,600 = 3,500 A = 125  7,500 = 3,750
375 37.5
B=  5,600 = 2,100 B=  7,500 = 2,250
1,00 125
25 25
C =  5,600 = 1,400 C = 125 7,500 = 1,500
100
20 (3500 – 4500) = 20,000 (A) 20 (3,750 – 4,500) = 15,000 (A)
10 (2100 – 1500) = 6,000 (F) 10 (2,250 – 1,500) = 7,500 (F)
5 (1400 – 1500) =500 (A) 5 (1,500 – 1,500) = Nil
14,500 (A) 7,500 (A)
(v) MYV = SC (AY – RSY)

SC = 1750 / 100 = 17.50
100
RSY =  7,500 = 6,000
125
17.5 (5,600 – 6,000) = 7,000 (A)
Q.5 Modern Tiles Ltd. makes plastic tiles of standard size of 6”X 6” X 1/8” from the following information,
you are required to calculate direct material variances and also verify your results. Standard output was 20,000
sq. feet.
Direct material Quantity (Kg.) Price per kg. (`)
A 600 0.90
B 400 0.65
C 500 0.40
During a particular month actual material cost of 8 mix were as follows:
Direct material Quantity (Kg.) Price per kg. (`)
A 5,000 0.85
B 2,900 0.60
C 4,400 0.45
Actual production for month was 6,20,000 tiles.

Answer:
(i) MCV – 220 (A); (ii) MPV – 175 (F); (iii) MUV – 395 (A); (iv) MMV – 55 (F); (v) MYV – 450 (A)
Solution:
Standard Actual
A 600 .90 540 500 .85 4,250
B 400 .65 260 2,900 .60 1,740
C 500 .40 200 4,400 .45 1,980
1,500 1,000 12,300 7,970
Output = 20,000 Sq Ft. Output = 6,20,000
1 Sq. ft Output = 144”
20,000 Sq. Ft. = 20,000  144 = 28,80,000
28,80,000 / 36 = 80,000
(ii) MPV = AQ (SP-AP) (i) MCV = TSC – TAC

A = 5,000 (.90 – .85) = 250 (F) 1,000
TSC 80,000 6,20,000 = 7,750
B = 2,900 (.65 – .6) = 145 (F)
= 7750 – 7970 = 220 (A)
C = 4,400 (.40 – .45) = 220 (A)
175 (A (iii) MUV = SP (SQ – AQ)
(iv) MMV = SP (RSQ – AQ) Calculation of SQ:
600
Calculation of RSQ: A= 6,20,000 = 4,650
80,000
600 400
A=  12,300 = 4,950 B=  6,20,000 = 3,100
1,500 8,000
400 500
B=  12,300 = 3,280 C=  6,20,000 = 3,875
1,500 80,000
500
C = 1,500 12,300 = 4,100 A = .90 (4650 – 5000) = 315 (A)
B = .65 (3100 – 2900) = 130 (F)
A = .90 (4,920 – 5,000) = 72 (A)
C = .40 (3875 – 4400) = 210 (A)
B = .65 (3,280 – 2,900) = 247 (F)
395 (A)
C = .40 (4,100 – 4,400) =120 (A)
55 (A) (v) MYV = SC (AY – RSY)
SC = 1000/ 80,000 = 0.125
80,000
RSY =  12,300 = 6,56,000
1,500
= 0.0125 (6,20,000 – 6,56,000) = 450 (A)
Q. 6 The details regarding the composition and the weekly wage rate of labour force engaged on a job
scheduled to be completed in 30 weeks are as follows:
Category of Standard Actual
workers No. of Weekly wage rate per No. of labourers Weekly wage rate per
labourers labour labourer
Skilled 75 Rs. 60 70 Rs.70
Semi – skilled 45 Rs. 40 30 Rs. 50
Un skilled 60 Rs. 30 80 Rs. 20
The work is actually completed in 32 weeks. Calculate the various labour variances.
Answer:
(i) LCV – 13,000 (A); (ii) LRV – 6,400 (A); (iii) LEV – 6,600 (A); (iv) LMV – 9,600 (F)
Solution:
Standard Actual

Hrs./Weeks Rate Amount Hrs./Weeks Rate Amount

Skilled 75  30 = 2,250 60 1,35,000 7032 = 2,440 70 1,56,800
Semi- 45 30 = 1,350 40 54,000 30  32 = 960 50 48,000
Skilled
Un Skilled 60  30 = 1,800 30 54,000 80  32 = 20 51,200
2,560
5,400 2,43,000 5,760 2,56,000
(i) LCV = TSC – TAC (ii) LRV = AH (SR – AR)

= 2,43,000 – 2,56,000 = 13,000 (A) 2,240 (60 – 70) = 22,400 (A)
960 (40 – 50) = 9,600 (A)
2,560 (30 – 20) = 25,600 (F)
6,400 (A)
(iii) LEV = SR (SH – AH) (iv) LMV = SR (RSH – AH) Calculation of RSH
60 (2250 – 2240) = 600 (F) 2,250
 5,760 = 2,400 60 (2,400 – 2240) = 9,600 (F)
5,400
40 (1350 – 960) = 15,600 (F) 1,350
30 (1,800 – 2,560) = 22,800 (A) 5,760 = 1,440 40 (1,440 – 960) = 19,200 (F)
5,400
6,600 (A) 1,800
 5,760 = 1,920 30 (1,920 – 2,560) = 19,200 (A)
5,400
9,600 (F)
Q.7 Standard hours for manufacturing two products M and N are 15 hours per unit and 20 hours per unit
respectively. Both products require identical kind of labour and the standard wage rate per hour is `5. In a year
10,000 units of M and 15,000 units of N were manufactured. The total of labour hours actually worked were
4,50,500 and the actual wage bill came to `23,00,000. This included 12,000 hours paid for @ `7 per hour and
9,400 hours paid for @ `7.5 per hour, the balance having been paid at `5 per hour. You are required to
calculate the labour variances.
Answer:
(i) LCV – 50,000 (A); (ii) LRV – 47,500 (A); (iii) LEV – 2,500 (A)
Solution:
Standard Actual
M 15 Hrs. 5 75 12,000 Hrs 7.00 84,000
N 20 Hrs. 5 100 9,400 Hrs. 7.50 70,500
4,29,100 Hrs. 5.00 21,45,500
4,50,500 Hrs. 23,00,000
Output: M = 1 unit Output: M = 10,000 units
N = 1 unit N = 15,000 units
(i) LCV = TSC – TAC

TAC M=
75
 10,000 = 7,50,000 (iii) LEV = SR (SH – AH)
1 15
100 M=  10,000 = 1,50,000
N 1
 15,000 = 15,00,000 1
20
22,50,000 N= 1
 15,000 = 3,00,000
= 22,50,000 – 28,00,000 = 50,000 (A) 4,50,000
(ii) LRV = AH (SR – AR) 5 (4,50,000 – 4,50,500) = 2,500 (A)
12,000 (5 – 7) = 24,000 (A)
9,400 (5 – 7.5) = 23,500 (A)
4,29,100 (5 – 5) = Nil

47,500 (A)
Q.8 A gang of workers normally consists of 30 men, 15 women and 10 boys. They are paid at standard rates
per hour as under:
Man `0.80
Woman `0.60
Boy `0.40
In a normal working week of 40 hours, the gang is expected to produce 2000 units of output. During the week
ended 31st Dec, the gang consisted of 40 men, 10 women and 5 boys. The actual wages paid were@ 0.70,
`0.65 and `0.30 respectively. 1600 units were produced. Four hours were lost due to abnormal idle time.
Calculate (1) wage variance (2) wage rate variance (3) labour efficiency variance, (4) idle time variance (5)
gang composition variance (i.e labour mix variance) and (6) labour revised efficiency variance, or labour yield
variance.
Answer:
(i) LCV – 256 (A) ; (ii) LRV – 160 (F); (iii) LEV – 256 (A); (iv) LITV – 160 (A); (v) LMV -
Solution:
Standard Actual
M 30  40 = 1,200 .80 960 4040 = 1,600 .70 1,120
W 15 40 = 600 .60 360 10  40 = 400 .65 260
B 10  40 = 400 .40 160 5  40 = 200 .30 60
2,200 1,480 2,200 1,440
Output = 2,000 units Output = 1,600 units
(i) LCV = TSC – TAC (iii) LEV = SR (SH – AH)
1480
TSC = 20001,600 = 1,184 Calculation of SH: Calculation of AH:
1200
= 1,184 – 1,440 = 256 (A) 2000
1,600 = 960 1,600 – (40  4) = 1,480
600
 1600 = 480 400 – (104) = 360
2000
(ii) LRV = AH (SR – AR) 400
 1600 = 320 200 – (5  4) = 180
1,600 (.80 – .70) = 160 (F) 2,000
400 (.60 – .65) = 20 (A) .80 (960 – 1480) = 94 (A)
200 (.40 – .30) = 20 (F) .60 (480 – 360) = 72 (F)
160 (A) .40 (320 – 180) = 56 (F)
256 (A)
(iv) LMV = SR (RSH – AH) (v) LITV = Idle Time  SR (vi) LYV = SC (AY – RSY)
.80 (1200 – M = 160  .80 = 128 (A) 1,480
SC = 2,000 = .74
.60 (600 W = 40  .60 = 24 (A) 2,000
RSY =
.40 (400 B = 20  .40 = 8 (A) 2,200
160 (A)
Q.9 The direct labour strength of a section of an Engineering factory is 100 workers paid at the rate `6.00 per
day of 8 hours each. The normal production is 1000 pieces per week of 48 hours. During a particular week an
order for 1500 pieces was completed exp, in all 7650 hours made up 6300 hours at normal wages and 1350
hours at overtime wages at double rate. The total wages came to `6300. Calculate the average labour cost per
piece during the week and analyse the labour cost variance for the week.
Answer:

Normal wages rate – 0.70; Overtime wages rate – 1.40

LCV: 900 (A); LRV – 562.50 (A); LEV – 337.50 (A)
Solution:
Standard Actual
100 40 = 4800 .75 3600 6300 .70 4410
1350 1.40 1890
Out Put = 1,000 Units Output = 1,500 Units
Let normal wages rate = X LCV = TSC – TAC

3600
Overtime wages = 2 X TSC = 1000 1500 = 5400
6,300 X + 1,350  2X = 6,300 5400 – 6300 = 900 (A)
6,300 X + 2,700 X = 6,300 LRV = AH (SR- AR)
9,000 X = 6,300 6300 (.75 - .70) = 315 (F)
X = 6,300 /9,000 = 0.70 1350 (.75 – 1.40) 877.50 (A)
LRV = SR (SH/AH) 562.50 (A)
4,800
SH =  1,500 = 7,200
1,000
.75 (7,200 – 7,650) = 337.50 (A)
Q.10 The standard labour component and the actual labour component engaged in a week for a job are as
under:
Skilled Semi – skilled Un skilled
Workers workers Workers
(a) Standard number of workers in the gang 32 12 6
(b) Standard wages rate per hour (`) 3 2 1
(c) Actual number of workers employed in the
gang during the week 28 18 4
(d) Actual wages rate per hour 4 3 2
During the 40 – hours working week, the gang produced 1800 standard hours of work.
Answer:
LCV – 2424 (A); LRV – 2000 (A); LEV – 424 (A); LMV – 80 (F); LYV – 504 (A)
Solution:
Standard Actual
Skilled 32  40 = 1,280 3 3840 2840 = 1,120 4 4,480
Semi- 12 40 =480 2 960 18  40 = 720 3 2160
Skilled
Un- 6  40 = 240 1 240 4  40 = 160 2 320
Skilled
Total hours 2,000 5,040 2,000 6,960
Output = 2,000 Standard Hours Output = 1,800 Standard Hours
(i) LCV = TSC – TAC (ii) LRV = AH (SR – AR) (v) LYV = SC (AY – RSY)
5,040
TSC = 2,0001,800 = 4536 1120 (3 – 4) = 1120 (A) 5,040
SC = 2,000 = 2.52
720 (2–3) = 720 (A)
= 4536 – 6960 = 2424 (A) 160 (1 – 2) =160 (A)
2,000
RSY = 2,000 = 2,000
2000 (A) 2.52 (1,800 – 2,000) = 504 (A)

(iii) LEV = SR (SH – AH) (iv) LMV = SR (RSH – AH)

Calculation of SH: 3 (1280 – 1120) = 480 (F)
1280
1,800 = 1152 2 (480 – 720) = 480 (A)
2000
480 1 (240 – 160) = 80 (F)
2000
 1800 = 432 80 (F)
240
 1800 = 216
2,000
3 (1152 – 1120) = 96 (F)
2 (432 – 720) = 576 (A)
1 (216 – 160) = 56 (F)

424 (A)
Q.11 A company operates a standard costing system and showed the following data for the month of March:
Actual Budgeted
No. of working days 22 20
Man-hours 4,300 4,000
Overhead rate per hour - `0.50
Hours per unit of output - 10
Fixed overhead incurred `1,800 -
No. of units produced 425 -
Calculate:
(a) Overhead cost variance (b) budget variance
(c) Volume variance (d) capacity variance
(e) Calendar variance (f) efficiency variance
Answer:
(a) Overhead cost variance – 325 (F); (b) Budget variance – 200 (F); (c) Volume variance – 125 (F)
(d) Capacity variance – 50 (A); (e) Calendar variance – 200 (F); (f) Efficiency variance – 25 (A)
Solution:
(a) RFO SH  SR = 4250  .50 = 2125
(b) SFO AH  SR = 4300  .50 = 2150
(c) PFO RBH  SR = 4400  .50 = 2200
(d) BFO BH  SR = 4000  .50 = 2000
(e) AFO AH  AR = = 1800
4600
SH = 400  425 = 4250
4000
RBH = 20  22 = 4400
(i) FOEFF.V = RFO – SFO = 2,125 – 2,150 = 25 (A)
(ii) FO Cap. V = SFO – PFO = 2,150 – 2,200 = 50 (A)
(iii) FO Cal. V = PFO – BFO = 2,000 – 2,000 = 200 (F)
(iv) FO Val. V. = RFO – BFO = 2,125 – 2,000 = 125 (F)
(v) FO Exp. V = BFO – AFO = 2,000 – 1,800 = 200 (F)
(vi) FOV. = RFO –AFO = 2,125 – 1,800 = 325 (F)
Q.12 Calculate overhead variances.

Items Budget Actual

No. of working days 20 22

Man hours per day 8,000 8,400
Output per man hours in units 1.0 .9
Overhead cost (`) 1,60,000 1,68,000
Answer:
(a) Efficiency variance – 18,480 (A); (b) Capacity variance – 8,800 (F);
(c) Calendar variance – 16,000 (F)
(d) Volume variance – 6,320 (F); (e) Expenditure variance – 8,000 (A); (f) Cost variance – 1,680 (A)
Solution:
(a) RFO SH  SR = 1,66,320 1 =1,66,320
(b) SFO AH  SR = 1,84,800  1 =184800
(c) PFO RBH  SR = 1,76,000  1 = 1,76,000
(d) BFO BH  SR =1,60,000  1 = 1,60,000
(e) AFO AH  AR = = 1,68,000
Stamdard Fixed Overheads 1,60,000
SR = = = `1
Standard Hrs. 8,000  20
1,60,000
SH = 1,60,000 1,66,320 (22 8,400 .90) = 1,66,320
1,60,000
RBH =
20
 22 = 1,76,000
(i) FOEFF.V = RFO – SFO = 1,66,320 – 1,84,800 = 18,480 (A)
(ii) FO Cap. V = SFO – PFO =1,84,800 – 1,76,000 = 8,800 (F)
(iii) FO Cal. V = PFO – BFO = 1,76,000 – 1,60,000 = 16,000 (F)
(iv) FO Val. V. = RFO – BFO = 1,66,320 – 1,60,000 = 6,320 (F)
(v) FO Exp. V = BFO – AFO = 1,60,000 – 1,68,000 = 8,000 (A)
(vi) FOV. = RFO –AFO = 1,66,320 – 1,68,000 = 1,680 (A)
Q.13 From the following data of A company Ltd. to be budgeted and actual performance for the month of
March compute direct materials and direct labour cost variance:
Budgeted data for March:
units to be manufactured 1,50,000
Units of direct material required (based on standard rates) 4,95,000
Planned purchase of raw materials (units) 5,40,000
Average unit cost of direct material `8
Direct labour hours per unit of finished goods ¾ hour
Direct labour cost (total) `29,92,500
Actual data at the end of March:
Units actually manufactured 1,60,000
Direct material cost (purchase cost based on units actually issued) `43,41,900
Direct material cost (purchase cost based on units actually purchased) ` 45,10,000
Average unit cost of direct materials 8.20
Total direct labour hours for March 1,25,000
Total direct labour cost for March 33,75,000
Solution:
Standard Actual
Amount Amount
Material 4,95,000 8 39,60,000 5,29,500 8.20 43,41,900

Labour 112500 Hrs. 26.60 29,92,500 1,25,000 27.00 33,75,000

Output = 1,50,000 Units Output = 1,60,000 Units
(i) MCV =TSC –TAC (i) LCV = TSC - TAC

39,60,000 29.92.500
TSC = 1,50,000
1,60,000 = 42,24,000 TSC = 1,50,000
1,60,000 = 31,92,000
(ii) MPV = AQ (SP – AP) 31,92,000 - 33,75,000= 1,83,000 (A)
= 5,29,000 (8 – 8.20) = 105900 (A) (ii) LRV = AH (SR – AR)
(iii) MUV = SP (SQ – AQ) 1,25,000 (26.60 – 27) = 50,000 (A)
495,000
SQ = 1,50,000 1,60,000 = 5,28,000 (iii) LEV = SR (SH –AH)
1,12,500
8 (5,28,000 – 5,29,500) = 12,000 (A) SH =
1,50.000
 1,60,000 = 1,20,000
26.60 (1,20,000 – 1,25,000)
= 1,33,000 (A)
Q. 14 The standard cost card for a product reveals:

`
Standard materials –
2 kg of A @ `2 per Kg 4.00
1 Kg of B @ `6 per Kg 6.00
Direct labour (3 hours @ `6 per hour) 18.00
Variable overhead (3 hours @ `4 per direct labour hour) 12.00
Total standard cost per unit 40.00
It is proposed to produce 10,000 units of product in the month of March and budgeted costs on the information
contained in the standard card are as follows:
Direct materials-
A 20,000 Kg @ `2 per Kg 40,000
B 10,000 Kg @ `6 per Kg 60,000
Direct laobur (30,000 hours @ `6 per hour) 1,80,000
Variable overhead (30,000 hours @ `4 per direct labour hr.) 1,20,000
4,00,000
The actual results are:
Direct materials-
A 19,000 Kg @ `2.20 per kg 41,800
B 10,100 Kg @ `5.60 per kg 56,560
Direct labour (28,500 hours @ `6.40 per hour) 1,82,400
Variable overheads 1,04,000
3,84,760
Actual production was 9,000 units:
From the above information, calculate the following variances:
(a) Material price and usage
(b) Labour wages rate and labour efficiency
(c) Variable overhead
(i) total variable overhead variances
(ii) Overhead expenditure variance
(iii) Overhead efficiency variance
Solution:
Standard Actual
Material A 2 Kg. 2 4 19,000 Kg. 2.20 41,800

Material B 1 Kg. 6 6 10,100 Kg. 5.60 56,560

DL 3 Hrs 6 18 28,500 Hrs 6.40 182400
VO 3 Hrs 4 12 28,500 Hrs 104000
Output = 1 Unit Output = 9000 Units
(a) MPV = AQ (SP – AP) (b) LRV = AH (SR – AR) (c) VOV = TSC – TAC
19,000 (2 – 2.20) = 3,800 (A) 28,500 (6 – 6.40) = 11,400 (A) 12
TSC = 1  9,000 = 1,08,000
10,100 (6 – 5.60) = 4,040 (F) LEV = SR (SH– AH)
3 = 1,08,000 – 1,04,000 = 4,000 (F)
240 (F) SH = 1 9,000 = 27,000 VO. EXP. Y = AH (SR – AR)
MUV = SP (SQ – AQ) 6 (27,000 – 28,500) = 9,000 (A) (AH  SR) – (AH  AR)
2
A = 1 9,000 = 18,000 (28,500  4) – 1,04,000
1 = 114,000 – 1,04,000 = 10,000 (F)
B =  9,000 = 9000 VO. Eff. V = SR (SH – AH)
1
2 (18,000 – 19,000) = 2,000 (A) 3
SH = 1 9,000 = 27,000
6 (9,000 – 10,100) = 6,600 (A)
4 (27,000 – 28,500) = 6,000 (A)
8,600 (A)
Q.15 A Ltd operates a system of standard costs.

