UNIT ‐ 6
MODULE ‐ 10
STANDARD COSTING
PRACTICAL PROBLEMS
MATERIAL VARIANCE
Problem – 1:
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:
(1) Standard quantity For 70 kg standard output
Standard quantity of material = 100 kg.
2,10,000 kg. of finished products
2,10,000 x 100 = 3,00,000 kg.
70
(2) Actual price per kg. Rs.2,52,000 = Re.0.90
2,80,000
(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(Standard price ‐Actual
price)
2,80,000 (Re.1 – Re.0.90)
2,80,000 x Re.0.10
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 x Rs. 2,52,000
Rs.48,000(favorable)
Verification:
MCV = MPV + MUV
Rs. 48,000 (F) = Rs.28,000 (F) + Rs.20,000 (F)
Problem – 2
The standard mix to produce one unit of product is as follows:
Material A 60 units @ Rs. 15 per unit = Rs. 9,00
Material B 80 units @ Rs. 20 per unit = Rs. 1,600
Material C 100 units @ Rs. 25 per unit = Rs. 2,500
240 units Rs. 5,000
During the month of April, 10 units were actually produced and consumption was
as follows:
Material A 640 units @ Rs. 17.50 per unit = Rs. 11,200
Material B 950 units @ Rs. 18.00 per unit = Rs. 17,100
Material C 870 units @ Rs. 27.50 per unit =Rs. 23,925
2,460 units Rs. 52,225
Calculate all material variances.
Solution:‐
Material Standard for 10 units Actual for 10 units
Qty Rate Amt. Rs. Qty Rate Amt. Rs.
A 600 15 9,000 640 17.50 11,200
B 800 20 16,000 950 18.00 17,100
C 1,000 25 25,000 870 27.50 23,925
Total 2,400 50,000 2,460 52,225
(1) Material Cost Variance = Standard cost – Actual cost
=Rs. 50,000 – Rs.52,225
MCV = Rs.2,225(A)
(2) Material Price Variance =(St. Price – Actual Price) x Actual Qty
Material A = (15‐ 17.50) x 640 = Rs. 1,600 (A)
Material B = (20 – 18 ) x 950 = Rs. 1,900 (F)
Material C = (25 – 27.50) x 870 = Rs. 2,175 (A)
MPV = Rs.1,875 (A)
(3) Material Usage Variance = (St. Qty – Actual Qty.) x St. Price
Material A = (600 – 640) x 15 = Rs. 600(A)
Material B = (800‐ 950) x 20 = Rs.3,000 (A)
Material C = (1,000 – 870 ) x 25 = Rs. 3,250 (F)
MUV = Rs.350 (A)
Check:
MCV = MPV + MUV
Rs. 2,225 (A) = Rs. 1,875 (A) + Rs.350 (A)
(4) Material Mix Variance = (Revised St. Qty – Actual Qty.) x St. Price
Material A = (615* ‐ 640) x 15 = Rs.375 (A)
Material B =(820* ‐ 950) x 20 = Rs. 2,600 (A)
Material C = ( 1,025* ‐ 870) x 25 = Rs. 3,875 (F)
MMV = Rs. 900(F)
*Revised Standard Quantity is calculated as follows:
Material A = 2460 x 600 = 615 Units
2400
Material B = 2460 x 800 = 820 Units
2400
Material C = 2460 x 1,000 = 1,025 Units
2400
(5) Material Yield Variance = (Actual yield – Standard yield) x St.
output price
= (10 ‐10.25 ) x 5000 = Rs. 1,250 (A)
Check
MCV = MPV + MMV + MYV
Rs. 2,225 (A) = Rs. 1,875 (A) + 900 (F) + Rs.1,250 (A)
Problem : 3
For making 10 kg. of yarn, the standard material requirement is:
Material Quantity (kg.) Rate per kg. (Rs.)
White 8 6.00
Black 4 4.00
In March, 1,000 kg. of yarn was produced. The actual consumption of
materials is as under:
Material Quantity (kg.) Rate per kg. (Rs.)
White 750 7.00
Black 500 5.00
Calculate: (1) MCV (2) MPV (3) MUV
Solution:
Standard for 1000 kgs. Actual for 1000 kgs.
