standard costing with solutions

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STANDARD COSTING WITH SOLUTIONS
Question 1: Calculate Material Price Variance and Material Usage Variance:
Standard (1 FG)
Actual (1 FG)
Kg
Rate
Kg
Rate
Amount (`)
18,000
10
1,80,000
20,000
12
5,000
20
Amount (`
2,40,000
1,00,000
After analysing, it was found that out of 25,000 unit, 5,000 units were purchased as an emergency
order at higher rate @ ` 20.
Solution:
Material Price Variance = (S.P. – A.P.) × A.S.
= (10 – 12) × 20,000 + (10 – 12) × 5,000
= ` 50,000 (A)
Material Usage Variance = Excess price variance due to emergency order + (S.Q. – A.Q.) × S.P.
= (12 – 20) × 5,000 + (18,000 – 25,000) × 10
= ` 1,10,000 (A)
--------------------------------------------------------------------------------------------------------------------------------------Question 2: A manufacturing concern which has adopted standard costing furnishes following
information:
Standard Material for 70 kg of Finished Products 100 kg
Price of Materials
` 1 per Kg
Actual: Output
Materials used
Cost of materials
2,10,000 Kg
2,80,000 Kg
` 2,52,000
Calculate (a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance.
Solution:
Data for Material Variance (2,10,000 kg)
Standard (Output 2,10,000 kg)
Qty.
Rate
Amount (`)
3,00,000 kg
1
3,00,000
Actual (Output 2,10,000 kg)
Qty.
Rate
Amount (`)
2,80,000
0.90
2,52,000
Statement of Variance
Sl. No.
Particulars
1.
Material Usage Variance
2.
Material Price Variance
3.
Material Cost Variance
Basis
(Std.Qty. – A.Qty.) × S.P.
(3,00,000 – 2,80,000) × 1
(S.P. – A.P.) × A.S.
(1 – 0.90) × 2,80,000
(Material Usage + Material Price
Variance) i.e. SC–AC
Amount (`)
20,000 Favourable
28,000 Favourable
48,000 Favourable
--------------------------------------------------------------------------------------------------------------------------------------Question 3: From the data given below, calculate the material price variance, the materials usage variance and
material cost variance.
Consumption per 100 Units of Product
Raw material
A
B
Standard
40 units @ ` 50 per unit
50 units @ ` 50 per unit
60 units @ ` 40 per unit
60 unit @ `45 per unit
Solution:
Item
Actual
Data for Material Variances
Standard
Qty.
Rate
Actual
Amount
Item
Qty.
Rate
( `)
A
B
40
60
50
40
Amount
( `)
2,000
2,400
4,400
A
B
50
60
110
50
45
2,500
2,700
5,200
Statement of Variances
Sl. No.
1.
2.
Particulars
Material Price Variance
Material Usage Variance
Basis
(S.P. – A.P.) × A.Q.
A→ (50 – 50) × 50 = 0
B→ (40 – 45) × 60 = 300 Adverse
(S.Q – A.Q.) × S.R
A→ (40 – 50) × 50 = 500
B→ (60 – 60) × 40 = 0
Amount (`)
300 (Adverse)
500 (Adverse)
Material Cost Variance = Material Price Variance + Material Usage Variance
= 300 (A) + 500 (A)
= ` 800 (A)
OR
Material Cost Variance = Standard Cost – Actual Cost
= 4,400 – 5,200
= ` 800 (Adverse)
--------------------------------------------------------------------------------------------------------------------------------------Question 4: From the following information, compute (a) Cost Variance (b) Price and (c) Usage
Variance.
Standard
Actual
Quantity
Unit Price
Quantity
Unit Price
Total (`)
Total (`)
Material A
10
2
20
5
3
15
Material B
20
3
60
10
6
60
Material C
20
6
120
15
5
75
Total
50
4
200
30
5
150
Solution:
Data for Material Variance
Budgeted/Standard (1 FG)
Amount
Item
Actual (1 FG)
Qty.
Rate
( `)
A
B
C
10
20
20
2
3
6
Amount
( `)
20
60
120
A
B
C
200
5
10
15
3
6
5
15
60
75
30
150
Statement of Variance
Sl. No.
1.
2.
Particulars
Material Price Variance
Material Usage Variance
3.
Material Cost Variance
Basis
(S.R. – A.R.) × AQ
A→ (2 – 3) × 5 = 5 (A)
B→ (3 – 6) × 10 = 30 (A)
C→ (6 – 5) × 15 = 15 (F)
(S.Q. – A.S.) × S.R.
A→ (10 – 5) × 2 = 10 (F)
B→ (20 – 10) × 3 = 30 (F)
C→ (20 – 15) × 6 = 30 (F)
M.P.V. + M.U.V.
20 (A) + 70 (F)
Amount (`)
20 (A)
70 (F)
50 (F)
------------------------------------------------------------------------------------------------------------------------------------------------------Question 6: Vinak Ltd. produces an article by blending two basic raw materials. It operates a standard costing
system and the following standards have been set for raw materials:
Material
Standard Mix
Standard Price per kg
A
40%
`4.00
B
60%
` 3.00
The standard loss in processing is 15%. During April, 1980, the company produced 1,700 kg of finished output.
The position stock and purchases for the month of April, 1980 is as under:
Material Stock on 1.4.80 of kg
Stock on 30.4.80 kg
Purchased during April 1980
A
B
35
40
5
50
kg
Cost (`)
800
1,200
3,400
3,000
Calculate the following Variances:
(i) Material Price Variance (ii) Material Usage Variance (iii) Material Yield Variance (iv) Material Mix Variance (v)
Total Material Cost Variance.
Solution:
Data for Material Variances
Material
Budgeted
Standard
Standard
for Actual
Actual
Qty.
Rate
Amount
Qty.
Rate
( `)
A
B
40
60
100
4
3
160
180
340
Amount
Qty.
Rate
Amount
( `)
800
1200
2,000
4
3
3,200
3,600
6,800
( `)
808
1,212
830
1,190
2,020
4.2394
2.5168
3,518.75
2,995.00
6,513.75
Statement of Variance
Sl.
Particulars
No.
1. Material Price Variance
Basis
(S.P. – A.P.) × A.Q.
A: (4 – 4.2394) × 830 = 199 (A)
B: (3 – 2.5168) × 1190 = 575 (F)
2. Material Usage Variance (S.Q. – A.Q.) × S.R.
A: (800 – 830) × 4 = 120 (A)
B: (1,200 – 4,190) × 3 = 30 (F)
3. Material Yield Variance (Standard Ratio for total standard quantity – Standard ratio for
total actual
quantity) × S.R.
A: (800 – 808) × 4 = 32 (A)
B: (1,200 – 1,212) × 3 = 36 (F)
4. Material Mix Variance
(Standard Ratio for actual mix – Actual ratio for actual mix) ×
S.R.
A: (808 – 830) × 4 = 88 (A)
B: (1,212 – 1,190) × 3 = 66 (F)
5. Material Cost Variance Material price variance + Material Usage Variance
376 (F) + 90 (A)
Amount (`)
376 (F)
90 (A)
68 (A)
22 (A)
286 (F)
Actual price per kg.
Material A:` 35 × 4 + 795 × 4.25
35 + 795
= `3518.85 = ` 4.239
830
Material B:-
` 40 × 3 + 1150 × 2.5
40 + 1150
= ` 2995 = ` 2.5168
1190
------------------------------------------------------------------------------------------------------------------------------------------------------Question 7: Modern Tiles Ltd manufactures plastic tiles of standard size of 6˝ × 6˝ × 1/8˝. From the following
information, you are required to calculate following variances for direct materials:
I. The cost variance in total:
1. The cost variance sub-divided into (a) price (b) usage, and
2. The usage variance analysed to show (a) mixture (b) yield.
A standard mix of the compound 20,000 square feet required to produce an output of tiles of 1/8˝
thickness is as follows
Direct Materials
Qty. (kg)
Price (` per kg)
A
B
C
600
400
500
1
2
3
During December 1991, eight mixes were processed and actual materials consumed were as follows:
Direct Materials
Qty. (kg)
Price (` per kg)
A
5,000
2
B
2,900
4
C
4,400
5
Actual production for December was 6,20,000 tiles.
Solution:
Data for Material Variance
Materials
Budgeted (80,000)
Materials
Qty. Rate
A
B
C
600
400
500
1500
1
2
3
Standard (6,20,000)
(`)
Qty.
600
800
1,500
2900
4,650
3,100
3,875
Rate
1
2
3
(`)
4,650
6,200
11,625
22,475
S.Q. for
Act. Mix
Actual (6,20,000)
Qty.
Qty.
4,920
3,280
4,100
5,000
2,900
4,400
12,300
Rate
2
4
5
(`)
10,000
11,600
22,000
43,600
Statement of Variance
S.. No.
1.
2.
3.
4.
5.
Particulars
Material Price Variance
(M.P.V.)
Material Usage Variance
(M.U.V.)
Material Mix Variance
Material Yield Variance
Material Cost Variance
Basis
(S.R. – A.R.) × A.Q.
A→ (1 – 2) × 5000 = 5000(A)
B→ (2 – 4) × 2900 = 5800(A)
C→ (3 – 5) × 4400 = 8800(A)
(S.Q. – A.Q.) × S.P.
A→ (4650 – 5000) × 1 = 350(A)
B→ (3100 – 2900) × 2 = 400(F)
C→ (3875 – 4400) × 3 = 1575(A)
(S.Q. for actual mix – Actual Quantity) × S.P.
A→ (4920 – 5000) × 1 = 80(A)
B→ (3280 – 2900) × 2 = 760(F)
C→ (4100 – 4400) × 3 = 900(A)
(Standard quantity – Standard ratio for actual quantity) ×
S.P.
A→ (4650 – 4920) × 1 = 270(A)
B→ (3100 – 3280) × 2 = 360(A)
C→ (3875 – 4100) × 3 = 675(A)
M.P.V. – M.U.V.
19,600(A) + 1525(A)
Amount (`)
19,600 (A)
1,525 (A)
220 (A)
1,305 (A)
21,125 (A)
Working Notes:
Calculation of Budgeted No. of Tiles
NO. of Tiles= A/a = 20,000 Sq. Ft/6 X 6 sq. inch = 20,000 X12 X 12 sq. inch/36 X sq inch = 80,000
units.
--------------------------------------------------------------------------------------------------------------------------------------Question 8: From the data given below, calculate
Particulars
X
Y
Qty. (kg)
2,000 kg
2,150 kg
Raw material purchases
Issue to works
Works stock of material:
Opening
Closing
Value
—
Qty. (kg)
5,000
3,950
—
—
1,000
1,250
` 4,000
300 kg
200 kg
Value
` 6,250
—
—
—
Standard Price: Material X – ` 1.90 per kg, Material Y – ` 1.30 per kg.
Standard Usage:
Material X
Material Y
Product A
1 kg
1 kg
Product B
0.5 kg
1 kg
Output during the period:
Product A – 1,130 units, Product B – 2,550 units.
The following data is given
1. Calculate the individual material price variances for the two materials X and Y assuming that price
variances are calculated at the time of purchase.
2. Calculate the individual material usage variances for material X and Y assuming that there was no work
in progress either at the commencement or at the end of the period.
Solution:
Data for material variance
Budgeted/Standard
Raw Material Qty. (W.N. 1)
Rate
Amount (`)
X
Y
2,405
3,680
1.90
1.30
4,569.50
4,784.00
Qty. (W.N. 2)
Standard
Rate Amount (`)
2,250
3,700
2.00
1.25
4,500
4,625
Statement of Variances
Sl. No.
1.
2.
Particulars
Material Price Variance
Material Usage Variance
Basis
(S.R – A.R.) × A.Q. purchaser
Material X→ (1.90 – 2) × 2,000
Material Y→ (1.30 – 1.25) × 5,000
(S.Q – A.Q.) × S.R.
Material X→ (2,405 – 2,250) × 1.90
Material Y→ (3,680 – 3,700) × 1.30
Amount (`)
200 (A)
250 (F)
294.50 (F)
26 (A)
Working Notes:
1. Calculation of Standard Quantity of Raw Material Required
Material X: No. of products × Material required/unit of product
= (1,130 × 1) + (2,550 × 0.5)
= 1,130 + 1,275 = 2,405 kg
Material Y: (1,130 × 1) + (2,250 × 1) = 3,380 kg
2. Calculation of Actual Quantity Consumed
Material
Opening Stock at works
Issue to works by purchase department
X (kg)
300
2,150
Y (kg)
1,000
3,950
2,450
200
(–) Closing stock at works
4,950
1,250
Actual consumption
2,250
3,700
------------------------------------------------------------------------------------------------------------------------------------------Question 9: (Break up of Material Cost Variances when standard mix and actual usage are
given) ‘X’ Ltd is producing floor covers in roll of standard size measuring 3 m wide and 30 m long by
feeding raw materials to a continuous process machine. Standard mixture fixed for a batch of 900 sq.
m of floor cover is as follows:
2,000 kg of material A at ` 1.00/kg
800 kg of material B at ` 1.50/kg
20 gallons of material C at `` 30/gallon.
