After reading this chapter, you should be able to:
Understand standard costing: its meaning and definition
Learn the advantages and limitations of standard costing
Learn how to set standards and determinations
Learn how to revise standards
Standard costing is a technique to control costs. It aims at increasing efficiency in performance through setting up standards. Standard costing is also known as variance analysis. It studies variances between the standard and actual.
The Institute of Cost and Management Accountants (CIMA), London, defines standard cost as ‘a predetermined cost which is calculated from management's standards of efficient operations and the relevant necessary expenditure’.
Standard cost is the predetermined cost of manufacturing a single unit or a number of product units. It is the planned cost of a product.
The advantages of standard costing are as follows:
The limitations of standard costing are as follows:
Material variance can be analysed as follows:
The formulae for the aforementioned variances are as follows:
MCV = (standard quantity [SQ] × standard price [SP]) – (actual quantity [AQ] × actual price [AP])
MPV = AQ (standard rate [SR] – actual rate [AR])
MUV = SR (SQ – AQ)
MMV = SR (SQ – AQ) or (revised SQ [RSQ] – AQ)
MYV = SR (actual yield [AY] – standard yield [SY])
These variances can be defined as follows:
or
or
Here, actual usage = AQ of material (in units) used
Standard unit price = SP of material per unit
Actual unit price = AP of material per unit
or
If the standard is revised due to shortage of a particular type of material, MMV is calculated as follows:
or
If the standard is revised due to shortage of a particular type of material, MMV is calculated as follows:
or
Formula for yield variance in such a case is as follows:
Labour variances can be analysed as follows:
These variances are like material variances and can be defined as follows:
Total labour cost variance = labour rate of pay variance + total labour efficiency variance
TLEV = LEV + LITV
LEV can be split into
LMV = standard cost of standard composition (for actual time taken) – standard cost of actual composition (for actual time worked)
LMV = standard cost of revised standard composition (for actual time taken) – standard cost of actual composition (for actual time worked)
Wages revision variance = standard labour cost of actual output at original standard rate – standard labour cost of actual output at current standard rate
Overhead cost variance = actual output × standard overhead rate per unit – actual overhead cost
or
Overhead cost variance = standard hours for actual output × standard overhead rate per hour – actual overhead cost
Overhead cost variance can be classified as follows:
Variable overhead variance = actual output × standard variable overhead rate – actual variable overheads
or
Variable overhead variance = standard hours for actual output × standard variable overhead rate per hour – actual variable overheads
Some accountants also find out variable overhead efficiency variance just like LEV. Variable overhead efficiency variance can be calculated if information relating to actual time taken and time allowed is given. In such a case, variable overhead variance can be divided into two parts as follows:
or
Actual hours standard variable overhead rate per hour – actual variable overhead rate per hour)
Variable overhead expenditure variance is calculated in the same way as LRV.
or
Standard variable overhead rate per hour (standard hours for actual production – actual hours)
Variable overhead efficiency variance resembles LEV and is calculated like LEV.
Fixed overhead variance = actual output × standard fixed overhead rate per unit – actual fixed overheads or standard hours produced × standard fixed overhead rate per hour – actual fixed overheads
(Standard hours produced = time that should be taken for actual output, that is, standard time for actual output)
This variance is further analysed as follows:
Expenditure variance = budgeted fixed overhead – sactual fixed overheads
Expenditure variance = budgeted hours × standard fixed overhead rate per hour – actual fixed overheads
Volume variance = actual output × standard rate – budgeted fixed overheads or standard rate
or
Volume variance = standard rate per hour (standard hours produced – actual hours)
Capacity variance = standard rate (revised budgeted units – budgeted units)
or
Capacity variance = standard rate (revised budgeted hours – budgeted hours)
Calendar variance = increase or decrease in production due to more or less working dayss at the rate of budgeted capacit × standard rate per unit
Efficiency variance = standard per unit (actual production[in units] – standard production[in units])
or
Efficiency variance = standard rate per hour (SH produced – AH)
Here, standard production or hours refers to budgeted production or hours adjusted to increase or decrease production due to capacity or calendar variance.