Actual:
Materials consumed (3600 units at ` 52.50 per unit) 1,89,000
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 4800 units and the break up of standard cost per
unit was as under:
`
Materials consumed (1 units at `50 per unit) 50
Direct wages 6
Fixed expenses 40
Variable expenses 20
Total standard cost per unit 116
The standard wages per unit based on 9600 hours for the above period at a rate of `3.00 per hour. 6400 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
You are required to compute
(a) Direct MCV (b) MPV (c) MUV (d)Direct LCV (e)Wage rate variance
(f) LEV (g) LITV (h) Variable expenses variance (i) Fixed Expenses Expenditure variance
(j)Fixed Expense volume variance (k) Fixed expense capacity variance
(l)Fixed expense efficiency variance (m) Total cost variance
Answer
(a) MCV – 14,000 (A); (b) MPV – 9,000 (A); (c) MUV – 5,000 (A); (d) LCV -1,100 (A); (e) LRV – 1,700
(A); (f) LEV – 1,800 (F); (g) LITV – 1,200 (A); (h) Variable overhead expenses variance – 2,000 (F); (i)
Fixed overhead expenditure variance – 12,000 (F); (j) Fixed overhead volume variance – 52,000 (A); (k)
Fixed overhead capacity variance – 64,000 (A); (l) Fixed overhead efficiency variance – 12,000 (F); (m)
Total cost variance – 55,100 (A)

Q. 16 A Ltd has following information of budgeted sales and actual sales of April 2001
Product Sales quantity units S.P per unit
Budgeted sales A 1,200 `15.00

B 800 20.00
Actual sales C 2,000 40.00
A 880 18.00
B 880 20.00
C 2,640 38.00
Compute:
(a) Sales quantity variance (b) sales mix variance (c) sales price variance
(d) Total sales variance
Answer
(a) 11,400 (F); (b) 11,000 (F); (c) 2,640 (A); (d) 19,760 (F)
Q. 17 The budgeted sales for1 month and the actual achieved are as under:
Product Budget Actual
Qty. Rate Amt. Qty. Rate Amt.
A 1,000 100 1,00,000 1,200 125 1,50,000
B 700 200 1,40,000 800 150 1,20,000
C 500 300 1,50,000 600 300 1,80,000
D 300 500 1,50,000 400 600 2,40,000
2,500 5,40,000 3,000 6,90,000
Calculate in respect of each product, the sales variances.

Answer:
(a) Sales value variance – 1,50,000 (F); (b) Sales value price variance – 30,000 (F)
(c) Sales value volume variance – 1,20,000 (F); (d) Sales value mix variance – 12,000 (F)
(e) Sales value quantity variance – 1,08,000 (F)
Q.18 The budgeted production of a company is 20,000 units per month. The Standard cost sheet is as under –
Direct materials 1.5 kg at `6 per kg
Direct labour 6 hours at `.5 per hour
Variable overheads 6 hours at `4 per hour
Fixed overheads `3 per unit
Selling Price `72 per unit
The following are the actual details for the month –
Actual production and Sales = 18,750 units
Direct material consumed = 29,860 kg at `5.25 per kg.
Direct labour hours worked = 1,18,125 hours at `6 per hour.
Actual overheads were `5,65,000 out of which a sum of `40,000 was fixed.
There is no change in the selling price.
Calculate:
(a) Direct Materials Usage and Price Variance.
(b) Direct Labour Efficiency and Rate Variance.
(c) Variable Overheads Efficiency and Expenses Variance.
(d) Fixed Overheads Volume and Expense Variances.
(e) Sale Volume Variance in Sale Value and Gross Margin.

Solution:
Standard Actual
DM 1.5 kg. 6 9 DM 29,860 5.25 1,56,765
DL 6 hrs. 5 30 DL 1,18,125 hrs. 6.00 7,08,750
VO 6 hrs. 4 24 VO 1,18,125 hrs. 5,25,000
FO 6 hrs. 0.50 3 FO 40,000
SP `72 SP ` 72
Output = 1 Unit Output = 18,750 Units
(i) MCV = TSCTAC (iii) MUV = SP (SQAQ)

9 1.5
TSC = × 18750 = 168750 SQ = 1 × 18750 = 28,125
1
= 168750  15675 = 11985 (F) = 6 (2812529860) = 10410 (A)
(ii)MPV = AQ (SPAP) (iv) LCV = TSC TAC
30
= 29860 (65.25) = 22395 (F) TSC = × 18750 = 5,62,500
1
(v) LRV = AH (SRAR) = 5,62,500 7,08,750 = 1,46,250 (A)
= 1,18,125 (56) = 1,18,125 (A) (vi) LEV = SR (SHAH)
(vii) VOH. V. = TSC TAC 6
SH = 1 ×18750 = 112500
24
TSC =
1
× 18,750 = 4,50,000 = 5 (1,12,500 1,18,125) = 28,125 (A)
= 4,50,000  5,25,000 = 75,000 (A) (viii) VOH. Exp. V. = AH (SRAR)
(ix) VOH. Eff. V. = SR (SHAH) = (AH ×SR)  (AH ×AR)
6
SH = × 18750 = 1,12,500
1
= 1,18,125 × 4  5,25,000 = 52,500 (A)
= 4 (1,12,500 1,18,125) = 22,500 (A) (x) FOH. exp. V. = BFO AFO
(xi) FOH. Val. V. = RFO BFO = (BH ×SR) (AH× AR)
(SH × SR)  (BH × SR) = (1,20,000 ×.50) 40,000
(1,12,500 × .50) 60,000 = 60,000 20,000 = 40,000 (F)
5625060,000 = 3,750 (A) (BH = 20,000 ×6 = 1,20,000)
6 Standard profit = Standard selling price – Standard
SH = 1 ×18,750 = 1,12,500
cost
(xiii) Sales value volume variance = SP (AQ - BQ) 72 – 66 = 6
72 (18,750 - 20000) = 90,000 (xii) Sales margin volume variance = SP (AQ – BQ)
6 (18,750 - 20000) = 7,500 (A)
Q.19 The records of Dishita corporation indicates the following for the month of April, 2001:
Standard Factors Units cost
Direct material 4 gallons @ 1.20 ` 4.80
Direct labour 3 hours @ 1.80 ` 5.40
Factory overheads Re. 0.60 per labour hour ` 1.80
(i) Production during the month of April, 2001 has been 6,500 units with no beginning or ending work – in –
process inventories.
(ii) Materials: Purchased 32,000 gallons @ ` 1.18 per gallon; Used in production 25,600 gallons.
(iii) Labour: Hours worked 20,000; Average hourly wages rate ` 1.75.
(iv) Factory overhead cost incurred `12,500.
Calculate material variances, labour variances and only total variance for factory overhead.
Answer:

(a) MCV – 992 (F); (b) MPV – 512 (F); (c) MUV – 480 (F); (d) LCV – 100 (F); (e) LRV – 1,000 (F); (f)
LEV – 900 (A); (g) Total factory overhead variance – 300 (A)
Q.20 Trident Toys Ltd. had drawn up the following sales Budget for August, 1991:-
‘Bravo’ Toys 5,000 units at `100 each
‘Champion’ Toys 4,000 units at `200 each
‘Super’ Toys 6,000 units at `180 each
The actual sales for August, 1991 were:
‘Bravo’ Toys 5,750 units at `120 each
‘Champion’ Toys 4,850 units at `180 each
‘Super’ Toys 5,000 units at `165 each
The costs per unit of Bravo, Champion and Super Toys were `90, `170 and `130 respectively.
Analyse the variances to show:
(a) The effects on turnover;
(i) Sales price variance
(ii) Sales mix variance
(iii)Sales quantity variance
(iv)Total sales value variance.
(b) The effects on profit:
(i) Sales margin: Price variance
(ii) Sales margin: Mix variance
(iii)Sales margin: Quantity variance [CA – Nov. 1991]
Answer:
(a) Sales variance based on value:
(i) SVPV – 57,000 (A); (ii) SVMV – 30,200 (A); (iii) SVQV – 95,200 (F); (iv) SVV – 8,000 (F)
(b) Sales variance based on margin:
(i) SMPV – 57,000 (A); (ii) SMMV – 35,800 (A); SMQV – 18,800 (F)
Q.21 The following information is available in respect of Y Ltd. for a week:

(a) 400 kg. of raw material were actually used in producing product ‘EXE’. The purchase cost there of being
`24,800. The standard price per kg of raw material is `.60.
The expected output is 12 units of product ‘EXE’ from each kg. of raw material. Raw material price variance
and usage variance as computed by cost accountants are `800 (adverse) and `600 (adverse) respectively.
(b) The week is of 40 hours. The standard time to produce one unit of ‘EXE’ is 30 minutes.
The standard wage rate is `5 per labour hour. The computed employs 60 workers who have been paid hourly
wage rat as under:
Number of workers : 6 8 46
Hourly Wage Rate (`) : 4.80 5.20 5.00
(c) Budgeted overheads for a four-weekly period is `81,600. The actual fixed overheads spent during the sold
week are `19,800.
(d) Entire output of ‘EXE’ has been sold at its standard selling price of `15 per unit.
You are required to:
(i) Compute the variances relating to labor and overheads.
(ii) Prepare a statement showing total standard costs, standard profit, and actual profit for the week.
[May 1997]
Solution:
MPV = AQ (SR –AR) MUV = SP (SQ – AQ)
– 800 = (AQSR) – (AQ  AP) – 600 = (SP  SQ) – (SP  AQ)
– 800 = (AQ  SP) – 24,800 – 600 = (SP  SQ) – 24,000
(AQ  SP) = 24800 – 800 (SP  SQ) = 23,400
(AQ  SP) = 24,000 60 SQ = 23,400

SQ = 23,400 / 60 = 390
Std.Qty
SQ =  Actual Output
Std.Output
1
390 = 2 Actual Output
Actual Output = 390  12 = 4,680 Units
Labour Related Values:
Standard Actual
.50 Hrs 5 2.50 40  6 = 240 4.80 1,152
40  8 = 320 5.20 1,164
40  46 = 1,840 5.00 9,200
2,400 12,016
Output = 1 unit Output = 4,680 Unit
,,,
LCV = TSC – TAC LEV = SR (SH – AH)

2.5 Std.Hours
TSC = 1  4,680 = 11,700 SH = Std.Output Actual Output
.50
= 11,700 – 12,016 = 316 (A) =  4,680 = 2340
1
LRV = AH (SR – AR)
= 240 (5 – 4.80) = 48 (F)
320 (5 – 5.20) = 64 (A)
1840 (5 – 5) = Nil
16 (A)
Fixed overheads Related value:

Budgeted Overheads 81,600 81,600/4
SR = Budget Hours 40  60 = 2,400 = 8.5
(a) RFO SH  SR = 2,340  8 .5= 19,890

(b) SFO AH  SR = 2,400  8.5 = 20,400
(c) PFO RBH  SR = ------ --------- Fixed overheads efficiency
(d) BFO BH  SR = = 20,400 variance = RFO –SFO = 19,890
(e) AFO AH  AR = = 19,800 – 20,400 = 510 (A)
Fixed Overheads Variance =
RFO – AFO = 19,890 – 19,800 = 90 (F)
Fixed Overheads Volume Variance = RFO – BFO = 19890 – 20400 = 510 (A)
Fixed Overheads Expenditure Variance = BFO – AFO = 20400 – 19800 = 600 (F)
Statement showing total Standard Cost, Standard Profit And Actual Profit:
Sales (4680 15) 70200
Less: Standard Cost:
Direct Material 23,400
Direct Labour (4,680  .50  5) 11,700
Overheads (4,680  4.25) 19,890 54,990
Standard Profit 15,210
Adjustment for cost variance
F A
MPV - 800
MUV - 600
LRV - 16
LEV - 300
FO VV - 510
Fo Exp. V 600 -
600 2,226 1,626 (A)
Actual Profit 13,584
Q.22 BC Limited provides the following information for April, 2002:

Budget Actual
Number of working days 20 21
Man hours 40,000 43,000
Output per man hour (units) 3.2 3.0
Overhead- Fixed (`) 32,000 31,500
Variable (`) 1,02,400 1,14,400
Required:
Compute variable overhead variances, fixed overhead variances and total overhead variance.
[May 2002]
Answer:
(i) Variable overhead cost variance – 11,200 (A); (ii) Variable overhead expenditure variance – 4,320
(A); (iii) VO efficiency variance – 6,880 (A); (iv) Fixed overhead variance – 750 (F); (v) FO efficiency
variance – 2,150 (A); (vi) FO capacity variance – 800 (F); (vii) Fixed overhead calendar variance – 1,600
(F); (viii) Fixed overhead volume variance – 250 (F); (ix) FO expenditure variance – 500 (F)
Q.23 The following information relates to a manufacturing concern:

Standard: Amount
Material A: 24,000 Kg. @ ` 3 per Kg. 72,000
Material B: 12,000 Kg. @ ` 4 per Kg. 48,000
Wages: 60,000 hours @ ` 4 per hour 2,40,000
Variable overhead: 60,000 hours @ ` 1 per hour 60,000
Fixed overheads: 60,000 hours @ ` 2 per hour 1,20,000
Total cost 5,40,000
Budgeted profit 60,000
Budgeted sales 6,00,000
Budgeted production (units) 12,000
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 %
Wages and overheads 50 %
(a) Calculate all the material and labour variances.
(b) Calculate variable overhead expenditure and efficiency variance, fixed overhead expenditure and volume
variances and sales price and sales volume variance. [Nov. 09]

Answer:
(a) Actual output in terms of equivalent units: Material- 9,900; Labour and overheads – 9,450
(i) MCV – 8,019 (A); (ii) MPV – 3,366 (F); (iii) MUV – 11,385 (A); SQ – A: 19,800; B: 9,900
(iv) MMV – 165 (F); RSQ – A: 22,110; B: 11,055; (v) MYV – 11,550 (A)
(b) Labour variances:
(i) LCV – 2,250 (A); LRV – 750 (F); LEV – 1,800 (A); LITV – 1,200 (A)
(c) Variance overhead variances:
(i) Variable overhead expenditure variance – 2,700 (F); (ii) Variable overhead efficiency variance – 450
(A)
(d) Fixed overhead variances:
(i) FO expenditure variance – 900 (A); (ii) FO Volume variance – 25,500 (A)
(e) Sales variances:
(i) Sales margin price variance – 7,500 (F); (ii) Sales margin volume variance – 15,000 (A)
Q. 24 The standard cost for producing 180 Kgs. of a product whose raw material inputs are A and B is given
below:
Material A: 60 Kgs. @ `10 per Kg. 600
Material B: 140 Kgs. @ `2 per Kg. 280
The actual prices of A and B were `12 and `8 per Kg. respectively. Consumption of B was 108 Kg. the actual
output at 80 % yield was 144 Kg. Calculate the following direct material variances:
(i) Mix variance (ii) Yield variance (iii) Price variance (iv) Usages variance. [Nov. 2010]
Answer:
(i) MMV – 144 (A); (ii) MYV – 88 (A); (iii) MPV – 792 (A); (iv) MUV – 232 (A)
Q.25 The budget and actual operating data for a year pertaining to 4 products in a store are given below:
Product Budget data Actual operating result
Gallons Selling price Variable costs Gallons Selling price Variable costs
(` Per gallon) (` Per gallon) (` Per (` Per gallon)
gallon)
V 2,50,000 1.2 0.50 1,80,000 1.00 0.45
C 3,00,000 1.5 0.60 2,70,000 1.35 0.50
S 2,00,000 1.8 0.70 3,30,000 2.00 0.75
A 50,000 2.5 1.0 1,80,000 3.00 1.20
You are required to compute for the individual products and in total – (a) Sales Margin Price variance (b) Sales
Margin Mix Variance (c) Sales Margin Volume Variance. Indicate whether the variances are favourable or un
favourable. [Nov. 2011]
Answer:
(a) SMPV – 79,500 (F); (b) SMMV – 1,14,000 (F); (c) SMVV – 2,62,000 (F)
Q.26 A company actually sold 8000 units of A and 10,000 units of B at ` 12 and ` 16 per unit respectively
against a budgeted sale of 6000 units of A at ` 14 per unit and 9000 units of B at ` 13 per unit. The standard
costs of A and B are ` 8 and ` 10 per unit respectively and the corresponding actual costs are ` 5.5 and `14.5
per unit. Compute the product wise sales margin mix and sales margin price variances, indicating clearly,
whether the variances are favorable or adverse. [CA – May, 2011]
Answer:
(a) Sales margin price variance:
For A – 16,000 (A); For B – 30,000 (F); Total – 14,000 (F)
(b) Sales margin mix variance:
For A -4,800 (F); For B – 2,400 (A); Total – 2,400 (F)

Q.27 The standard set for a chemical mixture of a company is as under:

Material Standard mix (%) Standard price / Kg.
A 80 50
B 20 100
Standard yield in production is 75 %.
The actual quantity produced was 1800 Kg. of output from the following:
Material Quantity (Kg.) Actual price
A 1400 60
B 600 90
Calculate the total material price, mix and yield variances, indicating whether they are favourable (F) or
adverse (A or U). [CA – May, 2012]
Answer:
(a) MPV – 8,000 (A); MMV – 10,000 (A); MYV – 24,000 (F)
Q.28 Sunglow Limited manufactures and sells a single product. From the records of the company the
following information in available for November, 2012:
Direct material: Unit `
X 8 320
Y 24 1680
Z 16 400
2400
Direct wages (`40 per hour) 1600
Variable overheads (25 % of direct wages) 400
Fixed overhead (based on budgeted production of 10,000 units of the 600
final product per month)
5,000
The budgeted selling price is `700 each and the budgeted sales for the month were 14,000 units. The following
were the transactions for the month:
Direct material Units Purchase price per unit Issued unit
X 44,000 42 82,400
Y 1,40,000 71 2,46,400
Z 60,000 24 1,64,000
Direct wages ` 90,00,000 (3,98,000 hours)
Overheads:
Variable ` 2,00,000
Fixed ` 3,00,000
Production 11,000 units
Sales 9,000 units at `700 each and 3,500 units at `750 each
Required:
(i) Material price variance; (ii) Material mix variance; (iii) Labour rate variance; (iv) Labour efficiency
variance; (v) Variable overhead efficiency variance; (vi) Fixed overhead efficiency variance.
[CA – Nov. 2012]
Answer:
(i) Material price variance – (a) Point of purchase – 1,68,000 (A); (b) Point of consumption – 2,47,200
(A)
(ii) Material mix variance – 4,005 (A); (iii) Labour rate variance – 69,20,000 (F);(iv) Labour efficiency
variance – 16,80,000 (F); (v) Variable overhead efficiency variance – 4,20,000 (F); (vi) Fixed overhead
efficiency variance – 6,30,000 (F)

Q.29 ABC Ltd manufactures Product S for national distribution in India. The standard costs for the
manufacture of Product S were as follows:
Standard cost Actual cost
Direct material 1500 Kg. at `35 1600 Kg. at `32
Direct labour 4,800 hours at `11 4,500 hours at `11.80
Factory overhead Rate per labour hour, based on 100 %
of normal capacity of 5,500 labour
hours:
Variable cost, `2.40 `12,300 variable cost
Fixed cost, `3.50 `19,250 fixed cost
Instructions:
1. Determine the quantity variance, price variance, and total direct materials cost variance for Product S.
2. Determine the time variance, rate variance, and total direct labour cost variance for Product S.
3. Determine the controllable variance, volume variance, and total factory overhead cost variance for Product
S. [RTP – May, 2007]
Answer:
(a) MCV – 1,300 (F); MPV – 4,800 (F); MUV – 3,500 (A)
(b) LCV – 300 (A); LRV – 3,600 (A); LEV – 3,300 (F)
(c) Controllable variance – 780 (A); Volume variance – 2,450 (A); Total factory overhead cost variance –
3,230 (A)
Q. 30 Robertson Rix Limited is a manufacturing company. In January 20X6 it budgeted for 1500 units of
production, each of which uses 2.25 hours of machine time. Production overhead absorption rates had been
budgeted as follows for the financial year:
Variable production overhead `6 per machine hour
Fixed production overhead `7.80 per machine hour
The actual level of production in the month was 1520 units. The actual expenditure on variable production
overhead in the month was `21 360. The actual expenditure on fixed production overhead in the month was
`26 201.
You are required to calculate:
(a) The variable production overhead variance
(b) The fixed production overhead variance
Answer: (a) 840 (A); (b) 475 (F)
Q. 31 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
(a) Efficiency variance (b) Capacity variances (c) Calendar variance (d) Expense variance
(e) Volume variance (f) Total fixed overhead variance
Answer: (a) 3720 (A); (b) 18,720 (A); (c) 5,760 (F); (d) 2,000 (F); (e) 16,680 (A); (f) 14,680 (A)
Q. 32 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
Overheads:
Fixed 1,200 1,250
Variable 6,000 6,650

