Standard Costing … Feb 2020

Q1 Standard cost card of a unit of product MH is given below:

Materials Rs. 10
Labour 5
Overhead 15 ( 1/3 fixed)
30
Actual results;
Production 2,500 units
Material consumption was 10% more than standard quantity.
Actual material cost per kg Rs. 2.1 with total material cost Rs. 28,875
Labour efficiency ratio was 125%.
Actual labour cost was Rs. 11,000 @ Rs. 22 per hour
Actual variable overhead cost Rs. 24,780.
Actual fixed overhead cost Rs. 15,400.
Actual volume was 80% of the budget.
Required: Calculate material, labour and overhead variances Marks: 15

Q. 2 Standard Cost Sheet

The following data relate to actual output, costs and variances for the month
of September of a company that makes only one product. Opening and
closing work in progress figures were the same.

Actual production of product XY 18,000 units

Rupees in
thousand
Actual cost incurred:
Direct materials used (150,000 kgs) 210
Direct wages for 32,000 hours 136
Variable production overhead 38
Variances:
Direct material price 15 F
Direct material usage 9 A
Direct labour rate 8 A
Direct labour efficiency 16 F
Variable production overhead
Expenditure 6 A
Efficiency 4 F
F = Favourable A = Adverse
Required:
Present a standard product cost sheet for one unit of product XY Marks: 15

Q. 3 Faran International (ICMAP Nov. 2001)

Faran International uses standards costs and flexible budget for control purposes. The
following information is available for the period ended 31st October,20x1:
1 Standard and budgeted data:
i) The standard material allowed per unit is 4kgs @ Re. 0.75 per kg.
ii) Budgeted direct labour hours are 80,000 per month @ Rs. 1.90 per hour.
iii) Budgeted variable F.O.H. for the month is Rs. 96,000.
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 2 Wages incurred for the month were Rs. 163,800.
Variances
i) Direct labour rate Rs. 0.20 per hour (U.F.)
ii) Direct material price Rs. 9,000 (F) @ 0.05 per kg calculated on purchases.
iii) Direct material usage Rs. 1,500 (U.F.)
iv) F.O.H. - variable Rs. 2,200 (F)
v) F.O.H. - efficiency (variable) Rs. 2,400 (U.F.)

3 Actual production achieved 38,000 units. There were no beginning inventory of direct
materials, where as 26,000 kgs of stock was in hand at period end.

Required:
a) The quantity of direct material purchased.
b) The quantity of direct material used in excess of standard.
c) The variable F.O.H. expenditure variance.
d) The actual hours worked.
e) The standard time allowed for the production achieved. Marks: 15

Q4 The Delta Ltd., is a cement manufacturing company and sells a single product, ‘LLM’.
Aug The company operates standard costing system and furnished the following data:
2014 Normal Capacity (in machine hours) 13,040
Standard machine-hours allowed for units produced ?
Actual machine-hours worked 13,000
Rupees
Budgeted variable overhead per machine-hour 2
Budgeted fixed overhead (total) ?
Actual variable overhead cost 28,000
Actual Fixed overhead cost 66,000
Variable overhead cost applied to production* 25,400
Fixed overhead cost applied to production* ?
Variable overhead spending variance ?
Variable overhead efficiency variance 600 U
Fixed overhead budget variance 800 U
Fixed overhead volume variance ?
Variable portion of the predetermined overhead rate ?
Fixed portion of the predetermined overhead rate ?
Under applied (or over applied) overhead ?
*Based on standard machine-hours allowed for units produced.

Required:
Compute the missing figures by calculating necessary variances. 08

Q5 Ideal Comfort Industries produces a large range of king sized bed sheet cover set (KS).
Feb Overhead is applied to production on the basis of direct labour hours. During January
2017 2017, 1,000 bed sheet cover sets were manufactured and sold. Selected information for
the production of January is given below:

2
 Rupees
Total standard cost allowed for the month's production
Direct material 750,000
Direct labour 400,000
Variable manufacturing overhead 150,000