The sales variances according to the profit method of calculating variances can be analysed as follows:
or
TMSV = actual quantity of sales × actual profit per unit – budgeted quantity of sales × budgeted profit per unit
SMnV = actual quantity of sales (actual selling price per unit – standard selling price per unit)
or
SMnV = standard profit per unit (actual quantity of sales – budgeted quantity of sales)
SMnV due to volume can be divided into two parts as follows:
It is calculated as follows:
SMV due to sales mixture = standard profit per unit (AQ of sales – standard proportion for actual sales)
or
SMnV due to sales mixture = standard profit revised standard profit
It is calculated as follows:
or
SVV arises due to one or more of the following reasons:
Sales volume variance can be divided into two parts as follows:
Sales mix variance = standard value of actual mix – standard value of revised standard mix
Sales quantity variance = standard selling price (revised standard sales quantity – budgeted sales quantity)
Illustration 1
From the data given, calculate MPV, MUV and MMV:
Consumption per 100 units of product
Solution:
MPV =AQ (SR – AR)
Material A: 50 (Rs 50 – Rs 50) = Nil
B: 40 (Rs 40 – Rs 45) = Rs 200 Adverse
Rs 200 (A)
MUV =SR (SQ – AQ)
Material A: 50 (40 – 50) = 500 (Adverse)
B: 40 (Rs 50 – Rs 40) = 400 (Favorable)
100 (A)
Then,
Material Mix variance = SR (RSQ – AQ)
Material A: 50 (36 – 50) = 700 Adverse
B: 40 (45 – 40) = 200 Favorable
500 (A)
Revised material usage variance = Standard Rate (SQ – RSQ)
Material A: 50 (40 – 36) = 200 Favorable
Material B: 40 (50 – 45) = 200 Favorable
400 (F)
MCV:
MCV = (SQ × SR) – (AQ × AR)
Material A: (40 × 50) – (50 × 50) = 500 (Adverse)
B: (50 × 40) – (40 × 45) = 200 (Favorable)
300 (A)
Illustration 2
A manufacturing concern, which has adopted standard costing, furnishes the following information:
Calculate (a) MUV, (b) MPV (c) MCV.
Solution:
SQ:
For 80–kg standard output,
SQ of material = 100 kg
SQ for 2,00,000 kg of finished products
Illustration 3
From the following particulars, compute (a) MCV, (b) MPV and (c) MUV:
Solution:
Illustration 4
From the following particulars, calculate (a) Total MCV, (b) MPV and (c) MUV:
Solution:
(b) MPV:
MPV = AQ (SR – AR)
Material A: 2,500 (Rs 2 – Rs 3) = 2,500 (A)
Material B: 800 (Rs 4 – Rs 6) = 1,600 (A)
Material C: 500 (Rs 6 – Rs 8) = 1,000 (A)
Total MPV = 5,100 (adverse)
(c) MUV:
MUV = SR (SQ – AQ)
Material A: Rs 2 (2,000 – 2,500) = 1,000 (A)
Material B: Rs 4 (1,000 – 800) = 800 (F)
Material C: Rs 6 (800 – 500) = 1,800 (F)
Total MUV = 1,600 (favourable)
Illustration 5
From the following information, find (a) price variance, (b) usage variance and (c) cost variance:
SQ of sunmica per table | 5 sqft |
SP per 5 sqft of sunmica | Rs 8.00 |
Actual production of tables | 2,000 |
Sunmica actually used | 4,500 sqft |
Solution: Actual purchase price of sunmica per square feet = Rs 6.00
Illustration 6
Standard mix for the production of X:
Material A: 50 tonnes at Rs 5 per tonne
Material B: 40 tonnes at Rs 15 per tonne
Actual mixture:
Material A: 100 tonnes at Rs 6 per tonne
Material B: 80 tonnes at Rs 7 per tonne
Calculate (a) MPV, (b) sub–usage variance and (c) mix variance.