No. of days 25 27
Required: Compute and analyse the overhead variances.
Answer:
(a) Variable overhead cost variance – 150 (A) (b) Variable overhead expenditure variance –
50 (A)
(c) Variable overhead efficiency variance – 100 (A) (d) FO Efficiency variance – 20 (A)
(e) FO Capacity variance – 24 (F) (f) FO Calendar variance – 96 (F)
(g) FO Volume variance – 100 (F) (h) FO Expenditure variance – 50 (A)
(i) FO Cost variance – 50 (F)
,
Q. 33 The following information was obtained from the records of a manufacturing unit using Standard
Costing System:
Production units 4,000 3,800
Working days 20 21
Fixed overheads 40,000 39,000
Variable overheads 12,000 12,000
Required: Calculate the following overhead variances:
(a) Variance overhead variance (b) Fixed overhead variance.
(c) FO Expenditure Variance (d) FO Volume Variance (e) FO Efficiency Variance (f) Calendar variance.
Answer: (a) 600 (A); (b) 1,000 (A); (c) 1,000 (F); (d) 2,000 (A); (e) 4,000 (A); (f) 2,000 (F)
Q.34 The standard cost of a certain chemical mixture is as under:

40% of Material A @ ` 30 per kg
60% of Material B @ ` 40 per kg
A standard loss of 10% of input is expected in production. The following actual cost data is given for the
period.
350 kg Material – A at a cost of ` 25
400 kg Material - B at a cost of ` 45
Actual weight produced is 630 kg.
You are required to calculate the following variances raw material wise and indicate whether they are
favourable (F) or adverse (A):
(i) Cost variance
(ii) Price variance
(iii) Mix variance
(iv) Yield variance [May, 2015]
Q.35 Alpha Limited uses standard costing system for manufacturing its single product “APS”. Standard cost
card is as follows –
Particulars ` per unit
Selling price 120
Less: Direct material (1 Kg. per unit) (20)
Direct labour (6 hours at `8 per hour) (48)
Variable overheads (24)
Contribution 28
Actual and budgeted activity level in units for the month of September is –
Budget Actual
Sales (in units) 50,000 51,200
Production (units) 50,000 52,000
Actual sales revenue and variable costs for the month of September are given as under –

Sales - `61,33,760; Direct material - `10,65,600; Direct labour – (3,00,000 hours) - `24,42,000; Variable
overheads - `12,28,000
Calculate:
(i) Direct labour rate variance; (ii) Direct labour efficiency variance; (iii) Sales volume variance; (iv) Sales
price variance; (v) Comment on your findings in (i) and (ii) above. [CA – Nov. 2015]
TOPIC: QUESTIONS RELATED TO MISSING VALUES IN STANDARD COSTING WITH THE

HELP OF VARIANCES AND ONTER GIVEN DATA
Q.36 1Kg of product “K” requires 2 chemicals A and B. The following were the detail of product “K” for the
month of June 2007
(a) Standard mix chemical “A” 50% and chemical “B” 50%
(b) Standard price per Kg of chemical “A” `12 and chemical “B” `15
(c) Actual input of chemical “B” 70 Kg
(d) Actual price per Kg of chemical “A” `15
(e) Standard normal loss 10 % of total input
(f) Materials cost variance total `650 adverse
(g) Materials yield variance total `135 adverse
You are required to calculate
(1) MMV Total (2) MUV Total (3) MPV Total (4) Actual loss of actual input
(5) Actual input of chemical “A” (6) Actual price per Kg of Chemical B
Answer: (i) Material Mix variance = 45 (A) (ii) Material usage variance = 180 (A)
(iii) Material price variance = 470 (A) (iv) Actual loss = 20 Kg.
(v) Actual input of A = 40 Kg. (vi) Actual price of B = `20 per Kg.
Solution:
Standard Actual
A 50 12 600 40 15 600
B 50 15 750 70 20 1400
100 1350
110 2000
Less: Loss 10 20
Output 90 90
Given: MCV = 650 (A) ; MYV = 135 (A)
MCV = TSC – TAC MYV = SC (AY – RSY) SY
RSY = TSQ TAQ
- 650 = 1350 – TAC SC = 1,350 / 90 = 15 90
TAC = 1350 + 650 = 2000 -135 = 15 (90 RSY) 99 =  TAQ
100
-135 = 1350 – 15 RSY TAQ = 110
15 RSY = 1485
RSY = 99
MMV = 45 (A) MPV = AQ (SP-AP) MMV = SP (RSQ – AQ)
MUV = 180 (A) A = 40 (12 – 15) = 120 (A) Calculation of RSQ:
MPV = 470 (A) B = 70 (15 – 20) = 350 (A) 50
A = 100  110 = 55
470 (A)
Actual Loss = 20 Kg.

Actual Input = 40 Kg. MUV = SP (SQ – AQ) 50

B = 100 110 = 55
Actual Price of B = 20 per Kg. 12 (50 – 40) = 120 (F)
12 (55 – 40) = 80 (F)
15 (50 – 70) = 300 (A)
15 (55– 70) = 225 (A)
180 (A)
45 (A)
Q. 37 Compute the missing data indicated by the Question Marks from the following:
Particulars A B
Standard price / Unit ` 12 ` 15
Actual price / Unit ` 15 ` 20
Standard input (Kg.) 50 ?
Actual Input (Kg.) ? 70
Material price variance ? ?
Material usage variance ? 300 (A)
Material cost variance (Total) ?
Material mix variance for both products together was `45 adverse.
Answer: (i) Standard quantity of B = 50 Kg. (ii) Actual input of A = 40 Kg.
(iii) Material price variance for A = 120 (A) (iv) Material price variance for B = 350 (A)
(v) Material usage variance for A = 120 (F) (vi) Material cost variance = 650 (A)
Solution:
Standard Actual
A 50 12 600 40 15 600
B 50 15 750 70 20 1400
100 1350 110 2000
(i) MUV (B) = 300 (A) ; MMV (both) = 45 (A) (ii) MMV = SP (RSQ – AQ)
MUV = SP (SQ – AQ) Calculation of RSQ:
 300 = 15 (SQ – 70) Let TAQ = X
50
 300 = 15 SQ  1050 A = 100 X = X/2
15 SQ = 750 50
SQ = 50 B=  X = X/2
100
𝑋 𝑋
(iii) MCV = TSC – TAC  45 = 12 [ − (𝑋 − 70)] + 15 [ − 70]
2 2
= 1350 – 2,000 = 650 (A) 𝑋 𝑋
 45 = 12 [ 2 − 𝑋 + 70] +15[ 2 − 70]
𝑋−2 𝑋+140 𝑋−140
(iv) MPV = AQ (SP-AP)  45 = 12 [ 2
]+ 15 [ 2
]
40 (12 – 15) = 120 (A) 45 = 6 ( - X + 140) + 7.5 (X – 140)
70 (15 – 20) = 350 (A)  45 =  6 X + 840 + 7.5 X  1050
470 (A)  45 = 1.5 X  210
1.5 = 165
(v) MUV = SP (SQ AQ) X = 165/1.5 = 110
12 (50 – 40) = 120 (F)
15 (50 – 70) = 300 (A)
180 (A)

Q.38 Compute the missing data indicated by question marks from the following:
Particulars Labour – Grade A Labour – Grade B
Standard wage rate per hour ` 12 ` 15
Actual wage rate per hour ` 15 ` 20
Standard hours 50 ?
Actual hours ? 70
Labour rate variance ? ?
Labour efficiency variance ? 300 (Adv.)
Labour cost variance ? ?
Labour mix variance for both together was `45 (A).
Answer:
Standard hours of B – 50
Actual hours of A – 40
LCV – 650 (A); LRV – 470 (A); LEV – 120 (F)
Solution:
Standard Actual
Grade A 50 12 600 40 15 600
Grade B 50 15 750 70 20 1,400
100 1,350 110 2,000
LEV = SR (SH – AH) (i) LEV = TSC – TAC
– 800 = 15 (SH – 70) 1350 – 2000 = 650 (A)
– 300 = 15 SH – 1050 (ii) LRV = AH (SR-AR)
15 SH = 750 40 (12-15) = 120 (A)
SH = 50 70 (15-20) = 350 (A)
LMV = SR (RSH – AH) 470 (A)
Calculation of RSH: (iii) LEV (A) = SR (SH – AH)
Let AH = X 12 (50 – 40) = 120 (F)
50
A = 100 X = X/2
50
B = 100X = X/2
𝑋 𝑋
45 = 12 [ − (𝑋 − 70)] + 15 [ − 70]
2 2
𝑋 𝑋
 45 = 12 [ 2 − 𝑋 + 70] +15 [ 2 − 70]
𝑋−2 𝑋+140 𝑋−140
 45 = 12 6 [ 2
]+ 15 7.5 [ 2 ]
45 = 6 ( - X + 140) + 7.5 (X – 140)
 45 =  6 X + 840 + 7.5 X  1,050
 45 = 1.5 X  210
1.5 X= 165
X = 165/1.5 = 110
Q.39 A cost accountant of a company was given the following information regarding the overheads for Feb
2007
(a) Overheads cost variances `1400 adverse
(b) Overheads volume variances `1000 adverse
(c) Budgeted hours for Feb 2007, 1200 hours
(d) Budgeted overheads for Feb 2007, `6000

(e) Actual rate of recovery of overheads `8 per hour.

You are required to assist him in computing the following for Feb 2007
(1) overheads exp. Variances
(2) actual overheads incurred
(3) actual hours for actual production
(4) overhead capacity variance
(5) overhead efficiency variance
(6) standard hours for actual production
Answer:
(a) Overhead expenditure variance - 400 (A)
(b) Actual overheads incurred – 6,400
(c) Actual hours – 800
(d) Overhead capacity variance – 2000 (A)
(e) Overhead efficiency variance – 1000 (F)
(f) Standard hours for actual production – 1000 hours
Solution:
Overheads Volume Variance = RFO – BFO Overheads cost variance = RFO – AFO
– 1000 = RFO – 6000 - 1400 = 5000 – AFO
RFO = 5000 AFO = 6,400
RFO = SH  SR Overheads Exp. Variance = BFO – AFO
5000 = SH  5 = 6,000 – 6,400 = 400 (A)
Acutal Overheads 6,400
5000 = 5 SH AH = = = 800 Hrs.
Actual Rate 8
SH = 1000 Overheads capacity variance = SFO – BFO
6,000
SR = = `5 (AH  SR) – BFO
1,200
Overheads Efficiency Variance = RFO – (800 5) – 6,000
SFO 4000 – 6000 = 2000 (A)
= 5,000 – 4,000 = 1,000 (F)
Q.40 compute the missing data by the question marks from the following :
Sales quantity Product R Product S
Standard (units) ? 400
Actual (units) 500 ?
Price / unit ` `
Standard 12 15
Actual 15 20
Sales price variances ?
Sales volume variance 1200 F
Sales value variance ?
Also mix variance for both products together was `450 F. F denotes Favorable
Solution:
Standard Actual
Grade A 50 12 600 40 15 600

Grade B 50 15 750 70 20 1,400
100 1,350 110 2,000

(i) Sales volume variance = SP (AQ - BQ) (iii) Sales mix variance = SP (AQ - RBQ)
+ 1200 = 12 (500 - BQ) Calculation of RBQ:
1200 = 6,000 - 12 BQ Let TAQ = X
400
BQ = 400 R = 800 X = X/2
400
(ii) Sales price variance = AQ (AP - SP) S=  X = X/2
500 (15 - 12) = 1500 (F) 800
𝑋 𝑋
800 (20 - 15) = 4000 (F) 450 = 12 [500 − 2 ] + 15 [ (𝑋 − 500) − 2 ]
5,500 (F) 450 = 6 (1000 - X ) + 7.5 (X – 1000)
(iv) Sales value variance = Total actual sales – 450 = 6,000 + 6 X + 7.5 X  7500
Total budgeted sales 450 = 1.5 X  1500
23,500 – 10,800 = 12,700 (F) 1.5 = 1950
(v) Sales volume variance = SP (AQ - BQ) X = 1950/1.5 = 1300
15 (800 - 400) = 6,000 (F)
Q. 41 S Ltd. operates a system of standard costing in respect of one of its products which is manufactured
within a single cost center. The following information is available:
For one unit of product the standard material input is 20 liters at a standard price of `2 per liter. The standard
wage rate is `6 per hour and 5 hours are allowed in which to produce one unit. Fixed production overhead is
absorbed at the rate of 100 % of direct wages cost.
During the month just ended the following occurred:
Actual price paid for material purchased `1.95 per litre
Total direct wages cost was ` 1,56,000
Fixed production overhead incurred was ` 1,58,000
Variances Favourable Adverse
Direct material price ` 8,000 -
Direct material usage - 5,000
Direct labour rate - 5,760
Direct labour efficiency 2,760 -
Fixed production overhead expenditure - 8,000
Calculate the following for the month:
(i) Budgeted output in units (ii) No. of litres purchased
(iii) No. of litres used above standard allowed (iv) Actual units produced
(v) Actual hours worked (v) Average actual wage rate per hour [RTP – May, 2014]
Answer:
(i) Budgeted output in units – 5,000 units (ii) No. of liters purchased – 1,60,000
(iii) No. of liters used above standard allowed – 2,500 (iv) Actual units produced – 5,100 units
(v) Actual hours worked – 25,040 hours (vi) Actual wage rate – 6.23 per hour
Q. 42 JS Limited used a full standard cost system with raw materials inventory carried at standard. The
following data was taken from the records of the company for the year ended 31.12.20X1:
`
Opening raw materials inventory 300
closing raw materials inventory 250
Net Purchases 410
material price variance 10A
materials usage variance 20A
Direct labour cost (Actual) 900
Direct labour cost at standard) 840
Actual overhead cost incurred 875

Overheads cost variance 45F

Opening work-in-progress inventory 120
Closing work-in-progress inventory 140
Cost of goods sold reported 2,240
Opening finished goods inventory 360
Note: ‘F’ denotes favourable and ‘A’ denotes adverse.
You are required to compute:
(1) Raw material purchases at standard;
(2) Raw materials consumed at actual;
(3) Raw materials consumed at standard;
(4) Labour cost variance;
(5) Standard overhead costs;
(6) Total manufacturing cost at standard;
(7) Cost of goods manufactured;
(8) Cost of products sold to customers;
(9) Closing finished goods inventory.
Answer:
(1) Raw material purchased at standard – 400 (2) Raw material consumed at actual - 470
(3) Raw material consumed at standard – 450 (4) Labour cost variance – 60 (A)
(5) Standard overhead cost – 920 (6) Total manufacturing cost at standard – 2,210
(7) Cost of goods manufactured – 2,190 (8) Cost of product sold to customer – 2,195
(9) Closing finished goods inventory - 355
Q.43 The details regarding a food products manufactured by ABC Co. for the last one week are as follows:
Standard cost (for one unit) `
Direct materials 10 units @ `1.50 15
Direct wages 5 hours @ `8 40
Production overheads 5 hours @ `10 50
105
Actual (for whole activity) `
Direct materials 6,435
Direct wages 16,324
Analysis of variances: `
Direct materials:
Price 585 (A)
Usage 375 (F)
Direct wages (labour)
Rate 636 (F)
Efficiency 360 (A)
Production Overheads
Expenditure 400 (F)
Volume 750 (F)
(1) Actual output units;
(2) Actual price of material per unit;
(3) Actual wage rate per labour hour;
(4) The amount of production overhead incurred; and
(5) The production overhead efficiency variance.

Solution:
(i) Actual output in units: (ii) Actual price of material:
MPV = AQ (SPAP) (AQ×SP) = 5850
 585 = (AQ×SP)  (AQ ×AP) 1.5 AQ = 5850
585 = (AQ×SP)  6485 AQ = 5850/1.5 = 3900
(AQ× SP) = 6435 585 = 5850 (AQ× AP) = 6435
3900 AP = 6435
MUV = SP (SQAQ) 6485
375 = (SP×SQ) (SP×AQ) AP = = 1.65
3900
375 = (SP ×SQ)  5850 (iii) Actual wage rate per labour hour:
(SP × SQ) (TSC) = 5850 + 375 = 6225 LRV = AH (SR AR)
𝑇𝑜𝑡𝑎𝑙 𝑆𝑡𝑑.𝐶𝑜𝑠𝑡
TSC = 𝑆𝑡𝑑.𝑂𝑈𝑇𝑃𝑈𝑇 × Actual output 636 = (AH ×SR)  (AH ×AR)
15 636 = (AH×SR)  16324
6225 = 1 × Actual Output (AH ×SR) = 16324 + 636 = 16960
6225 = 15 Actual output AH × SR = 16960
Actual output = 6225 /15 = 415 units 8 AH = 16960
AH = 16960/8 = 2120
AH × AR = 16324
2120 AR = 16324
AR = 16324/2120 = `7.70
(iv) Amount of production overhead incurred: (v) Production overhead efficiency variance:
RFO = (SH ×SR) Eff. V. = RFO SFO
5
SH = × 415 = 2075 = 20750  2120 × 10
1
RFO = 2075 * 10 = 20,750 = 20750  21200 = 450 (A)
Overheads cost variance = Exp. + Volume
= 400 +750 = 1,150
OH. Cost. Var. = RFO AFO
1150 = 20,750 AFO
AFO = 20,750 1,150 = 19,600
Q.44 Following is the standard cost card of a component:

Material 2 units at ` 15 ` 30
Labour 3 hours at ` 20 ` 60
Total overhead 3 hours at ` 10 ` 30
During a particular month 10,000 units of the component were produced and the same was found to be 60 %
capacity of the budget. In preparing the variance report for the month, the cost accountant gathered the
following information
Labour ` 6,50,000
Variable overheads ` 2,00,000
Fixed overheads ` 3,00,000
Material price variance ` 70,000 (A)
Material cost variance ` 50,000 (A)
Labour rate variance ` 50,000 (F)
Fixed overhead expenditure variance ` 50,000 (A)
(i) Actual material cost incurred (ii) Standard cost of material actually consumed
(iii) Labour efficiency variance (iv) Variable overhead efficiency variance
(v) Variable overhead expenditure variance (vi) Fixed overhead efficiency variance
(vii) Fixed overhead capacity variance (viii) Fixed overhead volume variance
[CA – Nov. 1999]
Answer:
(i) Actual material cost incurred - `3,50,000 (ii) Standard cost of material actually consumed - `2,80,000
(iii) Labour efficiency variance – `1,00,000 (A); (iv) Variable overhead efficiency – `25,000 (A)
(v) Variable overhead expenditure variance – `25,000 (A); (vi) Fixed overhead efficiency variance –
`25,000 (A); (vii) Fixed overhead capacity variance – `75,000 (A); (viii) Fixed overhead volume variance
– `1,00,000 (A)
Q.45 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 kgs. at `5 per kg.) 15.00
Direct Labour (0.5 hour at `20 per hour) 10.00
Manufacturing Overhead (75% of direct labour cost) 7.50
Total cost 32.50
The following data was obtained from ZED Company’s records for April, 1998:
Debit Credit
` `
Sales - 1,25,000
Sundry Creditors (for purchase of direct materials in April 1998) 68,250 -
Direct Material Price Variance 3,250 -
Direct Material Usage Variance 2,500 -
Direct Labour Rate Variance 1,900 -
Direct Labour Efficiency Variance - 2000
The Actual Production in April 1998 was 4,000 units of the gadget, and the actual sale for the month was
2,500 units.
The amount shown above for direct materials price variance applies to material 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 outpur achieved.
(ii) Actual direct labour hours worked.
(iii) Actual direct labour rate.
(iv) Standard quantity of direct materials allowed (in kgs.)
(v) Actual quantity of direct materials used (in kgs.)
(vi) Actual quantity of direct materials purchased (in kgs.)
(vii) Actual direct materials price per kg. [CA Final, May 1998]
Solution:
Standard Actual
DM 3 Kg 5 15
DL 0.5 Hrs 20 10
MO 0.5 Hrs 15 7.5
Output = 1 unit Output = 4,000 Unit
(i)Standard Direct labour hours for actual output: (ii) Actual direct labour hours worked:
Standard Hours
 Actual Output LEV = SR (SH –AH)
Standard Output
0.50
2,000 = 20 (2,000 – AH)
1
 4,000 = 2,000 hrs 2,000 = 40,000 – 20 AH

38,000 = 20 AH
AH = 38,000/20 = 1,900 Hrs
(iii) Actual direct labour rate: (iv) Standard quantity of direct material allowed (SQ)
LRV = AH (SP – AR) Standard Quantity
 Actual Output
- 1,900 = 1,900 (20 – AR) 3
Standard Output
- 1,900 = 38,000 – 1900 AR 1

 4,000 = 2,000 hrs
39,900 = 1,900 AR
AR = 39,900/1,900 = 21
(v) Actual Quantity of DM used: (vi) Actual Quantity of Direct Material Purchase:
MUV = SP (SQ – AQ) MPV = AQ (SP – AP)
–2500 = 5 (12,000 – AQ) –3,250 = (AQ  SP) – (AQ – AP)
–2500 = 60,000 – 5 AQ – 3,250 = 5 – AQ – 68,250
5 AQ = 62,500 5 AQ = 68,250 – 3,250
AQ = 62,500/5 = 12,500 5 AQ = 65,000
3
SQ 1 4,000 = 12,000 AQ = 13,000
(vii) Actual Direct Material Price per Kg.
AQ  AP) = 68,250
13,000 AP = 68,250
AP = 68,250 /13,000 = 5.25
Q.46 The following profit reconciliation has been prepared by the cost accountant of RSQ Ltd. for March,
2008:
Budgeted profit 2,40,000
Sales price variance 51,000 (F)
Sales volume profit variance 42,000 (A)
2,49,000
Material price variance 15,880 (A)
Material usage variance 3,200 (F)
Labour rate variance 78,400 (F)
Labour efficiency variance 32,000 (A)
Variable overhead expenditure variance 8,000 (F)
Variable overhead efficiency variance 12,000 (A)
Fixed overhead volume variance 1,96,000 (A)
Fixed overhead expenditure variance 4,000 (F)
Actual profit 86,720
Budgeted production and sales volumes for March, 2008 were equal and the level of finished goods stock was
un - changed, but the stock of raw material decreased by 6,400 Kg. (valued at standard price) during the
month.
The standard cost card is as under:
Material 4 Kg. @ Rs. 2.00 8.00
Labour 4 hours @ Rs. 32 128.00
Variable overhead: 4 hours @ Rs. 12 48.00
Fixed overhead: 4 hours @ Rs. 28 112.00
296.00
Standard profit 24.00
Standard selling price 320.00
The actual labour rate was Rs. 2.24 lower than the standard hourly rate.