Standard overhead rate per direct labour hour 120

Standard price of one meter of material 250
Actual material costs incurred 700,000
Actual overhead costs incurred 144,000
Direct material quantity variance (50,000) Adv.
Difference between standard and actual cost per set 50 Fav.
Actual direct labour hours were recorded as 1,300
Required:
Calculate the following for the month of January 2017:
(a) Standard cost per set and actual cost per set 02
(b) Standard quantity (meters) of material required per bed sheet cover set 02
(c) Direct material total and price variances 03
(d) Standard direct labour rate per hour 02
(e) Direct labour rate, efficiency and total variances 07

Q7 Urban Wood Company manufactures `Wardrobes', which are uniquely designed and
Feb directly sold to the consumers. Standard cost of making one unit of Wardrobe is
2018 as follows:
Rupees
Direct materials (14 kg @ Rs. 350 per kg) 4,900
Direct labour (7 hours @ Rs. 315 per hour) 2,205
Variable overheads (7 hours @ Rs. 150 per hour) 1,050
Fixed overheads (7 hours @ Rs. 78 per hour) 546
Per unit standard cost 8,701
The standard selling price of a Wardrobe is Rs. 10,876 per unit. The monthly
budget projects production and sales of 1,100 units.
Actual figures for the month of January are as follows:
Sales (@ Rs. 11 ,100 per unit) (Units) 1,300
Production (Units) 1,500
Direct material (@ Rs. 460 per kg) (kg) 22,500
Direct labour (@ Rs. 395 per hour) (Hours) 10,200
Variable overheads (Rupees) 1,237,500
During the month, an amount of Rs. 703,500 has been reported as actual fixed overhead.

Required:
Calculate the following variances:
(a) Material price and usage variance 02
(b)Labour rate and efficiency variance 02
(c) Fixed overhead expenditure variance 01
(d) Volume efficiency and capacity variance 02
(e)Variable overhead efficiency and expenditure variance 02

3
Q8 Pakistan Applicators Company manufactures energy efficient dry wall rock wool boards
Sept for light gauge multistory buildings. For control purposes, a standard costing system was
2017 recently introduced and is now in operation.
The budgeted and actual data for the month of June were as follows:
Budgeted Data Actual Data
Production and sales (Units) 20,000 19,250
Selling price (Rs. per Unit) 1,680 1,659
Material-X 6 kg per unit Used 123,200 kg of material
at Rs 1470 per kg total cost Rs. 18,849,600
Material-Y 3 kg per unit Used 52,938 kg of material
at Rs38.40 per kg total cost Rs. 1,994,685
Labour 45 hours per unit Paid @ Rs. 103.8 per hour
at Rs 100.80 per hour total cost of Rs. 9,191,490
Fixed overhead (Rupees) 1,296,000 1,452,600
Required:
(a) Prepare a budgeted profit statement, and a profit statement based on actual figures
for the month of June. 06
(b)Calculate material price variance, material usage variance, labour rate variance, labour
efficiency variance, overhead expenditure variance, and sales margin price and volume
variances. Also reconcile the actual with the budgeted profit/ loss figure. 09
(c) Explain briefly the possible reasons for interrelationships between material and labour
variances. 02

Q9 Dary Fresh Ltd,. Produces and sells various dairy products. One of its major and famous
Aug products is chocolate milk which is supplied in large quantities all over the country. The
2015 company operates standard costin system and analysis of variabnces is made every
month. The standard cost card for the chocolate milk is as follows:

Standard material input (litres per bottles) 2

Standard price per litre of milk (Rs) 90
Standard labour rate per hour (Rs) 180
Time allowed to produce on bottle (minutes) 20
Fixed production overhead absorption rate is 150% of direct labour cost. Following data
has been extracted for the month of July 2015:

Actual purchase price per litre of milk 87.85

Total direct labour cost 120,000
Actual fixed production overhead cost 140,000

Milk is ordered when needed, therefore, no opening or closing inventories of milk are
maintained.

Following variance have been reported during the month of July 2015:

Direct material price variance 9,000 F

Material usage variance 7,500 A
Labour rate variance 6,000 A
Labour efficiency variance 5,040 F
Fixed production overhead expenditrue variance 6,800 A
4
 Required Calcuate the following:
1 Budgeted output in bottles 2
2 Litres of milk purchased 1
3 Litres of milk used above the standard allowed. 1
4 Actual hours worked 2
5 Average actual direct labour rate per hour. 1
6 Actual bottles produced 2

Q9 You have recently been appointed as the Financial Controller of Watool Limited. Your
ICAP immediate task is to prepare a presentation on the company’s performance for the recently
Spring concluded year. You have noticed that the records related to cost of production have not
2010 been maintained properly. However, while scrutinizing the files you have come across
certain details prepared by your predecessor which are as follows:

(i) Annual production was 50,000 units which is equal to the designed capacity of the plant.