During the period, 1505 standard size rolls were produced from the material issued for 150 batches. The actual
usage and the cost of materials were:
3,00,500 kg of material A at ` 1.10/kg
1,19,600 kg of material B at ` 1.65/kg
3,100 gallons of material C at `29.50/gallon.
Present the figures to management showing the break-up of material cost variances arising during
the period.
Solution:
Data for Variance
Budgeted
Actual
Qty
Rate
Qty
Rate
Amount (`)
Amount (`)
A
B
C
2,000
800
20
1
1.5
30
1 lot
A
B
C
Qty
3,01,000
1,20,400
3,010
150 lot
Material Price Variance:
A = (1 –1.1) 3,00,500
(1.5 – 1.65) 1,19,600
C = (30 – 29.5) 3,100
= 30,050 (A)
= 17,940 (A)
= 1,550(F)
= 46,440 (A)
Material Usage Variance= (SQ – AQ) SR
2,000
1,200
600
3,00,500
1,19,600
3,100
3,800
150.5 lot
Standard
Rate
1
1.5
30
1.1
1.65
29.5
3,30,550
1,97,340
91,450
6,19,340
Amount (`)
3,01,000
1,80,600
90,300
5,71,900
A: (3,01,000 – 3,00,500) × 1 = 500(F)
B: (1,20,400 – 1,19,600) × 1.5 = 1200(F)
C: (3,010 -3,100) X 30 =2,700
(1,000) (A)
Material Cost Variance:
= SC – AC
Or MPV + MUV
= (46,440) + (1,000) = (47,440) (A).
--------------------------------------------------------------------------------------------------------------------------------------Question 10: 1 kg of product ‘K’ requires two chemicals ‘A’ and ‘B’. The following were the details of product ‘K’
for the month of June 1987:
1. Standard mix Chemical ‘A’ 50% and Chemical ‘B’ 50%.
2. Standard price per kilogram of Chemical ‘A’ ` 12 and Chemical ‘B’ ` 15.
3. Actual input of Chemical ‘B’ 70 kilograms.
4. Actual price per kilogram of Chemical ‘A’ ` 15.
5. Standard normal loss 10% of total input.
6. Materials cost variance total ` 650 adverse.
7. Materials yield variance total `` 135 adverse.
Required: Calculate:
Material mix variance total
Material usage variance total
Material price variance total
Actual loss of actual input
Actual input of Chemical ‘A’
Actual price per kilogram of Chemical ‘B’
Solution:
Data for Material Variance
Standard
Material
A
B
Actual
Qty.
(kg)
Rate
(`/kg)
Amount
50
50
12
15
100 for 90G
Qty. (kg)
( `)
Standard
Ratio for
Actual Mix
600
750
55
55
40
70
1,350
110
110 (W.N. 2)
Rate
(`/kg)
Amount
15
20
600
1,400 (B.f.)
( `)
2,000
Statement of Requirement
1. Material Mix Variance= (Standard Ratio for Actual Mix – Actual Ratio for Actual Mix) ×
Standard Rate
= (55 – 40) × 12 + (55 – 70) × 15
= (15 × 12) + (–15 × 15)
= – 15 × 3 = – 45
= 45 (A)
2. Material Usage Variance= (S.Q. – A.Q.) × S.R.
= (50 – 40) × 12 + (50 – 70) × 15
= 180 (A)
3. Material Price Variance= (S.R. – A.R.) × A.Q.
=(12 – 15 ) X 40 + (15 – 20) X 70
= 470 (A)
4. Actual Loss
= (110 – 90) = ` 20/kg
5. Actual Input of Chemical A
= 110 – 70 = ` 40/kg
6. Actual Price per Kg of Chemical B = ` 1,400/70 = ` 20/ kg
Working Notes:
. M.C.V
= S.C. – A.C.
- 650
= 1,350 – A.C.
Actual Cost = 1,350 + 650 = 2,000
2. Material Yield Variance = (Total Standard Quantity – Total Actual Quantity) × Standard Weighted
Avg. Rate
-135
= (100 – T.A.Q) X 1,350/100
- 13,500
1,350
= 100 – T.A.Q.
- 10
= 100 – T.A.Q.
Total Actual Quality = 100 + 10
= 110 kg
------------------------------------------------------------------------------------------------------------------Question 12: The following information is provided.
Standard Wages:
Grade X: 90 Labourers at ` 2 per hour
60 Labourers at ` 3 per hour
Grade Y:
Actual Wages:
Grade X: 80 Labourers at ` 2.50 per hour
70 Labourers at ` 2.00 per hour
Grade Y:
Budgeted Hours 1,000; Actual Hours 900; Budgeted Gross Production 5,000 units;
Standard loss 20%; Actual Loss 900 units.
Required: Calculate the labour variances from the above information.
Solution:
Data for Labour Variances
Budgeted (4000)
Material
X
Y
Lab. Hrs
90 × 1,000 =
90,000
60 × 1,000 =
60,000
Rate
Standard (4100)
Amount
`/hr
(`
Lab. Hrs
(W.N. 2)
Rate
2
1,80,000
92,250
2
1,84,500
3
1,80,000
61,500
3
1,84,500
Lab. Hrs
Rate Amount
(`)
3,60,00 1,53,750
1,50,000
Amount
Actual (4100 units)
3,69,000
(`)
80 × 900 =
72,000
70 × 900 =
63,000
1,35,000
2.50
2.00
1,80,000
1,26,000
3,06,000
Statement of Variance
Sl. No.
Particulars
Basis
Amount (`)
1. Labour rate variances
(S.R. – A.R.) × Actual payment hours
Grade X→ (2 – 2.50) × 72,000 = 36,000 (A)
Grade Y→ (3 – 2) × 63,000 = 63,000 (F)
2. Labour efficiency variance (Standard hour – Actual work hrs.) × Standard
rate
Grade X→ (92,250 – 72,000) × 2 = 40,500 (F)
Grade Y→ (61,500 – 63,000) × 3 = 4500 (F)
27,000 (F)
36,000 (Fav.)
Working Notes:
1. Calculation of Net Production
Budgeted (Units)
5,000
1,000
(20% of 5,000)
4,000
Gross Production
(–) Loss (Normal)
Net Production
Actual (Units)
5,000
9,00
4,100
We should assume that Budgeted gross & actual gross production will be same.
2. Calculation of Revised Budgeted Hrs.
X:
4,000 F.G. = 90,000 Labour Hrs.
1 F.G
90,000 LAbour Hrs.
4,000
4100 F.G. =
90,000
4,000 X 4,100 Labour Hr.
= 92,250 Labour Hrs.
Y:
4,000 F.G.
= 60,000 Labour Hrs.
1 F.G
60,000 LAbour Hrs.
4,000
4100 F.G =
60,000 X 4,100 Labour HRs.
4,000
= 61,500 Labour Hrs
------------------------------------------------------------------------------------------------------------------------------------------------------Question 13: 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 ` 1, ` 2 and ` 3, 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 13 men, 4 women and 3 boys. Actual wages were paid at the rates of ` 3,
` 4 and ` 5, respectively. Two hours were lost due to abnormal idle time and 960 units of output were produced.
Calculate various labour variances.
Solution:
Data for Labour Variance
Budgeted (1000)
Men
Women
Revised Budgeted (960)
Actual (960)
Lab Hr.
Rate
Amount
Lab Hr.
Rate
Amount
Lab Hr.
Rate
Amount
400
200
1
2
(`)
400
400
600
384
192
1
2
(`)
384
384
576
520
160
3
4
(`)
1,560
640
600
Actual Working
Hours
494
152
Boys
200
3
1,400
192
3
1,344
120
5
2,800
114
Statement of Labour Variance
Sl. No.
Particulars
1.
Labour Cost Variance
2.
Labour Rate Variance
3.
4.
Basis
Amount (`)
(S.C. – A.C.)
1344 – 2800
(S.R. – A.R.) × Actual Payment Hrs
Men: (1 – 3) × 520
= 1040 (A)
Women: (2 – 4) × 160
= 320 (A)
Boys: (5 – 43) × 120
= 240 (A)
Labour Efficiency Variance
1,456 (A)
1,600 (A)
(Standard Hrs. – Actual Working Hours) × S.R.
Men: (384 – 494) × 1
= 110 (A)
Women: (192 – 152) × 2
= 80 (F)
Boys: (192 – 114) × 3
= 234 (F)
Labour Idle Time Variance
(Idle Time × S.R.)
Men: 13 × 2 × 1
Women: 4 × 2 × 2
Boys: 3 × 2 × 3
204 (F)
= 26 (A)
= 16 (A)
= 18 (A)
60 (A)
------------------------------------------------------------------------------------------------------------------------------------------------------Question 16: The details regarding the composition and the weekly wage rates of labour force engaged on a
job scheduled to be completed in 30 weeks are as follows:
Standard
Actual
Category or
No. of Labourers Weekly wage rate
No. of
Weekly wage rate
Workers
Labourers
per Labourer (`)
per Labourer (`)
Skilled
75
60
Semi-skilled
45
40
Unskilled
60
30
The work is actually completed in 32 weeks.
Required: Calculate the various labour variances.
Solution:
Skilled
Semi-skilled
Unskilled
70
50
20
Data for Labour Variance
Category
Category
70
30
80
Budget/Revised
Time
(weeks)
2,250
1,350
1,800
5400
Rate
(`/week)
60
40
30
Actual
Amount
(`)
1,35,000
54,000
54,000
2,43,000
Standard Ratio for
Actual Mix (weeks)
Qty.
2,250
_____
2,400 (5400 × 5,760
1,350
_____
1,440 ( 5400 × 5,760
1,800
_____
1,920 (5400 × 5,760
5760
5760
2,240
960
2,560
5,760
5,760
Rate
70
50
20
Amount
(`)
1,56,800
48,000
51,200
2,56,000
Statement of Labour Variances
Sl.
No.
1.
2.
3.
4.
5.
Particulars
Basis
Labour cost
variance
Standard Cost – Actual Cost
2,43,000 – 2,56,000 = 13,000 (Adv.)
Labour rate
variance
(S.R. – A.R.) × Actual Payment Hrs
Skilled: (60 – 70) × 2240
Semi-skilled: (40 – 50) × 960
Unskilled: (30 –
Amount (`)
13,000 (A)
= 22400 (A)
= 9600 (A)
= 25600 (F)
Labour
efficiency
variance
(S.Q. – A.Q.) × S.R
Skilled: (2,250 – 2,240) × 60
Semi-skilled: (1,350 – 960) × 40
Unskilled: (1,800 – 2,560) ×
Labour mix
variance
(S. Ratio for Actual Mix – Actual Ratio for Actual Mix) × S.R.
Skilled: (2,400 – 2,240) × 60
= 9,600 (F)
Semi-Skilled: (1,440 – 960) × 40
= 19,200 (F)
Unskilled: (1,920 – 2,560) × 30
= 19,200 (A)
Labour
yield
variance
6,400 (A)
= 600 (F)
= 15,600 (F)
= 22,500 (A)
6,600 (A)
9,600 (F)
(Standard Ratio for Standard Quantity – Standard Ratio for Actual Quantity) × S.R.
Skilled: (2,250 – 2,400) × 60
= 9000(A)
Semi-Skilled: (1350 – 1440) × 40
= 3600(A)
Unskilled: (1800 – 1920) × 30
= 3600(A)
16,200 (A)
--------------------------------------------------------------------------------------------------------------------------------------Question 18: The following data is given:
Particulars
Budget
Actual
Production (in units)
400
360
Man hours to produce above
8,000
7,000
10,000
9,150
Variable Overheads (in `)
The standard time to produce one unit of the product is 20 hours.
Required:
Calculate variable overheads variances and give necessary journal entries to record transactions.
