Professional Documents
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Standard Costing
Theory
ANALYSIS OF VARIANCE
1. For Material Cost Variance
M1 – Actual Cost of Material Used
M2 – Standard Cost of Material Used
M3 – Standard Cost of Material, if it had been used in Standard Proportion
Material Price Variance =M1 – M2
Material Mix Variance = M2 – M3
Material Yield Variance = M3 – M4
Material Cost Variance = M1 – M4
Material Usage or Volume Variance = M2 – M4
2. For Direct Wage Variances
L1 – Actual payment made to workers for actual hours worked.
L2 – Payment involved, if the worker had been paid at standard rate.
L3 – Payment involved, if the workers had been used according to the proportion of standard gang
and the payment had been made at standard rate.
L4 – Standard labour cost of labour hours utilized. (This step will have value when there is difference
between hours available and hours utilized.)
L5 – Standard labour cost output achieved.
Wage Rate Variance = L1 – L2
Wage Gang Variance = L2 – L3
Wage Idle Time Variance = L3 – L4
Wage Yield Variance = L4 – L5
Wage Cost Variance = L1 – L5
Wage Efficiency Variance = L2 – L5
3. For Variable Overhead Variances
VO1 – Actual Variable Overhead
VO2 – Actual hours worked at standard variable overhead rate.
VO3 – Standard Variable overhead for the production
Variable Overhead Expenditure Variance = VO1 – VO2
Variable Overhead Efficiency Variance = VO2 – VO3
Variable Overhead Variance = VO1 – VO3
4. For Fixed Overhead Variance
FO1 – Actual Fixed Overhead Incurred.
FO2 – Budgeted fixed overhead for the period or standard fixed overhead allowance
FO3 – Fixed overhead for the days/hours available at standard rate during the period.
FO4 – Fixed overhead for actual hours worked at standard rate
FO5 – Standard fixed overhead for production.
Fixed overhead Expenditure variance = FO1 – FO2
Fixed overhead calendar Variance or fixed overhead Idle = FO2 – FO3
Time Variance
Fixed Overhead Capacity Variance = FO3 – FO4
Fixed Overhead Efficiency Variance = FO4 – FO5
Fixed Overhead or Cost Variance = FO1 – FO5
Fixed Overhead Volume Variance = FO2 – FO5
5. For Total Sales Margin Variance
SM1 – Actual sales margin on actual sales.
SM2 – Standard sales margin on actual sales.
SM3 – Standard sales margin, if the actual sales had been in the ratio of standard sales mix.
SM4 – Standard sales margin on standard sales mix or budgeted sales margin as per budget or
standard.
Sales Margin Price Variance =SM1 – SM2
Sales Margin Mix Variance = SM2 – SM3
Sales Margin Quantity Variance = SM3 – SM4
Total Sales Margin Variance = SM1 – SM4
Sales Margin Volume Variance = SM2 – SM4
6. For Total Sales Value Variance
SV1 – Actual sales value realized.
SV2 – Standard sales value of actual sales.
SV3 – Standard sales value of actual sales, if the sales had been in the ratio of standard sales mix.
SV4 – Standard sales value of sales as per standard or budget.
Sales Value Price Variance =SV1 – SV2
Sales Value Mix Variance = SV2 – SV3
Sales Value Quantity Variance = SV3 – SV4
Sales Value Variance = SV1 – SV4
Sales Value Volume Variance = SV2 – SV4
Practical Question
Q.1. The standard cost of a certain chemical mixture was:-
40% - Material A at Rs.200 per ton.
60% - Material B at Rs.300 per ton.
A standard loss of 10% is expected in production. During the period the following materials
were used:
90 tons material A at the cost of Rs.180 per ton.
110 tons material B at the cost of Rs.340 per ton.
The weight produced was 182 tons of good production.
Calculate –
1. Material price variance 3. Material mix variance
2. Material usage variance 4. Material yield variance.
Q.2. The standard material inputs required for 1000 kgs. of a finished product are given below:
Material Quantity (in kgs.) Standard rate per kg. (in Rs.)
P 450 20
Q 400 40
R 250 60
1100
Standard loss 100
Standard output
1000
Actual production in a period was 20000 kgs. of the finished product for which the actual quantities
of material used and the prices paid thereof are as under:
Material Quantity used (in kgs.) Purchase price per kg. (in Rs.)
P 10000 19
Q 8500 42
R 4500 65
Calculate the:
i. Material Cost Variance iv. Material Mix Variance
ii. Material Price Variance v. Material Yield Variance
iii. Material Usage Variance
Prepare a reconciliation among the Variance
Q.3. The following information has been extracted from the records of a chemical company:
Standard price : Raw Material A – Rs.2 per kg.
Raw Material B – Rs.10 per kg.