Solution:
Material A = 100 (5 – 6) = 100 (A)
Material B = 80 (15 – 7) = 640 (F)
MPV = 540 F
Illustration 7
Standard mix of a product comprises the following:
X: 500 units at 15 paise per unit
Y: 1,000 units at 20 paise per unit
Z: 1,500 units at 25 paise per unit
Consumption was as follows:
X: 600 units at 30 paise per unit
Y: 800 units at 20 paise per unit
Z: 1,000 units at 15 paise per unit
Calculate material variance.
Solution:
Standard cost of standard materials:
X: 500 × Rs 0.15 = Rs 75
Y: 1000 × Rs 0.20 = Rs 200
Z:1500 × Rs 0.25 = Rs 375
3000 Rs 650
Actual cost of actual materials:
X: 600 × Rs 0.30 = 180
Y: 800 × Rs 0.20 = 160
Z: 1000 × Rs 0.15 = 150
2400 Rs 490
Revised quantity:
MPV = AQ (SP – AP)
X: 600 (0.15 – 0.30) = 600 (–0.15) = Rs 90 (Adverse)
Y: 800 (0.20 – 0.20) = Nil
C: 1000 (0.25 – 0.15) = 1000 (0.10) = Rs 100 (Favorable)
Rs 10 Favorable
X: 0.15 (500 – 600) = 0.15 (–100) = Rs 15 (A)
Y: 0.20 (1000 – 800) = 0.20 (200) = Rs 40 (F)
Z: 0.25 (1500 – 1000) = 0.25 (500) = Rs 125 (F)
Rs 150 Favorable
X: 0.15 (400 – 600) = 0.15 (–200) = Rs 30 (A)
Y : 0.20 (800 – 800) = 0.20 (0) = Nil
Z : 0.25 (1200 – 1000) = 0.25 (200) = Rs 50 (F)
Rs 20 Favorable
Illustration 8
Standard cost of a certain chemical mixture is as follows:
40% material A at Rs 40 per tonne
60% material B at Rs 30 per tonne
A standard loss of 10% is expected in production.
Actual cost of materials used:
90 tonnes of material A at a cost of Rs 42 per tonne
160 tonnes of material B at a cost of Rs 28 per tonne
Actual output is 230 tonnes.
Calculate material variances.
Solution:
Material A = 90 (Rs 40 – Rs 42) = Rs 180 (A)
Material B = 160 (Rs 30 – Rs 28) = Rs 320 (F)
Rs 140 (F)
Material A = Rs 40 (100/225 × 230 – 90) = Rs 489 (F)
Material B = Rs 30 (150/225 × 230 – 160) = Rs 200 (A)
Rs 289 (F)
= Rs 8,500 – Rs 8,400
= Rs 100 (F)
Illustration 9
The standard cost of a chemical mixture is as follows:
8 tonnes of material A at Rs 40 per tonne
12 tonnes of material B at Rs 60 per tonne
Standard yield is 90% of input.
Actual cost for a period is as follows:
10 tonnes of material A at Rs 30 per tonne
20 tonnes of material B at Rs 68 per tonne
Actual yield is 26.5 tonnes. Calculate all material variances.
Solution:
Illustration 10
The standard material cost for 100 kg of chemical D comprises
Chemical A: 30 kg at Rs 4 per kg
Chemical B: 40 kg at Rs 5 per kg
Chemical C: 80 kg at Rs 6 per kg
In a batch, 500 kg of chemical D were produced from a mix of
Chemical A: 140 kg at a cost of Rs 588
Chemical B: 220 kg at a cost of Rs 1,056
Chemical C: 440 kg at a cost of Rs 2,860
How do the yield, mix and the price factor contribute to the variance in the actual per 100 kg of chemical D over the standard cost?