(ii) The standard cost per unit of finished product is as follows:

Raw material X 6 kg at Rs. 50 per kg
Raw material Y 3 kg at Rs. 30 per kg
Labour- skilled 1.5 hours at Rs. 150 per hour
Labour- unskilled 2 hours at Rs. 100 per hour
Factory overheads Variable overheads per hour are Rs. 100 for skilled labour and
Rs. 80 for unskilled labour. Fixed overheads are Rs. 4,000,000.

(iii) Data related to variation in cost of materials is as under:

Material X price variance Rs. 95,000 (Adverse)
Material Y actual price 6% below the standard price
Material X quantity variance Nil
Material Y quantity variance Rs. 150,000 (Adverse)

(iv) Opening raw material inventories comprised of 25 days of standard consumption

whereas closing inventories comprised of 20 days of standard consumption.

(v) Actual labour rate for skilled and unskilled workers was 10% and 5% higher
respectively.

(vi) Actual hours worked by the workers were 168,000 and the ratio of skilled and unskilled
labour hours was 3:4 respectively.

(vii) Actual variable overheads during the year amounted to Rs. 16,680,000. Fixed
overheads were 6% more than the budgeted amount.

Required:
(a) Actual purchases of each type of raw materials.
(b) Labour and overhead variances. Marks: 20

5
Q 10 Texa Limited uses a standard costing system. The following profit statement summarizes
ICAP the performance of the company for August 2008:
Autumn Rupees Rupees
2008 Budgeted profit 3,500
Favorable variance:
Material price 16,000
Labour efficiency 11,040 27,040
Adverse variance:
Fixed overheads (16,000)
Material usage (6,000)
Labour rate (7,520) (29,520)
Actual profit 1,020

The following information is also available:

Standard material price per unit (Rs.) 4.00
Actual material price per unit (Rs.) 3.90
Standard wage rate per hour (Rs.) 6.00
Standard wage hours per unit 10.00
Actual wages (Rs.) 308,480
Actual fixed overheads (Rs.) 316,000
Fixed overheads absorption rate 100% of direct wages
Required:
Calculate the following from the given data:
(a) Budgeted output in units
(b) Actual number of units purchased
(c) Actual units produced
(d) Actual hours worked
(e) Actual wage rate per hour Marks: 15
(b) State any two possible causes of favourable material price variance, unfavourable
material quantity variance, favourable labour efficiency variance and unfavourable labour
rate variance. Marks: 4

Q 11 Hexa Limited is a manufacturer of various machine parts. Following information has been
ICAP extracted from the cost records of one of its products AXE for the month of June 2014:
Sept (i) Standard cost per unit:
2014 Rupees
Raw material 170.00
Direct labour (1.25 hours) 150.00
Overheads 137.50

(ii) Based on normal capacity of 128,000 direct labour hours, fixed overheads are estimated
at Rs. 2,560,000.
(iii) Following information pertains to production of 100,000 units of product AXE:
Actual direct labour hours worked 130,000
Unfavorable material usage variance Rs. 820,000
Unfavorable material price variance Rs. 600,000
Actual direct labour cost Rs. 16,250,000
Actual fixed and variable overheads Rs. 15,500,000
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 Required:
Compute the following for the month of June 2014:
(a) Actual material cost (02)
(b) Labour variances (04)
(c) Overhead variances, using four variance method (10)

Q 12 Jack and Jill (JJ) manufactures various products. The following information pertains to one
ICAP of its main products:
Sept (i) Standard cost card per unit Rupees
2015 Direct material (5 kg at Rs. 40 per kg) 200
Direct labour (1.5 hours at Rs. 80 per hour) 120
Factory overheads 130% of direct labour

(ii) Fixed overheads are budgeted at Rs. 3 million based on normal capacity of 75,000
direct labour hours per month.