Solution:
Budget (400 FG)
Labour
Standard (360 FG)
Actual (360 FG)
Hrs
Rate
Amount
Hrs
Rate
Amount
Hrs
Rate
Amount
8,000
1.25
(`)
10,000
7,200
1.25
`)
9,000
7,000
1.3071
(`)
9,150
Variable Overhead Cost Variance:
= SC – AC = 9,000 – 9,150 = 150 (A)
Variable Overhead Efficiency Variance:
= (SH – AH) SR = (7,200 – 7,000) 1.25 = 250 (F)
Variable Overhead Exp. Variance:
= (SR – AR) Actual Working Hours
= (1.25 – 1.3071) 7,000 = 400 (A)
--------------------------------------------------------------------------------------------------------------------------------------------------------------------
Question 21: In Department A of a plant, the following data are submitted for the week ended 31st March 1993:
Standard output for 40 hours per week
Budgeted fixed overheads
Actual output
Actual hours worked
Actual fixed overheads
1,400 units
` 1,400
1,200 units
32 hours
` 1,500
Required: Prepare a statement of variances.
Solution:
Statement of Variances
Fixed Overhead Volume Variance
= (Recovered Overhead – Budgeted Overhead)
= 1,200 – 1,400 = 200 (A)
Fixed Overhead Expenditure Variance
= (Budgeted Overhead – Actual Overhead)
= 1,100 – 1,000 = 100 (A)
Fixed Overhead Efficiency Variance
= (Standard Hours – Actual Hours) RR
= (34.2857 – 32) 35 = 80 (F)
Fixed Overhead Capacity Variance
= (Actual Working Hours – Budgeted Hours) Recovery Rate
= (32 – 40)35 = (280) (A)
---------------------------------------------------------------------------------------------------------------------------------------
Question 25:
Budgeted no. of working days
Budgeted no. of hours per month
Fixed overhead rate
Actual no. of working days in June
24
12,000
` 0.50 per hour
25
Compute the calendar variance
Solution:
Calendar Variance = (Actual days – Budgeted days) × Recovery Rate Per day
= (25 – 24) × 250 (W.N. 1)
= 1 × 250
= ` 250 (F)
Working Notes:
1. Calculation of Recovery Rate
2. Budgeted hours per month
= 12,000 hrs.
3. fixed – overhead rate
= 0.50/hr.
4. Budget fixed – overhead (In a month)
= ` 6,000
5. Recovery Rate per day
6,000
= Total fixed Budget Oh
No. of Working days in a month
24 = `250/day
----------------------------------------------------------------------------------------------------------------------------------
Question 26: You are given the following data:
STATEMENT OF FIXED OVERHEAD VARIANCES
SL. NO. Particulars
1
Fixed overhead volume
variances
2
Fixed Overhead expenditure
variances
3
Fixed overhead cost variances
Basis
Amount
Recovered-Budgeted
1,000(A)
9000- 10,000
Budgeted- Actual
500(A)
10,000 – 10,500
Recovered-Actual
1,500(A)
9000 – 10,500
----------------------------------------------------------------------------------------------------------------------------
Question 27:
Fixed overhead as per budget, i.e. estimated ` 5,000
Budgeted hours, i.e. estimated
Actual hours worked
Actual fixed overhead
Required: Compute the expenditure and volume variances.
Solution:
Statement of Fixed Overhead Variances
Sl. No.
Particulars
1.
Fixed overhead Expenditure variance
Basis
Budgeted – Actual
` 5,000 – ` 5,600
2.
3.
Fixed overhead volume variance
Fixed overhead total variance
Recovered – Budgeted
` 3,500 – ` 5,000
Recovered – Actual
Amount
600 (A)
1500 (A)
2100 (A)
` 3,500 – ` 5,600
--------------------------------------------------------------------------------------------------------------------------------------
Question 28:
Budgeted Output
A
B
C
D
E
F
G
Budgeted Hour
10
2
8
50
10
8
12
100
Actual Hour
8
20
40
15
15
Budgeted overhead = `10,000
Actual overhead = ` 12,500.
Required: Calculate the fixed overhead volume and Exp variance.
Solution:
Actual Output
A
—
C
D
—
F
G
Statement of fixed overhead variances
Sl. No.
1.
2.
Particulars
Fixed overhead expenditure variances
Fixed overhead volume variances
Basis
Budgeted – Actual
10,000 – 12,500
Recovered – Budgeted
8,800 – 10,000
Amount
2,500 (A)
1,200 (A)
Note: If a company produces different products and every product does not consume equal budgeted
hours, it is better to apportion high part of fixed OH to the product which has high budgeted hours. (The
product here means actual output).
In other words, we can say recovery should be on the basis of budgeted hours for actual outputs.
If a company produces different products and every product consumes equal budgeted hours, overhead may be
recovered either on the basis of actual output or budgeted hours for actual output.
-------------------------------------------------------------------------------------------------------------------------------------------------------
Question30: 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 ` 1,44,000 per month. The standard time required to manufacture
one unit of product is 4 hours. In April 1998, the company worked 26 days of 840 machine hours per day and
produced 5,305 units of output. The actual fixed overheads were `1,42,000.
Required: Compute
1:- Efficiency variance
2:-Revised capacity variances
3:- Calendar variance
4:- Expense variance
5:- Volume variance
6:- Total fixed overheads variance
Statement of Variances
Sl.
1.
Particulars
Efficiency variance
Basis
(S. Hr – A.W.Hr) × R.R
= (21.220 – 21,840) × 6
Amount (`)
3,720 (A)
2.
Revised Capacity variance
Total Cap. variance – Calendar Variance
12,960 – 5,760 (W.N. – 1)
18,720 (A)
3.
Calendar variance
(Actual days – Budgeted days) Standard
Rate/day
= (26 – 25) × 5,760 = 5,760
5,760 (F)
4.
Expenses variance
Budgeted – Actual
1,44,000 – 1,42,000
2,000 (F)
5.
Volume variance
Recovered – Budgeted
1,27,320 – 1,44,000
16,680 (A)
6.
Total fixed overhead variance
Recovered – Actual
1,27,320 – 1,42,000
14,680 (A)
Working Note1
Calculation of total Capacity Variance
Total Capacity Variance = (Actual Working Hours – Budgeted Hour) X Recovery Rate
= (21,840 – 24,000) X 6
= 12,960 Adverse
--------------------------------------------------------------------------------------------------------------------------------------Question 31: The following figures are extracted from the books of a company:
Particulars
Budget
Actual
Output ( in units)
6,000
6,500
Hours
3,000
3,300
Overhead
Cost-fixed
1,200
1,250
Variable
6,000
6,650
Number of days
25
27
Required: Compute and analyse the overhead variances.
Note: Assume “8” Working Hour Per day, Budgeted Hours = 20 × 8, Actual Hour = 21 × 8.
Sl. No.
Particulars
Basis
Amount (`)
1.
Fixed OH Volume Variances
Recoverd – Budgeted
1,300 – 1,200
100 (F)
2.
Fixed OH Expenditure Variances
Budgeted – Actual
1,200 – 1,250
50 (A)
3.
Fixed OH Cost Variance
Recovered – Actual
1,300 – 1,250
50 (F)
4.
Fixed OH Efficiency Variance
(S. Hrs – A.W.Hrs) × Recovery Rate
= (3,250 – 3,300) × 0.40
20 (A)
5
Fixed OH Capacity Variance
(A.W.Hrs – Bud. Hrs) × Recovery Rate
= (3,300 – 3,000) × 0.40
120 (F)
6.
Fixed OH Calendar Variance
(Actual Work Days – Budgeted days) × R.R./day
1,200
_____
= (27 – 25) ×
25
96 (F)
7.
Fixed OH Balanced
Capacity Variance
Total Capacity Variance – Calendar Variance
= 120 Fav. – 96 Fav.
24 (F)
8.
Variable OH Variable
Standard variable OH for Actual Output – Actual
variable OH Actual Output
6,000
_____
=
× 6,500 – 6,650
6,000
= 6,500 – 6,650
150 (A)
-------------------------------------------------------------------------------------------------------------------------------------------Question 32: The following information was obtained from the records of a manufacturing unit using
Standard Costing System:
Production
Standard 4,000 units
Actual 3,800 units
(`)
Working days
Fixed overhead
Variable overhead
(`)
20
40,000
12,000
21
39,000
12,000
Required: Calculate the following overhead variances:
Variance overhead variance (b) Fixed overhead variance.
Expenditure Variance (b) Volume Variance (c) Efficiency Variance (iv) Calendar variance.
Statement of Variances
Sl.
No.
Particulars
Basis
Amount (`)
1. Variable OH Variances
Standard Variable OH for actual output – Actual variable OH
for actual output
12,000
______
4000 × 3,800 – 12,000 = 11,400 – 12,000
600 (A)
2. Fixed OH Variance
Recovered – Actual
38,000 – 39,000 = 1,000
1,000 (A)
3. Fixed OH Expenditure Variance
Budget – Actual
40,000 – 39,000
1,000 (F)
4. Fixed OH Volume Variance
Recovered – Budged
38,000 – 40,000
2,000 (A)
5. Fixed OH Efficiency Variance
(Standard Working Hr – Actual Working Hour) × R.R./hr.
(152 – 168) × ` 250/hr.
4,000 (A)
6. Fixed OH Calendar Variance
(Actual Working days – Budgeted Working days) × R.R. per
day
40,000
______
(21 – 20) ×
2
2,000 (F)
Question 33: A Cost Accountant of a company was given the following information regarding the overheads for
February 1987:
Overheads cost variance ` 1,400 adverse.
Overheads volume variance 1,000 adverse.
Budgeted hours for February 1987 1,200 hours.
Budgeted overheads for February 1987 ` 6,000.
Actual rate of recovery of overheads ` 8 per hour.
Required: To Assist the cost accountant in computing the following for February 1986—
1:- Overheads expenditure variance
2:- Actual overheads incurred
3:- Actual hours for actual production
4:- Overheads capacity variance
5:- Overheads efficiency variance
6:- Standard hours for actual production.
Solution:
Sl. No.
Statement of Required Information
Particulars
Basis
Amount (`)
1.
Overhead Expenditure Variance
W.N. 1
400 A.
2.
Actual Overhead incurred
W.N. 2
6,400
3.
Actual Hours for Actual production
800 hrs.
4.
Overheads Capacity Variance
Actual Overhead
_______________
Actual Rate
(Actual hrs worked) × Recvoery Rate
6,000
_____
(800 – 1,200) ×
1,200
2,000 (A)
(Standard Hr. – Act. worked Hr.) × R.R.
(1,000 – 800) × 5
1,000 (F)
W.N. – 3
1,000 hrs.
5.
Overheads Efficiency Variance
6.
Standard hours for actual production
--------------------------------------------------------------------------------------------------------------------------------------Question 34: The Dearborn Company manufactures product X in standard batches of 100 units. A standard
cost system is in use. The standard costs for a batch are as follows:
Raw materials
Direct labour
Variable overhead
60 kg @ ` 4.50/kg
` 270
36 hr @ `8.25/hour
` 297
36 hr @ `4.75/hour
`` 171
` 738
24,000 units
Standard output per month
Production for April 2005 amounted to 210 batches. The relevant statistics follows
The management has noted that actual costs per batch deviate somewhat from standard costs per
batch.
Required: Prepare a statement which will contain a detailed explanation of the difference between
the actual costs and standard costs
Solution:
Data for Resource Variance
Particulars
Budgeted (1 FG)
Qty.
Rate
Amount
Standard (21,000)
Qty.
Rate
( `)
Mat (kg)
Labour (hrs.)
V OH (hours)
Sl.
No.
0.6
0.36
0.36
4.50
8.25
4.75
Particulars
2.7
2.97
1.71
Amount
Actual (21,000)
Qty.
Rate
Amount
( `)
12,600
7,560
7,560
4.50
8.25
4.75
56,700
62,370
35,910
( `)
13,000
7,920
7,920
Statement of Variances
Basis
4.70
8.45
4.545
61,100
66,924
36,000
Amount
(`)
1.
Material Price Variance
(4.50 – 4.70) × 13,000
(S.P. – A.P.) × A.Q.
2,600 (A)
2.
Material Usage Variance
(S.Q. – A.Q.) × S.P.
(1,26,00 – 13,000) × 4.50
1,800 (A)
3.
Material Cost Variance
S.C. – A.C.
56,700 – 61,100
4,400 (A)
4.
Labour Rate Variance
(S.R. – A.R.) × Actual Working Hours
(8.25 – 8.45) × 7920
1,584 (A)
5.
Labour Efficiency Variance
(Standard Hrs. – Actual Working Hours) ×. S.R.
(7,560 – 7,920) × 8.25
2,970 (A)
6.
Labour Cost Variance
S.C. – A.C.
62,370 – 66,924
4,554 (A)
7.
Variable OH Expenditure Variance
(S.R. – A.R.) × Actual Working Hours
(4.75 – 4.545) × 7,920
1,626 (F)
8.