Solution:
In chemical D of 500 kg, the chemical A is 140 kg.
Per 100 kg of chemical D, the required quantity is
MCA = (SQ × SP) – (AQ × AP)
Chemical A = (30 × Rs 4) – (28 × Rs 4.20) = Rs 2.40 (F)
Chemical B = (40 × Rs 5) – (44 × Rs 4.80) = Rs 11.20 (A)
Chemical C = (80 × Rs 6) – (88 × Rs 6.50) = Rs 92.00 (A)
Total MCA = Rs 100.80 (A)
MPV = AQ (SP – AP)
Chemical A = 28 (4 – 4.20) = Rs 5.60 (A)
Chemical B = 44 (5 – 4.80) = Rs 8.80 (F)
Chemical C = 88 (6 – 6.50) = Rs 44.00 (A)
Total MPV = Rs 40.80 (A)
MUV = SP (SQ – AQ)
Chemical A: 4 (30 – 28) = Rs 8 (F)
Chemical B: 5 (40 – 44) = Rs 20 (A)
Chemical C: 6 (80 – 88) = Rs 48 (A)
Total MUV = Rs 60 (A)
MMV = SP (RSQ – AQ)
The actual quantity is 160 kg, which is to be apportioned in the standard proportion, that is, 30:40:80.
Illustration
A limited company produces an article by blending two basic raw materials. It operates a standard costing system and the following standards have been set for new materials:
Material | Standard mix | SP per kilogram |
A | 40% | Rs 5.00 |
B | 60% | Rs 8.00 |
The standard loss in processing is 20%. During April 1994, the company produced 2,000 kg of finished output. The position of stocks and purchases for the month of April 1994 is as follows:
Material stock on 1 April 1994 (kg) Stock on 30 April 1994 (in kilogram) purchased during April 1994 Cost RS
Illustration 11
Calculate the following variances:
Finished output is 2,000 kg. Standard loss in processing is 20%.
For an input of 2,500 kg, standard cost will be as follows:
Actual cost:
= 5 (2,000 – 1,700) = 1,500
Illustration 12
The standard cost of a certain drug is 40% of material A at Rs 20 per pound. 60% of material B is Rs 30 per pound. Standard loss expected in production is 10%. In a certain period, 90 lb of material A at Rs 18 per pound and 110 lb of material B at Rs 34 per pound were used. Good production realized was 182 lb. Calculate the different material variances
Solution:
4. MYV = average SP (actual loss on actual output – standard loss on standard output)
Illustration 13
The standard cost of a chemical mixture is as follows:
8 tonnes of material A at Rs 40 per tonne
12 tonnes of material B at Rs 60 per tonne
Standard yield is 90% of input.
Actual cost for a period is as follows:
10 tonnes of material A at Rs 30 per tonne
20 tonnes of material B at Rs 68 per tonne
Actual yield is 26.5 tonnes.
Calculate all material variances.
Solution:
Illustration 14
With the help of following information, calculate
Standard hours = 50 at Rs 5 per hour
Actual hours = 60 at Rs 6 per hour
Illustration 15 Using the following information, calculate labour variances:
Gross direct wages = Rs 3,000
Standard hours produced = 1,600
Standard rate per hours = Rs 1.50
Actual hours paid are 1,500 hours, out of which hours not worked (abnormal idle time) are 50 hours
Solution:
Illustration 16
A gang of workers usually consists of 10 men, 5 women and 5 boys in a factory. They are paid at standard hourly rates of Rs 1.25, Re 0.80 and Re 0.70, respectively. In a normal working week of 40 hours, the gang is expected to produce 1,000 units of output.
In a certain week, the gang consisted of 4 men and 3 boys. Actual wages were paid at the rates of Rs 1.20, Re 0.85 and Re 0.65, respectively. Two hours per work were lost due to abnormal idle time and 960 units of output were produced. Calculate various labour variances.