(iii) Actual data for the month of June 2015

Units
Opening work in process (80% converted) 8,000
Started during the month 50,000
Transferred to finished goods 48,000
Closing work in process (60% converted) 7,000
Rupees
Material issued to production at: Rs. 38 per kg 1,900,000
Rs. 42 per kg 8,400,000
Direct labour at Rs. 84 per hour 6,048,000
Variable factory overheads 6,350,000
Fixed factory overheads 2,850,000

(iv) Materials are added at the beginning of the process. Conversion costs are incurred
evenly throughout the process. Losses up to 3% of the input are considered as normal.
However, losses are determined at the time of inspection which takes place when units
are 90% complete.

(v) JJ uses FIFO method for inventory valuation.

Required:
(a) Compute equivalent production units (05)
(b) Calculate the following variances for the month of June 2015:
Material rate and usage (03)
Labour rate and efficiency (03)
Variable factory overhead expenditure and efficiency (04)
Fixed factory overhead expenditure and volume (04)

Q 13 Ayub Sports Limited produces boxing gloves which are in great demand in the local as well
ICAP as international market. Because of better quality and lesser competition in the market, the
Spring company’s profit has approximately doubled in 2007. A summary of company’s expenses
2008 and profit for the year 2006 and 2007 are as under:
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 2007 2006
Rupees Rupees
Materials consumed 140,000 100,000
Wages 120,000 80,000
Overheads – Fixed 32,000 30,000
Overheads – Variable 34,000 24,000
Net profit 20,500 10,000

In 2007, sales prices were increased by 10% as compared to 2006. The material prices and
rate of wages increased by 10% and 20% respectively in 2007.

In a meeting held to evaluate the performance of various departments, significant

differences arose among the departmental heads. Therefore the Managing Director of the
company asked the CFO to analyse the financial performance objectively.

Required:
Being the CFO of the company carry out an analysis to determine the increase/decrease in
profit in 2007, due to sales price, sales volume, material price, material consumption, labour
efficiency, labour rate, variable overheads and fixed overheads. Marks: 17

Q 14 Genuine Motors is an authorized dealer for a foreign-made automobile. Old cars traded in with
Sept new models are resold by the company. In addition, Genuine Motors purchases used cars that
2013 are not more than two years old models from the employees of large domestic automobile
manufacturing plant located in the area, for resale to the general public as used vehicles.
A report showing the actual contribution margin earned in 2012 compared with the budgeted
amount of Genuine Motors is summarized below:
Budgeted Actual
New Cars Used Cars New Cars Used Cars
Sales –No. of cars 200 300 190 320
Rs. in million
Sales 600.0 720.0 562.4 761.6
Cost of goods sold 480.0 600.0 467.4 640.0
Contribution margin 120.0 120.0 95.0 121.6
The cost of goods sold consists of variable costs only since this is a retail business.
Mr. Ahmed, President of the company, has concerned about the declining profitability of the
business and his initial reaction to the contribution margin report was: “Something has been
wrong because I have been following sales closely and I knew we were selling more cars than
expected when the budget was prepared. How can our contribution margin possibly be reduced
by Rs. 23.4 million from the budgeted amount?”
Required:
Calculate the following variances for the firm’s 2012 financial performance for new cars, used
cars and total cars:
(a) Selling price variances. 02
(b) Sales volume variances. 03
(c) Sales mix variances. 03
(d) Cost of goods sold variances (variable cost variances). 02
(e) Calculate total variances showing that the sum of variances as computed in requirements
(a to d) is equal to the contribution margin variance for the year 2012. 03
8
 Q 15 Philite Ltd. Manufatures two electrical products namely; Energy savers and LED bulbs. Unit
Feb cost comprises direct material, direct labour, variable overheads and fixed production
2016 overhead. The company uses standard absorption costing system to control and report upon
the production of its products. The following data relating to the products is available from the
cost records of the company:

Budget Actual
Enery Savers LED Bulbs Enery Savers LED Bulbs
Units produced & sold 1,008 792 726 1,615
Revenue (Rs) 20,160 31,680 14,520 64,600
Cost (Rs) 15,120 29,304 10,890 59,755
Profit (Rs) 5,040 2,376 3,630 4,845
Profit (Rs per unit) 5.00 3.00 5.00 3.00

The company's management is able to change the sales mix ratio by deploying more sales
staff, advertisements and offering discount packages to attract the customers.