Variable OH Efficiency Variance
(Standard Hrs. – Actual Working Hours) × S.R.
(7,560 – 7,920) × 4.545
1,636 (A)
9.
Variable OH Cost Variance
S.C. – A.C.
35,910 – 36,000
10 (A)
--------------------------------------------------------------------------------------------------------------------------------------Question 35: A Ltd., operates a system of standard costs. Following information is available:
Actual:
Materials Consumed
`
1,89,000
(3,600 units at ` 52.50 per unit)
Direct Wages
22,100
Fixed Expenses
1,88,000
Variable Expenses
62,000
Output during the period was 3,500 units of finished product.
For the above period, the standard production capacity was 4,800 units and the break up of standard cost
per unit was as under:
Particulars
Amount (`)
Materials (one unit @ 50 per unit)
50
Direct wages
6
Fixed expenses
40
Variable expenses
20
Total standard cost per unit
116
The standard wages per unit is based on 9,600 hours for the above period at a rate of `3.00 per hour.
6,400 hours were actually worked during the above period, and in addition, wages for 400 hours were
paid to compensate for idle time due to breakdown of a machine and overall wage rate was ` 3.25 per
hour.
Required: Compute the following variances with appropriate workings:
1:- Direct Material Cost Variance
2:- Material Usage Variance
3:- Wage Rate Variance
4:- Idle Time Variance
5:- Fixed Expenses Expenditure Variance
6:- Fixed Expenses Capacity Variance
7:- Total Cost Variance.
8:- Material Price Variance
9:- Direct Labour Cost Variance
10:- Labour Efficiency Variance
11:- Variable Expenses Variance
12:- Fixed Expenses Volume Variance
13:- Fixed Expenses Efficiency Variance
Solution:
Particulars
Mat (unit)
Labour (hrs.)
V OH (hrs.)
Budgeted (1 Unit)
Qty. Rate Amount (`)
1
50
50
2
3
6
2
10
20
Standard (3,500)
Qty. Rate Amount (`)
3,500
50
1,75,000
7,000
3
21,000
7,000
10
70,000
Qty.
3,600
6,800
6,400
Actual (3,500)
Rate Amount (`)
52.50
1,89,000
3.25
22,100
9.6875
62,000
Statement of Variances
1.
Material Cost Variance
S.C. – A.C.
1,75,000 – 1,80,000
1400 (A)
2.
Material price Variance
(S.R. –A.R>) X AQ
(50 – 52.50) X 3600
9000 (A)
3.
Material usage Variance
(S.Q. –A.Q.) X S.R.
(3,500 – 3,600) X 50
5,000 (A)
4.
Labour Cost Variacne
S.C. –A.C.
21,000 – 22.100
1,100 (A)
5.
Wage Rate Variance
(S.R. –A.R>) X A.P. Hrs
(3 – 3.25) X 6,800
1,700 (A)
6.
Labour Efficiency Variance
(S.Hrs – A.W. Hrs) X S.R
(7,000 – 6,400) X 3
1,800 (F)
7.
Idle time Variance
1,200 (A)
8.
Variable Expenses Variances
Idle Hrs. X S.R.
(400 X 3)
S.C> -A.C.
70,000 – 62,000
9
10
Fix OH Expenditure Variance
FIx OH Volumne Variance
11
Fixed Exp.(OH) Capacity Variance
12
Fixed Expenses(OH) Efficiency Variance
13.
Total Cost Variance
8000 (F)
Budget –Actual
1,92,000 – 1,88,000
Recovered – Budget
1,40,000 – 1,92,000
4000(F)
52,000(A)
(A. W. HRs – Bud.. Hrs) X R.R.
(6,400 – 9,600) X 20
(S.Hrs-A.W.Hrs)X R.R.
(7,000 – 6,400) X 20
64,000 (A)
12,000(F)
--------------------------------------------------------------------------------------------------------------------------------------Question 36: Z Ltd uses standard costing system in manufacturing of its single product ‘M.’ The standard
cost per unit of M is as follows:
`
Direct materials: 2 m @ ` 6 per m
12.00
Direct labour: 1 hour @ ` 4.40 per hour
4.40
Variable overhead: 1 hour @ ` 3 per hour
3.00
19.40
During July, 1993, 6000 units of M were produced and the related data are as under:
Direct material acquired – 19000 m @ `5.70 per m.
`
Material consumed – 12670 m.
Direct labour - ? [email protected] ` ? per hour
27,950
Variable overheads incurred
20,475
The variable overheads efficiency variance is ` 1,500 adverse. Variable overheads are based on direct labour
hours. There was no stock of raw material in the beginning.
Required: Compute the missing figures and work out all the relevant variance.
Solution:
Budgeted (1 FG)
Mat (Meter)
Labour (hrs.)
V OH (hrs.)
Qty.
Rate
2
1
1
6
4.40
3
Amount (`)
12
4.40
3
Standard (6,000)
Qty.
Rate
12,000
6,000
6,000
6
4.40
3
Amount (`)
72,000
26,400
18,000
Actual
Qty.
12,670
6,500 (W.N. 1)
6,500 (W.N. 1)
Rate
5.70
4.3
3.15
Amount (`)
72,215
27,950
20,475
Statement of Variances
1.
Material Price Variance
(S.R>- A.R>) X A.Q.
(6 – 5.70) X 12,670
2.
Labour Rate Variance
(S.R> - A.R> ) X A.Pay Hr
(4.40 – 4.30) X 6,500
3.
Variable OH Expenditure Variance
(S.R> -A.R.) X A.W. Hr
(3 – 3.15 ) X 6,500
4.
Material Usage Variance
(S.Q. –A.Q>) X S.R.
(12,000 – 12,670) X 6
5.
Labour Efficiency Variance
(S. HR – A.W.Hr ) X S.R.
(6,000 – 6,500) X 4.40
6.
VOH Efficiency Variance
(S. Hr – A.W. Hr ) X S.R.
(6,000 – 6,500) X3
3,801 (F)
650 (F)
975 (A)
4,020(A)
2,200(A)
1,500(A)
215(A)
7.
Material Cost Variance
8.
Labour Cost Variance
9.
Variable OH Cost Variance
S.C. – A.C.
72,000 – 72,215
1,550(A)
S.C. – A.C.
26,400 – 27, 950
S.C – A.C.
18,000 – 20,475
2,475(A)
Working Notes:
1. Calculation of Actual Working Hours
Variable OH Efficiency variable = (S. Hr. – A.W.Hr) × S.R.
– 1,500
= (6,000 – A.W.Hr) × 3
– 500
= 6,000 – A.W.Hr
Actual working hour
= 6,000 + 500
= 6,500 Hrs.
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Question 37:- Mr M provide the following information relating to 1,000 units of product ‘ZED’ during the
month of April, 1993:
Standard price per kg of raw-material
`3
Actual total direct material cost
` 10,000
Standard direct labour hours
Actual direct labour hours
1,600
1,800
Total standard direct labour cost
` 8,000
Standard variable overhead per direct labour hour
`1
Standard variable overhead per unit of ZED
` 1.60
Total standard variable overhead
`1,600
Actual total variable overheads
`1,620
The material usage variance is ` 600 adverse and the overall cost variance per unit of ZED is ` 0.07 adverse as
compared to the total standard cost per unit of ZED of ` 21.
Required:
Compute the following
Standard quantity of raw material per unit of ZED.
Standard direct labour rate per hour.
Standard direct material cost per unit of ZED.
Standard direct labour cost per unit of ZED.
Standard total material cost for the output.
Actual total direct labour cost for the output.
Material price variance.
Labour rate variance.
Labour efficiency variance.
Variable overhead expenditure variance.
Variable overheads efficiency variance.
Note: Key calculation should form part of the answer.
= 6,500 Hr.
Solution:-
Statement of Missing Variances
S.No.
A
B
C
D
E
F
G
Particulars
Standard Quantity of Raw Material/unit
Standard Direct Labour Rate/Hour
Standard Direct Material Cost/unit
Standard Direct Labour Cost/unit of Z.E.D.
Standard total material cost for the output
Actual Total Direct labour cost for output
Material Price Variance
H
LAbour Rate Variance
I
Labour efficiency variance
J
Varaicne OH Expenditure Variance
Basis
3,800/1.00 in (W.N.1)
8,000/1,600(W.N.1)
11,400/1,000 (W.N. 1)
8,000/1,000(W.N. 1)
W.N.-1
W.N.- 1
(S.R –A.R.) X AQ
(3 – 2.5 ) X 4000
(S.R. -A.R.) X A. Day. Hrs
( 5 – 5.25 ) X 1,800
S. Hrs – A.W. Hrs ) X S.R.
(1,600- 1,800) X5
(S.R. – A.R.) X A. W. Hrs.
Amount
3.8 Kg
5.00
11.40
8
11,400
9,450
2000(F)
450(A)
1,000(A)
180(F)
K
( 1 – 0.90) X 1800
(S. Hrs – A.W. Hrs) X S.R.
1600 – 1800) X1
Variable OH Efficiency variance
200(A)
Working Notes:
1. Data for Resource Variance
Standard/Budget (1,000 FG)
Qty.
Rate
Actual (1,000 FG)
Amount Cost per Unit
Qty.
Rate
( `)
Material
Labour hours
Variable overhead hours
3,800
1,600
1,600
3
5
1
Amount
Cost per unit
( `)
11,400
8,000
1,600
11.4 (B.f.)
8
1.6
4,000 (W.N. 2)
1,800
1,800
2.5
5.25
0.90
10,000
9,450
1,620
21
10
9.45 (B.f )
1.62
21.07(W.N.3)
2. Material Usage Variance= (S.Q. – A.Q.) × S.R.
– 600
= (3,800 – A.Q.) × 3
– 200
= 3,800 – A.Q.
A.Q.
= 3,800 + 200 = 4,000 kg
3. Over all cost variance = S.C. – A.C.
0.07
= 21 – A.C.
Actual cost
= 21 + 0.07
= ` 21.07
--------------------------------------------------------------------------------------------------------------------------------------Question 39: K Limited uses standard costs and flexible budgets for control purposes. The
following information is given:
1. Standard and budgeted data
The standard material allowed per unit is 4 kg at a standard price of ` 0.75 per kg.
Budgeted direct labour hours for a four week period were 80,000 hours at a budgeted cost of `
1,52,000.
Budgeted variable production overhead for 80,000 hours was ` 96,000.
2. Details for four-week period ended 29th April 1988 were:
`
Incurred:
Direct wages
1,63,800
Variances:
Direct wages rate, `0.20 per hour adverse.
Direct Materials price (Calculated on purchases at time of receipt at Re. 0.05 per kilogram) ` 9,000
favourable.
Direct material usage ` 1,500 adverse.
Variable production overhead ` 2,200 favourable.
Variable production overhead efficiency ` 2,400 adverse, Production 38,000 units. There were no stocks
at beginning of period, but there were 26,000 kg of direct materials in stock at 29th April 1988.
Required: State for the period
The number of kilograms of direct material purchased.
The number of kilograms of direct material used above the standard allowed.
The variable production overhead expenditure variance.
The actual hours worked.
The number of standard hours allowed for the production achieved.
Solution:
Data for Variance
Budgeted
Qty.
Rate
Standard
Amount
Qty.
Rate
Actual
Amount
( `)
Material
Labour
Variable overhead
4
2
2
0.75
1.9
1.2
Qty.
Rate
( `)
3
3.8
2.4
1,78,000
76,000
76,000
0.75
1.9
1.2
1,33,500
1,44,400
91,200
Amount
(``)
1,54,000
78,000
78,000
0.7
2.1
1.141
1,07,800
1,63,800
89,000
Statement of Required Information
Sl.
1.
2.
3.
4.
5.
Particulars
Number of kilogram of direct material purchases
The number of kilograms of direct material used above the
standard allowed
The variable production overhead expenditure variance
The Actual Hours Worked
The number of standard hours allowed for the production
achieved
Variable overhead cost
Variance = SC – AC
2,200 = 91,200 – 78,000 × AR
9,12,000 – 2,200
78,000
Working Notes:
1. Calculation of Actual Hours
Basis
Amount
(W.N. 1) 1,80,000 kg
(W.N. 3) 2,000 kg
(W.N. 4) 4,600 (F)
(W.N. 1) 78,000 Hrs.
(W.N. 5) 76,000 Hrs.