Solution:
Illustration 17 The following is information related to the manufacturing process of a company:
Number of employees = 200
Weekly hours worked = 50
Standard wage rate = Re 1 per hour
Standard output = 250 units per hour
During the first week of February, four employees were paid Re 0.50 per hour and two employees Re 0.60 per hour, whereas the rest were paid standard rates. Idle time was 1 hour per employee. Actual output was 10,500 articles. Calculate labour variances.
Solution:
Actual cost of labour:
Idle time is 1 hour per employee. So, actual hours = 10,000 – 200 = 9,800
Illustration 18
Find out different labour variances with the following information:
Standard | Actual | |
Output | 1,000 units | 1,200 units |
Rate of payment | Rs 6 per unit | Wages paid with a bonus of Rs 8,000 |
Time taken | 50 hours | 40 hours |
Standard hours for 1,200 units actually produced:
Illustration 19
Using the following information, calculate LCV, LRV, labour efficiency and idle time variance:
Standard hours: 6,000
Standard wage rate: Rs 5 per hour
Actual hours: 8,000
Actual wage rate: Rs 4 per hour
Time lost on account of breakdown of machinery = 300 hours
Solution:
Illustration 20 Standard labour hours and rate for the production of Article A are given:
Calculate (a) LCV, (b) LRV, (c) LMV and (d) LYV.
Solution:
Standard hours for actual production = actual units × ST
Skilled worker: 1,000 × 5 = 5,000 hours
Unskilled worker: 1,000 × 8 = 8,000 hours
Semi–skilled worker: 1,000 × 4 = 4,000 hours
LCV:
Skilled worker:(5,000 × Re 1.50) – (4,500 × Re 2)
= Rs 7,500 – Rs 9,000 = Rs 1,500 (A)
Unskilled worker: (8,000 × Re 0.50) – (1,000 × Re 0.45)
= 4,000 – 4,500
= Rs 500 (A)
Semi–skilled worker: (4,000 × Re 0.75) – (4,200 – Re 0.75)
= 3,000 – 3,150
= Rs 150 (A)
Skilled worker: 4,500 (1.50 – 2) = Rs 2,250 (A)
Semi–skilled worker: 4,200 (0.75 – 0.75) = nil
Unskilled worker: 1,000 (0.50 – 0.45) = Rs 50 (F)
Total LRV = Rs –2,200 (A)
LMV:
Skilled worker: 1.50 (5,500 – 4,500) = Rs 1,500 (F)
Unskilled worker: 0.50 (8,800 – 10,000) = Rs 600 (A)
Semi–skilled worker: 0.75 (4,400 – 4,200) = Rs 150 (F)
Total LMV = Rs 1,050 (F)
Skilled worker: 1.50 (5,000 – 5,500) = Rs 750 (A)
Unskilled worker: 0.50 (8,000 – 8,800) = Rs 400 (A)
Semi–skilled worker = 0.75 (4,000 – 4,400) = Rs 300 (A)
TLEV = Rs 1,450 (A)
Illustration 21
Tom Industries turns out only one article, the prime cost standards for which have been established as follows per completed piece
Material—5 lb at Rs 4.20 | Rs 21 |
Labour—3 hours at Rs 3 | Rs 9 |
The production schedule for July 2001 required the completion of 5,000 pieces. However, 5,120 pieces were actually completed. Purchases for the month of July 2001 amounted to 3,000 lb of material at the total invoice price of Rs 1,35,000. Production records for the month of July 2001 showed the following actual results:
Materials requisitioned and used = 25,700 lb
Direct labour: for 15,150 hours at Rs 48,480
Calculate appropriate material and labour variances.