Standard Mix: A : 75% B : 25% (by weight)
In a period, the actual costs, usages and output were as follows:
Used : 2200 kgs. of A, Costing Rs.4650
800 kgs, of b, costing Rs.7850
Output : 2850 kgs. of products,
Calculate material cost variance.
Q.4. XYZ company manufactures a product ABC by mixing three raw materials. For every 100 kg. of ABC,
125 kg. of raw materials are used. In April 1990, there was an output of 5600 kg. of ABC. The standard
and actual particulars of April 1990 are as follows:
Raw Material Standard Actual
Mix, % Price per Mix % Price per kg. Rs.
kg.Rs.
Raw Material I 50 40 60 42
Raw Material II 30 20 20 16
Raw Material III 20 10 20 12
Calculate all variances.
Q.5. S.V. Ltd. manufactures BXE by mixing three raw materials. For every batch of 100 kgs. of BXE, 125
kgs of raw materials are used. In April, 1999, 60 batches were prepared to produced an output of
5.600 kgs. of BXE. The standard and actual particulars for April, 1999, are as follows:
Standard Actual Qty. of Raw
Material
Purchased.
Raw Material Mix % Price/kg. Rs. Mix % Price/kg Rs. Kg.
A 50 20 60 21 5000
B 30 10 20 8 2000
C 20 5 20 6 1200
Calculate all variances.
Q.6. S.V. Ltd. manufactures a simple product, the standard mix of which is:
Material A 60% at Rs.20 per kg.
Material B 40% at Rs.10 per kg.
Normal loss in production is 20% of input. Due to shortage of Material A, the standard mix was
changed. Actual results for March, 1989, were:
Material A 105 at Rs.20 per kg.
Material B 95 at Rs.9 per kg.
Input 200 kg.
Loss 35 kg.
Output 165 kg.
Calculate:
i. Material Price Variance
ii. Material Usage Variance
iii. Material Mix Variance
iv. Material Yield Variance
Q.7. The standard mix of product A 2 is as follows:
Kgs. Material Price per kg.(Rs.)
45 X 6.00
25 Y 4.50
30 Z 9.50
The standard loss in production is 10% of input. There is no scrap value. actual production for a
month was 7425 kgs. of A2 from mixes. Actual purchases and consumption of material during the
month were:
Kgs. Material Price per kg.(Rs.)
4200 X 6.50
1700 Y 4.25
2600 Z 9.75
You are required to calculate the following variances for presentation to the management;
i. Material Cost variance
ii. Material price variance
iii. Material mix variance
iv. Material yield variance.
Q.8. The standard labour complement and the actual labour complement engaged during the month are
given below:
Particulars Skilled Semi – Skilled Unskilled
a) Standard number of workers in a group 30 10 10
b) Standard wage rate (Rupees per hour) 5 3 2
c) Actual number of workers 24 15 12
d) Actual wage rate per hour (Rs.) 6 2.5 2
During the month of 200 working hours, the group produced 9600 standard hours of work.
Calculations showing wage rate variances, Labour efficiency variance, Labour mix Variance, and
Total labour cost Variance.
Q.9. The following details are available from the records of ABC Ltd. engaged in manufacturing article A
for the week ended 28th Feb.
The standard labour hours and rates of payment per article A were as follows:
Particulars Hours Rate per hour (Rs.) Total (Rs.)
Skilled labour 10 3 30
Semi – skilled labour 8 1.50 12
Unskilled labour 16 1 16
58
The actual production was 1000 articles A for which the actual hours worked and rates are given
below:
Q.11. A gang of workers normally consists of 30 men, 15 women and 10 boys. They are paid at standard
rates as under:
Men Re.0.80
Women Re.0.60
Boys Re.0.40
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of output. During
the week ended 31st March, 1993, the gang consisted of 40 men, 10 women and 5 boys. The actual
wages paid were at the rate of Re.0.70, Re.0.65 and Re.0.30 respectively. 4 hours were lost due to
abnormal idle time and 1,600 units were produced. Calculate:
i. Labour cost variance iv. Labour mix variance,
ii. Labour rate variance v. Labour idle time variance.
iii. Labour efficiency variance
Q.12. AB company Ltd. is having standard costing system in operation for quite some time. The following
data relating to the month of April, 1994, is available from the cost records:
Budgeted Actual
Output (in units) 30,000 32,500
Operating hours 30,000 33,000
Fixed Overheads (Rs.) 45,000 50,000
Variable overheads (Rs.) 60,000 68,000
Working Days 25 26
You are required to work out the relevant variances (on the basis of output).
Q.13. The following information was obtained from the records of a manufacturing unit using standard
costing system.