Particular
Quantity Rate Amount Quantity Rate Amount
A 800 6 4,800 750 7 5,250
B 400 4 1,600 500 5 2,500
Total 1,200 6,400 1,250 7,750
(1) MCV: SC ‐ AC
= 6,400 ‐ 7,750 = Rs. 1,350 (A)
(2) MPV: (SP ‐ AP) x AQ
A = (6 ‐ 7) x 750 = Rs. 750 (A)
B = (4 ‐5) x 500 = Rs. 500 (A)
= 1,250(A)
(3) MUV: (SQ ‐ AQ) x SP
A = (800 ‐ 750) x 6 = Rs. 300 (F)
B = (400 ‐ 500) x 4 = Rs. 400 (A)
= Rs. 100 (A)
Labour Variance:
Problem‐4
Calculate Labour cost variance from the information:
Standard production : 100 units
Standard Hours : 500 hours
Wage rate per hour : Rs. 2
Actual production : 85 units
Actual time taken : 450 hours
Actual wage rate paid : Rs. 2.10 per hour
Solution:
Standard time for one unit = 500 hours ÷ 100 units = 5 hours
Standard hours for actual production 85 units = 85 x 5 = 425 hours
Labour cost Variance = (Std. Hours of Actual Production x Std. Rate) ‐‐‐
(Actual Hours x Actual Rate)
= (425 Hours x Rs. 2) ‐‐‐ (450 Hours x Rs. 2.10)
= ( Rs .850 ‐‐ Rs. 945)
= RS. 95 (U)
Problem – 5
Standard wage rate is Rs. 2 per hour and standard time is 10 hours. But actual
wage rate is Rs. 2.25 per hour and actual hours used are 12 hours.
Calculate Labour cost variance.
Solution:
Labour cost variance = (Std. Rate x Std. Hours) ‐‐‐ (Actual Rate x Actual Hours)
=(Rs. 2 x 10 ) – (Rs. 2.25 x 12)
= Rs. 20 – Rs. 27
=Rs. ‐‐‐ 7 (U)
Here labour variance is adverse because actual labour cost exceeds standard cost
by Rs. 7
Problem – 6
Standard labour hours and rate for production of one unit of Article P is given
below:
Per Unit Hour Rate per Hour Total (Rs.)
Skilled worker 5 1.50 7.50
Unskilled worker 8 0.50 4.00
Semi‐ skilled 4 0.75 3.00
worker
Actual Data Rate per Hour Total (Rs.)
Articles produced
1,000 units
Skilled worker 2.00 9,000
4,500 hour
Unskilled worker 0.45 4,500
10,000 hour
Semi‐ skilled 0.75 3,150
worker 4,200 hour
Calculate Labour cost variance.
Solution:
Labour cost variance = (SH for actual production x SR) ‐‐‐ (AH x AR)
Skilled worker = (5,000 x 1.50) ‐‐‐ (4,500 x 2 )
= 7,500 – 9,000
= Rs. 1,500 (Adverse)
Unskilled worker = (8,000 x 0.50) ‐‐‐ (10,000 x 0.45)
= 4,000 ‐‐‐ 4,500
= Rs. 500 (Adverse)
Semi‐ skilled worker = (4,000 x 0.75) ‐‐‐ (4,200 x 0.75)
= 3,000 ‐‐‐ 3,150
= Rs. 150 (Adverse)
Total Labour cost variance = Rs. 2,150(Adverse)
Problem – 7
India Ltd. Manufactures a particular product, the standard direct labour cost
of which is Rs. 120 per unit whose manufacture involves the following:
Type of workers Hours Rate (Rs.) Amount (Rs.)
A 30 2 60
B 20 3 60
50 120
During a period, 100 units of the product were produced, the actual labour
cost of which was as follows:
Type of workers Hours Rate (Rs.) Amount (Rs.)
A 3,200 1.50 4,800
B 1,900 4.00 7,600
5,100 12,400
Calculate: (1) Labour cost variance (2) Labour Rate variance (3) Labour
Efficiency variance (4) Labour mix variance.