Solution:
Overhead variance
Illustration 22
From the following data, calculate overhead variances:
Budgeted | Actual | |
Output | 15,000 units | 16,000 units |
Number of working days | 25 | 27 |
Fixed overheads | Rs 30,000 | Rs 30,500 |
Variable overheads | Rs 4,500 | Rs 47,000 |
There was an increase of 5% in capacity.
Solution:
Sales variance
Illustration 23
A company is operating a system of standard costing and closing its books quarterly. The budgeted overheads were Rs 2,55,000. The overhead rate was predetermined at Rs 5 per labour hour, and during a period the company actually utilized 52,000 labour hours, whereas it should have spent only 51,000 hours. The actual overheads gave a rate of Rs 4.9 per labour hour. How would you record the variances?
Solution:
Standard overheads per labour hour = Rs 5.1
Standard time for actual production = 51,000 hours
Standard overheads for actual output = 51,000 × 5.1 = Rs 2,60,100
Actual overheads per labour hour = Rs 4.9
Actual time taken = 52,000 labour hours
Actual overheads = 52,000 × 4.9 = Rs 2,54,800
Illustration 24
From the following particulars, calculate all sales variances according to (A) profit method and (B) value method:
Solution:
(A) Profit method
After reading this chapter, one is able to understand the importance of standard costing in fixing the cost of a product, the concept of having favourable and unfavourable variances, the significance of having favourable variances in cases where yield is the main factor and the difficulty in setting standards.
Note: SP = standard price
SQ = standard quantity
RSQ = revised standard quantity
AP = actual price
AQ = actual quantity
Column 2 is applicable only if there is a mixture of more than one raw material; otherwise, only the column 3 formula is enough, that is,
Note: RSQ = total AQ/total SQ × SQ for each item of material.
Note: Column 3 is not applicable if there is only one kind of product sold as follows:
BQ = budgeted quantity
BM = budgeted margin
RBQ = revised budgeted quantity
AQ = actual quantity
AM = actual margin
Note: AP = actual price
BP = budgeted price
Note:
SR = standard rate
SH = standard hours
AH = actual hours
AR = actual rate
RSH = revised standard hours
Column 2 is not applicable if there is no mix of more than one kind of labour as follows:
Note:
SR = standard rate
SH = standard hours
AR = actual rate
AH = actual hours
Note: RBH = revised budgeted hours
BH = budgeted hours
Objective-Type Questions
I. State whether the following statements are true or false
[Ans: 1—false, 2—false, 3—true, 4—false, 5—false, 6—false, 7—false, 8—true, 9—true, 10—true]
II. Choose the correct answer
[Ans: 1—(a), 2—(a), 3—(c), 4—(b), 5—(c), 6—(d), 7—(b), 8—(b), 9—(b), 10—(c)]
Raw material | Standard | Actual |
A | 40 units at Rs 50 per unit | 50 units at Rs 50 per units |
B | 60 units at Rs 40 per unit | 60 units at Rs 45 per unit |
(I.C.W.A)
[Ans: MPV = Rs 300 (A); MUV = Rs 500 (A); MMV = Rs 60 (A)]
[Ans: MCV = Rs 176 (A); MUV = Rs 80 (A); MPV = Rs 96
Standard: 10 kg at Rs 4 per kilogram
Actual: 12 kg at Rs 4.50 per kilogram
(B. Com., Madurai)
[Ans: MCV: Rs 14 (A); MUV: Rs 8 (A)]
[Ans: MCV = Rs 7,000 (adverse); MUV = Rs 3,000 (adverse); MPV = Rs 4,000 (adverse)]
Quantity (kg) | Rate per kilogram (Rs) | |
Material A | 8 | 6.00 |
Material B | 4 | 4.00 |
During April, 100 kg of GEMCO were produced. The actual consumption of material is as follows:
Quantity (kg) | Rate per kilogram (Rs) | |
Material A | 750 | 7.00 |
Material B | 500 | 8.00 |
Calculate (a) MCV, (b) MPV and (c) MUV.