-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Question 41: On 1st April, 1998, ZED company began the manufacture of a new electronic gadget. The
company installed a standard costing system to account for manufacturing costs. The standard costs
for a unit of the product are as under:
(`)
15.00
10.00
7.50
32.50
Direct Material (3 kg at ` 5 per kg)
Direct Labour (0.5 hour at ` 20 per hour)
Manufacturing Overhead (75% of direct labour cost)
Total Cost
The following data was obtained from Zed Company’s record for April 1998
Particulars
Sales
Sundry Creditor (For purchase of direct materials in April 1998)
Direct Material Price Variance
Direct Material Usage Variance
Direct Labour Rate Variance
Direct Labour Efficiency Variance
Debit
Credit
— ` 1,25,000
—
`` 68,250
3,250
—
2,500
—
1,900
—
—
2,000
The actual production in April 1998 was 4,000 units of the gadget, and the actual sales for the month
was 2,500 units.
The amount shown above for direct materials price variance applies to materials purchased during April
1998. There was no opening stock of raw materials on 1st April, 1998.
Required:
Calculate for April 1998 the following:
(i) Standard direct labour hours allowed for the actual output achieved.
(ii) Actual direct labour hours worked.
(iii) Actual direct labour rate.
(iv) Standard quantity of direct materials allowed (in kg)
(v) Actual quantity of direct materials used (in kg)
(vi) Actual quantity of direct materials purchased (in kg)
(vii) Actual direct materials price per kg
--------------------------------------------------------------------------------------------------------------------------------------Question 42: A Ltd. has a manufacturing division which makes a product to which the following
details relate
Particulars
Per unit
Materials
5 kgs at ` 2
` 10
Direct labour
12 hours at ` 2
`24
Variable overheads
12 hours at ` 1
`12
Relevant fixed overhead are budgeted at ` 10,000 per month and planned output is 2,000 units per month. The
selling price is ` 55 per unit.
An incentive scheme is in operation in the division concerned, whereby employees are paid a bonus of 15% of the
standard cost of materials saved and 50% of direct labour time saved values at standard direct labour
hour rate. During a recent month when output was 1,800 units, the following actual results were
recorded:
Particulars
Amount (`)
Direct material used (8,500 kg)
Direct wages (20,000 hours)
Variable Overhead
Fixed overhead
17,200
42,000
22,000
9,800
Net profit
91,000
4,000
Sales
95,000
Required:
(a) Calculate the variance, which occurred during the month.
(b) Calculate the total bonus payments to employees in the division.
Solution:
Calculation of Different Variances
Sl.
1.
Particulars
Material Price Variance
Basis
(S.R. – A.R.) × A.Q.
(2 – 2.0235) × 8,500
Amount
200 (A)
2.
Material Usage Variance
(S.Q. – A.Q.) × S.R.
(9,000 – 8,500) ×2
1,000 (F)
3.
Material Cost Variance
800 (F)
4.
Labour Rate Variance
S.C. – A.C.
(18,000 – 17,200)
(S.R. – A.R.) × Actual Payment Hours
(2 – 2.1) × 20,000
5.
Labour Efficiency Variance
2,000 (A)
3,200 (F)
6.
Labour Cost Variance
(S.Hr – Actual Working Hours) × S.R.
(21,600 – 20,000) × 2
S.C. – A.C.
43,200 – 42,000
7.
V – OH Expenditure variance (S.R. – A.R.) × Actual Working Hours
(1 – 1.1) × 20,000
2,000 (A)
8.
Variable – OH Efficiency
variance
(Standard Working Hours – Actual Working
Hours) S.R.
(21,600 – 20,000) × 1
1,600 (F)
9.
Variable overhead cost
variance
S.C. – A.C.
(21,600 – 22,000)
400 (A)
10.
Fixed overhead expenditure Budgeted – Actual
variance
(10,000 – 9,800)
200 (F)
11.
Fixed overhead volume
variance
Recovered – Budgeted
(9,000 – 10,000)
1,000 (A)
12.
Fixed overhead cost
variance
Recovered – Actual
(9,000 – 9,800)
800 (A)
1,200 (F)
(b) Statement of Bonus
Particulars
Amount (`)
(i) 15% of S.C. of Material saved
(S.Q. – A.Q) × S.C. × 15%
(9,000 – 8,500) × 2 × 15%
(ii) 50% of S.C. of lab. Hrs. saved
50% × 2 × (21,600 – 20,000)
150
1,600
Total Bonus payable
Working Notes:
1,750
Data for Resource Variances
Budgeted Output
2,000 units
or
24,000 hrs.
Standard hrs./units
21,600 Hrs
or
1,800 units
Recovery Rate
` 5 / unit
Budgeted fixed-overhead
10,000
Actual Hrs.
20,000
or
`` 0.4167 / hr.
Recovered (`)
9,000
(21,600 0.4167)
Actual (`)
9,800
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Question43: A company manufactures two products X and Y. Product X requires 8 hours to produce
while Y requires12 hours. In April, 2004, of 22 effective working days of 8 hours a day, 1,200 units of X and 800
units of Y were produced. The company employs 100 workers in production department to produce X and Y. The
budgeted labour hours are 1,86,000 for the year.
Required:
Calculate Capacity, Activity and Efficiency ratio and establish their relationship.
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------Question 45: The following is the information provided by Tulsian Ltd.
Product
Budgeted Sales
Quantity Units
A
B
Budgeted
Selling Price
per unit
60
40
Standard Cost
Per unit
20
10
Actual Sales
Quantity Units
Actual Selling
Price per unit
( `)
15
4
44
66
Actual Cost
Per unit
( `)
(`
25
5
16
5
Required:
1. Calculate all the sales variances
(a) on sales value basis
(b) on sales margin value basis
2. Reconcile the standard profit with actual profit.
Solution:
Data for Sales Variance
Budgeted Sale
Product
Qty.
Rate
Amount
(`)
Standard Ratio
for actual mix
Actual Sale
Qty.
Rate
Amount
(`)
A
B
60
40
20
10
1,200
400
66
44
1,600
110
44
66
25
5
1,100
330
1,430
Statement of Sales Variances
Sl.
1.
2.
3.
4.
5.
Particulars
Sales Value Variance
Sales Price Variance
Sales Volume Variance
Sales Mix Variance
Sales Yield Variance
Basis
Budgeted Sales – Actual Sales
(1,600 – 1,430)
(B.S.P.–A.S.P.) × A.Q.
A : (20 – 25) × 44 = 220 (F)
B : (10 – 5) × 66 = 330 (A)
(B.Q. – A.Q) × B.S.P.
A : (60 – 44) × 20 = 320 (A)
B : (40 – 66) × 10 = 260 (F)
(S.R. for Actual Mix – Actual Ratio for
Act Mix) × B.S.P.
A : (66 – 44) × 20 = 440 (A)
B : (44 – 66) × 10 = 220 (F)
(S.R. for Bud. Mix – Standard Ratio for
T.A. Mix.) × B.S.P.
A : (60 – 66) × 20 = 120 (F)
B : (40 – 44) × 10 = 40 (F)
Amount
170 (A)
110 (A)
60 (A)
220 (A)
160 (F)
Reconciliation Statement
Budgeted profit
540
Adjust Sales Variance:
110 (A)
60 (A)
Sales price variance
Sales Volume Variance
Adjust cost variances:
26 (F)
(1060 – 1034)
Actual profit
396
Working Notes:
1. Statement of Profit
Budget
Sales Value
A: 60 × 20
B: 40 × 10
Sales Value
A: 60 × 20
B: 40 × 10
Less: Cost
A: 60 ×Value
15
Sales
Actual
1,200
400
1,600
(1,060)
900
160
1,600
(1,060)
540
Sales Value
A: 44 × 25
B: 66 × 5
Sales Value
A: 44 × 25
B: 66 × 5
Less: Cost
A: 44 ×Value
16
Sales
1,100
330
1,430
(1,034)
704
330
1,430
(1,034)
396
Subject to Checking
--------------------------------------------------------------------------------------------------------------------------------------Question 47: Stand Cost Corporation produces three products: A, B and C. The master budget called for the sale
of 10,000 units of A at ` 12. 6000 units of B at ` 15 and 8,000 units of C at `9. In addition, the standard variable
cost for each product was ` 7 for A, `` 9 for B and ` 6 for C. In fact, the firm actually produced and sold 11,000
units of A at ` 11.50, 5,000 units of B at ` 15.1and 9,000 units of C at ` 8.5.The firm uses two input to produce
each of the products X and Y. The standard price per unit of material X is ` 2 and for a unit of material Y is `
1. The materials budgeted to be used for each product were:
Products
Materials
X Units
Y Units
A
2
3
B
4
1
C
1
4
The firm actually used 54,000 units of X at a cost of ` 1,09,620 and 72,000 units of Y at a cost of `
73,000.
Required:
Determine the mix, quantity and rate variances for sales as well as the yield, mix and price variance
for materials.
Solution:
Sales Variances (Sale Value Method)
Budgeted Sales
Product
A
B
C
Qty.
Units
10,000
6,000
8,000
24,000
Actual Sales
Rate (`)
Amount(`)
Oty.
Units
Rate (`)
Amount `
12
15
9
1,20,000
90,000
72,000
2,82,000
11,000
5,000
9,000
25,000
11.50
15.10
8.55
1,26,500
75,500
76,950
2,78,950
Actual Quantity
Budgeted Price
1,32,000
75,000
81,000
2,88,000
Alternative Solution (Sales Margin Method)
Basic Calculation
Budgeted Margin
Actual Margin
Actual Quantity X
Budgeted Price (``)
Product
A
B
C
Qty.
Units
10,000
6,000
8,000
24,000
Rate (`)
5
6
3
Amount (`)
Qty.
Units
50,000
36,000
24,000
11,000
5,000
9,000
1,10,000
25,000
Rate (`)
4.50
6.10
2.55
Amount (``)
49,500
30,500
22,950
55,000
30,000
27,000
1,02,950
1,12,000
Material Variances:
Basic Calculations
Standard and actual costs of material for actual output i.e. 11,000 untis of A, 5,000 units of B and
9,000 untis of C and standard cost of actual input material.
Material
Standard Cost
Qty
Units
X
Y
51,000
74,000
1,25,000
Actual Cost
Qty.
Units
Amount (`)
Actual quantity ×
Standard price
Rate (`)
Amount (`)
Rate Amount (`)
2
1
1,02,000
74,000
54,000
72,000
1,09,620
73,000
1,08,000
72,000
1,76,000
1,26,000
1,82,620
1,80,000
--------------------------------------------------------------------------------------------------------------------------------------Question 50: File and Smile Associates undertake to prepare income tax returns for individual for a fee. Their
advice to their clients is to pay the proper tax and relax. In order to arrive at the proper scales of fees and assess
their own performance, they have a good system. They use the weighted average method and actual costs for
financial reporting purposes. However, for internal reporting they use a standard cost system. The standards
on equivalent performance have been established as
follows:
Labour per return
Overhead per return
5 hrs @ ` 40 per hour
5 hrs @ ` 20 per hour
For March 1988 performance, budgeted overhead is ` 98,000 for the standard labour hours
allowed.
The following additional information pertains to the month of March 1988.
Required: Compute
(a) For each cost element equivalent units of performance and the actual cost per equivalent unit.
(b) Actual cost of return in process on March 31.
(c) The standard cost per return and
(d) The total labour rate and labour efficiency variance as well as total overhead volume and
overhead budget variances.
Solution:
(a) Statement of Cost (Weighted Avg.)
Labour
Overhead
Current
Opening Cost
`1,78,000
` 90,000
` 12,000
`5,000
Total
` 1,90,000
` 95,000
Qty. (WN1) (B)
1,000
1,000
Rate (` p.u) (A) ÷ (B)
` 190
` 95
(a) Calculation of Actual cost of closing W.I.P.
Labour (190 × 100)
Overhead (95 × 100)
19,000
9,500
28,500
Standard Cost
(b)
Labour: 5 Hrs X 40
200
Overhad: 5 hHR X 20
100
300
(d) Statement of Variances
Sl. No.
Particulars
1.
Labour Rate Variance
2.
3.
4.
Labour Efficiency Variance
Overhead Volume Variance
Overhead Budget/Expenditure
Variance
Basis
(S.R. – A.R.) × Actual Payment Hrs
1,78,000
40 – 4,000 × 4,000
(S.Hr – A.W. Hr) × S.R.
(4,750 – 4,000) × 40
Recovered overhead – Budget
overhead
95,000 – 98,000
Budget overhead – Actual overhead
98,000 – 90,000
Figures
18,000 (A)
30,000 (A)
3,000 (A)
8,000 (F)
Working Notes:
1. Statement of Equivalent Production (Weighted Avg. Method)
Particulars
Opening W.I.P.