(a) Actual quantity of material purchased

(b) Actual production and sales volume
(c) Actual number of hours worked
(d) Actual variable and fixed overhead cost incurred. [Nov. 08]
Answer:
(a) Actual quantity of material purchased – 25,000 Kg.
(b) Actual production and sales – 8,250 units
(c) Actual hours worked – 34,000 hours
(d) Actual variable overheads - `4,00,000 and actual fixed overheads - `11,16,000
Q.47 The following information relates to Labour of X Ltd.

Type of labour Skilled Semi – skilled Unskilled Total
No. of workers in standard gang 4 3 2 9
Standard rate per hour (`) 6 3 1 -
Number of workers in actual gang 9
Actual rate per hour (`) 7 2 2 -
In a 40 hours week, the gang produced 270 standard hours. The actual number of semi – skilled workers is
two times the actual number of unskilled workers. The rate variance of semi – skilled workers is `160 (F).
Find the following:
(i) The number of workers in each category
(ii) Total gang variance
(iii) Total sub – efficiency variance
(iv) Total labour rate variance
(v) Total labour cost variance [Nov. 09]
Q.48 The following are the information regarding overheads of a company:

(a) Overhead cost variance = `2,800 (A)
(b) Overheads volume variance = `2,000 (A)
(c) Budgeted overheads = `12,000
(d) Actual overhead recovery rate = `8 per hour
(e) Budgeted hours for the period = 2,400 hours
You are required to compute the following:
(i) Overhead expenditure variance
(ii) Actual incurred overheads
(iii) Actual hours for actual production
(iv) Overhead capacity variance
(v) Overheads efficiency variance
(vi) Standard hours for actual production. [CA – May, 2013]
Answer:
(i) Overhead expenditure variance – 800 (A)
(ii) Actual overhead – 12,800
(iii) Actual hours – 1,600
(iv) Overhead capacity variance – 4,000 (A)
(v) Overhead efficiency variance – 2,000 (F)
(vi) Standard hours for actual production – 2,000 hours

Q.49 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 was:
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
(i) The number of kilograms of direct material purchased.
(ii) The number of kilograms of direct material used above the standard allowed.
(iii) The variable production overhead expenditure variance.
(iv) The actual hours worked.
(v) The number of standard hours allowed for the production achieved.
Answer: (i) 1,80,000 Kg.; (ii) 2,000 Kg.; (iii) 4,600 (F); (iv) 78,000 Hours; (v) 76,000 Hours
Q.50 The standard marginal cost card for the product made by P Co. is as follows:
Material – 16 Kgs. @ `6 per Kg. `96
Labour – 6 Hours @ `12 per hour `72
`168
P Co. reported the following variances in control period 13 in relation to the product:
Material price variance – 18,840 (F)
Material usage variance – 480 (A)
Labour rate variance – 10,598 (A)
Labour efficiency variance – 8,478 (F)
Actual wages cost `1,71,320. P Co. paid `5.50 for each Kg. of material. There were no opening or closing
inventories of the material.
Calculate the following:
(a) Actual output
(b) Actual hours worked
(c) Actual wages rate per hour
(d) Actual number of Kg. purchased and used
Answer: (a) 2,350 units; (b) 13,393.50 hours; (c) `12.79 per hour; (d) 37,680 Kg.
Q.51 Mr. M provides 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 cost per unit of ZED `1.60
Total standard variable overheads `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 is `21.
You are required to compute the following;
(a) Standard quantity of raw-material per unit of ZED.
(b) Standard direct labour rate per hour.
(c) Standard direct material cost per unit of ZED.
(d) Standard direct labour cost per unit of ZED.
(e) Standard total material cost for the output.
(f) Actual total direct labour cost for the output.
(g) Material price variance.
(h) Labour rate variance.
(i) Labour efficiency variance.
(j) Variable overhead expenditure variance.
(k) Variable overheads efficiency variance.
Note: key calculation should form part of the answer [CA Final, May, 1993]
TOPIC: STANDARD COSTING WITH PROCESS COSTING (APPLICATION OF EQUIVALENT

PRODUCTION CONCEPT)
STATEMENT SHOWING EQUIVALENT UNITS (FIFO METHOD):

Input Output Material Lab. & overhead
Particulars Units Particulars Units % Units % Units
Opening stock xxx Normal loss Xxx - - - -
New units xxx Abnormal loss Xxx xxx xxx xxx xxx
Units completed:
opening stock Xxx xxx xxx xxx xxx
Newly introduced units Xxx xxx xxx xxx xxx
Closing WIP Xxx xxx xxx xxx xxx
Total Total Total Total
STATEMENT SHOWING CALCULATION OF EQUIVALENT COST PER UNIT:

Element of cost Amount Equivalent units Cost per equivalent
unit
Material cost Xxx
Less: Scrap value Xxx
Xxx xxx xxx
Labour cost Xxx xxx xxx
Overheads Xxx xxx xxx
STATEMENT SHOWING CALCULATION OF VALUE OF WIP:

Material cost (equivalent units * cost per equivalent unit) xxx
Labour cost (equivalent units * cost per equivalent unit) xxx
Overhead cost (equivalent units * cost per equivalent unit) xxx
Total value of WIP xxx
STATEMENT SHOWING EQUIVALENT UNITS (AVERAGE METHOD):

Input Output Material Lab. & overhead


Opening stock xxx Normal loss Xxx - - - -
Units xxx Abnormal loss Xxx xxx xxx xxx
introduced
Units completed & transferred Xxx xxx xxx xxx xxx
Closing WIP Xxx xxx xxx xxx xxx
Total Total Total Total
STATEMENT SHOWING COST PER EQUIVALENT UNIT:

Element of cost Amount Equivalent units Cost per equivalent unit
Material:
Cost of opening WIP xxx
Add: additional Cost xxx
Less: Sale of scrap (xxx)
xxx xxx xxx
Labour:
xxx xxx xxx
Overhead:
xxx xxx xxx
Q. 52 Mahendra Ltd., are the manufacturers of a standard product P. The standard cost card reveals the
following information of the month of December 20X1.
Per unit
Direct Material 2 kg @ `6 per kg `12
Direct labour 5 hours @ `4 per hr. 20
Overhead 5 hours @ `2 per hr. 10
Standard Cost 42
Overhead Rate `2 per hour, the budgeted overhead being `4,000 for 2,000 budgeted hours. The following are
the other details:
Direct Material : Opening stock 800 kg @ `6 per kg
Purchases : 1,000 kg @ `7 per kg
Issued to production : 900 kg as per FIFO method
Direct Labour : 1,850 hrs. @ `4.40 per hour
Overheads : `4,200
During the month 360 units were completed and 40 units were in process. The incomplete units are 100%
completed regarding materials but only 50% complete as regards labour and overhead. 300 units were sold at
`60 per unit during the month.
Required: Calculate all the variances.
Solution:
Statement showing calculation of equivalent units:
Input Output Material Labour and overheads
Completed 360 100 360 100 360
units

Closing 40 100 40 50 20
WIP
400 400 380
Standard Actual
Unit Rate Total Unit Rate Total
DM 2 Kg. 6 12 800 6 4,800
100 7 700
DL 5 Hrs. 4 20 1,850 Hrs. 4.40 8,140
Overhead 5 Hrs. 2 10 1,850 Hrs. 4,200
Output = 1 unit Output: Material – 400 units
Labour – 380 units
(i) MCV = TSC - TAC (iv) LCV = TSC – TAC (vii) FO Efficiency variance:
12
TSC = 1 x 400 = 4,800
20
TSC = 1 x 380 = 7,600 RFO – SFO
3,800 – 3,700 = 100 (F)
4,800 – 5,500 = 700 (A) 7,600 – 8,140 = 540 (A)
(viii) FO Capacity variance:
(ii) MPV = AQ (SP - AP) (v) LRV = AH (SR - AR) SFO – BFO
800 (6 - 6) = Nil 1850 (4 – 4.40) = 740 (A) 3,700 – 4,000 = 300 (A)
100 (6 - 7) = 100 (A) (vi) LEV = SR (SH - AH) (ix) FO expenditure variance:
So, MPV = 100 (A) 5
SH = x 380 = 1,900 BFO – AFO
(iii) MUV = SP (SQ - AQ) 1 4,000 – 4,200 = 200 (F)
2 4 (1,900 - 1850) = 200 (F)
SQ = 1 x 400 = 800 (x) FO volume variance:
6 (800 - 900) = 600 (A) RFO – BFO
3,800 – 4,000 = 200 (A)
(xi) FO variance:
RFO – AFO
3,800 – 4,200 = 400 (A)
(a) RFO SH * SR 1900 * 2 3,800

(b) SFO AH * SR 1850 * 2 3,700
(c) PFO RBH * SR - -
(d) BFO BH * SR 2000 * 2 4,000
(e) AFO AH * AR 4,200
Q. 53 A company manufacturing two products uses standard costing system. The following data relating to
October, 20X1 have been furnished to you:
Products A B
` `
Standard cost per unit:
Direct materials 2 4
Direct wages 8 6
Fixed overheads 16 12
26 22
Units processed/ in process:
Beginning of the month : All materials supplied and 50% complete 4,000 12,000
in respect of labour and overheads
End of the month : All materials supplied and 80% complete in 8,000 12,000
respect of labour and overheads
Units completed and transferred to warehouse: during the month 16,000 20,000
The following were the actual costs recorded during the month:
Direct materials purchased at standard price amount to `2,00,000 and the actual cost of which is `2,20,000.
Direct materials used for consumption at standard price amount to `1,75,000. Direct wages for actual hours
worked at standard wage rate were `4,20,000 and at actual wage rate were `4,12,000. Budgeted fixed
overheads were `8,25,000 and the actual fixed overheads incurred were `8,50,000.
Required: Calculate the following for the month of October 20X1:
(i) Direct materials price variance at the point of consumption and at the point of purchase;
(ii) Direct materials usage variance;
(iii) Direct wages rate and efficiency variances; and
(iv) Fixed overheads volume and expenditure variances;
(v) Standard cost of work-in-progress at the end of the month.
Q.54 File and simile Associates undertake to prepare income tax returns for individuals for a fee. Their advice
to their clients is to pay the proper tax and relax. In order to arrive at the proper scale 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,
based on equivalent performance, have been established as follows:
Labour per return 5 hrs @ `40 per hr.
Overhead per return 5 hrs @ `20 per hr.
For March 1988 performance, budgeted overhead is `98,000 for the standard labour hours allowed. The
following additional information pertains to the month of March 1988:
March 1 Returns in process (25% Complete) 200 Nos.
Returns started in March 825 Nos.
March 31 Returns in Process (80% Complete) 125 Nos.
Cost data
March 1 Returns in Process
Labour `12,000
Overheads `5,000
March 1 to 31 Labour
4,000 hrs `1,78,000
Overheads `90,000
You are required to compute:
(a) For each cost element, equivalent units of performance and the actual cost per equivalent unit
(b) Actual cost of returns in process on March 31
(c) The standard cost per return
(d) The total labour rate and labour efficiency variances as well as total overhead, overhead volume and
overhead budget variances. [May, 1988]
Q.55 Goodwill Ltd. manufactures readymade shirts of a specific quality in lots to each special order from its
overseas customers.
The standard costs for one dozen of shirts are;
`
Direct material (24 metres @ `11) 264
Direct labour(3 hours @ `49) 147
Overheads (3 hours @ `40) 120
Standard cost per doz. 531
During July, 1993 it worked on three orders, for which the month’s job cost records show the following:
Lot NO. Units Materials used Hours worked
45(UK) 1,700 Doz. 40,440 metres 5,130
46 (US) 1,200 Doz. 28,825 metres 2,890
47 (CAN) 1,000 Doz. 24,100 metres 2,980

Additional Information:
(a) The company bought 95,000 metre of material during July at a cost of `10,64,000. The material price
variance is recorded when material are purchased. All inventories are carried at cost.
(b) Direct labour during July amounted to `5,50,000. The employees were paid at `50 per hour.
(c) Overheads during the month amounted to `4,56,000.
(d)A total of `57,60,000 was budgeted for overheads for the year 1993-94, based on estimated production of
the plant’s normal capacity of 48,000 dozen shirts annually. Overheads at the level of production is 40% fixed
and 60% variable. Overheads is applied on the basis of direct labour hours.
(e) There was no work-in-progress at the beginning of July, lot nos. 45 and 47 were completed. All materials
were issued for lot no. 46 which was 80% complete as regards conversion.
Required:
(A) Computation of standard cost of production of the shirts per dozen as well as in total for lot Nos. 45, 46
and 47.
(B) Find out the variation in quantity of material used and labour hours worked for each lot as well as in total.
(C) Calculate the material price variance; labour rate variance, variable overheads efficiency variance and
fixed overheads volume variance. [CA Final, May, 1994]
Q.56 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 Hours @ `4 per hour 12.00
Factory overheads 12.00
Total 60.00
The flexible budget for factory overheads is as under:
Output (units) 6,000 7,500 9,000 10,500
Factory overheads (`) 81,600 92,400 1,03,200 1,14,000
The actual results for the month of October, 2002 are given below:
-Direct Materials purchased and consumed were 11,224 kg at `2,66,570
-Direct labour hours worked were 22,400 and Direct Wages paid amounted to `96,320.
-Factory overheads incurred amounted to `96,440 out of which the variable overhead is `2.60 per Direct
Labour hour worked.
-Actual output is 7,620 units.
-Work-in-process:
Opening WIP: 300 units:
Materials 100% complete
Labour and Overheads 60% complete
Closing WIP: 200 units:
Materials 50% complete
Labour and Overheads 40% complete
You are required to analyse the variances. [Nov.2002]
Q.57 A processing company uses Standard Process Costing method. The standard process cost card is as
follows:
` per Kg. of finished product
Direct material – 2 Kg. @ `10 per Kg. 20
Direct labour – 3 Hours @ `20 per hour 60
Fixed overhead (Recovered on labour hours) 90
Total 170
Budgeted output for the period is 1,000 Kg.

Actual production and cost data for the period are as follows:
Actual production from current input 950 kgs.
Direct material 2,900 Kgs. at `32,000
Direct labour 3,300 at `68,000
Fixed overhead `88,000
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.
[CWA – Final, June1995]
Answer:
(1) Equivalent production units: Material: 1,400; Labour and overhead: 1140
(2) All Variances:
(i) Material cost variance – 4,000 (A) (ii) Material price variance – 3,000 (A)
(iii) Material usage variance – 1,000 (A) (iv) Labour cost variance – 400 (F)
(v) Labour rate variance – 2,000 (A) (vi) Labour efficiency variance – 2,400 (F)
(vii) FO cost variance – 14,600 (F) (viii) FO efficiency variance – 3,600 (F)
(ix) FO capacity variance – 9,000 (F) (x) FO volume variance – 12,600 (F)
(xi) FO expenditure variance – 2,000 (F)
TOPIC: STANDARD COSTING WITH BUDGETS [FLEXIBLE; PRODUCTION; ORIGINAL] AND

PREPARATION OF COST CARDS
PRODUCTION BUDGET:
Particulars Product A Product B
Sale units xxx xxx
Add: Closing stock of finished goods xxx xxx
Less: Opening stock of finished goods (xxx) (xxx)
Production units xxx xxx
MATERIAL PURCHASE BUDGET:

Particulars Material X Material Y
Raw material consumed (units produced * RM per unit) xxx xxx
Add: Closing stock of raw material xxx xxx
Less: Opening stock of raw material (xxx) (xxx)
Material purchase budget xxx xxx
FLEXIBLE BUDGET:
Variable cost:
Material cost xxx
Labour cost xxx
Variable overheads xxx
Fixed overheads xxx
Total cost xxx
Profit xxx
Sales xxx

Q. 58 The Managing Director of your company has been given the following statement showing the results for
a recent month.
Month ending 31st October 20X1
Master Budget Actual Variance
Units produced and sold 10,000 9,000 (1,000)
Sales `40,000 `35,000 `(5,000)
Direct material 10,000 9,200 800
Direct wages 15,000 13,100 1,900
Variable overheads 5,000 4,700 300
Fixed overhead 5,000 4,900 100
35,000 31,900 3,100
Net Surplus 5,000 3,100 (1,900)
Figures in parentheses indicate adverse variances.
The standard costs of the product are as follows:
Per unit
Direct material (1 kg @ `1 per kg) `1.00
Direct wages (1 hour @ `1.50) `1.50
Variable overhead (1 hour @ `0.50) `0.50
Actual results for the month showed that 9,800 kg of material were used and 8,800 labour hours were recorded.
Required: (a) Prepare a flexible budget for the month and compare with the actual results; and
(b) Calculate the variances which have arisen.
Solution:
Statement showing flexible budget:
Particulars Master budget for Flexible budget Actual for Variance
10,000 9,000
Per unit 9,000 units
Sales 40,000 4 36,000 35,000 1000 (A)
DM 10,000 1 9,000 9,200 200 (A)
DW 15,000 1.50 18,500 13,100 400 (F)
VO 5,000 0.50 4,500 4,700 200 (A)
FO 5,000 0.50 5,000 4,900 100 (F)
Net Surplus 5,000 4,000 3,100 900 (A)
Standard Actual
DM 1 kg. @ 1 1 9800 hrs. 9,200
DW 1 hours @ 1.50 1.50 8800 hrs. 13,100
Vo 1 hours @ 0.50 0.50 8800 hrs. 4700
FO 1 hour @ 0.50 0.50 8800 hours 4900
Output = 1 unit Output = 9,000 units
(i) MCV = TSCTAC MPV = AQ (SPAP)

1
TSC = 1× 8,000 = 9,000 (AQ ×SP)  (AQ ×AP)
9,000 9200 = 200 (A) = (9,800 × 1)  9,200= 600 (F)
(iii) MUV = SP (SQAQ) (iv) LEV = TSC TAC
1.50
= (SP ×SQ)  (SP ×AQ) TSC =
1
× 9,000 = 13,500
= 9,000  9,800 = 800 (A) = 13500 13,100 = 400 (F)
(v) LRV = AH (SRAR) (vi)LEV = SR (SHAH)
= (SR× SH)  (SR × AH)
(AH× SR)  (AH ×AR) = 13500  13200 = 300 (F)