(C.A. Inter)
[Ans: MPV = Rs 1,250 (A); MCV = Rs 1,350 (A); MUV = Rs 100 (A)]
Quantity of materials purchased | 3,000 units |
Value of materials purchased | Rs 14,000 |
SQ of material required per tonne of finished product | 20 units |
SP of material | Rs 5 per unit |
Opening stock of materials | 100 units |
Closing stock of materials | 600 units |
Finished product manufactured | 100 tonnes |
[Ans: MPV = Rs 800 (favourable); MUV = Rs 2,500 (adverse); MCV = Rs 1,700 (adverse)]
(1) MCV, (2) MUV, (3) MPV, (4) MMV and (5) material sub-usage variance
[Ans: MCV = Rs 12 (A); MPV = Rs 6 (F); MUV = Rs 18 (A); MMV = Rs 2 (A); MSUV = Rs 16 (A)]
Labour Variances
Standard hours: 40 at Rs 3 per hour
Actual hours: 50 at Rs 4 per hour
(B.Com., Calicut; B.Com., Madurai; B.Com., Rajasthan)
[Ans: LCV = Rs 80 (A); LRV = Rs 50 (A); LRV = Rs 30(A)]
Standard rate of wages per hour | Rs 10 |
Standard hours | 300 |
Actual rate of wages per hour | Rs 12 |
Actual hours | 200 |
[Ans: (i) Rs 600 (favourable); (ii) Rs 400 (adverse); (iii) Rs 1,000 (favourable)]
[Ans: LRV = Rs 180 (favourable)]
Standard | In a particular month | |
Number of workers employed | 600 | 550 |
Average wages per worker per month | Rs 250 | Rs 264 |
Number of working days in a month | 25 | 24 |
Output in units | 30,000 | 28,000 |
[Ans: LCV = Rs 5,200 (adverse); rate of pay variance = Rs 13,200 (adverse); efficiency variance = Rs 8,000 (favourable)]
Hint: Standard time for standard output of 30,000 units = 600 × 25 man days.
Standard time for actual output of
Re | |
Men | 0.80 |
Women | 0.60 |
Boys | 0.40 |
In a normal working week of 40 hours, the gang is expected to produce 2,000 units of output. During the week ending on 31 December 1997, the gang consisted of 40 men, 10 women and 5 boys. For these workers, the actual wages paid were Re 0.70, Re 0.65 and Re 0.30, respectively. Four hours per week were lost due to abnormal idle time and 1,600 units were produced. Calculate all labour variances.
[Ans: LCV = Rs 256 (A); LRV = Rs 160 (F); TLEV = Rs 416 (A); ITV = Rs 160 (A); LEV = Rs 256 (A); LMV = Rs 108 (A); LYV = Rs 148 (A)]
Standard labour rate | Rs 2 per hour |
Standard hours | 2 per unit |
Actual labour rate | Rs 2.25 per hour |
Actual units produced | 1,000 units |
Actual hours worked | 1,950 hours |
Calculate labour variances.
(B.Com.)
[Ans: LRV = Rs 487.50 (A); LEV = Rs 100.00 (F); LCV = Rs 387.50 (A)]
Standard rate of wages per hour = Rs 10
Standard hours | 300 |
Actual rate of wages per hour | Rs 12 |
Actual hours | 200 |
You are required to calculate (i) LCV, (ii) LRV and (iii) LEV.
(B. Com. Honours, Delhi)
[Ans: LCV = Rs 600 (F); LRV = Rs 400 (A); LEV = Rs 1,000 (F)]
Overhead Variances
Actual overhead | Rs 8,500 |
Output | 2,100 articles |
Idle time | 4 hours |
Calculate: (1) overhead cost variance, (2) overhead budget variance, (3) overhead efficiency variance and (4) idle time variance.