Units Started
200 Transferred
825 Closing W.I.P. (80%)
1,025
Labour
900
125
1,025
900
100
1000
Overhead
900
100
1000
Statement of Equivalent Production (FIFO) for Variance Analysis
Labour
Opening W.I.P. (25 k)
Units Started
200 Opening W.I.P.
Current
825 Transferred
Closing W.I.P. (80%)
1,025
200
700
900
125
1,025
Overhead
150
700
100
150
700
100
950
950
-----------------------------------------------------------------------------------------------------------------------------Question 51: (Standard Process Costing including Reconciliation – Equivalent production FIFO
method): A processing company uses Standard Process Costing method. The standard process cost
card is as follows:
Stocks:
Opening W.I.P. 250 kg Degree of completion: Material-100% Labour and overhead – 60%. Closing W.I.P 450 kgs.
Degree of completion: Material-100%, Labour and overheads 20% . Finished Stock-1,200 kgs.
The company uses FIFO method for valuation of stocks.
Required:
Computation of cost variances in as much detail as possible and process Cost Reconciliation
statement.
Solution:
Statement of Variances
S.NO. Particulars
Basis
`
1
Material Price Variance
3000(A)
2
Material usage variance
3
Material cost variance
4
Labour Rate variance
5
Labour Efficiency variance
6
Labour cost variance
7
Fixed overhead volume variance
8
Fixed overhead efficiency variance
9
Fixed overhead capacity variance
10
Fixed overhead expense variance
11
Fixed OH
Cost variance
(S.P. – A.P. ) X A.Q.
(10 – 11.034) X 2900
(S.Q. – A.Q.) X S.R.
(2800 – 2900) X 10
S.C.- A.C.
28,000 – 32,000
(S.R. – A.R.) X A.pay. HRs
( 20 – 20,606) X 3300
(S. Hrs- a.W.Hour) X S.R.
(3,420 – 3,300) X 20
S.C. – A.C.
68,400 – 68,000
Recovered – Budget
1,02,600 – 90,000
(S. Hr. – A.W. Hr.) X S.R.
(3,420- 3,300) X30
(A.W> Hr – Bud. Hr) X R.R.
(3,300 – 3,000) X 30
Budget – Actual
90,000 – 88000
Recovered – Actual
1,02,600 – 88,000
1000(A)
4000(A)
2000(A)
2400(F)
400(F)
12,600 (F)
3600 (F)
9000 (F)
2000 (F)
14,600 (F)
Working Note 1
Statement of Equivalent Production (FIFO)
Material
OP. W.I.P. (100%, 60%)
250 Opening
250
Introduced
1,400 Current
950
Transferred
1,200
Closing W.I.P. (80%) 450
1,650
1,650
Labour & Overhead
—
950
100
950
450
90
1,400
1,140
(Actual output for material) (Actual output for labour)
Working Note 2
Data for Resource Variance
Qty.
Material (kg) (1,400)
Labour (1,140)
Working Note 3
2,800
3,420
Standard
Rate
Amount
10
20
(`)
28,000
68,400
Qty.
Actual
Rate
Amount
2,900
3,300
11.034
20.60
(`)
32,000
68,000
-------------------------------------------------------------------------------------------------------------------------------------------------------
Question 52: A single product company has prepared the following cost sheet based on 8,000 units of output
`
per month:
Direct Materials 1.5 kg @ ` 24 per kg
36.00
Direct Labour 3 hrs @ ` 4 per hr
12.00
Factory Overheads
Total
12.00
60.00
The flexible budget for factory overheads is as under:
The actual results for the month of October 2002 are given below:
Direct Materials Purchased and consumed were 11,224 kg at ` 2,66,570.
Direct Labour hours worked were 22,400 and Direct Wages paid amounted to ` 96,320.
Factory overheads incurred amounted to ` 96,440 out of which the variable overhead is ` 2.60 per Direct
Labour hour worked.
Actual output is 7,620 units.
Work-in-process:
Opening WIP
300 units
Materials 100% complete
Labour and Overheads 60% complete
Closing WIP
200 units
Materials 50% complete
Labour and Overhead 40% complete
Required: Analyze the variances
Solution:
Statement of Variances
Sl. No.
Particulars
1.
Material Price Variance
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
Material Usage Variance
Material Cost Variance
Basis
(S.P. – A.P.) × A.Q.
(24 – 23.75) × 11,224
(S.Q. – A.Q.) × S.P.
(11,130 – 11,224) × 24
S.C. – A.C.
2,67,120 – 2,66,570
Variable Overhead Expenditure Variance (S.R. – A.R.) × A.W.Hr
(2.4 – 2.6) × 22,400
Variable Overhead Efficiency Variance
Fixed overhead expenditure variance
Fixed overhead volume variance
Fixed overhead efficiency variance
Fixed overhead capacity variance
Labour rate variance
Labour efficiency variance
Figures
2,806 (F)
2,256 (A)
550 (F)
4,480 (A)
(S.Hr – A.W.Hr) × S.R.
(22,560 × 22,400) × 2.4
384 (F)
Budget – Actual
38,400 – 38,200
200 (F)
Recovered – Budget
36,096 – 38,200
(S.Hr – A.W.Hr) × S.R.
(22,560 – 22,400) × 1.6
2,304 (A)
256 (F)
(Bud. Hr. – A.W.Hr) × S.R.
(24,000 – 22,400) × 1.6
2,560 (A)
(S.R. – A.R.) × A.Pay. Hrs
(4 – 4.3) × 22,400
6,720 (A)
(S.Hr – A.W.Hr) × S.R.
(22,560 – 22,400) × 4
640 (F)
Working Note 1
Calculation of Variable – Overhead – Rate per unit
Change in overhead 92,400 – 81,000 10,800
Change in output 7,500 – 6,000 1,500
Working Note 2
Statement of Equivalent Production
Particulars
Material
Lab – OH
Opening W.I.P.
(100%, 60%)
Introduced (B.f )
300
7,520
Opening
Current
Transferred
Closing W.I.P. (50%, 40%)
7,820
300
7,320
7,620
200
—
7,320
120
7,320
100
80
7,820
7,420
7,520
Working Note 3
Data for Resource Variance
Particulars
Qty.
Material
Labour
Variable overhead
7,420 × 1.5 = 11,130
7,520 × 3 = 22,560
7,520 × 3 = 22,560
Standard
Rate
Qty.
Amount (`)
24
4
7.2 = 2.4
3
2,67,120
90,240
54,144
11,224
22,400
22,400
Actual
Rate
Amount (`)
23.75
4.3
2.60
2,66,570
96,320
58,240
--------------------------------------------------------------------------------------------------------------------------------------Question 53: Standard cost sheet per unit of output is as under
Direct material 3 Pcs. @ ` 2.15
Direct labour:
Department A 2 hrs @ ` 1.75
`6.45
3.50
6.00
Department B 4 hrs @ ` 1.50
Overheads:
Department A 2 hrs @ ` 0.50
1.00
4.00
` 9.50
` 5.00
Department B 4 hrs @ ` 1.00
Total
Transactions for the period are as under:
Materials purchased and consumed:
`20.95
8,600 pcs. @ `2.50 each
Labour Time Spent
Department A. 5,200 hours
Department B. 12,000 hours
There is no change in labour rates:
Actual factory overheads are:
Department A` 3,000
Department B. ` 12,500
Units produced:
Department A. 2,800
Department B. 2,800
Budgeted overheads:
Department A. ` 3,000
Department B. ` 12,000
Pass the necessary Journal Entries to record the above transactions under single plan.
Required:
Show the Standard Cost Card.
(b) Show the journal entries to record the transactions and disposal of the variances Narrations are
not required for journal entries).
Show (i) The Material Control Account (ii) The Work-in-progress Control Account.
Solution:
1.
2.
3.
4.
5.
6.
7.
Journal Entry (Under Single Plan) in Department A
Particulars
Amount (``)
Amount (`)
Material Control A/C
Material Price Variance A/c
To creditors A/c
(Being Material purchased)
Creditors A/c
To Bank
Dr (S.R. × A.Q)
Dr (S.R. – A.R.) × A.Q.
18,490
3,010
21,500
Dr
21,500
21,500
W.I.P. Control A/c
Material Usage Variance A/c.
To Material control A/c.
(Being goods issued to production)
Dr (S.Q. × A.R.)
(S.Q. × A.Q.) × A.R.
(A.Q. × A.R.)
18,060
430
Wages Control A/c.
To wages payable A/c.
(Being labour expenses due)
Dr (S.R. × A.W.Hr)
(S.R. × A.P.Hr)
9,100
Wages payable A/c.
To Bank A/c
Dr
9,100
18,490
9,100
9,100
W.I.P. control A/c
To wages control A/c
To labour Efficiency variance A/c
Dr.
W.I.P. Control A/c
Overhead cost variance A/c
To Bank
Dr
Dr
9,800
9,100
700
2,800
200
3,000
8.
Department – B A/c
To W.I.P. Control A/c
Dr
30,660
30,660
(Being balance of W.I.P. Control A/c of department ‘A’ transferred to department – B)
In Department – B Journal Entry
Particulars
Amount (`)
Amount (`)
1. W.I.P. Control A/c
To Department A A/c.
Dr
2. Wages Control A/c
Labour Rate variance A/c
To wages payable A/c
Dr
Dr
3. Wages Payable A/c
To Bank
Dr
4. W.I.P. control A/c
Labour Efficiency variance A/c
To wages control A/c
Dr
Dr
5. W.I.P. control A/c
Overhead cost variance A/c
To Bank
Dr
Dr
30,660
30,660
18,000
Nil
18,000
18,000
18,000
16,800
1,200
18,000
11,200
1,300
12,500
---------------------------------------------------------------------------------------------------------------------------------------
RECONCILIATION BASED QUESTION
Question 56: The budget output of a single product manufacturing company for 1984 –85 was 5,000 units. The
financial results in respect of the actual out put of 4,800 units achieved during the year were as under:
Particulars
Direct material
Direct wages
Variable overheads
Fixed overheads
Profit
Sales
Amount (`)
29,700
44,700
72,750
39,000
36,600
2,22,750
The standard wage rate is `4.50 per hour and the standard variable overhead rate is `7.50 per hour. The
cost accounts recorded the following variances for the year:
Variances
Favourable (`)
Adverse (`)
Material Price
Material usage
Wage Rate
Labour Efficiency
Variable Overhead Expenses
Variable Overhead Efficiency
Fixed Overhead Expense
Selling Price
—
—
750
—
3,000
—
—
6,750
300
600
—
2,250
—
3,750
1,500
—
Required:
Prepare a statement showing the original budget.
Prepare the standard product cost sheet per unit.
Prepare a statement showing the reconciliation of originally budgeted profit and the actual profit.
Solution:
Statement showing standard cost sheet per unit and Original Budget
Particulars
Standard cost per
unit (`)
Material (See WN 1)
Labour (See WN 2)
Variable overhead (See WN 3)
Fixed overhead (See WN 4)
Total Cost
Profit
Selling price (See WN 5)
Original Budget (`)
5,000 units
6
9
15
7.5
30,000
45,000
75,000
37,500
37.5
7.5
1,87,500
37,500
45
2,25,000
Statement of Reconciliation (Marginal)
Particulars
Budgeted Profit
Sales Variance:
Price Variance
Volume Variance:
Amount (`)
37,500
(B.Q. – A.Q.) × (F.C. + Pro. P.U.)
200 × (7.5 + 7.5)
6,750 (F)
3,000 (A)
Cost Variances:
Material Cost Variance:
Material price variance
300 (A)
Material usage variance
600 (A)
Labour Cost Variance:
Wage rate variance
750 (F)
Labour efficiency variance
2,250 (A)
Variable Overhead Cost Variance: Variable overhead expenses 3,000 (F)
Variable overhead efficiency variance
3750 (A)
Fixed Overhead Expenditure Variance
Fixed Overhead Volume Variance
900 (A)
1,500 (A)
750 (A)
1,500 (A)
N.A.
Actual profit
36,600
Quantity
Selling Price per unit
Variable cost per unit (Material + Labour + Overhead)
Contribution per unit
Total Contribution
Less: Fixed Cost
Budget
5,000
45
30
15
75,000
37,500
Actual
4,800
45
30
15
72,000
37,500
37,500
34,500
Profit
------------------------------------------------------------------------------------------------------------------------------------------------------Question 57: The Summarised results of a company for the two years ended December 31st are given below for
2 years:
(` in lakh)
(` in lakh)
Sales
770
600
Direct Material
324
300
Direct wages
137
120
Variable Overheads
69
60
Fixed Overheads
150
80
Profit
90
40
As a result of re-organization of production methods and extensive campaigning, the company was
able to secure an increase in the selling Price by 10% during year 2 as compared to the previous
year. In year 1, the company consumed 1,20,000 kg. of raw materials and used 24,00,000 hours of direct labour.