(8800×1.5)  13,000
13200 13100 = 100 (F)
(vii) VOV = TSC TAC (viii) VO. Exp. V. =AH (SRAR)
= (AH × SR)  (AH ×AR)
50
TSC = 1 × 9,000 = 4,500
4,500  4,700 = 200 (A) = (8800 × .50)  4700
4400  4700 = 300 (A)
(ix) VO. Eff.V. = SR (SHAH) (x)
= (SR×SH)  (SR× AH) (a) RFO = SH × SR = 9000 × .50 = 4500
= 4500 4400 = 100 (F) (b) SFO = AH × SR = 8800 × .50 = 4400
(c) PFO = RBH × SR = ------------×---------
(d) BFO = BH × SR = 5,000
(e) AFO = AH × AR = 4900
(i) FO eff. V. = RFO SFO = 45004400 = 100 (F)
(ii) FO. Cap. V. = SFO BFO = 44005000 = 600 (A)
(iii) FOVV = RFO BFO = 45005000 = 500 (A)
(iv) FO. Exp.V. = BFO AFO = 50004900 = 100 (F)
(v) FOV. = RFOAFO = 45004900 = 400 (A)
Q.59 Yati Ltd manufactures a product “XYZ” and provides you the following information:
(a) Standard and Budgeted Data:
Direct material
A- 5kg @ `5 per kg
B- 1 kg @ `15 per kg
Direct labour:
Skilled – 5 hours @ `5 per hour
Unskilled – 15 hours @ `1 per hour.
Budgeted Output 10,000 units; Budgeted overheads `2,80,000; Variable overheads 40% of fixed overheads;
Profit 20% of selling price.
(b) Actual output produced and sold: - 8,000 units
Required:
(a) Prepare standard cost sheet per unit;
(b) Prepare statement showing total standard cost for actual output;
(c) Prepare original budget for the budget period;
(d) Prepare flexible budget for actual output.
Solution:
(a) Standard cost sheet per Unit
Direct material:
A (5 kg. @ `5) 25
B (1 kg. @ ` 15) 15 40
Direct labour:
Skilled [5 hrs. @ `5] 25
Unskilled [15 hrs. @ ` 1] 15 40
Variable overheads [20 hrs. @ .40] 8
Fixed overheads [20 hrs. @ 1] 20

Total cost 108

Add: 20% on sales or 25% on cost 27
Selling price 135
Calculation of fixed and variable overheads :
Let FO = 𝑋
VO = .40 𝑋
Total overheads = FO + VO
2,80,000 = 𝑋 + .40 𝑋
2,80,000 = 1.40 𝑋
𝑋= 2,00,000
Vo = 2,80,0002,00,000 = 80,000
Budgeted hrs. = 10,000 × 20 = 2,00,000 hrs.
VOH . Rate = 80,000 /2,00,000 = 0.40
FOH. Rate = 2,00,000 /2,00,000 = 1.00
(b) Statement showing total standard cost for actual output

Output = 8,000 units
Direct material :
A (8000 x 25) 2,00,000
B (8000 x 15) 1,20,000
Direct labour:
Skilled [8000 x 25] 2,00,000
Un skilled [8000 x 15] 1,20,000
Variable overheads [8000 x 8] 64,000
Fixed overheads [8000 x 20] 1,60,000
Total cost 8,64,000
Profit [8000 x 27] 2,16,000
Sales 10,80,000
Original budget and flexible budget:
Particulars Standard cost Original budget for 10,000 Flexible budget for 8,000
units units
DM A: 25 2,50,000 2,00,000
DM B: 15 1,50,000 1,20,000
DL : Skilled 25 2,50,000 2,00,000
Un skilled 15 1,50,000 1,20,000
VOH. 8 80,000 64,000
FOH. 20 2,00,000 2,00,000
Total 10,80,000 9,04,000
Profit 2,70,000 1,76,000
Sales 13,50,000 10,80,000
Q.60 Following is the sales budget for the first six months of the year 2009 in respect of PQR Ltd. :
Month Jan. Feb. March April May June
Sales (units) 10,000 12,000 14,000 15,000 15,000 16,000
Finished goods inventory at the end of each month is expected to be 20 % of budgeted sales quantity for the
following month. Finished goods inventory was 2,700 units on January 1, 2009. There would be no work – in
– progress at the end of any month.
Each unit of finished product requires two types of materials as detailed below:
Material X: 4 Kgs. @ `10 per Kg.
Material Y: 6 Kgs. @ `15 per Kg.
Material on hand on January 1, 2009 was 19,000 Kgs. of material X and 29,000 Kgs. of material Y. Monthly
closing stock of material is budgeted to be equal to half of the requirements of next month’s production.
Budgeted direct labour hour per unit of finished product is ¾ hour.
Budgeted direct labour cost for the first quarter of the year 2009 is `10,89,000.
Actual data for the quarter one, ended on March 31, 2009 is as under:
Actual production quantity 40,000 units
Direct material cost (purchased cost based on material actually issued to production)
Material X: 1,65,000Kgs @ `10.20 per Kg.
Material Y: 2,38,000Kgs. @ `15.10 per Kg.
Actual direct labour hours worked 32,000 hours
Actual direct labour cost `13,12,000
Required:
(a) Prepare the following budgets:
(i) Monthly production quantity budget for the quarter one.
(ii) Monthly raw material consumption quantity budget from January, 2009 to April, 2009.
(iii) Material purchase quantity budget for the quarter one.
(b) Compute the following variances:
(i) Material cost variance (ii) Material price variance
(iii) Material usage variance (iv) Direct labour cost variance
(v) Direct labour rate variance (vi) Direct labour efficiency variance
Solution:
Production budget
Jan Feb March April
Sales 10,000 12,000 14,000 15,000
Add: closing balance 2,400 2,800 3,000 3,000
(20% of following month sale)
12,400 14,800 17,000 18,000
Less: Opening Stock 2,700 2,400 2,800 3,000
Production Budget 9,700 12,400 14,200 15,000
Raw Material Consumed Budget

Jan Feb March April
Raw material required as per prod. Budget:
Material X 38,800 49,600 56,800 kg. 60,000 kg.
(9700× 4) (12400 ×4) (14200 ×6) (15,000 ×4)
Material Y 58,200 74,400 85,200 kg. 90,000 kg.
(9700 ×6) (12400 × 6) (14200 × 6) (15,000×6)
Raw Material Purchase Quantity Budget :-

Particulars Material X Material Y
Jan Feb March Jan Feb March
Raw material consumed 38,800 49,600 56,600 58,200 74,400 85,200
Add: closing stock of RM 24,800 28,400 30,000 37,200 42,600 45,000
(50% of next month [49600× [56800 × [74,400
Requirement) 50%] 50%] × 50%]
63,600 78,000 86,800 95,400 1,17,000 1,30,200
Less: Opening stock RM 19,000 24,800 28,400 29,000 37,200 42,600
purchase
44,600 53,200 58,400 66,400 79,800 87,600
Standard Actual
Material X 4 kg 10 40 Mat 1,65,000 10.20 16,83,000
Material Y 6 kg. 15 90 2,38,000 15.10 35,93,800
Labour 0.75 hrs 40 30 Lab 32000 hrs 41.00 13,12,000
Output = 1 unit Output = 40,000 units
Budget prod. = 9700 + 12400 + 14200 = 36,000
Hrs req. = 36,000 × .75 = 27,225
10,89,000
Labour rate = 27,225 = `.40
(i) MCV = TSC TAC (ii) MPV = AQ (SPAQ)
X = 1,65,000 (1010.20) = 3,63,000 (A)
130
TSC = 1
× 40,000 = 52,00,000
= 52,00,000  52,76,800 = 76,800 (A) Y = 2,38,000 (1515.10) = 2,38,000 (A)
56,800 (A)
(iii) MUV = SP (SQ AQ)
4
SQ = X = 1× 40,000 = 1,60,000 (iv) LCV = TSC TAC
6 30
Y = × 40,000 = 2,40,000 TSC = × 40,000 = 12,00,000
1 1
= 10 (1,60,0001,65,000) = 50,000 (A) = 12,00,000 13,12,000 = 1,12,000 (A)
= 15 (2,40,0002,38,000) = 30,000 (F)
20,000 (A)
(v) LRV = AH (SRAR) (vi) LEV = SR (SHAH)
= 32,000 (4041) = 32,000 (A)
.75
SH = × 40,000 = 30,000
1
= 40 (30,00032,000) = 80,000 (A)
Q.61 A small company, making a single product, produces accounts for a costing period, as follows:
Direct material `
Direct wages 792
Fixed overhead 1,940
1,040 4,964
Profit 976
Sales 5,940
The original budget was in respect of 1,000 units per period, but during this period only 960 units were
produced and sold.
Standard direct wages rate is `0.60 per hour and standard variable overhead rate is `1,000 per hour.
Cost variances during the period are as follows:
Gains Losses
` `
Material price - 8
Material usage - 16
Wages rate 20 -
Labour efficiency - 60
Variable overhead expenditure 80 -
Variable overhead efficiency - 100
Fixed overhead cost - 40
Sales price 180 -

From the above information, prepare for the period the original budget and a flexible budget for the sales
achieved. [May 1991]
Q.62 The CEO of your company has been given the following statement showing the results for a recent
month:
Particulars Master budget Actual
Units produced and 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 per Kg.) `20 per unit
Direct wages (1 hour @ `30 per hour) ` 30 per unit
Variable overhead (1 hour @ `10 per hour) `10 per unit
Actual results for the month reveled 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 variance. [June, 09 (N)]
Q.63 Tricon Co. has prepared the following statement for the month of April 2015.
Particulars Budget details Static budget Actual
Units produced and 4,000 3,200
sold
` `
Direct material 3 Kg. per unit @ `15 per 1,80,000 1,55,000
Kg.
Direct labour 1 hour per unit @ `36 per 1,44,000 1,12,800
hour
Variable overheads 1 hour per unit @ `22 per 88,000 73,600
hour
Fixed overheads 90,000 84,000
Total cost 5,02,000 4,25,400
Sales 6,00,000 4,48,000
Profit 98,000 22,600
During the month 10,000 kg. of materials and 3,100 direct labour hours were utilized.
(i) Prepare a flexible budget for the month.
(ii) Determine the material usage variance and the direct labour rate variance for the actual Vs the flexible
budget. [CA – May, 2015]
TOPIC: FACTORS CONTRIBUTING TO CHANGE IN PROFIT

Q.64 The summarised results of a company for the two years ended 31st December 1988 and 1987 are given
below:
1988 1987
` lacs ` lacs
Sales 770 600
Direct Materials 324 300
Direct Wages 137 120

Variable Overheads 69 60
Fixed Overheads 150 80
Profit 90 40
As a result of re-organisation of production methods and extensive advertisement campaign used, the company
was able to secure an increase in the selling prices by 10% during the year 1988 as compared to the previous
year.
In the year 1987, the company consumed 1,20,000kgs. of raw materials and used 24,00,000 hours of direct
labour. In the year 1988, the corresponding figures were 1,35,000kgs. of raw materials and 26,00,000 hours of
direct labour.
Use the information given for the year 1987 as the base year information to analyse the results of the year 1988
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 1988. [May, 1989/ PM (22)]
Q.65 Despite the increase in the Sales price of its sole product to the extent of 20% , a company finds that it
has incurred a loss during the year 1998-99 to the extent of `4 lakhs as against a profit of `5 lakhs made in
1997-98. This adverse situation is attributed mainly to the increase in prices of materials and overheads, the
increase over the previous year being, on the average, 15%, and 10% respectively.
The following figures are extracted from the books of the company:
31-3-1998 31-3-1999
` `
Sales 1,20,00,000 1,29,60,000
Cost of sales:
Material 80,00,000 91,10,000
Variable Overhead 20,00,000 24,00,000
Fixed Overhead 15,00,000 18,50,000
Required:
Analyse the variances over the year in order to bring out the reasons for the fall in profit.
[May 1999/ PM (21)]
Q.66 The working results of a company for two corresponding years are shown below:
Year Year
1 2
` in lakhs ` in lakhs
Sales 1,200 1,540
Direct Material 600 648
Direct Wages and Variable Overheads 360 412
Fixed Overheads 160 300
1,120 1,360
Profit 80 180
In year 2, there has been an increase in the selling price by 10%. Following are the details of material
consumption and utilization of direct labour hours during the two years.
Year Year
1 2
Direct material Consumption in m/t 5,00,000 5,40,000
Direct labour hours 75,00,000 80,00,000
You are required:
Keeping year1as base year. Analyse the results of year 2 and work out the amount which each factor has
contributed to change in profit.
Find out the break even sales for both years.

Calculate the percentage increase in selling price that would be needed over the sale value of year 2 to earn a
margin of safety of 45%. [CA Final, May 2000]
Q. 67 RST Ltd. has provided the following summarized results for two years:
Year ended (` in lakhs )
31.3.2013 31.3.2014
Sales 3,000 3,277.50
Material 2,000 2,357.50
Variable overheads 500 525.00
Fixed overheads 300 367.50
Profit 200 27.50
During the year ended 31-3-2014 sale price has increased by 15% whereas material and overhead prices have
increased by 15% and 5% respectively. You are required to analyse the variances of revenue and each element
of cost over the year in order to bring out the reasons for the change in profit. Present a profit reconciliation
statement starting from profits in 2012-13 showing the factors responsible for the change in profits in 2013-14.
[CA – May, 2014]
TOPIC: COMPUTATION OF VARIANCES AND RECONCILIATION OF BUDGETED /

STANDARD PROFIT WITH ACTUAL PROFIT OR PREPARATION OF OPERATING INCOME
STATEMENT
STANDARD COSTING WITH OPERATING STATEMENT (BASED ON ABSORPTION COSTING)

Budgeted profit (budgeted sales units * budgeted profit per unit) xxx
Add: Sales margin volume variance if favourable xxx
Less: Sales margin volume variance if adverse (xxx)
Standard profit xxx
Add: Sales margin price variance if favourable xxx
Less: Sales margin price variance if adverse (xxx)
Profit before adjustment of cost variances xxx
Adjustment of cost variances:
F A
Material price variance - xxx
Material mix variance - xxx
Material yield variance xxx -
Labour rate variance xxx -
Labour efficiency variance xxx -
Labour idle time variance - xxx
Variable overhead expenditure variance xxx -
Variable overhead efficiency variance xxx -
Fixed overhead efficiency variance - xxx
Fixed overhead capacity variance xxx -
Fixed overhead calendar variance xxx -
Fixed overhead expenditure variance - xxx
xxx xxx xxx
Actual profit xxx
OPERATING STATEMENT UNDER MARGINAL COSTING

The operating statement under marginal costing is the same as that under absorption costing except:
(a) A sales volume contribution variance is included of a sales volume profit variance.
(b) The only fixed overhead variance is the expenditure variance.
(c) The reconciliation is from budgeted to actual contribution, then fixed overheads are deducted to arrive at a
profit.
Operating statement:
Budgeted contribution (Budgeted units * Budgeted contribution per unit) xxx
Add: Sales volume contribution variance if favourable xxx
Less: Sales volume contribution variance if adverse (xxx)
Standard contribution xxx
Add: Sales price variance if favourable xxx
Less: Sales price variance if adverse xxx
Adjustment of cost variances:
Name of variance F A
MPV xxx xxx
MUV xxx xxx
LRV xxx xxx
LEV xxx xxx
VO expenditure variance xxx xxx
VO efficiency variance xxx xxx xxx
Actual contribution xxx
Fixed overhead expenditure variance xxx
Actual profit xxx
Q. 68 In a company operating on a standard costing system, for a given four week period budgeted sales were
10,000 units at Rs.50 per unit, actual sales were 9,000 units at Rs.51.25 per unit. Costs relating to that period
were as follows:
Budget Actual
` `
Materials 2,50,000 2,57,400
Wages 75,000 70,875
Fixed Overhead 20,000 18,810
Variable overhead 10,000 9,250
Semi variable overhead 2,700 2,430
Standard hours 50,000 40,500
(i) The standard material content of each unit is estimated at 25 kg @ `1 per kg. Actual figures were 26 kg at
`1.10 per kg.
(ii) The standard wages per unit are 5 hours @ `7.50 per unit; actual wages were 4.5 hours @ `7.875 per unit.
(iii) Semi variable overhead consists of five-ninths fixed expenses and four-ninths variable.
(iv) There were no opening stocks and the whole production for the period was sold.
(v) The four week period was a normal period.
Required:
(a) Compute the variances in Sales, material, labour and overheads due to all possible causes; and
(b) With the help of such a computation draw a statement reconciling the actual profit for the period with the
standard profit. [PM (27)]
Solution:
Standard Actual
Material 2,50,000 kg. 1 2,50,000 2,34,000 1.10 2,57,400
Wages 50,000 hrs 1.5 75,000 40,500 1.75 70,875
VO 50,000 hrs. 0.224 11,200 40,500 10,330
FO 50,000 hrs. 0.43 21,500 40,500 20,160
Output = 10,000 units Output = 9,000 units

Calculation of standard rate per hour:-

VOH. = 10,000 + 2,700 x 4/9
= 10,000 + 1,200 = 11,200
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 𝑉𝑂. 11,200
V OH. Rate = = = 0.224
𝐵𝑢𝑑𝑔𝑒𝑡.𝐻𝑟𝑠. 50,000
FOH. = 20,000 + 2,700 × 5/9

= 20,000 + 1,500 = 21,500
𝐵𝑢𝑑𝑔𝑒𝑡.𝐹𝑂 21,500
FOH. Rate = 𝐵𝑢𝑑𝑔𝑒𝑡.𝐻𝑜𝑢𝑟 = 50,000 = 0.43
Calculation of actual variable and fixed overheads:

Actual VOH. = 9250 + 2430 × 4/9 = 9250 + 1080 = 10330
Actual FOH.= 18810 + 2430 × 5/9 = 18,810 + 1350 = 20,160
(i) MCV = TSCTAC (ii) MPV = AQ (SPAP)

= 2,34,000 (11.10) = 23,400 (A)
2,50,000
TSC = × 9,000 = 2,25,000
10,000
= 2,25,000  2,57,400 = 32400 (A)
(iii) MUV = SP (SQAQ) (iv) LEV = TSC TAC
2,50,000
SQ = × 9,000 = 2,25,000 75,000
10,000 TSC = × 9,000 = 67,500
10,000
= 1 (2,25,000  2,34,000)= 9,000 (A) = 67,500 70,875 = 3,375 (A)
(v) LRV = AH (SRAR) (vi) LEV = SR (SHAH)
50,000
= 40,500 (1.51.75) = 10,125 (A) SH 10,000 × 9,000 = 45,000
1.5 (45,00040,500) = 6750 (F)
(vii) VOH. V. = TSC TAC (viii) VOH exp. V. = AH (SRAR)
TSC =
11,200
× 9,000 = 10,080 = (AH × SR)  (AH × AR)
10,000
= 40,500 × .224 10,330
= 10080  10330 = 250 (A)
= 9072  10330 = 1250 (A)
(ix) VOH. eff.V. = SR (SHAH) (ix) Fixed Overheads Variances:
= .224 (45,00040,500) = 1,008 (F) (a) RFO = SH × SR  45,000 × .43 = 19,350
FOH .eff.V. = RFO  SFO = 19350 17415 = 1935 (F) (b) SFO = AH × SR  40,500 × .43 = 17,415
FOH. Cap.V. = SFO BFO = 1741521500 = 4085 (A)
(c) PFO = RBH ×SR  ------------×-------------
FOH.VV.= RFOBFO = 1935021500 = 2150 (A)
FOH. Exp. V.=BFO AFO = 2150020160 = 1340 (F) (d) BFO = BH × SR  50,000 × .43 = 21,500
FOH.V. = RFOAFO = 19350 20160 = 810 (A) (e) AFO = AH × AR  = 20,160
(x) SMPV = AQ (AP SP) AP = 51.2535.77 = 15.48
= 9,000 (15.4814.23) = 11250 (F) SP = 50.00 35.77 = 14.23
(xi) SMVV =SP (AQ BQ) = 14.23 (9,00010,000) =
14230 (A)
Reconciling the actual profit with standard profit:
Budget profit (10,000 × 14.23) 1,42,300
Less: SMVV (A) 14,230
Standard Profit 1,28,070
Add: SMPV (F) 11,250
1,39,320
Adj. for cost variance :