Required:
a) Calculatethe following vairances for Philite Ltd.
1 Sales mix variance 4
2 Sales quantity variance 3
3 Sales volume variances 2
b) comment on the likely reasons for the variances 3

Q 16 Faizan Publishers sells books in three different forms, i.e. print copy, soft copy and online
April copy. Budgeted details of sales for the month of March 2019 were as follows:
2019 Print Copy Soft Copy Online Copy
Selling price (Rs. per copy) 1,200 300 230
Variable cost (Rs. per copy) (1,000) (50) (10)
Contribution margin (Rs. per copy) 200 250 220
Budgeted units sold 5,500 4,500 2,500

Budgeting in Faizan Publishers is an annual exercise. Specifically, in early December

of each year, detailed budgets for the following year (analysed by month) are prepared.
Following sales variance analysis report (contribution base) was received by the Sales
Manager for the month of March 2019:
Rupees
Sales price variance Nil
Sales volume variance - Print copy 260,000 Favourable
- Soft copy 750,000 Unfavourable
- Online copy 132,000 Favourable

The Product Development Manager, who is responsible for updating the database on
which the products are based, has an annual budget of Rs. 1,800,000 for this purpose
(to be spent in equal monthly instalments). However, he has so far spent only 60% of the
budgeted monthly amounts. He points out that his only formal budgetary obligation is not
to spend more than the maximum amounts, and argues that the fact that two out of three
9
 sales volume variances are favourable, indicates that his under-spending has not
adversely affected sales of the books.
Required:
(a)Calculate actual sales units for each product. 03
(b)Prepare following variance analysis for each product:
(i) Sales mix variance 04
(ii) Sales quantity variance 04
(iii) Fixed overhead spending variance (product development) 01
(c)Explain the underlying reasons of unlikely results of total sales mix and quantity variance. 02
Hint: Use contribution margin approach to calculate variances.

Reconciliation

Q. 1 ASK Corporation (ICMAP May. 2001)

Ask Corporation operates a standard costing system. The standard out put for the year ended
31st December,2002 was 50,000 units and the standard cost and profit per unit were as under:
Rs.
Direct materials ( 4 units @ Rs. 2.00 ) 8.00
Direct labour ( 2 hours @ Rs. 3.00) 6.00
Direct expenses 2.00
Factory overheads"
Variable 1.00
Fixed 1.20
Administrative overheads 0.90
19.10
Profit 3.90
Sales price 23.00

The actual production and sales for the year were 36,000 units. The following variances were
calculated at the end of the year.
Favorable Unfavorable
Direct materials : Price 10,625
Direct materials : Usage 2,625
Direct labours : Rate 1,000
Direct labours : Efficiency 8,000
FOH : Variable expenses 1,000
FOH : Fixed expenses 1,000
FOH : Fixed volume 4,200
Admn OH : Expenses 1,000
Admn OH : Volume 4,200
Required:
a) Ascertain the details of actual costs and prepare a Profit and Loss Statement for the
year ended December 31, 2000.
b) Reconcile the actual profit with standard profit. (Answer: Actual NP Rs. 132,000 )

10
Q. 2 Disposal of Variances ( ICMAP Dec. 2003 )
The policy of a company is to dispose of the variances as adjustment to cost of goods
sold and inventories.
Income statement of the company for the year ended 31-12-2002 is given below:
Rs. Rs.
Sales 520,000
Cost of goods sold (at standard)
Material purchsed 200,000
Less: ending inventory 40,000
Material used 160,000
Direct labour 100,000
Factory overhead 200,000
Manufacturing cost 460,000
Less: work in process 160,000
Cost of goods manufactured 300,000
Less: Finished goods inventory 60,000
Cost of goods sold 240,000
Gross profit 280,000
Less: Marketing expenses 120,000
Administrative expenses 60,000 180,000
Operating income 100,000

Unfavourable variances are as under: Rs.