In year 2, the corresponding figures were 1,35,000 kg. of raw material and 26,00,000 hours of direct
labour. Use the information given for the year 1 as the base year information to analyse the results of year 2 and
to show, in a form suitable to the management, the amount each factor has contributed by way of price, usage,
and volume to the change in profit in year 2.
Solution: Let Selling Price be `100 per unit for I year. Then
Sales
Sales Price
Quantity Sold
IInd year
7,70,00,000
110
7,00,000
Reconciliation Statement
Ist Year
6,00,00,000
100
6,00,000
Particulars
` in lakh
Basis
Budgeted Profit
40
Sales Variance
Price Variance = (B.S.P. – A.S.P.) × A. Qty = (100 – 110) × 7,00,000
Volume Variance = (B.Q. – A.Q.) × Budgeted Price p.u.
= (6,00,000 – 7,00,000) × 6.6666
Cost Variance
Fixed Overhead Volume Variance
Recovered Overhead – Budgeted Overhead (93.33 – 80)
Fixed Overhead Expenditure Variance
(Budgeted Overhead – Actual Overhead)
Material Price Variance = (S.R. – A.R.) × A.Q.
Material Usage Variance = (S.Q. – A.Q.) × S.R.
Labour Rate Variance = (S.R. – A.R.) × A.P. Hr.
Labour Efficiency Variance = (S.Hr – A. Hr) × S.R.
Variable Overhead Expenditure Variance = (S.R. – A.R.) × A.W. Hr
Variable Overhead Efficiency Variance = (S.Hr – A. Hr) × S.R.
Actual Profit
70 (F)
6.66 (F)
13.33 (F)
70 (A)
13.5 (F)
12.5 (F)
7 (A)
10 (F)
4 (A)
5 (F)
90
Working Notes:
1. Data for Resource Variance
Material
Material
Labour
Variable Overhead
Budget
Qty.
Rate (` in lakh)
Amount
1,20,000 250
300
24,00,000
5
120
24,00,000 2.5
60
480
Qty.
Standard
Rate (` in lakh)
1,40,000 250
28,00,000
5
28,00,000 2.5
Amount
350
140
70
540
Actual
Qty.
Rate (` in lakh)
Amount
1,35,000
240
324
26,00,000 5.269
137
26,00,000 2.65
69
530
----------------------------------------------------------------------------------------------------------------------------------------Question 63: The Britten Co. Ltd manufactures a variety of products of basically similar composition.
Subjecting the various raw materials to a number of standardised operations each major series of operations
being carried out in a different department carries out Production. All products are subjected to the same initial
processing which is carried out in departments A, B and C; the order and extent of further processing then
depending upon the type of end product to be produced.
It has been decided that a standard costing system could be usefully employed within Britten and a
pilot scheme is to be operated for six months based initially only on department B, the second
department in the initial common series of operations.
If the pilot scheme produces useful results then a management accountant will be employed and the
system would be incorporated as appropriate throughout the whole firm.
The standard cost per unit of output of department B is:
Particulars
Direct labour (14 hours at ` 2 per hour)
Direct materials:
1. Output of department A (3 kg at ` 9 per kg)
2. Acquired by and directly input to department B material × (4 kg at ` 5
per kg.)
Variable overhead (at ` 1 per direct labour hour worked)
Fixed production overheads:
1. Directly incurred by department B (note1) manufacturing overhead
(per unit)
2. Allocated to department B general factory overhead (per unit)
Standard cost per unit
Amount
27
20
3
8
Amount
28
47
14
11
` 100
In the first month of operation of the pilot study (month 7 of the financial year), department B had no work in
progress at the beginning and the end of the month. The actual costs allocated to department B in the
first month of operation were:
Particulars
`
Direct labour (6500 hours)
Direct materials:
I. Output of Department
A (1400 Kg) (Note 2)
II. Material X (1900 Kg.)
Variable overheads
Fixed overheads
1. Directly incurred manufacturing overhead
2. Allocated to department B (Note 3)
`
14,000
21,000
11,500
1,600
2,900
32,500
8,000
4,500
59,000
Note 1: Based on normal monthly production of 400 units
Note 2: Actual cost of output of department A.
Note 3: Based and allocated to departments in accordance with labour hours worked.
The production manager feels that the actual costs of $59,000 for production of 500 units indicates considerable
inefficiency on the part of department B. He says, “I was right to request that the pilot standard costing system be
carried out in department B as I have suspected that they are inefficient and careless this overspending
of $9,000 proves I am right’.
Required:
(a) Prepare a brief statement which clearly indicates the reasons for the performance of department B
and the extent to which that performance is attributable to department B.
The statement should utilize variance analysis to the extent it is applicable and relevant.
(b) Comment on the way the pilot standard costing system is currently being operated and suggest
how its operation might be improved during the study period.
Solution:
Data for Resource Variance
Material
Qty.
Output of A
X Material
Labour Hr.
Variable – OH
1,500
2,000
7,000
7,000
Standard
Rate
9
5
2
1
Amount
Qty.
13,500
10,000
14,000
7,000
44,500
1,400
1,900
6,500
6,500
Actual
Rate
15
6.05
2.1538
1.2308
Amount
21,000
11,500
14,000
8,000
54,500
(a) Statement of performance
Standard Cost
Controllable Variances:
Material Usage Variance = (S.Q. – A.Q.) × A.R.
A→ (1,500 – 1,400) × 9 = 900 (F)
B→ (2,000 – 1,900) × 5 = 500 (F)
Labour Efficiency Variance =
(S. Hr – A.W. Hr) × S.R.
(7,000 – 6,500) × 2 = 1000 (F)
Fixed Overhead Efficiency Variance =
(S. Hr – A. Hr) × S.R.
(7,000 – 6,500) × 0.7857
Variable – OH Efficiency Variance =
(S. Hr – A.Q. Hr) × S.R. = (7,000 – 6,500) × 1
Uncontrollable Variances:
Material Prices Variances = (S.R. – A.R.) × A.Q.
Output of A→ (9 – 15) × 1,400 = 8,400 (A)
Material X→ (5 – 6.05) × 1,900 = 2,000 (A)
Labour Rate Variance = (2 – 2.1538) × 6,500
Variable overhead Expenses Variance = (1 – 1.2308) × 6,500
Fixed Overhead Expenses Variance = (4,400 – 4,500)
Fixed Overhead Capacity Variance = (6,500 – 5,600) × 0.7857
Amount (`)
50,000
1,400 (F)
1,000 (F)
393 (F)
500 (F)
10,400 (A)
1,000 (A)
1,500 (A)
100 (A)
707 (F)
Actual Cost
59,000
Comment: It is better to apply the technique of standard witting not only on department B but also on
other department (i.e. within the company).
---------------------------------------------------------------------------------------------------------------------------------------
PLANNING AND OPERATING VARIANCE
Question 65: ABC Ltd produces jams and other products. The production pattern for all the products is
similar first the fruits are cooked at a low temperature and then subsequently blended with glucose syrup
citric acid and pectin are added henceforth to help setting.
There is huge competition in the market because of which margins are tight. The firm operates system of standard
costing for each batch of jam.
The standard cost data for a batch of jam are:
Fruit extract
400 kg @ ` 1 per kg
Glucose syrup
700 kg @ ` 2 per kg
Pectin
99 kg @ ` 1 per kg
1 kg @ `` 5 per kg
Citric acid
Labor
18 hrs. @ `2 per hour
Standard processing loss 3%.
As a consequence of unfavorable weather in the relevant year for the concerned crop, Normal prices in
the trade were ` 2 per kg for fruit extract although good buying could achieve some, The actual price of Syrup
had also gone up by 20% from Standards. This was because of increase in customer duty of Sugar. The
actual results for the batch were:
Fruit extract
428 kg @ ` 4 per kg
Glucose syrup
742 kg @ `` 5 per kg
Pectin
125 kg @ ` 2 per kg
1 kg @ ` 6 per kg
Citric acid
20 hr @ ` 4 per hour
Labour
Actual output was 1164 kg of jam.
Required:
(a) Calculate the ingredients planning variances that are deemed uncontrollable;
(b) Calculate the ingredients operating variances that are deemed controllable;
(c) Calculate the mixture and yield variance;
Calculate the total Variance for the batch.
Solution:
Data for Resource Variances
Material
Fruit Extract
Glucose
Syrup
Pectin
Citric Acid
Original Standard
Qty.
Rate
(`)
Revised Standard
Qty.
Rate
( `)
Qty.
400
700
400
1,400
400
700
800
1,680
428
742
4
5
1,712
3,710
99
5
99
1
99
5
125
1
2
6
250
6
1,904
36
1,940
1,200
18
2,584
36
2,620
1296
20
4
5,678
80
5,758
99
1
1,200
18
Labour
1
2
1
5
2
2
24
1
5
2
Actual
Rate
(`)
(a) Statement of Uncontrollable Planning Variances
Ingredients
Traditional Variance
Planning Variances
(Original – Actual) (Original Standard – Revi.
Stan.)
Operating Variances
(Revised Stand – Actual)
Price Variance
Fruit Extract (D.M.)
Glucose Syrup
Pecting
Citric Acid
Labour Variance
400 – 1,712 = 1,312 (A)
1,400 – 3,710 = 2,310 (A)
99 – 250 = 151 (A)
5 – 6 = 1 (A)
35 – 80 = 45 (A)
400 – 800 = 400 (A)
1,400 – 1,680 = 280 (A)
99 – 99 = NIL
5 – 5 = NIL
36 – 36 = NIL
800 – 1,712 = 912 (A)
1,680 – 3,710 = 2,030 (A)
99 – 250 = 151 (A)
5 – 6 = 1 (A)
36 – 80 = 44 (A)
-------------------------------------------------------------------------------------------------------------------------------------------Question66: POV Ltd uses a standard costing system to control and report upon the production of its
single product. An abstract from the original standard cost card of the product is as follows:
For period 3: 2500 units were budgeted to be produced and sold but the actual production and sales
were 2850 units.
The following information was also available:
(i) At the commencement of Period 3 the normal material became unobtainable and it was necessary to use an
alternative. Unfortunately, 0.5 kg per unit extra was required and it was thought that the materials would be more
difficult to work with.The price of the alternative was expected to be ` 16.50 per kg. In the event, actual usage
was 12450 kg at ` 18 per kg.
(ii) Weather conditions unexpectedly improved for the period with the result that a ` 0.50 per hour bad
weather bonus, which had been allowedfor in the original standard, did not have to be paid.Because of
the difficulties expected with the alternative material, management agreed to pay the workers ` 8per
hour for period 3 only. During the period 18,800 hours were paid for. After using conventional
variances for some time, POV Ltd is contemplating extending its system to include planning and
operational variances.
Required:
(a) To prepare a statement reconciling budgeted contribution for the period with actual contribution,
using conventional material and labour variances;
(b) To prepare a similar reconciliation statement using planning and operational variances;
Solution:
Data for Resource Variances
Original Standard
Material
Qty.
Material (kg) 2,850 × 4 = 11,400
Labour (hrs.) 6 × 2,850 = 17,100
Revised Standard
Rate
Qty.
Rate
(`)
(`)
20 2,28,000 12,825 (2,850×4.5) 16.5 2,11,612.50
7 1,19,700
17,100
6.5
1,11,150
3,47,700
Actual
Qty.