[Ans: OCV = Rs 100 (A); OEV = Rs 500 (A); OEV = Rs 560 (F); ITV = Rs 160 (A)]
Items | Budget | Actual |
Number of working days | 20 | 22 |
Manhours per day | 8,000 | 8,400 |
Output per manhour in units | 1.00 | 0.90 |
Overhead cost | 1,60,000 | 1,68,000 |
From the aforementioned data, calculate overhead variances such as (i) overhead cost variance, (ii) overhead efficiency variance, (iii) overhead capacity variance and (iv) overhead calendar variance.
(C.A.)
[Ans: (i) Rs 1,680 (A); (ii) Rs 18,480 (A); (iii) Rs 24,800 (F); (iv) Rs 16,000 (F)]
Standard | Actual | |
Fixed overheads (Rs) | 8,000 | 8,500 |
Variable overheads (Rs) | 12,000 | 11,200 |
Output in units | 4,000 | 3,800 |
[Ans: overhead cost variance = Rs 700 (adverse); variable overhead variance = Rs 200 (favourable); fixed overhead variance = Rs 900 (adverse); volume variance = Rs 400 (adverse); fixed overhead expenditure variance = Rs 500 (adverse)]
Standard | Actual | |
Number of working days | 25 | 27 |
Manhours per month | 5,000 | 5,400 |
Output in units | 500 | 525 |
Fixed overheads (Rs) | 2,500 | 2,400 |
Calculate fixed overhead variances for the month.
[Ans: total fixed overhead variance = Rs 225 (favourable); volume variance = Rs 125 (favourable); expense variance = Rs 100 (favourable); capacity variance = nil; calendar variance = Rs 200 (favourable); efficiency variance = Rs 75 (adverse)]
Budgeted overhead: Rs 2,000
Budgeted period: 4,000 labour hours
Standard per unit: 10 labour hours
Budgeted number of days: 20
Standard overhead per hour: Re 0.50
Actual number of days: 22
Actual hours: 4,300
Actual production: 425 units
Calculate (a) expenditure variance, (b) calendar variance, (c) capacity variance, (d) efficiency variance, (e) total overhead variance and (f) volume variance.
[Ans: expenditure variance = Rs 200 (F); calendar variance = Rs 200 (F); capacity variance = Rs 50 (A); efficiency variance = Rs 25 (A); volume variance = Rs 125 (F); total variance = Rs 325 (F)]
Sales variance
Actual sales:
P | 1,500 units for Rs 15,000 |
Q | 2,500 units for Rs 17,500 |
R | 3,500 units for Rs 21,000 |
(C.A. Final)
[Ans: SPV = Rs 2,000 (A); SVV = Rs 5,500 (F); SQV = Rs 12,500 (F); SMV = Rs 7,000 (A)]
(B.Com., Madurai)
[Ans: SVV = Rs 9,500 (F); SPV = Rs 1,000 (A); SVOV = Rs 10,500 (F)]
[Ans: (a) Rs 2,000 (unfavourable); (b) nil; and (c) Rs 7,600 (unfavourable)]
Calculate SPV and SVV.
[Ans: (a) Rs 27,000 (favourable); (b) Rs 18,000 (favourable); (c) Rs 8,666.67 (favourable)]
Budget | |
Sales—2,000 units at Rs 15 each | Rs 30,000 |
Cost of sales at Rs 12 each | Rs 24,000 |
Profit | Rs 6,000 |
Actual: | |
Sales—1,900 units at Rs 14 each | Rs 26,600 |
Cost of sales at Rs 10 each | Rs 19,000 |
Profit | Rs 7,600 |
(I.C.W.A.)
[Ans: Sales margin price variance = Rs 1,900 (F); sales margin quantity variance = Rs 300 (A); TSMV = Rs 1,600 (F)]
Calculate sales variances according to profit method.
[Ans: TSMV = Rs 5,050 (F); SMV due to selling price = Rs 4,800 (F);
SMV due to volume = Rs 250 (F); SMV due to ;
SMV due to sales quantity
3.142.252.191