F A
MPV 23,400
MUV 9,000
LRV 10,125
LEV 6,750
VOH. Eff. V. 1,008
VOH.exp.V. 1,258
FOH. Eff.V. 1,935
FOH. Cap.V. 4,085
FOH. Exp. V. 1,340
11,033 47,868 (36,835)
Actual Profit 1,02,485
Q.69 KPR Limited operates a system of standard costing in respect of one of its products which is
manufactured within a single cost centre. The standard cost card of a product is as under:
Standard Unit cost (`)
Direct material 5 kg @ `4.20 21.00
Direct Labour 3 hours @ `3.00 9.00
Factory overhead `1.20 per labour hour 3.60
Total manufacturing cost 33.60
The production schedule for the month of June, 2007 required completion of 40,000 units. However 40,960
units were completed during the month without opening and closing work-in-process inventories.
Purchases during the month of June, 2007, 2,25,000 kg of material at the rate of `4.50 per kg production and
sales records for the month showed the following actual results:
Material used 2,05,600 kg
Direct labour 1,21,200 hours: cost incurred `3,87,840
Total factory overhead cost incurred `1,00,000
Sales 40,000 units
Selling price to be so fixed as to allow a mark-up of 20 percent on selling price.
Required:
(a) Calculate material variances based on consumption of material.
(b) Calculate labour variances and the total variance for factory overhead.
(c) Prepare Income Statement for June, 2007 showing actual gross margin.
(d) An incentive scheme is in operation in the company whereby employees are paid a bonus of 50% of direct
labour hour saved at standard direct labour hour rate.
Calculate the Bonus amount.
Answer:
(a) Material variances: (i) MCV – 65,040 (A); (ii) MPV – 61,680 (A); (iii) MUV – 3,360 (A)
(b) Labour variances: (i) LCV – 19,200 (A); (ii) LRV – 24,240 (A); (iii) LEV – 5,040 (F);
Factory overhead variance – 47,456 (F)
(c) Actual profit – 2,99,216
(d) Bonus amount – 2,520

Q.70 A Company producing a standard product is facing declining sales and dwindling profits. It has therefore
decided to introduce a standard cost system to control cost. To motivate workers to improve the productivity,
the management has also decided to introduce an incentive scheme under which employees are paid 20% of
the standard cost of materials saved and also 40% of the labour time saved valued at standard labour rate.
The following are the details of the standard cost of the product.
Standard cost per unit
Particulars Amount
Direct Material: 10kg @ Rs.12 each 120
Direct labour: 3 hours @ Rs.10 each 30
Variable overheads: 3 hours @ Rs.5 each 15
Fixed overheads (based on a budgeted output of 10,000 units) 25
Total standard cost per unit 190

Selling price per unit Rs.240
During one particular month 9,600 units of the product were manufactured and sold incurring the following
actual cost:
Particulars Amount
Direct materials 90,000 kg 12,10,000
Direct labour 25,000 hours 2,54,000
Variable overheads 25,000 hours 1,47,000
Fixed overheads 2,50,000
Total cost 18,61,000
Net profit 4,19,000
Sales 22,80,000
Required:
(a) Variances that occurred during the month, duly reconciling the standard profits of actual production with
actual profits.
(b) Bonus amount earned by the workers during the month under incentive scheme.
Answer:
(a) Variances:
(i) MCV – 58,000 (A); (ii) MPV – 1,30,000 (A); (iii) MUV – 72,000 (F); (iv) LCV – 34,000 (F); (v) LRV –
4,000 (A); (vi) LEV – 38,000 (F); (vii) VO cost variance – 3,000 (A); (viii) VO expenditure variance –
22,000 (A); (ix) VO efficiency variance – 19,000 (F); (x) FO efficiency variance – 31,666 (F); (xi) FO
capacity variance – 41,667 (A); (xii) FO volume variance – 10,000 (A); (xiii) FO expenditure variance –
Nil; (xv) SMPV – 24,000 (A); (xvi) SMVV – 20,000 (A)
Q.71 ABC Ltd. adopts a standard costing system. The standard output for a period is 20,000 units and the
standard cost and profit per unit is as under:
`
Direct material (3 units @ `1.50) 4.50
Direct labour (3 hours @ `1.00) 3.00
Direct expenses 0.50
Factory overheads:
Variable 0.25
Fixed 0.30
Administration overheads 0.30
Total cost 8.85
Profit 1.15

Selling price 10.00

The actual production and sales for a period was 14,400 units. There has been no price revision by the
Government during the period.
The following are the variances worked out at the end of the period:
Favourable (`) Adverse (`)
Direct material : Price 4,250
Usages 1,050
Direct labour: Rate 4,000
Efficiency 3,200
Factory overheads:
Variable – expenditure 400
Fixed – expenditure 400
Fixed – volume 1,680
Administration overheads
Expenditure 400
Volume 1,680
(a) Ascertain the details of actual costs and prepare a profit and loss statement for the period showing the
actual profit/ loss. Show working clearly.
(b) Reconcile the actual profit with standard profit.
Solution:
(1) Material cost as per standard [14,400 ×4.50] 64,800
Add: Price Variance (A) 4,250
69,050
Less: usage variance (F) 1,050
Actual material cost 68,000
(2) Labour cost as per std. [14,400 ×3] 43,200
Add: Rate Variance (A) 4,000
47,200
Less: Efficiency Variance (F) 3,200
Actual Labour Cost 44,000
(3) Factory Overheads :
Variable [14,400 × .25] 3,600
Fixed (14,400 × .30] 4,320
Add: Volume Variance (A) 7,920
1,680
9,600
Less: Exp. Variance (F) 8,00
Actual Factory Overheads 8,800
(4) Adm. Overheads as per std. [14,400 × .30] 4,320
Add: Exp. Variance (A) 400
Volume Variance (A) 1,680
Actual administration Overheads 6,400
Profit & Loss account statement
Sales [14,400 ×10] 1,44,000
Less: Cost :
Material cost 68,000
Labour cost 44,000
Direct Exp. [14,400 × .50] 7,200

Factory Overheads 8,800
Adm. Overheads 6,400 1,34,400
9,600
Reconciliation statement:
Standard profit (14400 × 1.15) 16,560
F A
MPV 4,250
MUV 1,050
LRV 4,000
LEV 3,200
Factory o. Exp. V. 800
Volume V. 1,680
Adm. Over. Exp. 400
Value 1,680
5,050 12,010 6,960 (A)
Actual profit 9,600
Q.72 The budgeted output of a single product manufacturing company for 1984-85 was 5,000 units. The
financial results in respect of the actual output 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 direct wage rate is Rs.4.50 per hour and the standard variable overhead rate is `7.50 per hour;
The cost accounts recorded the following variance for the year:
Variance Favourable Adverse
Material Price - 300
Material Usage - 600
Wage Rate 750 -
Labour Efficiency - 2,250
Variable Overhead Expense 3,000 -
Variable Overhead Efficiency - 3,750
Fixed Overhead Expense - 1,500
Selling Price 6,750 -
Required to:
(i) Prepare a statement showing the original budget.
(ii) Prepare the standard product cost sheet per unit.
(ii) Prepare a statement showing the reconciliation of originally budgeted profit and the actual profit.
[May, 1985/ PM (30)]
Q.73 Jumbo Enterprises manufactures one project, and the entire product is sold as soon as it is produced.
There are no openings or closing stocks and work in progress is negligible. The company operates a standard
costing system and analysis of variances is made every month. The standard cost card for the product is as
follows:

`
Direct Material 0.5 kgs. at `4 per kg. 2.00
Direct Wages 2 hours at `2 per hour 4.00
Variable Overheads 2 hour at `0.30 per hour 0.60
Fixed Overheads 2 hour at `3.70 per hour 7.40
Standard Cost 14.00

Standard Profit 6.00
Standard Selling price 20.00
Selling and administration expenses are not included in the standard cost and are deducted from profit as a
period cost.
Budgeted output for April 1987 was 5,100 units.
Actual results for April 1987 were as follows:
Production of 4,850 units was sold for `95,600.
Materials consumed in production amounted to 2,300 kgs. at a total cost of `9,800.
Labour hours paid for amounted to 8,500 hours at a cost of `16,800.
Actual operating hours amounted to 8,000 hours.
Variable overheads amounted to Rs.2,600.
Fixed overheads amounted to Rs.42,300.
Selling and administration expenses amounted to Rs.18,000.
You are required to
(a) Calculate all variances.
(b) Prepare an operating statement for the month ended 30th April 1987. [May 1987]
Q.74 Gem & Co. manufactures a product for which the standard selling price has been ascertained as below:
Per Unit
`
Materials-2 units at `20 40
Labour- 20 hrs. @ `2.00 40
Variable overhead 8
Fixed overhead 20
Total cost 108
Profit 32
Selling price 140
During the budget period, the company could produce and sell only 8,000 units, as against a budget of 10,000
units. The company’s profit and loss account is presented below:
Profit and Loss Account for the year ended
` `
To material(16,500 units) 3,96,000 By sales(8.000 units) 11,20,000
To wages(1,70,000 Hours) 3,46,800
To variable overhead 60,000
To fixed overhead 1,84,000
To Net profit 1,33,200
11,20,000 11,20,000
4,000 hours were lost due to power failure. There was no opening or closing work-in-progress.
You are to reconcile the actual profit with the standard profit, in terms of the variances.
[May 1992]

Q.75 The standard cost sheet of a company based on the normal output of 30,000 units for a quarter is as
under:
`
Direct Materials 4 kg. @ `2 per kg. 8.00
Direct Wages 6 Hours @ `4 per hour 24.00
Overheads 50% of Direct Wages 12.00
Total Costs 44.00
Profit 6.00
Selling price 50.00
The budgeted fixed overheads amount to Rs.1,44,000 per quarter and it is included in the overhead cost given
above.
On the basis of the budgeted activity of 36,000 units, the company estimated the profit for the second quarter
of the year as under:
`
Direct Materials 2,88,000
Direct Wages 8,64,000
Overheads 4,32,000
Total Costs 15,84,000
Sales 18,00,000
Profit 2,16,000
The cost records revealed the following actual data for the second quarter of the year.
Production: 25,000units
Direct materials consumed: 96,000 kg. at `2.25 per kg.
Direct wages paid: 1,60,000 hours at `4.10 per hour. Out of which 6,000 hours being idle time were not
recorded on production.
Overheads: `3,32,000 out of which `1,50,000 were fixed.
Sales 25,000 units at an average price of `51.50 per unit.
(i) Prepare a statement on actual profit/Loss for the second quarter of the year.
(ii) Analyse the variances and present an operating statement reconciling the budgeted profit with actual profit.
[CA Final, Nov. 1994]
Q.76 A single product company operates a system of standard costing. The following data relate to actual
output, sales, costs and variances for a month:
Actual output 18,000 units
`
Actual sales and costs incurred:
Sales 12,15,000
Direct materials purchased and used 63,000 kg. 2,04,750
Direct wages 2,12,040
Variable overheads 2,77,020
Fixed overheads 3,25,000
Total costs 10,18,810
Profit 1,96,190
Standard wage rate is `6 per hour. Budgeted output for the month is 20,000 units.
Direct materials - Price variance 15,750 A
- Usage variance 27,000 A

Direct labour - Rate variance 6,840 A

- Efficiency variance 10,800 F
Variable overheads - Efficiency variance 14,400 F
- Expense variance 3,420 A
Fixed overheads - Expense variance 25,000 A
- Sales price variance 45,000 F
Required:
(i)Present the original budget along with cost sheet showing the standard cost and profit per unit.
(ii)Calculate the sales gross margin volume and fixed overheads volume variances.
(iii)Prepare an operating statement reconciling the budgeted profit with actual profit. [May 2004]
Q.77 The following information relates to a manufacturing concern:

Standard: Amount
Material A: 24,000 Kg. @ ` 3 per Kg. 72,000
Material B: 12,000 Kg. @ ` 4 per Kg. 48,000
Wages: 60,000 hours @ ` 4 per hour 2,40,000
Variable overhead: 60,000 hours @ ` 1 per hour 60,000
Fixed overheads: 60,000 hours @ ` 2 per hour 1,20,000
Total cost 5,40,000
Budgeted profit 60,000
Budgeted sales 6,00,000
Budgeted production (units) 12,000
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
Labour hours worked 47,700
Closing work – in – progress 900 units
Degree of completion:
Material A and B 100 %
Wages and overheads 50 %
(a) Calculate all the material and labour variances.
(b) Calculate variable overhead expenditure and efficiency variance, fixed overhead expenditure and volume
variances and sales price and sales volume variance. [Nov. 09]
Q.78 X Ltd. produces and sells a single product. Standard cost card per unit of the product is as follows:
Amount
Direct material: A 10 Kg. @ ` 5 per Kg. 50
Direct material: B 5 Kg. @ ` 6 per Kg. 30
Direct wages: 5 hours @ ` 5 each 25
Variable production overheads: 5 hours @ ` 12 per hour 60
Fixed production overheads: 25
Total standard cost 190
Standard gross profit 35
Standard selling price 225

A fixed production overhead has been absorbed on the expected annual output of 25,200 units produced evenly
throughout the year. During the month of December, 2009 the following were the actual results for an actual
production of 2,000 units:
Sales: 2,000 units @ ` 225 4,50,000
Direct materials: A 18,900 Kg. 99,225
Direct material: B 10,750 Kg. 61,275
Direct wages: 10,500 hours (actually worked 10,300 hours) 50,400
Variable production overheads 1,15,000
Fixed production overheads 56,600
Total 3,82,500
Gross profit 67,500
The material price variance is extracted at the time of receipt of materials. Material A purchase were a 20,000
Kg. @ ` 5.25 per Kg.; B 11,500 Kg. @ ` 5.70 per Kg.
Required:
(i) Calculate all variances.
(ii) Prepare an operating statement showing standard gross profit, variances and actual gross profit.
(iii) Explain the reason for the difference in actual gross profit given in the question and calculated in (ii)
above. [May, 2010]
Q.79 New Tech Enterprises manufactures one product, and the entire product is sold as soon as it is produced.
There are no opening or closing stocks and work in progress is negligible. The company operates a standard
costing system and analysis of variances is made every month. The standard cost card for the product is as
follows:
Direct material 0.50 Kg. at ` 4 per Kg. 2.00
Direct wages 2 hours at ` 2 per hour 4.00
Variable overheads 2 hours at ` 0.30 per hour 0.60
Fixed overheads 2 hours at ` 3.70 per hour 7.40
Standard cost 14.00
Standard profit 6.00
Standard selling price 20.00
Budgeted output for April 2012 was 5,100 units.
Actual results for April 2012 were as follows:
Production of 4,850 units was sold for ` 95,600.
Materials consumed in production amounted to 2,300 kgs. At a total cost of 9,800
Labour hours paid for amounted to 8,500 hours at a cost of `16,800.
Actual operating hours amounted to 8,000 hours.
Variable overheads amounted to ` 2,600.
Fixed overheads amounted to `42,300.
You are required to
(a) Calculate Material, Labour, Variable Overhead, Fixed Overhead, Sales Value & Sales Margin Variances.
(b) Prepare an operating statement for the month ended 30th April 2012.
(c) Prepare a reconciliation Statement between ‘Budgeted Profit & Actual Profit’ under ‘Absorption Costing
Method’.
(d) Prepare a reconciliation Statement between ‘Budgeted Profit & Actual Profit’ under ‘Marginal Costing
Method’.
(e) Prepare a reconciliation Statement between ‘Standard Profit & Actual Profit’ under ‘Absorption Costing
Method’. [CA – RTP May, 2013]

Q.80 EXEL Company is following JIT system for inventory management and it is expected that there will be
no opening and closing balance for January 2012. Budgeted production of its product X during the month is
600 kg with the following standard cost per unit:
Direct material (4 Kg.@ `40 per Kg.) `160
Direct wages (1.0 hours @`100 per hour) `100
Variable overheads (1 hour @ `30 per hour) `30
Fixed overheads (1 hour @ `50 per hour ) `50
Standard cost `340
Standard profit `60
Standard selling price `400
Actual Expenses:
(i) Material 2380 kg kg at a total cost of ` 99,960
(ii) Labour 580 hours at a cost of ` 56840
(iii) Actual Operating Hours is 550.
(iv) Variable Overheads of ` 19,200
(v) Fixed Overheads of ` 31,500
(vi) Selling and Administrative Expenses ` 5,400
(vii) Output of 585 kg was sold for ` 2,28,150.
(a) Calculate all variances and (b) Draw an operating statement for Jan 2012.
[CA – RTP, May, 2012]
Q.81 ABC Ltd. is following a standard costing system. The standard output for a period is 20,000. Details of
the standard cost and profit per unit are given below:
`
Direct Material (3 units @ `150) 450.00
Direct Labour (3 hour @ `100) 300.00
Direct Expenses 50.00
Factory overhead-Variable 25.00
-Fixed 30.00
Admin Overhead 30.00
Total Cost 885.00
Profit 115.00
Sales Value 1,000.00
Actual production and sales for the year was 14,400. There has been no price revision during the period. The
following are variance worked out of the end of the period.
Favourable (`000) Adverse (`000)
Direct material
Price - 425
Usage 105 -
Direct labour
Rate - 400
Efficiency 320 -
Factory overheads
Variable expenditure 40 -
Fixed expenditure 40 -
Fixed volume - 168
Administrative overheads
Expenditure - 40
Volume - 168
Calculate actual cost and profit for the period. [RTP – May, 2011]
Q.82 SK Limited makes and sells a single product ‘Jay’ for which the standard cost is as follows:
£
Direct material 4 Kg. at £ 12.00 per Kg. 48.00
Direct labour 5 hours at £ 7.00 per hour 35.00
Variable production overheads 5 hours at £ 2.00 per hour 10.00
Fixed production overheads 5 hours at £10.00 per hour 50.00
The variable production overhead is deemed to vary with the hours worked. Overhead is absorbed 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 – 76,000 Kg. at a cost of £ 8,36,000
Direct labour cost incurred – for 84,000 hours worked £ 6,04,800
Variable production overheads incurred £ 1,72,000
Fixed production overheads incurred £ 10,30,000
You are required
(a) To calculate and show, by element of cost, the standard cost for the output for the period;
(b) To calculate and list the relevant variances in a way which reconciles the standard cost with the actual cost
(Note: Fixed production overhead sub-variances of capacity and volume efficiency (productivity) are not
required) [CIMA – Stage 2]
Q. 83 GH manufactures and sells a single product. The company operates a standard absorption costing system
and absorbs overheads on the basis of direct labour hours.
The standard selling price and standard costs for one unit of the product are as follows:
$ per unit
Selling price 300
Direct material – 15 meters @ $ 9 per meter 135
Direct labour – 5 hours @ $ 12 per hour 60
Variable production overheads – 5 hours @ $6 per hour 30
Fixed production overheads – 5 hours @ $ 3 per hour 15
Gross profit 60
The budgeted production and sales for February were 1,000 units. The fixed overhead absorption rate has been
calculated based on budgeted production for the month.
Actual results for February were as follows:
Production 1,400 units
Sales 1,200 units
Selling price $ 306 per unit
Direct material 22,000 meters @ $ 12 per meter
Direct labour 6,800 hours @ $ 15 per hour
Variable production overheads $ 33,000
Fixed production overheads $ 18,000
No material inventory is held.
Required:
Prepare a statement that reconciles the budgeted gross profit with the actual gross profit for February. Your
statement should show the variances in as much detail as possible.
[CIMA – March, 2014]

Q.84 ABC Ltd. uses flexible budgets and standard costing for its single product PCM 30 produced at its
factory at Solan. The following details relate to a particular months ‘Actual’ & also provide brief details of
‘Standards’ established,
Standard Quantity required for producing 1 unit of PCM 30 3 Kg.
Standard cost of the raw material 4.40 per kg.
Cost of actual material purchased and used in the relevant month `3,36,000
Actual price paid for the raw material in the relevant month `4.20 per kg.
Standard labour time required to produce 1 unit of PCM 30 30 minutes
Standard wage rate `5 per hour
Actual wage rate `5.40 per hour
Sufficient direct labour time, equivalent for producing 28,000 units of PCM 30 was utilised, although the
actual production in the relevant month was only 25,000 units. The company has a normal operating capacity
of 15,000 hours per month and flexible overhead budgets are:
Hours of operation 12,500 14,000 15,000
Variable production overheads `1,50,000 `1,68,000 `1,80,000
Fixed production overheads `2,70,000 `2,70,000 `2,70,000
Total `4,20,000 `4,38,000 `4,50,000
Actual fixed overheads incurred did not deviate from the budgeted amounts. However, the variable overheads
incurred amounted to Rs 1,60,000 in the concerned month.
(i) Calculate the appropriate variances for material, labour and overhead;
(ii) Show the variances in a statement suitable for presentation to management, reconciling the standard cost
with the actual cost of production. [RTP – May, 2006]
Q.85 ABC Ltd manufactures ‘PCM30’. ‘PCM30’ comprises of three basic ingredients, the standard mix and
price of which are as follows:
To produce 1 kg of ‘PCM30’
BACLB(Barium chloride base) 0.9 Kg. at `2.50 per Kg.
SHCL(Sodium hydrochlorite) 0.10 Kg. at `10.50 per Kg.
BASH(a secret formula) 0.05 Kg. at `14.50 per Kg.
SHCL and BASH are interchangeable ingredients. ABC Ltd’s production facilities are highly automated and
there is no direct labour. Fixed overheads are budgeted at Rs 5,00,000 per month and production is budgeted to
run at 20,000 kg of PCM 30 per month. Fixed overheads are absorbed through BACLB usage. During the
course of January, 21,500 kg of
PCM 30 are produced with the following figures for material consumption:
BACLB 19,100 Kg. at `2.55 per kg.
SHCL 2,800 Kg. at `10 per Kg.
BASH 980 K. at `16.50 per Kg.
Fixed overheads during the period were Rs 5,00,000.
You are required to reconcile standard and actual costs in January using a full variance analysis.
[RTP – May, 2005]
TOPIC: PLANNING AND OPERATIONAL VARIANCES
A planning and operational approach to variance analysis divides the total variance into those variances which
have arisen because of inaccurate planning or faulty standards (planning variances) and those variances which
have been caused by adverse or favourable operational performance, compared with a standard which has been
revised in hindsight (operational variances).
A planning variance (or revision variance) compares an original standard with a revised standard that should or
would have been used if planners had known in advance what was going to happen.
A planning variance is deemed not controllable by management, i.e. management may not be held responsible.