Material purchase price variance 12,000
Labour efficiency variance 6,000
Factory overhead controllable variance 7,200
Factory overhead volume variance 12,000
Required:
(i) Schedule of allocation of variances allocated to inventories and cost of goods sold.
Marks : 6
(ii) Comparative statement of ( standar / actual ) cost of goods sold showing adjustments
to inventories Marks : 8
(iii) Income statement on actual basis. Marks : 2
(iv) Reconciliation between standard and actual operating income. Marks : 2

Q3 ABC Limited produces and markets a single product. The company operates a standard costing
system. The standard cost card for the product is as under:

Sale price Rs. 600 per unit

Direct material 2.5 kg per unit at Rs. 50 per kg
Direct labour 2.0 hours per unit at Rs. 100 per hour
Variable overheads Rs. 25 per direct labour hour
Fixed overheads Rs. 10 per unit
Budgeted production 500,000 units per month

The company maintains finished goods inventory at 25,000 units throughout the year. Actual
results for the month of August 2010 were as under:

11
 Rupees in ‘000
Sales 480,000 units 295,000
Direct material 950,000 kgs 55,000
Direct labour 990,000 hours 105,000
Variable overheads 26,000
Fixed overheads 5,100

Required:
Reconcile budgeted profit with actual profit using the relevant variances (2 variances each
for sale, raw material and labour and 4 variances for overheads). (18 marks)

Q4 Navina & Nagina Co., manufactures ‘Jeans Pants’, "High-bottom". The entire product is sold
Feb as soon as it is produced. There are no opening and closing inventories and work-in-process
2014 is negligible. The standard contribution margin per unit for the product is as follows:
Rupees
Sales price 2,000
Direct materials:
Fabric (3 sq. meter @ Rs. 200 per sq.m) 600
Accessories (4 sets @ Rs. 50 per set) 200
Direct labour (1 hour @ Rs. 360 per hour) 360
Variable production (1 hour @ Rs. 40/hour) 40
Contribution margin 800
Budgeted volume (units/ month) 125,000

Actual results for January 2014:

Sales (118,750 units) 240,000
Direct materials purchased and used:
Fabric (360,000 Sq. Meter) 75,000
Accessories (500,000 Set) 30,000
Direct labour* (120,000 hours) 45,000
Variable production overhead 6,000
Contribution Margin 84,000
*Include idle time (3,000 hours)
Required:
Complete the operating statement for January 2014.

Q5 ‘ S’ Limited manufactures one standard product and operates a system of variance

Y
Feb accounting using a fixed budget. As a Management Accountant, you are responsible for
2013 preparing the monthly operating statements. Data from the budget, standard product
cost and actual data for the month ended December 31, 2012 are given below:

Budgeted and standard cost data:

Budgeted sales and production for the month 10,000 units
Standard cost for each unit of product:
Direct material: X: 10 kgs at Re. 1 per kg
Y: 5 kgs at Rs. 5 per kg
Direct labour 5 hours at Rs. 3 per hour
Fixed production overhead is absorbed at 200% of direct labour.
Budgeted sales price has been calculated to earn a profit of 20% of sales price.
12
 Actual data for the month ended December 31, 2012:
Production and sales 9,500 units
Sales price remained 10% higher than the budgeted sales price.
Direct material consumed: X: 96,000 kgs at Rs. 1.2 per kg
Y: 48,000 kgs at Rs. 4.7 per kg
Direct labour 46,000 hours at Rs. 3.2 per hour
Fixed production overhead incurred Rs. 290,000
Required:
Prepare the operating statement for the month ended December 31, 2012 to show the
(i) budgeted and actual profit (ii) variances for direct materials (iii) direct wages and
(iv) overhead variance. 10

Q6 Star Limited is a small manufacturing company, dealing in plastic toys for many years. The
May firm uses a standard cost system to assist in controlling its manufacturing costs. Assume you
2014 are working as an Assistant Manager and responsible for preparing the monthly operating
statements. Data for the month ended on December 31 is given below:
Budgeted and Standard Cost Data
Budgeted sales and production for the month 20,000 units
Standard cost for each unit of product:
Direct material: Alpha: 20 Kg at Rs. 5 per kg
Beta: 10 Kg at Rs. 10 per kg
Direct wages 6 hours at Rs. 50 per hour
Fixed production overhead is absorbed at 300% of direct wages
Budgeted sales price has been calculated to give a profit of 30% of sales

Actual data for the month ended December 31

Production (units sold at a price of 19,000 Units
10% higher than the budgeted)