Standard Actual
Production 4,000 units 3,800 units
Working days 20 21
Fixed overhead Rs.40,000 Rs.39,000
Variable overhead 12,000 12,000
You are required to calculate the following overhead variance:
a. Variable overhead variance
b. Fixed overhead variances;
i. Expenditure variance iii. Efficiency variance
ii. Volume variance iv. Calendar variance
c. Also prepare a reconciliation for the standard fixed expenses worked out at Standard Fixed
overhead Rate and the Actual Fixed overhead.
Q.14. 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 Rs.1,44,000 per month. The standard time required to
manufacture one unit of product is 4 hours.
In April 1998, the company worked 24 days of 840 machine hours per day and produced 5,305 units
of output. The actual fixed overheads were Rs.1,42,000.
Compute:
i. Efficiency variance v. Volume variance
ii. Capacity variance vi. Total fixed overheads
iii. Calendar variance variance.
iv. Expenses variance
Q.15. S.V. Ltd. has furnished the following data:
Budget Actual, July (1999)
No. of working days 25 27
Production in units 20000 22000
Fixed overheads Rs.30000 Rs.31000
Budgeted fixed overhead rate is Re.1.00 per hour. In July 1999 the actual hours worked were 31,500.
Calculate the following variances:
i. Efficiency variance iv. Volume variance
ii. Capacity variance v. Expenditure variance
iii. Calendar variance vi. Total overhead variance.
Q.16. The following data has been collected from the cost records of a unit for computing the various fixed
overhead variances for a period:
No. of budgeted working days 25
Budgeted man-hours per day 6000
Output (budgeted) per an hour (in units) 1
Fixed overhead cost as budgeted Rs.1,50,000
Actual number of working days 27
Actual man hours per day 6,300
Actual output per man-hour (in units) 0.9
Actual fixed overhead incurred Rs.1,56,000
Calculate fixed overhead variances:
a. Expenditure variance d. Efficiency variance
b. Calendar variance e. Volume variance
c. Capacity variance f. Fixed cost variance.
Q.17. X Ltd. operates a budgetary control and standard costing system. From the following data calculate:
i. Sales variance iii. Sales price variance
ii. Sales volume variance
Budgeted Actual………….
Product Units to sold Sales value Units sold Sales Value (Rs.)
(Rs.)
A 100 1,200 100 1,100
B 50 600 50 600
C 100 900 200 1,700
D 75 450 50 300
325 3,150 400 3,700
Q.18. Budgeted and actual sales for the month of Dec.,1984, of two products A and B of Messers XY Ltd.
were as follows:
Budgeted sales Actual………….
Product Units Price/unit Rs. Units Price/unit Rs.
A 6,000 5.00 5,000 5.00
1,500 4.75
B 10,000 2.00 7,500 2.00
1,750 1.90
Budgeted costs for Product A and B were Rs.4.00 and Rs.1.50 per unit respectively. work out from the
above data the following variances:
i. Sales value variance iv. Sales mixture variance
ii. Sales volume variance v. Sales quantity variance
iii. Sales price variance
Q.19. PH Ltd. furnishes the following information relating to budgeted sales and actual sales for April,
1981;
Product Sales Quantity Selling Price
Units per unit
Budgeted Sales A 1,200 Rs.15.00
B 800 20.00
C 2,000 40.00
Actual Sales A 880 18.00
B 880 20.00
C 2,640 38.00
Calculate the following variances;
i. Sales quantity variance iii. Sales price variance
ii. Sales mix variance iv. Total sales variance
Q.20. SQC Ltd. provides the following data for the month of Oct. 1999;
Product Budget
Budgeted Budgeted Standard cost
Sales Quantity Selling price per unit (Rs.)
per unit (Rs.)
A 2,160 12 9
B 1,440 5 3
Product Actual
Actual Actual Actual cost per
Sales Quantity Selling price unit (Rs.)
per unit (Rs.)
A 2,240 11 8
B 960 6 5
You are required to compute:
i. Sales margin quantity iii. Sales margin volume
variance variance
ii. Sales margin mix variance iv. Sales margin price variance
v. Sales margin total variance
Q.21. A company uses standard costing system. The sale data for a period are as under:
Product Budgeted Sales Budgeted Annual Sales Actual Sales
Units Selling Unit Value
Price Per unit
A 1,280 Rs.20 Rs.650 Rs.12,350
B 3,200 12 3,900 50,700
C 1,920 16 1,950 29,250
The cost data are as under:
A B C
Standard Cost per unit Rs.16 10 12
Actual Cost per unit Rs.18 12 10
You are required to calculate the following for the period:
i. Gross margin Total Sales variance
ii. Gross margin sales Volume Variance
iii. Gross margin sales Mix variance
iv. Gross margin sales quantity variance
v. Sales price variance
vi. Total cost variance