STANDARD COSTING

A. Material variances

a) Material cost variance

Material cost variance is the difference between the
standard cost of material specified for the output achieved
and the Actual cost of direct material used.

- Material price variance + material usage variance

or
- Standard quantity x standard price – actual qty x
actual price

Favourable when AC<SC.

Adverse when AC>SC.
Note : AC stands for Actual cost and SC stands for
standard cost.

b) Material price variance

Material price variance is that portion of the Materials cost
variance which is due to the difference between the
standard price specified for the Actual output and the
Actual price paid.

- Actual quantity (std price – actual price)

Favourable when AP< SP.

Adverse when AP>SP.
Note : AP stands for Actual price and SP stands for
standard price.

c) Material usage variance

Material usage variance is that portion of the Material
cost variance which is due to the difference between the
standard quantity specified for the actual output and
the actual quantity used for the actual output.

- Standard price (standard quantity – actual quantity)

Favourable when the AQ< SQ

Adverse when AQ>SQ
 Note: AQ stands for Actual Quantity and SQ stands for
standard quantity.

Verification: MCV = MUV + MPV.

Material Cost Variance (MCV) = Material Usage

Variance (MUV) + Material Price Variance (MPV).

1. The Standard Cost Card for one unit of a product shows the following
costs for material :
Material : 4 pieces @ Rs. 5
5700 units of the product were manufactured during month of March
2023 with the following material costs:
Material : 23000 pieces @ Rs. 4.95
Calculate Material Variances.
(MCV = 150(F); MPV = 1150(F); MUV = 1000(A))

2. Standard rate per unit and No of Units for Material X is Rs. 45 and 500
Units. Standard rate per unit and No of Units for Material Y is Rs. 65 and
750. Actual rate per Unit and No of Units for Material X is Rs. 55 and
580 Units. Actual Rate per Unit and No of Units for Material Y is Rs. 45
and 900. Calculate Material Cost, Price and Usage variance.
(MCV = 1150(A); MPV=12200(F); MUV = 13350(A))

3. The standard material required manufacturing one unit of Product X is 10

Kg, and the standard price per Kg. of material is Rs 2.50. The cost
records, however, reveal that 11,500 Kg. of materials costing Rs 27,600
were used for manufacturing 1,000 units of product X. Calculate the
Material Cost, Material Price and Material Usage variances.
(MCV = 2600(A); MPV =1150(F); MUV = 3750(A))

4. From the following information compute, Material cost variances,

Material Price variances and Material Usage variance.

Material Standard cost for 1 unit Actual cost for 10 units

Quantity Rate Amount Quantity Rate Amount
X 60 15 900 640 17.5 11200
Y 80 20 1600 950 18 17100
Z 100 25 2500 870 27.5 23925
(MCV = 2225 (A); MCV = 1875 (A); MUV=350(A)).
5. The standard material cost for 100 kg of a product Coke is made up of:
Material A – 30 kg @ Rs. 4 per kg
Material B – 40 kg @ Rs. 5 per kg
Material C – 80 kg @ Rs. 6 per kg

A batch of 500 kg of product Coke is made up of:

Material A – 140 kg at a total cost of Rs. 588.
Material B – 220 kg at a total cost of Rs. 1056.
Material C – 440 kg at a total cost of Rs. 2860.
Calculate all Material Variances.
(MCV = 504(A); MPV = 204(A); MUV = 300(A)).

Labour variances

a. Labour rate variance

Labour rate variance is that portion of the Labour cost

variance which is due to the difference between the standard
rate specified for the Actual output and the Actual rate paid.

Actual labour hours (standard rate – actual rate)

Favourable = AR< SR
Adverse = AR>SR.
Note : AR stands for Actual rate and SR stands for
Standard rate.

b. Labour efficiency or labour time variance

Labour efficiency variance is that portion of Labour cost

variance which is due to the difference between the
standard hours specified for the actual output and the
Actual hours used for Actual output.

Standard rate (standard labour hours – actual labour

hours)

Favourable : AH < SH
Adverse : AH > SH.
 Note: AH stands for Actual Hours and SH stands for
Standard hours.

c. Labour cost variance

Labour cost variance is the difference between the Standard

cost of labour specified for the output achieved and the
Actual cost of direct labour used.

= Standard hours x standard rate – actual hours x

actual
Rate

= Labour rate variance + labour efficiency variance

Favourable : AR < SR
Adverse : AR > SR.

Note : AR stands for Actual Rate and SR stands for

Standard rate.

6. The following are the details for P Ltd for the month of Jan 2023.

The Standard labour hours required for manufacture of one article of the
finished product and the rate per hour are as under:

Labour hours Rate per

Category of labour per unit labour hour
Skilled 10 100
Semi Skilled 7 50
Unskilled 12 20
The Actual production in a month was 100 articles.

The details of actual hours worked by the different labour categories and the
rate per labour hour are as under:

Category of Labour hours for Rate per labour

labour 100 units hour
Skilled 1020 110
Semi Skilled 690 55
Unskilled 1220 19
Calculate the following labour variances from the following data:

1. Labour rate variance

2. Labour efficiency variance
3. Labour cost variance

(LCV = 14330(A); LRV = 12430(A); LEV = 1900 (A)).

7. Using the following information, calculate labour cost, rate, efficiency

variances:
The budgeted labour force for producing product X is:
20 Semi – skilled workers @ 75 paise per hour for 50 hours.
10 Skilled workers @ Rs.1.25 per hour for 50 hours.
The actual labour force employed for producing X is:
22 Semi – skilled workers @ 80 paise per hour for 50 hours
8 skilled workers @ Rs. 1.20 per hour for 50 hours.

(LCV = 15(F); LRV = 35(A); LEV = 50(F))