Direct materials consumed:

Alpha: 400,000 Kgs at Rs. 6 per kg
Beta: 200,000 Kgs at Rs. 11 per kg
Direct wages incurred 110,000 hours at Rs. 60 per hour
Fixed production overhead incurred (Rs.) 15,000,000
Required:
You are required to prepare operating statement for the month ended December 31 showing:
(i) Actual profit. 06
(ii) Variances for direct materials, direct wages, overheads, and sales. 06
(iii) Reconciliation of actual and budgeted profit. 02

Q7 TMM Limited produces and sells single product. Master budget of the company is as under:
Nov Rs '000'
2013 Sales (28,000 cartons @ Rs. 11,500/ carton) 322,000
Cost of goods sold:
Materials (1,600 tonnes @ Rs. 140,000) 224,000
Direct labour (2,000,000 hours @ Rs. 31.50) 63,000
Variable factory overhead (7.5% of material cost ) 16,800
Fixed factory overhead 8,200
312,000
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 Gross profit 10,000
Administrative and marketing expenses:
Variable (2% of sales revenue ) 6,440
Fixed 560
7,000
Budgeted operating income 3,000
Data for the year's actual sales and cost are:
Rupees
Actual production 42,000 cartons
Sales (35,000 cartons @ Rs. 11,500/ carton) 402,500
Materials (2,300 tonnes @ Rs. 148,500) 341,550
Direct labour (3,000,000 hours @ Rs. 32) 96,000
Variable factory overhead 25,000
Fixed factory overhead 8,200
Administrative and marketing expenses:
Variable 8,050
Fixed 450

Required:
Prepare a columnar report showing operating income for using the methods of:
(a) Flexible budget. 04
(b) Standard direct costing. 04
(c) Absorption costing. 04

Q8 XYZ Limited has provided you with the following budgeted and actual data for the year
ended 30 September 2015:
Budget Actual
Production and sales Units 12,000 13,000

Rs. '000' Rs. '000'

Sale 36,000 40,300
Rs. 21,600,000 23,210,000 21,600 23,210
Labour 5,760 6,365
Overheads
Fixed 3,000 2,800
Variable 3,240 3,549

The CFO has analysed the variation between the budgeted and actual figures and
ascertained the following reasons:
Sales price increased by 10%
The cost of material decreased by 5% below the standard price.
The wages increased by 2% above the standard rate.
The company’s policy is to absorb overheads at a predetermined rate per labour hour.

Required:
Prepare a statement reconciling the budgeted profit and the actual profit and for the
purpose thereof, calculate all possible and relevant variances for sales, material,
labour and overheads.
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Mix and Yield Variances

Q. 1 Copper and Zinc (ICMAP May. 2000)

A foundry mixes 6 kgs of Copper and 4 kgs of Zinc to produce 9.55 kg of brass. Standard
and actual costs for a period show the following data:
i) STANDARD
Copper 30,000 kgs
Zinc 20,000 kgs
Price:
Copper Rs. 32.00 per kg
Zinc Rs. 24.00 per kg

Output Brass 47,750 Kgs

ii) ACTUAL
Copper 24,000 kgs
Zinc 21,000 kgs
Price:
Copper Rs. 34.00 per kg
Zinc Rs. 20.00 per kg

Output Brass 42,000 Kgs

Required:
Calculate the following
1 Price variance Marks : 4
2 Usage Variance Marks : 4
3 Mix Variance Marks : 4
4 Yield Variance Marks : 4

Q2 The production engineering staff of Skyline Company Limited, has set the following
ICAP standard mix for the production of one unit of Product X:
Spring
2007 Weight Rate Per Kg Amount
(Kg) (Rs.) (Rs.)
Material A 0.50 10.00 5.00
Material B 0.30 5.00 1.50
Material C 0.20 2.00 0.40
1.00 6.90
Standard loss (10%) (0.10)
0.90 6.90

Actual costs incurred on the production of 927,000 units were as follows:

Weight Rate Per Kg
(Kg) (Rs.)
Material A 530,000 10
Material B 280,000 5
Material C 190,000 2

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 Required:
(a) Calculate the mix and yield variances. Marks: 6
(b) Reconcile actual material costs with the standard costs. Marks: 5