Solution:
Standard for 100 units Actual for 100 units
Type of Worker
Hours Rate Amount Hours Rate Amount
A 3,000 2 6,000 3,200 1.50 4,800
B 2,000 3 6,000 1,900 4.00 7,600
Total 5,000 12,000 5,100 12,400
(1) LCV: SC ‐AC
LCV = 12,000 ‐ 12,400 = Rs. 400 (A)
(2) LRV: (SR ‐ AR) x AH
A = (2 ‐ 1.50) x 3,200 = Rs. 1,600 (F)
B = (3 ‐ 4) x 1,900 = Rs. 1,900 (A)
= Rs. 300 (A)
(3) LEV: (SH ‐ AH) x SR
A = (3,000 ‐ 3,200) x 2 = Rs. 400 (A)
B = (2,000 ‐ 1,900) x 3 = Rs. 300 (F)
= Rs. 100 (A)
(4) LMV: (RSH ‐ AH) x SR
A = (3,060 ‐ 3,200) x 2 = Rs. 280 (A)
B = (2,040 ‐ 1,900) x 3 = Rs. 420 (F)
= Rs. 140 (F)
Working: Revised standard Hours:
RSH = St. hours of the type x Total actual hours / Total St. hours
A = 3,000 x 5,100 / 5,000 = 3,060 hrs.
B = 2,000 x 5,100 / 5,000 = 2,040 hrs.
Overhead Variance:
Problem – 8
MLM Ltd. has furnished you the following information for the month of
January:
Budget Actual
Outputs (units) 30,000 32,500
Hours 30,000 33,000
Fixed overhead 45,000 50,000
Variable overhead 60,000 68,000
Working days 25 26
Calculate overhead variances.
Solution:
Necessary calculations
Standard hour per unit = Budgeted hours = 30,000
Budgeted units 30,000
Standard hour for actual output = 32,500 units x 1 hour = 32,500
Standard overhead rate per hour = Budgeted overheads
Budgeted hours
For fixed overhead = 45,000 = Rs. 1.50 per unit
30,000
For variable overhead = 60,000 = Rs. 2 per unit
30,000
Standard fixed overhead rate per day = Rs. 45,000 ÷ 25 days = Rs. 1,800
Recovered overhead = Standard hours for actual output x Standard Rate
For fixed overhead = 32,500 hours x Rs. 1.50 = Rs. 48,750
For variable overhead = 32,500 hours x Rs. 2 = Rs. 65,000
Standard overhead =Actual hours x Standard Rate
For fixed overhead =33,000 x 1.50 =Rs. 49,500
For variable overhead =33,000 x 2 = Rs. 66,000
Revised budgeted hours = Budgeted Hours x Actual days
Budgeted Days
30,000 x 26 = 31,200 hours
25
Revised budgeted overhead = 31,200 x 1.50 = Rs. 46,800
Calculation of Variances
Fixed Overhead Variances:
• Fixed Overhead Cost Variance = Recovered Overhead – Actual Overhead
= 48,750 – 50,000 =Rs. 1,250 (A)
• Fixed Overhead Expenditure Variance = Budgeted Overhead – Actual
Overhead
=45,000 – 50,000 =Rs. 5,000 (A)
• Fixed Overhead Volume Variance = Recovered Overhead – Budgeted
Overhead
= 48,750 – 45,000 =Rs. 3,750 (F)
• Fixed Overhead Efficiency Variance = Recovered Overhead – Standard
Overhead
= 48,750 – 49,500 = Rs. 750 (A)
• Fixed Overhead Capacity Variance = Standard Overhead – Revised
Budgeted Overhead
= 49,500 – 46,800 =Rs. 2,700 (F)
• Calendar Variance =(Actual days – Budgeted days) x
Standard rate per day=
(26—25) x 1,800 =Rs. 1,800 (F)
Variable Overhead Variances:
• Variable Overhead Cost Variance = Recovered Overhead – Actual
Overhead
= 65,000 – 68,000 = Rs. 3,000 (A)
• Variable Overhead Expenditure Variance = Standard Overhead – Actual
Overhead
= 66,000 – 68,000 =Rs. 2,000(A)
• Variable Overhead Efficiency Variance = Recovered Overhead – Actual
Overhead = 65,000 ‐‐ 66,000 = Rs. 1,000 (A)