An operational variance (or operating variance) compares an actual result with the revised standard. It is
deemed controllable by management. Hence, management is held responsible for operational variances.
Q.86 Managing Director of Petro-KL Ltd (PTKLL) thinks that Standard Costing has little to offer in the
reporting of material variances due to frequently change in price of materials. PTKLL can utilize one of two
equally suitable raw materials and always plan to utilize the raw material which will lead to cheapest total
production costs. However PTKLL is frequently trapped by price changes and the material actually used often
provides, after
the event, to have been more expensive than the alternative which was originally rejected.
During last accounting period, to produce a unit of ‘P’ PTKLL could use either 2.50 Kg of ‘PG’ or 2.50 kg of
‘PD’. PTKLL planned to use ‘PG’ as it appeared it would be cheaper of the two and plans were based on a cost
of ‘PG’ of ` 1.50 per Kg. Due to market movements the actual prices changed and if PTKLL had purchased
efficiently the cost would have been:
‘PG’ ` 2.25 per Kg;
‘PD’ ` 2.00 per Kg
Production of ‘P’ was 1,000 units and usage of ‘PG’ amounted to 2,700 Kg at a total cost of ` 6,480/-
You are required to analyze the material variance for ‘P’ by:
(i) Traditional Variance Analysis; and
(ii) An approach which distinguishes between Planning and Operational Variances.
[CA – RTP – Nov. 2013]

Q.87 A Ltd. manufactures a standard animal feed. The predetermined standards for the budget period January
– March, 2005 were set by management in October, 2004.
Standard hours per tonne of product – 1.10
Standard direct labour rate per hour - € 8.50
Standard usage of material per tonne of product – 1.20
Standard price of material - € 70 per tonne
Research shows that in the quarter ended 31st March, 2005 the prevailing market price of material had been €
71 per tonne. Since the budget was set the wages rate had increase to € 8.75 per hour. During the quarter,
modifications to plant and machinery shows that direct labour hours per unit should be 1.05 and the standard
usage would reduce to 1.175 per tonne of product.
During the quarter ended 31st March, 2005 activity and costs showed:
Actual production – 15,400 tonnes
Raw material usages – 16,555 tonnes
Actual cost of material used - € 11,91,960
Actual labour cost – 16,632 hours at € 1,43,035.
(a) Calculate variances as per traditional approach.
(b) Calculate planning and operational variances.
Q.88 Manufacture of Product Y. It operates a JIT purchasing system and there is no inventory of raw materials.
The following data relate to the production of Product Y for April.
Budgeted production 11,000 units
Standard material cost per unit 3kg per unit @ $4 per kg
Actual production 10,000 units
Material purchased and used 32,000 kg @ $4.80 per kg
It has now been decided that the standard price for the raw material should have been $5 per kg.
Calculate:
(a) Material price planning variance
(b) Material price operational variance [CIMA – May, 2014]
Solution:
Standard Revised standard Actual
Qty. Price Total Qty. Price Total Qty. Price Total
30,000 4 1,20,000 30,000 5 1,50,000 32,000 4.80 1,53,600
Output = 10,000 units Output = 10,000 units Output = 10,000 units
(i) Material price planning variance: Std. Qty. (SP – Revised SP)
= 30,000 (4 - 5) = 30,000 (A)
(ii) Material price operational variance: AQ (Revised SP - AP)
= 32,000 (5 – 4.80) = 6,400 (F)
Q.89 HR uses skilled staff to operate the machinery that converts the raw materials for the paint into the
finished product. The standard direct labour hours for each 100 litres of white paint produced are as follows: 8
direct labour hours at $24 per hour. During February, 640 direct labour hours were worked at a total cost of
$16,500. It has now been realized that a new wage rate of $26 per hour had been agreed with the workers.
Output: 7,800 liters.
Calculate:
(a) Labour rate planning variance
(b) Operational labour rate variance
(c) Operational labour efficiency variance [CIMA – March, 2012]
Solution:
Standard Revised standard Actual
Hours Rate Total Hours Rate Total Hours Rate Total

624 24 14,976 624 26 16,224 640 16,500
Output = 7,800 liters Output = 7,800 liters Output = 7,800 liters
(a) Labour rate planning variance: Std. hours (SR – Revised SR)
= 624 (24 - 26) = 1,248 (A)
(b) Operational labour rate variance: Actual hours (Revised SR - AR)
= Actual hours * Revised SR – Actual hours * AR
= 640 * 26 – 16,500
= 16,640 – 16,500 = 140 (F)
(c) Operational labour efficiency variance: Revised SR (SH - AH)
= 26 (624 - 640) = 416 (A)
Q.90 FX Corporation produces a single product RG. The company operates a standard absorption costing
system and a just-in-time purchasing system.
Standard production cost details per unit of product RG are:
$
Direct material (5 Kg. @ $ 20) 100
Labour (4 hours at $ 10 per hour) 40
Variable overheads (4 hours at $5 per hour) 20
Fixed overhead (4 hours at $12.50 per hour) 50
210
Fixed and variable overheads are absorbed on the basis of labour hours.
Budget data for product RG for July are detailed below:
Production and sales 1,400 units
Fixed overheads $ 70,000
Actual data for product RG for July are as follows:
Production and sales 1,600 units
Direct material 7,300 Kg. costing $ 1,53,300
Direct labour 5,080 hours at $ 9 per hour
Variable overheads $ 25,400
Fixed overheads $ 74,000
Required:
(a) Produce a statement that reconciles the budgeted and actual gross profit for product RG for July showing
the variances in as much detail as possible
(b) The following details have been extracted from the company’s accounting records for August.
Budget Actual
Output of RG 800 units 890 units
Materials 4,000 Kg. 4,375 Kg.
Cost per Kg. $ 20.00 $ 21.60
It has now been realized that the standard cost per kg of the material should have been $20.90.
Calculate the following materials variances for August:
(i) The total materials cost variance.
(ii) The planning variance for materials price.
(iii) The operational variances for materials price and materials usage. [CIMA – September, 2010]

Q.91 DB manufactures and sells e-readers. The standard labour cost per unit of the product is $7. Each unit
takes 0.5 hours to produce at a labour rate of $14 per hour. The budgeted production for August was 20,000
units. The Production Director subsequently reviewed the market conditions that had been experienced during
August and determined that market labour rates were $17.50 per hour. The actual production was 22,000 units.
Actual labour hours worked were 11,400 hours at $15.50 per hour.
Calculate the following variances for August:
(i) The labour rate planning variance
(ii) The labour rate operational variance
(iii) The labour efficiency operational variance [CIMA – September, 2010]
Q.92 C Preserves produces Jams, Marmalade and Preserves. All the products are produced in a similar fashion;
the fruits are cooked at low temperature in a vacuum process and then blended with glucose syrup with added
citric acid and pectin to help settings.
Margins are tight and the firm operates a system of standard costing for each batch of jam.
The standard cost data for a batch of raspberry jam are
Fruits extract 400 kgs @ `16 per kg.
Glucose syrup 700 kgs @ `10 per kg.
Pectin 99 kgs @ `33.2 per kg.
Citric acid 1 kg at `200 per kg.
Labour 18 hours @ `32.50 per hour.
Standard processing loss 3%
The climate conditions proved disastrous for the raspberry crop. As a consequence, normal prices in the trade
were `19 per kg for fruits abstract although good buying could achieve some savings. The impact of exchange
rates for imported sugar plus the minimum price fixed for sugarcane, caused the price of syrup to increase by
20%.
The retail results for the batch were-
Fruits extract 428 kgs at `18 per kg.
Glucose syrup 742 kgs at `12 per kg.
Pectin 125 kgs at `32.8 per kg.
Citric acid 1 kg at `95 per kg.
Labour 20 hours at `33 per hour.
Actual output was 1,164 kgs of raspberry jam.
(i)Calculate the ingredients planning variances that are deemed uncontrollable.
(ii)Calculate the ingredients operating variances that are deemed controllable.
(iii)Calculate the mixture and yield variances.
(iv)Calculate the total variances for the batch. [May 2005]
TOPIC: APPLICATION OF LEARNING CURVE IN STANDARD COSTING

Whenever any person repeat a particular type of work again and again, then due to learning of work, time
taken or raw material uses in further units gets reduces. This is known as learning curve technique. Under
learning curve technique we can decide standards with the help to such technique and then compare it with
actual result and find out the variances.
There are two methods under learning curve technique:
Method: 1 Method: 2
Direct observation method Mathematical method

Method: 1 Direct observation method – Whenever production increases and becomes double of the
preceding then the average time per unit will be reduces according to learning ratio.
Statement showing calculation of average time and total time for desired cumulative production:
Cumulative production Average time Total time
1 xxx Xxx
2 xxx Xxx
4 xxx Xxx
Method: 2 Mathematical method – When output increases but does not become equal to the double of the
preceding, then estimate of time for subsequent units / uses of raw material for subsequent units will be
analysed with application of following mathematical formula:
Y = axb
Where,
a = Total time for 1st unit
x = Desired cumulative production for which average time required
y = Average time per unit for corresponding x
b = Learning index
Learning index / Learning coefficient – As learning ratio in a concern is constant depending upon efficiency of
workers, its value is constant for all types of production. So, log of ratio/ log of 2 is known as learning
coefficient.
90 % = Log 0.9 / Log 2
80 % = Log 0.80 / Log 2
Properties of log:
(1) Log ab = b Log a
(2) Log a/b = Log a – Log b
(3) Log a*b = Log a + Log b
Q.93 A Co. has introduced a new product and it is anticipated that a 90 % learning curve applies. The standard
cost card for the product, based on estimates for the time required to produce the first unit includes standard
labour time of 200 hours at a cost of `8 per hour. The first 8 units took 1,150 hours to produce at a cost of
`9,430. You are required to calculate labour rate and labour efficiency variance.
Solution:
Calculation of standard time for 8 units:
1 200 200
2 180 360
4 162 648
8 145.80 1,166.40
Standard Actual
Hours Rate Total Hours Rate Total
1,166.40 8 9,331.20 1,150 8.20 9,430
Output = 8 units Output = 8 units
(i) LCV = TSC - TAC

= 9,331.20 – 9,430 = 98.80 (A)
(ii) LRV = AH (SR - AR)

= 1,150 (8 – 8.20) = 230 (A)
(iii) LEV = SR (SH - AH)

= 8 (1,166.40 – 1,150) = 131.20 (F)
Q. 94 A company has introduced a new product and it is anticipated that a 80 % learning curve applies on
labour. Standard cost for the first unit was as follows:
Element of cost Unit Rate Total
Direct material 500 Kg. 4 2,000
Direct labour 200 hours 5 1,000
Variable overheads 200 hours 8 1,600
Actual data for 4 units are as under:
Element of cost Unit Rate Total
Direct material 2,200 Kg. 3.50 7,700
Direct labour 200 hours 5 1,000
Variable overheads 200 hours 8 1,600
Calculate all relevant variances.
Solution:
Calculation of labour hours:
1 200 200
2 160 320
4 128 512
Standard Actual
Element Units Rate Total Element Units Rate Total
Material 2,000 Kg. 4 8,000 Material 2,200 Kg. 3.50 7,700
Labour 512 Hrs. 5 2,560 Labour 800 Hrs. 6 4,800
Variable 512 Hrs. 8 4,096 Variable 800 Hrs. 6.125 4,900
overheads overheads
Output = 4 units Output = 4 units
(i) MCV = TSC - TAC (iv) LCV = TSC – TAC (vii) VOV = TSC – TAC
8,000 – 7,700 = 300 (F) = 2,560 – 4,800 = 2,240 (A) = 4,096 – 4,900 = 804 (A)
(ii) MPV = AQ (SP - AP) (v) LRV = AH (SR - AR) (viii) VO Exp. V = AH (SR - AR)
= 2,200 (4 – 3.50) = 1,100 (F) = 800 (5 - 6) = 800 (A) = 800 (8 – 6.125) = 1,500 (F)
(iii) MUV = SP (SQ - AQ) (vi) LEV = SR (SH - AH) (ix) VO Eff. V = SR (SH - AH)
= 4 (2,000 – 2,200) = 800 (A) = 5 (512 - 800) = 1,140 (A) = 8 (512 - 800) = 2,304 (A)
Q.95 Genting Mfg Co. has developed a product for which the following standard cost estimates have been
made for the first batch to be manufactured in Jan’13:
Direct material (100 Kgs. @ `55 per Kg.) `5,500
Direct labour (100 hours @ `40 per hour) `4,000
Variable overheads (100 hours @ `75 per hour) `7,500
From experience the firm knows that labour will benefit from a learning effect and labour time will be reduced.
This is expected to approximate to an 80% learning curve. In addition, the growing expertise of labour is
expected to improve the efficiency with which materials are used. The usage of materials is expected to
approximate to a 95% learning

curve. The actual production for Jan’13 to Jun’13 was 320 batches. During Jun’13 following results were
recorded for the 320th batch made:
Direct material (80 Kg.) `4,000
Direct wages (20 hours) `1,000
Variable overheads `1,800
You are required to calculate variances in connection with 320th batch.
[Note: Learning Coefficient is -0.322 and -0.074 for learning rate of 80% and 95% respectively, log2=0.30103,
log5=0.69897, log319=2.50379, Antilog of 1.81462 =65.26, Antilog of 1.81472 =65.27, Antilog of 1.19334
=15.61, Antilog of 1.19378 =15.62] [CA – RTP – Nov. 2013]
Q. 96 A firm has developed a product for which the following standard cost estimates have been made for
the first batch to be manufactured in Month 1.
Standard cost for the batch
` `
500 labour hours @ `8 per hour 4,000
55 units of direct material @ `100 per unit 5,500
Variable overheads 500 hours @ `15 per hour 7,500 17,000
From experience the firm knows that labour will benefit from a learning effect and labour times will be
reduced. This is expected to approximate to an 80% learning curve.
In addition, the growing expertise of labour is expected to improve the efficiency with which materials are
used. The usage of materials is expected to approximate to a 95% learning curve.
The actual production for the first six months was as follows :
Month 1 20 batches
Month 2 30 batches
Month 3 25 batches
Month 4 24 batches
Month 5 33 batches
Month 6 28 batches total 160 batches
During Month 6 the following results were recorded for the last batch made:
Actual results of last batch:
Labour hours 95
Direct wages `978
Direct material (41 units) `3977
Variable overheads `1685
You are required
(a) To calculate the learning coefficient for materials;
(b) To derive the Standard Cost of the last batch in Month 6;
(c) To calculate what variance have arisen in connection with the last batch i.e.160th;
[CWA – Study Material]
TOPIC: STANDARD COSTING AND BALANCE – SCORE CARD

Balance – score card is a statement issued by the company at the time of annual records for existing
shareholders and prospective shareholders. It covers financial and non – financial areas with equal rank.
Balance – score card should be prepared on the following presumptions:
(a) The nature of labour is to be considered as fixed.
(b) Balance – score card is to be prepared on marginal costing technique due to uniform costing principal.
(c) The following are the non – financial areas to be covered in balance score – card:
 Introduction of new product with advanced features at very competitive price.
 After sale service at regular interval
 Free replacement policies to be introduced for defective units.

In other words management would like to say that:

“By controlling and maintaining non – financial area, all financial area will got automatically controlled.”
The following points should be covered in financial areas:

(a) Growth factor
(b) Price factor
(c) Productivity factor
(a) Growth factor:

(i) Revenue effect of growth: Excess revenue due to excess quantity sold
Budgeted selling price (BQ - AQ)
(ii) Cost effect of growth: Excess cost to be incurred due to excess quantity sold.
Budgeted variable cost per unit (BQ - AQ)
(b) Price factor:

(i) Revenue effect of price: Difference in price for actual quantity
AQ (BSP - ASP)
(ii) Cost effect of price (MPV): AQ (SP - AP)
(iii) Conversion cost expenses variance: Budgeted overheads – Actual overheads
(c) Productivity factor

MUV: SR (SQ - AQ)
In Balance – score card, we should prepare two statements:
(i) Statement of change in profit
Last year Current year
Revenue xxx xxx
Less: Costs:
Material cost xxx xxx
Conversion cost xxx xxx
Administrative cost xxx xxx
Selling and distribution cost xxx xxx
Profit xxx xxx
(ii) Balance score card

Last year Growth Price Productivity Current year
Item Amount
Revenue xxx xxx xxx xxx xxx
Less: cost
Material xxx xxx xxx xxx xxx
Others xxx xxx xxx xxx xxx
Profit xxx xxx xxx xxx xxx

Q. 97 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 40,000 36,000
served
Administrative costs `80,000 `68,400
Administrative cost per customer `2 `1.90
Administrative costs depend on the number of customers that Oceano has created capacity to support,
not the actual number of customers served.
Required:
Calculate the growth price-recovery, and productivity components of changes in operating income between
2003 and 2004.
TOPIC: TWO – WAY; THREE – WAY AND FOUR – WAY ANALYSIS OF OVERHEAD
VARIANCES
We have covered the analysis of overheads (Fixed and Variable) in the four – way method. There are four
overhead variances and each is calculated and reported separately. There are also three – way and two – way
method of analysing overheads, which are done by combining some of the four – way analysis variances that
we calculated.
In three – way analysis, the three variances are the volume, efficiency and spending variances.
(i) The volume variance is equal to the fixed overhead volume variance.
(ii) The efficiency variance is equal to variable overhead efficiency variance.
(iii) The spending variance is equal to the variable overhead spending variance plus fixed overhead spending
variance.
Two – way analysis uses the same information as calculated for four – way analysis, but we are going to
combine it in a slightly different manner that we do under three – way analysis. The two variances involved are
called volume variance and the controllable variance.
Variable overhead variance Fixed overhead variance

Four – way Efficiency Spending Spending Volume
Three – way Efficiency Volume
Spending
Two – way
Controllable Volume

Q.98 F Manufacturing Ltd. uses the three variances method to analyse the manufacturing overhead variances.
Manufacturing overhead variances for the fiscal year just ended were computed as follows:
Spending Rs.86,000 Adverse
Efficiency Rs.36,000 Favourable
Volume Rs.80,000 Favourable
The manufacturing overhead application rate for the year was Rs.160 per machine hours of which Rs.60 per
machine hour was the variable component. The year end balance in the Manufacturing Overhead Control
Account was Rs.16,50,000 and the standard machine hours for the year were 11,300.
From the above data compute:
(i)Budgeted Machine Hours
(ii)Actual Machine Hours
(iii)Applied Manufacturing Overhead
(iv)Total Amount of Fixed Overhead Cost. [CA Final, Nov.2000]
Q.99 The Osage Company uses a standard cost system. The factory overhead standard rate per direct labour
hour is:
Fixed: 5,000 hours @ 0.90 $ 4,500
Variable: 5,000 hours @ 1.50 $ 7,500
Total 12,000
For October, actual factory overhead was $11,000 actual labor hours worked were 4,400 and the standard
hours allowed for actual production were 4,500.
Required: Factory overhead variances using two, three and four variance methods.
TOPIC: MARKET SIZE VARIANCE AND MARKET SHARE VARIANCE

Market size variance – Market size variance arises due to the difference between the company’s budgeted
market share of actual industry sales volume in units and budgeted market share of budgeted industry sales
volume in units.
Computation: (budgeted market share percentage) x (Actual industry sales volume in units – budgeted
industry sales volume in units) x budgeted average contribution margin per unit.
Note: Budgeted average contribution margin per unit = Total (BQ * BM) / Total BQ
Market share variance – Market share variance arises due to the difference between the company’s actual
share of actual industry sales volume in units and Budgeted share of actual industry sales volume in units.
Computation: (Actual market share percentage – Budgeted market share percentage) * (Actual industry sales
volume in units) * (Budgeted average contribution margin per unit)
𝐴𝑐𝑡𝑢𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑐𝑜𝑚𝑝𝑎𝑛𝑦
Actual market share percentage =
𝐴𝑐𝑡𝑢𝑎𝑙 𝑠𝑎𝑙𝑒𝑠 𝑜𝑓 𝑡ℎ𝑒 𝑖𝑛𝑑𝑢𝑠𝑡𝑟𝑦