Q3 (a) State some uses and applications of standard cost. 03

Nov (b) Al-Noor (Pvt.) Limited uses standard cost system. The standard cost card for one of its
2013 product shows the following material standards:
Rupees
Material Kilogram Cost/ Kg. Amount
Alpha 40 400 16,000
Beta 45 500 22,500
Gama 40 600 24,000
125 500 62,500
Evaporation (20%) (25)
100 625 62,500

Material used for recent production run of 100 kilograms output are:
Material Kilogram Cost/ Kg.
Alpha 45 390
Beta 40 550
Gama 45 550
Required:
Calculate the following:
(i) Material price variance. 02
(ii) Material mix variance. 04
(iii) Material yield variance. 03
(iv) Total material variance. 01

Q. 4 Chemical A and B (ICAP March 2002)

In a manufacturing deptt. 1 kg of product K requires two chemicals A and B. The following
are the details of product K for the month of January 2002.
a) Standard mix of chemical A is 50% and chemical B is 50%.
b) Standard price per kg of chemical A is Rs. 60 and chemical B is Rs. 75.
c) Actual input of chemical B is 350 kgs.
d) Actual price of chemical A is Rs. 75.
e) Standard normal loss is 10% of total input.
f) Material cost variance Rs. 3,250 adverse.
g) Material yield variance Rs. 675 adverse.
h) Actual output 450 kgs.
Required:
i) Material mix variance Marks: 6
ii) Material usage variance Marks: 3
iii) Material price variance Marks: 6
(Answer: Mix 1425A )

Q. 5 Product XD-20
The standard cost card of producing 1kg of product XD-20 is given below:

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 Grams Cost
Material A 300 510
Material B 500 150
Material C 400 240
1,200 900

During January 2004, 3100 kgs of product XD-20 were produced and following material
cost was incurred:

Closing
Purchases Opening stock Stock
Kgs Rs. '000' Kgs Rate Kgs
Material A 950 1,558 15 1,600 30
Material B 1,600 512 100 300 120
Material C 1,200 732 200 600 180
3,750 2,802 315 330

FIFO method was used for material costing.

Required:
Calculate material price, mix and yield variances

Q. 6 Crumbly Cakes make cakes, which are sold directly to the public. The new production
manager (a celebrity chef) has argued that the business should use only organic
ingredients in its cake production. Organic ingredients are more expensive but should
produce a product with an improved flavour and give health benefits for the customers.
It was hoped that this would stimulate demand and enable an immediate price increase
for the cakes.

Crumbly Cakes operates a responsibility based standard costing system which allocates
variances to specific individuals. The individual managers are paid a bonus only when
net favourable variances are allocated to them.
The new organic cake production approach was adopted at the start of March 2017,
following a decision by the new production manager. No change was made at that time
to the standard costs card.

The variance reports for February and March are shown below
Manager responsible Allocated variances

February March
Production manager Variance Variance
Material price (total for all ingredients) 2,500 Fav 210,000 Adv
Material mix 0 60,000 Adv
Material yield 2,000 Fav 40,000 Fav
Sales manager
Sales price 4,000 Adv 700,000 Fav
Sales contribution volume 3,500 Adv 300,000 Fav
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The production manager is upset that he seems to have lost all hope of a bonus under
the new system. The sales manager thinks the new organic cakes are excellent and
is very pleased with the progress made.

In April 2017 the following data applied:

Standard cost card for one cake (not adjusted for the organic ingredient change)

Ingredients Kg Rs
Flour 0.1 12 per kg
Eggs 0.1 70 per kg
Butter 0.1 170 per kg
Sugar 0.1 50 per kg

Normal loss (10%) Standard sales price of a cake Rs 85

Standard GP per cake after all costs Rs 35
The budget for production and sales in April was 50,000 cakes. Actual production
and sales was 60,000 cakes in the month, during which the following occurred:

Ingredients Kgs Rs
Flour 5,700 74,100
Eggs 6,600 561,000
Butter 6,600 1,188,000
Sugar 4,578 274,700
Total input 23,478 2,097,800

Actual sales price of a cake Rs. 99

Required:
Calculate the material price, mix and yield variances and the sales price and sales
profit volume variances for April. You are also required to make comment on the
performance of the manager.

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