Revisionary Questions – MAC – Sem II

Material Variance
Problem
A manufacturing concern, which has adopted standard costing, furnished the following
information:
Standard Material for 70 kg finished product: 100 kg.
Price of materials: Re. 1 per kg.
Actual Output: 2, 10,000 kg.
Material used: 2, 80,000 kg.
Cost of material: Rs. 2, 52,000.
Calculate:
(a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance
Solution
Verification:
MCV = MPV + MUV OR Rs. 48,000 (F) = Rs.28, 000 (F) + Rs.20, 000 (F)

(1) Standard quantity of Material Used For 70 kg standard output = 100 kg.
For 2, 10,000 kg. of finished products standard Material usage = 210,000 X 100 / 70 =
300,000 kgs

(2) Actual price per kg. Rs.2,52,000 / 280,000 = Re.0.90

(a) Material Usage Variance = Standard Rate (Standard quantity for actual output – Actual
quantity)
=Re. 1 (3,00,000 –2,80,000) = Re. 1 x 20,000 =Rs. 20,000 (favorable)

(b) Material Price Variance =Actual quantity X (Standard price ‐ Actual price)
2,80,000 (Re1 –Re0.90) = 2,80,000 x Re0.10 = Rs. 28,000 (Favorable)

(c) Material Cost Variance = (Standard quantity for actual output x Standard rate) – (Actual
quantity x Actual rate) =(3,00,000 x 1) – (2,80,000 x 0.90) = Rs.3,00,000 - Rs. 2,52,000 =
Rs.48,000(favorable)
2. From the following information's find out:
a. P/V Ratio
b. Sales
c. Margin of Safety

Fixed Cost = Rs 40, 000

Profit = Rs. 20,000
Break Even Sales = Rs. 80,000
Solution:
a. P/V Ratio.
We know that S – V = Contribution = F + P OR S(S – V)/S = Fixed Cost + Profit
At Break Even Point, Fixed Cost = Contribution / Sales X 100
OR PV Ratio = FC / Sales X 100 to arrive at the %
OR, PV Ratio = 40,000 / 80,000 = 1 / 2 = 50%

b. Sales.
We know that Sales X P/V Ratio = Contribution = FC + Profit
OR Sales = Contribution/PV Ratio
So, Contribution = (40,000 + 20,000) = Rs 60,000
Sales = Rs 60,000 / PV Ratio = 60,000 / 50% = Rs 1, 20,000

c. Margin of Safety
Margin of Safety = Sales – Break Even Sales
So, MOS = 1, 20,000 – 80,000 = Rs.40, 000
Q3
Bansi company manufactures a single product having a marginal cost of Rs. 1.50 per unit.
Fixed cost is Rs. 30,000 per annum. The market is such that up to 40,000 units can be
sold at a price of Rs. 3.00 per unit, but any additional sale must be made at Rs. 2.00 per
unit. Company has a planned profit of Rs. 50,000. How many units must be made and
sold?
Solution:
Note: Marginal Cost = Variable Cost
a. Contribution desired = Fixed cost + Desired Profit
= Rs 30,000 + 50,000 = Rs 80,000

b. Calculation of contribution by producing 40,000 units.

Contribution per unit = Selling price – Marginal cost or VC
= 3.00 – 1.50 = 1.50

c. Contribution for producing 40,000 units.

= 1.50 x 40,000 units = Rs 60, 000

d. Additional units to be produced and sold at Rs. 2.00 per unit after 40,000 units. From
the additional units the contribution desired = Total Desired Contbn – Contbn already
earned upto 40,000 units. Which is =Rs 80, 000 – Rs 60, 000 = Rs20, 000
e. Units to be produced for contribution of Rs. 20, 000 after change in price.
Contribution per unit = Rs. 2.00 – Rs. 1.50= Rs. 0.50
f. Additional units to be produced for contribution of Rs. 20, 000.
= 20, 000 / 0.50 = 40, 000 units.
Total units to be produced to earn planned profit = 40, 000 + 40, 000 = 80, 000 units.
Q4
A company has a machine No. 9 which can produce either product A or B. The cost data
relating to machine A and B are as follows:
Particulars Product A Product B
Selling price Rs. 20.00 Rs. 30.00
Variable expenses Rs. 14.00 Rs. 18.00
Contribution Rs. 6.00 Rs. 12.00
Sol to Q 4

Statement showing contribution per hour for machine No. 9

Particulars Product A Product B
Sales 20.00 30.00
Variable expenses 14.00 18.00
Contribution per unit 6 12
Contribution per hour 18.00 12.00

Since, the contribution per hour is higher in Product A, the Machine should be used to
produce Product A
 Q5
Meet & company Ltd. has three divisions each of which makes a different product. The
budgeted data for the next year is as follows:

Division A / Rs B / Rs C / Rs
Sales 1,12,000 56,000 84,000
Direct Material 14,000 7,000 14,000
Direct Labour 5,600 7,000 22,000
Variable OHs 14,000 7,000 28,000
Fixed Cost 28,000 14,000 28,000

The management is considering closing down division C as there is no possibility of

reducing the variable costs. In the even to division C being closed down the fixed costs
will be distributed between divisions A and B equally and their sales will increase by
30% each.

Should division C be closed down?

 Sol Q 5

Divisions A B C Total
Sales 112,000 56,000 84,000 252,000
Variable Cost 33,600 21,000 64,000 118,600
Contribution 78,400 35,000 20,000 133,400
Fixed Cost 28,000 14,000 28,000 70,000
Profit 50,400 21,000 (8,000) 63,400
If Division C is closed down
Sales 145,600 72,800 218,400
Variable Cost - % of sales 30.0% 37.5%
Variable Cost 43,680 27,300 70,980
Contribution 101,920 45,500 147,420
Fixed Cost 28,000 14,000 42,000
Additional FC on C's closure 14,000 14,000 28,000
Total Fixed Cost 42,000 28,000 70,000
Profit 59,920 17,500 77,420
Although division C is giving a positive contribution, but since the total profit will increase by
the closure of division C the Co should close it.