Q.100 Super Computers manufactures and sells three related PC models:

(1) PC - Sold mostly to college students
(2) Portable PC - Smaller version of PC positioned as home computer
(3) Super PC - Sold mostly to business executives.
Budgeted and actual data for 1995 are as follows:

Budget for 1995
Selling price Variable Cost Contribution Sales Volume in
per unit per unit Margin Per Unit units
` ` `
PC 24,000 14,000 10,000 7,000
Portable PC 16,000 10,000 6,000 1,000
Super PC 1,00,000 60,000 40,000 2,000
10,000
Actual for 1995
Selling price Variable Cost Contribution Sales Volume in
per unit per unit Margin Per Unit units
` ` `
PC 22,000 10,000 12,000 8,250
Portable PC 13,000 8,000 5,000 1,650
Super PC 70,000 50,000 20,000 1,100
11,000
Super computer derived its total unit sales budget for 1995 from the internal management estimate of a 20%
market share and an industry sales forecast by computer manufacturers association of 50,000 units. At the end
of the year the association reported actual industry sales 68,750 units.
Required:
(i) Compute the individual product and total sales volume variance.
(ii) Compute total sales quantity variance.
(iii)Compute the market size and market share variances.
(iv)Comment on your results. [CA Final, May 1996]
Q.101 A company, which uses standard marginal costing, furnishes the following details relating to a single
product manufactured and sold in a quarter.
Budget Actual
Sales units 6,000 6,400
(Rs.’000) (Rs.’000)
Sales 1,500 1,696
Direct materials 240 270
Direct labour 360 416
Variable overheads 600 648
Total variable costs 1,200 1,334
The sales budget is based on the expectation of the company’s estimate of market share of 12%. The market
report reveals that the actual sale of the product in the whole country for the quarter is 60,000 units.
Further data are given as under:
Standard Actual
Direct material price per kg. Rs.8 Rs.7.50
Direct labour rate per hour Rs.6 Rs.6.40
Required:

(i)Compute the following variances for the quarter:

-Gross margin sales
-Market size variance
-Market share variance
-Volume variance
Sales price variance
-Direct materials usage and price variances
-Direct labour efficiency and rate variances
-Variable overheads efficiency and expense variances.
(ii)Prepare an operating statement reconciling the budgeted contribution with actual contribution.
[CA Final, May 2003]
Q.102 Global Limited uses standard and marginal costing system. It provides the following details for the year
2007 – 08 relating to its production, cost and sales:
Sales units 24,000 25,600
Sales value 6,000 6,784
Materials 960 1,080
Labour 1,440 1,664
Variable overheads 2,400 2,592
Total variable cost 4,800 5,336
The sales budget is based on the expectation of the company’s estimate of market share of 12 %. The entire
industry’s sales of the same product for the year 2007 – 08 is 2,40,000 units. Further details are as follows:
Particulars Standard Actual
Material price per Kg. 8.00 7.50
Labour rate per hour 6.00 6.40
(a) Prepare a statement reconciling the budgeted contribution with actual contribution on the basis of important
material variances, labour variances, variable overhead variances and sales variances.
(b) Compute market size variance and market share variance. [June, 09]
TOPIC: SINGLE PLAN AND PARTIAL PLAN/ ACCOUNTING FOR VARIANCES
Single plan Partial plan

(i) All variances should be analysed and All variances should be analysed at the time of annual
reported to the management at the time of balance – sheet and reported to the management at that
occurrence of event. i.e. within the same time.
accounting period
(ii) The variances should be analysed on The period of variances should be one year.
weekly basis / fortnightly or monthly basis.
(iii) Material price variance should be Its not possible to analyse the variances at the time of
analysed at the time of purchased and material event occurred. So variances will calculate at the time of
usage variance at the time of production. production.
(iv) Remedial action against adverse variances Cost can be controlled but not so effectively as compared
should be undertaken at the time of event to single plan.
occurred within the same accounting period so
that cost can be controlled in very effective
manner.
(v) Extra cost to be incurred to analysed the No extra cost is to be incurred for analysing the variances
variance in this system. in this system.

ACCOUNTING PROCEDUTE IN CASE OF SINGLE PLAN – Under this plan the variances are analysed
as soon as the transactions take place. The journal entries under this plan shall be made as follows:
,
JOURNAL ENTRIES
(i) For purchase of material
Material control a/c Dr. Standard cost
(AQ * SR)
Material price variance a/c Dr. If adverse
To Creditors a/c Actual cost
To Material price variance a/c If Favourable
(ii) Entry for payment of material

Creditors a/c Dr.
To Bank a/c
(iii) Transfer of material to production department

Work – in – progress a/c Dr. Standard cost
for actual
output
Material usage variance a/c Dr. If adverse
To Material control a/c (AQ issued *
SR)
To Material usage variance a/c If favourable
(iv) At the time of appointing the labour

Labour control a/c Dr. (SR * SH)
Labour rate variance a/c Dr. If adverse
To Wages payable a/c (AH * AR)
To Labour rate variance a/c If favourable
(v) For payment of wages

Wages payable a/c Dr.
To Bank a/c
(vi) Labour charged from production

for actual
output
Labour efficiency variance a/c Dr. If adverse
To Labour control a/c (SR * SH)
To Labour efficiency variance a/c
(vii) Overheads (Variable + Fixed)

Overhead cost variance a/c Dr.
To Bank a/c Actual cost

(viii) At the end of the year all variances should be

accumulated and then transferred to costing profit and loss
account
(a) For adverse variances
Costing profit and loss a/c Dr.
To Material price variance a/c
To Material usage variance a/c
To Labour rate variance a/c
To Overhead cost variance a/c
(b) For favourable variances

Material price variance a/c Dr.
Material usage variance a/c Dr.
Labour rate variance a/c Dr.
Labour efficiency variance a/c Dr.
Overhead cost variance a/c Dr.
To Costing profit and loss a/c
ACCOUNTING PROCEDURE IN CASE OF PARTIAL PLAN - under this plan the variances are
analysed as the end of period. The following is the procedure under this plan.
 Record in Material, Wages and Overhead Control Accounts at Actual Cost.
 Charge to WIP control account at Actual Cost.
 Transfer to Finish Goods Control account at Standard Cost.
 Record WIP goods at Standard Cost in WIP control Account.
 Balancing figure in the WIP control Account is Variance.
 Analyse the variance at the end of period.
 The variances are debited or credited to various variance accounts.
Following are the journal entries in this plan:

Journal entries
(i) Material control a/c Dr.
To General ledger adjustment a/c
(Being purchase of material recorded at actual
cost)
(ii) Work – in – progress a/c Dr.

To Material control a/c
(Being actual cost of consumed recorded)
(iii) Work – in – progress a/c Dr.

To Wages control a/c
(Being actual payment of wages recorded)
(iv) Work – in – progress a/c

To Overhead control a/c
(Being the actual overhead expenses incurred)
(v) Finished stock control a/c Dr.

To Work – in – progress a/c
(Being the standard cost of production transferred
to finished goods account)
(vi) Cost of sales a/c Dr.

To Finished stock control a/c
(Being the standard cost of goods sold transferred
to cost of sales account)
(vii) Material price variance a/c Dr.

Material usage variance a/c Dr.
Labour rate variance a/c Dr.
Labour efficiency variance a/c Dr.
Overhead expenses variance a/c Dr.
Overhead efficiency variance a/c Dr.
Overhead capacity variance a/c Dr.
To Work – in – progress a/c
(Being adverse variances transferred to WIP a/c )
(viii) Work – in – progress a/c Dr.

To Material price variance a/c
To Material usage variance a/c
To Labour rate variance a/c
To Overhead expenses variance a/c
To Overhead efficiency variance a/c
To Overhead capacity variance a/c
(Being favourable variances transferred to WIP
a/c)
Q.103 The following information is available from the records of stand cost Ltd. which follows the Partial Plan
for accounting for standard costs. for October 1987:
Materials purchased: 10,000 pieces at Rs.2.20 each Rs.22,000.00
Materials consumed: 9,500 pieces at Rs.2.20 each 20,900.00
Actual wages paid: 2,475 hours at Rs.2.50 per hour 6,187.50
Factory Overhead incurred 11,000.00
Factory Overhead Budget 10,000.00
Units produced 900 units. These were sold at Rs.50 per unit:
Standard Rates and Prices are:
Direct material Rate Rs.2.00 per unit
Standard Input 10 pieces per unit
Direct Labour Rate Rs.2.00 per hour
Standard requirement 2.5 hours per unit.
Overheads Rs.4.00 per labour hours.
Required:
(a)Show the standard Cost Card.
(b)Compute Cost variances for October 1987.
(c)Show the journal entries to record the transactions and disposal of the variances
(Narrations are required for journal entries.)
(d)Show:
(i) The material Control Account
(ii)The Work in progress control Account. [Nov. 1987]
Q.104 Standard cost sheet per unit of output is as under:

Direct material 3 Pcs.@ `2.15 `6.45
Direct labour:
Department A – 2 Hours @`1.75 3.50
Department B – 4 Hours @ `1.50 6.00 `9.50
Overheads:
Department A – 2 Hours @ `0.50 1.00
Department B – 4 Hours @ `1.00 4.00 `5.00
`20.95
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.
Q. 105 Transparent Ltd. manufactures paint. It uses a standard costing system and the variances are reported to
the management on fortnightly basis. A fire destroyed some important records of the company. You have been
able to collect the following information from the spoilt papers/records and as a ‘result of consultation with
accounting personnel in respect of a fortnight:
(a) The paint requires two types of raw material RM1 and RM2. The standard quantity of RM2 in final product
is 5 litres and standard cost thereof is ` 36 per litre.
(b) The company purchased 200 Kg. of RM1 and 550 litres of RM2 during that fortnight.
(c) The standard wage rate is ` 24 per labour hour. Actual labour hours were 460 during the fortnight.
(d) Variances as disclosed from some spilled paper are:
(i) Price Variance (RM2) -- ` 1,320 (A)
(ii) Usage Variance (RM1) -- ` 240 (F)
(iii) Labour Efficiency Variance -- ` 1,440 (A)
(e) Some incomplete ledger entries for that fortnight reveal

(1) Sundry creditors a/c

` `
Purchases of raw material 25,440
(2) RM2
` `
Opening balance 3,600 Closing balance 8,280
(3) RM1
` `
Opening balance 0 3,600
Closing balance 1,200
(4) Work – in – Process a/c

` `
Opening balance 0
RM2 14,400 Closing balance 0
(5) Wages
` `
Paid and outstanding 10,350
You have been asked to compute the meaningful variances to be presented before management. (Key
computations should from part of the answer). [Practice manual]
TOPIC: APPLICATION OF BUDGETRY CONTROL RATIOS IN STANDARD COSTING

Budgetary control ratios – Ratios are used to determine the production efficiency and the costs. It tells the ratio
of actual level of activity attained, degree of efficiency attained and the actual capacity utilised during a budget
period. These ratios are expressed in terms of percentages. They are:
(1) Activity ratio – It is a measure of the level of activity attained over a period. This ratio expresses relationship
between standard hours for actual output and budgeted hours. The formula is:
Activity ratio Standard hours for actual output X 100
Budgeted hours
(2) Capacity ratio – This ratio indicates whether and to what extent budgeted hours of activity are actually
utilised. The object is to show whether or not the available hours are being utilised. The formula is:
Capacity ratio Actual hours worked X 100
Budgeted hours
(3) Efficiency ratio – This ratio is an important measure of the level of efficiency attained by the productive
processes. This ratio indicates the efficiency attained in producing a stated output. The formula is:
Efficiency ratio Standard hours for actual output X 100
Actual hours worked
(4) Calendar ratio – This ratio indicates if the actual working days have been equal to more than or less than
the budgeted number of days in the period under study. The formula is:
Calendar ratio Actual working days in the period X 100
Working days on the basis of budget during the period
𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠
(5) Standard capacity usages ratio = 𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 ℎ𝑜𝑢𝑟𝑠 𝑖𝑛 𝑏𝑢𝑑𝑔𝑒𝑡 𝑝𝑒𝑟𝑖𝑜𝑑 x 100

𝐴𝑐𝑡𝑢𝑎𝑙 ℎ𝑜𝑢𝑟𝑠 𝑤𝑜𝑟𝑘𝑒𝑑

(6) Actual capacity usage ratio = 𝑀𝑎𝑥𝑖𝑚𝑢𝑚 𝑝𝑜𝑠𝑠𝑖𝑏𝑙𝑒 𝑤𝑜𝑟𝑘𝑖𝑛𝑔 ℎ𝑜𝑢𝑟𝑠 𝑖𝑛 𝑎 𝑝𝑒𝑟𝑖𝑜𝑑
x 100
𝑆𝑡𝑎𝑛𝑑𝑎𝑟𝑑 ℎ𝑜𝑢𝑟𝑠 𝑝𝑟𝑜𝑑𝑢𝑐𝑒𝑑

(7) Production volume ratio = 𝐵𝑢𝑑𝑔𝑒𝑡𝑒𝑑 ℎ𝑜𝑢𝑟𝑠
x 100
Relationship: Activity ratio = Efficiency ratio * Capacity ratio
Q.106 The following data have been obtained from the records of a machine shop for an average month:
Budget:
Number of working days 25
Working hours per days 8
Number of direct workers 16
Efficiency One standard hour per clock hour
Down time 20%
Overheads: `
Fixed 15,360
Variable 20,480
The actual data for the month of September 1985 are as under:
Overheads:
Fixed 16,500
Variable 14,500
Net operator hours worked 1,920
Standard hours produced 2,112
There was a special holiday in September 1985.
Required to present reports to Departmental Manager:
(i) Showing the three cost ratios you have chosen.
(ii) Setting out the analysis of variances. [Nov.1985]
Q.107 A company manufactures two products X and Y. Product X requires 5 hours to produce while Y
requires 10 hours. In July, 1996, of 25 effective working days of 8 hours a day, 1,000 units of, X and 600 units
of Y were produced. The company employs 50 workers in the production department to produce X and Y. The
budgeted hours are 1,02,000 for the year.
Calculate capacity ratio, activity ratio and efficiency ratio. Also establish their interrelationship.
[Nov. 1996]
Q. 108 A company is engaged in manufacturing of several products. The following data have been obtained
from the record of a machine shop for an average month:
Budgeted:
No. of working days 24
Working hours per day 8
No. of direct workers 150
Efficiency One standard hour per clock hour
Down time 10 %
Overheads:
Fixed 75,400
Variable 90,720
The actual data for the month of August 2010 are as follows:
Overheads:
Fixed 78,800
Variable 70, 870

Net operator hours worked 20,500

Standard hours produced 22,550
There was a special holiday in August 2010.
Required:
(i) Calculate efficiency, activity, calendar and standard capacity usages ratio.
(ii) Calculate all the relevant fixed overhead variances.
(iii) Calculate variable overheads expenditure and efficiency variance. [Nov. 2010]
INVESTIGATION OF VARIANCES
It has to be decided whether a variance is worth investigating is the expected cost of investigation and control
and the expected benefits from control action. An investigation should only be undertaken, if the benefits
expected from the investigation exceeds the costs of searching for and correcting the source of the variance.
Following steps should be followed for this purpose:
Step: 1 Estimate the probability of process under control and process out of control.
Step: 2 Calculate cost of investigation and cost of correction if investigation is undertaken.
Step: 3 Calculate effective cost if investigation is not undertaken.
Step: 4 compare both cost and take appropriate decision.
Q.109 The following estimate data are given:

Cost of investigation of variance `6,400
Cost of correction of out of control process `16,000
Cost of allowing the process to remain out of control `80,000
Probability of being in control 0.95
(i) Calculate the expected values of investigating and not investigating into the variance and advise the
management.
(ii) Calculate the break – even probability.
Q.110 A company using a detailed system of standard costing finds that the cost of investigation of variance is
`20,000. If after investigation an out of control situation is discovered, the cost of correction is `30,000. If no
investigation is made, the present value of extra cost involved is `1,50,000. The probability of the process
being in control is 0.82 and the probability of the process being out of control is 0.18. You are required to
advise:
(a) Whether investigation of the variances should be undertaken or not?
(b) The probability at which it is desirable to institute investigation into variances? [CWA – June, 1987]
Q.111 A machine produces 1,00,000 standard components per day at a cost of `1.50 per unit. If the process is
in control, on an average 3 % of the output is defective. If the process is out of control, the rate of defectives
will be 5 %. The entire cost of a defective unit is a loss. The cost of carrying out an investigation is `600. If the
process is found to be out of control after an investigation then it costs another `400 to rectify the error. The
probability of the process being in control is 0.70.
Required:
(a) Should an investigation be made or not?
(b) What is the probability at which investigation is desirable? [CWA – Dec. 1998]

TOPIC: RE – WORK VARIANCE AND SCRAP VARIANCE
Material scrap variance = (Standard quantity of scrap * Standard price of scrap) – (Actual quantity of scrap *
Actual price of scrap)
Material re – work variance = (Standard quantity of re – work * Standard cost of re - work) – (Actual quantity
of re – work * actual cost of re - work)
Quality cost variance = Material cost variance + Material scrap variance + Material re – work variance
Q.111 To produce 1,000 units of product X, the standard materials input is 1,200 units at a standard price of `6
per unit. The standard allows for rejects at the rate of 25% of input; it is estimated that one-third of total rejects
can be reworked at an additional standard cost of `2 per unit. Scrapped units can be sold for Re. 0.50p each.
During the period just ended, 19,500 units of X were produced. 24,000 units of material were issued to
production, at the cost of `6 per unit; 7,000 units were rejected on initial inspection and of these, 2,500 were
reworked, at a cost of `5,100. The remainder were sold as scrap for Re. 0.50 per unit. Calculate the relevant
variances. [CWA – Study material


CLASSES – XII, B.COM, M.COM, CPT, PCC, CS, ICWA, BBA, MBA, BCA

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SARVAGYA INSTITUE OF COMMERCE 1

CHAPTER – “STANDARD COSTING”

INDEX FOR THE CHAPTER

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Differences between standard costing and historical costing =>

Difference between standard and estimated costing:

Difference between Budgetary control and standard costing:

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MATERIAL COST VARIANCES

Material cost variance

Material price variance Material usage variance

Material mix variance Material yield variance

(2) Material price variance (MPV) = AQ (SP - AP)

Point of purchase: At the time of consumption:

(3) Material usage variance (MUV) = SP (SQ - AQ)

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(4) Material Mix Variance (MMV) = SP(RSQ - AQ)

(5) Material sub usages variances (MSUV) = SP (SQ - RSQ)

(6) Material yield variance MYV) = SC (AY - RSY)

SC = Total Standard cost

LABOUT COST VARIANCES

Labour cost variance

Labour rate variance Labour idle time Labour efficiency variance

Labour mix variance Labour yield variance

(1) Labour cost variance (LCV) = TSC – TAC

TSC = Total standard cost for actual output

TAC – Total actual cost

(2) Labour rate variance (LRV) = AH (SR - AR)

(3) Labour efficiency variance (LEV) = SR (SH - AH)

(4) LITV (Labour idle time variance) = Idle time x SR

(5) Labour mix variance / Labour gang composition variance

RSH = Standard hours x Total actual hours

(6) Labour revised efficiency variance (LREV) = SR (SH – RSH)

(7) Labour yield variance (LYC = SC (AY – RSY)

OVERHEADS COST VARIANCES

(A) Variable overhead variance = >

Standard rate = Total budgeted variable overheads

(a) Hours basis: =>

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(2) Variable overhead expenditure variance = AH (SR - AR)

(3) Variable overheads efficiency variance =SR (SH - AH)

(b) Unit Basis:-

(2) Variable overhead expenditure variance = SQ x SR – AQ x AR

(B)FIXED OVERHEAD VARIANCES:

Fixed overhead cost variance

Fixed overhead expenditure / Fixed overhead volume

Fixed overhead Fixed overhead Fixed overhead calendar

Hours basis Unit basis

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RBQ = Budgeted quantity x Actual days

Based on value Based on margin/ profit

Sales value variance Sales margin variance

Sales value Sales value Sales margin Sales margin

Sales value Sales value Sales margin

(A) Based on value

(B)Based on Margins / Based on profits

(5) Sales Margin quantity variance = SP (RBQ - BQ)

TOPIC: QUESTIONS RELATED TO CALCULATION OF VARIANCES

(i) MCV = TSC – TAC (ii) MPV = AQ (SP-AP)

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Q.3 From the data given below, calculate:

MUV = SP (SQ – AQ)

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