12,450
18,800
Rate
18
8
(``)
2,24,100
1,50,400
3,22,762.5
3,74,500
(a) Statement of Reconciliation (Planning and Operating Variances)
Amount (`)
Budgeted Contribution
Sales Variances
Cost Volume Variance
(2,500 × 78)
Sales Margin Price
Sales Margin volume (2,500 – 2,850) × 78
Total Planning Variance (b)
Total Operating Variance (b)
Actual Contribution (2,850 × 200 – 3,74,500)
1,95,000
—
27,300 (F)
24,937.5 (F)
51,737.5 (A)
1,95,500
PArticulars
(b) Statement of Variances
Traditional Variances
Planning Variacnes( Operating
(original –Actrual
original standard –
variances(Revised
Standard)
Revised standards) stand- Actual)
1:- MAteiral Cost Variance
2,28,000-2,24,100 =3900(F)
2:- Material Price Variacne
5:- Labour Rate variance
(20 -18) X 12,450 =
24,900(F)
(11,400 – 12450) X 20 =
21,000(A)
1,19,700 –
1,50,400=30,700(A)
(7 – 8) X 18,800 = 18,800(A)
6:- Labour Efficiency
Variances
Total Variances
(17,100-18,800) X7 =
11,900(A)
29,800(A)
3:- Material Usage variance
4:- Labour Cost varaince
2,28,0002,11,612.5=16,387.5(F)
(20-16.5) X 12,825 =
44,887.5(F)
(11,400 – 12,825) X 20
= 28,500(A)
1,19,7001,11,150=8,550(F)
(7 – 6.5) X
17,100=8,550(F)
(17,100 – 17,100) X 7
= Nil
49,875(F)
2,11,612.52.24,100=12,487.5(A)
(16.5 – 18) X 12,450 =
18,675(A)
(12,825-12,450) X 16.5=
6,187.5(F)
1,11,150 – 1,50,400 =
39,250(A)
(6.5-8) X 18,800=28,200(A)
(17,100-18,800) X
6.5=11,050(A)
51,737.5(A)
--------------------------------------------------------------------------------------------------------------------------------------Question 68: (Growth, price-recovery, and productivity components) Oceano T-shirt company
sells a variety of T-shirts. Oceano presents the following data for its first two years of operations, 2003 and
2004. for simplicity, assume that all purchasing and selling costs are included in the average cost per Tshirt and that each customer buys one T-shirt.
2003
2004
Number of T-shirts purchased
20,000
30,000
Number of T-shirts lost
400
300
Number of T-shirts sold
19,600
29,700
Average selling price
`15
` 14
Average cost per T-shirt
` 10
`9
Administrative capacity in terms of number of customers that can be served
40,000
36,000
Administrative costs
`80,000
` 68,400
Administrative cost per customer
`2
` 1,90
Administrative costs depend on the number of customers that Oceano has created capacity to support,
not the actual number of customers served.
Required:
Calculate the growth price-recovery, and productivity components of changes in operating income
between 2003 and 2004.
Solution:
Balance Score Card
Last Year Profit (2003)
Growth
Price
Productivity
Current Year Profit
Revenue→ 2,94,000
Less: Cost
Material→ 2,00,000
Others→ 80,000
Profit→ 14,000
A. 1,51,500 (F)
C. 29,700 (A)
—
4,15,800
B. 1,03,060.4 (A)
D. 30,000 (F)
E. 11,600 (F)
11,900 (F)
F. 3,061 (F)
2,70,000
68,400
77,400
48,440 (F)
3,061 (F)
A. Revenue effect of Growth
= (B.Q. – A.Q.) × B.S.P.
= (19,600 – 29,700) × 15
= 1,51,500 F.
B. Cost Effect of Growth
= (B.Q. – A.Q.) × B.V.C.
= (19,600 – 29,700) × 10.204
= 1,03,060.4 A
C. Revenue effect of price
= (B.S.P. – A.S.P.) × A.Q.
= (15 – 14) × 29,700
= 29,700 A.
D. Cost effect of price
M.P.V. = (S.R. – A.R.) × A.Q.
= (10 – 9) × 30,000
= 30,000 F
E. Cost effect of Price (Fixed)
= fixed overhead expense variance
= Budget – Actual
= 80,000 – 68,400
= 11,600 F.
F. Productivity (Material Usage Variance)
= (30,306.20 – 30,000) × 10
= 3062 F.
Working Notes:
1. Data for Resource Variance
Material
Qty.
Budget
Rate
20,000
10
(`)
Qty.
2,00,000 30,306.12
Standard
Rate
10
(`)
3,03,061
Qty.
30,000
Actual
Rate
9
(`)
2,70,000
--------------------------------------------------------------------------------------------------------------------------------------Question 71: Following a strategy of product differentiation, Westwood Corporation makes a highend kitchen range hood, KE8. Westwood’s data for 2005 and 2006 follow:
2005
2006
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Units of KE8 produced and sold
40,000
42,000
Selling price
` 100
` 110
Direct materials (square feet)
120,000
123,000
Direct material cost per square foot
` 10
` 11
Manufacturing capacity for KE8
50,000 units 50,000 units
Conversion costs
` 1,000,000 ` 1,100,000
Conversion cost per unit of capacity (Row 6 ÷ Row 5)
` 20
` 22
Selling and customer-service capacity
Selling and customer-service costs
30 customer 29 customer
Cost per customer of selling and customer-service capacity (Row 9 ` 720,000
` 725,000
÷ Row 8)
` 24,000
` 25,000
Westwood produced no defective units and reduced direct material usage per unit of KE8 in 2006. Conversion
costs in each year are tied to manufacturing capacity. Selling and customer-service costs are related to
the number of customers that the selling and service functions are designed to support. Westwood has 23
customers (wholesalers) in 2005 and 25 customers in 2006.
Required:
Describe briefly the elements you would include in Westwood’s balanced scorecard.
Calculate the growth, price-recovery, and productivity components that explain the change in
operating income from 2005 to 2006.
Suppose during 2006, the market size for high-end kitchen range hoods grew 3% in terms of number
of units and all increases in market share (that is, increases in the number of units sold greater than
3%) are due to Westwood’s product- differentiation strategy. Calculate how much of the change in
operating income from 2005 to 2006 is due to the industry- market-size factor, cost leadership, and
product differentiation.
How successful has Westwood been in implementing its strategy? Explain.
Solution:
1. The balanced scorecard should describe Westwood’s product-differentiation strategy. Elements
that should be included in its balanced scorecard are:
Financial perspective: Increase in operating income from higher margins on KE8 and from growth
Customer perspective: Market share in the high-end market and customer satisfaction
Internal business process perspective: Manufacturing quality, order-delivery time, on-time
delivery, and new product features added, development time for new products and improvements in
manufacturing processes
Learning-and-growth perspective: Percentage of employees trained in process and quality
management and employee satisfaction ratings.
2. Operating income for each year is:
2005
2006
Revenues
(` 100 per unit × 40,000 units; ` 110 per unit × 42,000 units)
` 4,000,000
` 4,620,000
1,200,000
1,353,000
1,000,000
1,100,000
720,000
725,000
2,920,000
3,178,000
Costs
Direct material costs
(` 10 per sq. ft. × 120,000 sq. ft.; ` 11 per sq. ft. × 123,000 sq. ft.)
Conversion costs
(` 20 per unit × 50,000 units; ` 22 per unit × 50,000 units)
Selling and customer-service costs
(` 24,000 per customer × 30 customers; ` 25,000 per customer × 29 customers)
Total costs
Operating income
` 1,080,000
Change in operating income
`1,442,000
`362,000 F
Growth Component of Operating Income Change
Revenue effect of growth
=Actual units of output – Actual units of output sold in 2005 × Selling
price in 2005
= (42,000 units − 40,000 units) × ` 100 per unit = ` 200,000 (F)
Cost effect of growth for variable costs = Units of input required to produce 2006 output in 2005
– Actual units of input used to produce 2005 output × Input price in 2005
Cost effect of growth for direct materials =(120.000 Sq.Ft X 42,000 units – 120,000Sq.Ft = `60,000 U
40,000 units
= (126,000 sq. ft. − 120,000 sq. ft.) × ` 10 per sq. ft. = ` 60,000 U
Cost effect of growth for fixed costs = Actual units of capacity in 2005 because adequate capacity exists to
produce 2006
output in 2005 – Actual units of capacity in 2005 × Price per capacity in 2005
Cost effects of growth for fixed costs are:
Conversion costs: (50,000 units − 50,000 units) × ` 20 per unit = ` 0
Selling and customer-service costs: (30 customers − 30 customers) × ` 24,000 per customer = ` 0
In summary, the net increase in operating income attributable to growth equals:
Revenue effect of growth
Cost effect of growth
Direct material costs
Conversion costs
Selling and customer-service costs
` 60,000 (A)
0
0
Change in operating income due to growth
` 200,000 (F)
60,000 (A)
` 140,000 (F)
Price-Recovery Component of Operating-Income Change
Revenue effect of = Selling price − Selling price
price recovery
in 2006
in 2005
Cost effect of
price recovery
×
Actual units of output
= (` 110 per unit − ` 100 per unit) × 42,000 units = ` 420,000 (F)
= Input
− Input
× Units of input
price
price
required to produce
for variable costs
in 2006
in 2005
2006 output in 2005
Direct material costs: (`11 per sq. ft. − ` 10 per sq. ft.) × 126,000 sq. ft. = ` 126,000 (A)
Cost effect of
= Price per
− Price per
× Actual units of capacity in
price recovery
unit of
unit of
2005, because adequate capacity
for fixed costs
capacity
capacity
exists to produce 2006 output in 2005
Cost effects of price recovery for fixed costs are:
Conversion costs: (` 22 per unit − 20 per unit) × 50,000 units = `100,000 (A)
Selling and cust.-service costs: (` 25,000 per cust. − ` 24,000 per cust.) × 30 customers = ` 30,000 (A)
In summary, the net increase in operating income attributable to price recovery equals:
Revenue effect of price recovery
` 420.000(F)
Cost effect of price recovery
`126,000(A)
Direct material costs
Conversion costs
Selling and customer-service costs
100,000(A)
30,000(A)
256.000(A)
`164,000(F)
Change in operating income due to price recovery
Productivity Component of Operating-Income Change
Cost effect of
productivity for
variable costs
=
Actual units of
–
Units of input
×
input used to produce
required to produce
2006 output
2006 output in 2005
Cost effect of
productivity for
direct materials
Cost effect of
productivity for
fixed costs
=
(123,000 sq. ft. − 126,000 sq. ft.) × ` 11 per sq. ft. = ` 33,000 (F)
=
Actual units
of capacity
in 2006
–
Actual units of capacity in ×
2005, because adequate
capacity exists to produce
2006 output in 2005
Cost effects of productivity for fixed costs are:
Conversion costs: (50,000 units − 50,000 units) × ` 20 per unit = ` 0
Selling and customer-service costs: (29 customers − 30 customers) × ` 25,000/customer = ` 25,000
(F)
In summary, the net increase in operating income attributable to productivity equals:
Cost effect of productivity:
Direct material costs
Conversion costs
Selling and customer-service costs
Change in operating income due to productivity
` 33,000 (F)
0
25,000 (F)
` 58,000 (F)
A summary of the change in operating income between 2005 and 2006 follows:
Income
Statement
Amounts in
2005
(1)
Revenue
` 4,000,000
Costs
2,920,000
Operating income ` 1,080,000
Revenue
Revenue
Cost Effect of
and
and Cost
Productivity
Cost
Effects of
Component
Effects
Price-Recovery in 2006
of Growth
Component
Component
in 2006
in 2006
(2)
(3)
` 200,000 (F) `420,000 (F)
60,000 (A) 256,000 (A)
` 140,000 (F) ` 164,000 (F)
(4)
—
` 58,000 (F)
` 58,000 (F)
Income
Statement
Amounts in
2006
(5) = (1) + (2) + (3) + (4)
` 4,620,000
3,178,000
` 1,442,000
` 362,000 (F)
Change in operating income
3. Effect of the industry-market-size factor on operating income
Of the increase in sales from 40,000 to 42,000 units, 3%, or 1,200 units (0.03 × 40,000), is due to growth in
market size,and 800 units (2,000 − 1,200) are due to an increase in market share. The change in Westwood’s
operating income from the industry-market-size factor rather than specific strategic actions is:
$140.000(column 2 of preceding table) X
1,200 units ` 84,000(F)
2,000 units
The analysis of operating income indicates that a significant amount of the increase in operating income
resulted from Westwood’s successful implementation of its product-differentiation strategy. The company
was able to continue to charge a premium price for KE8 while increasing market share. Westwood was
also able to earn additional operating income from improving its productivity.
--------------------------------------------------------------------------------------------------------------------------------------Question 73: The CEO of your company has been given the following statement showing the results
for a recent month:
Particulars
Master Budget
Actual
Units produced & sold
10,000
9,000
`
`
Sales
8,00,000
7,00,000
Direct material
2,00,000
1,84,000
Direct Wages
3,00,000
2,62,000
Variable overhead
1,00,000
94,000
Fixed overhead
1,00,000
98,000
Total cost
7,00,000
6,38,000
Net Surplus
1,00,000
62,000
The standard cost of the product is as follows:
Direct material (1 kg. @ ` 20/kg)
Direct Wages (1 hour @ ` 30/hour)
Variable overhead (1 hour @ ` 10/hour)
Actual results for the month revealed that 9,800 kg. of material was used and 8,800 labour hours
were recorded.
(i) Prepare a flexible budget for the month and compare with the actual results.
(ii) Calculate material volume and variable overhead efficiency variances.
Solution:
Particular
Units
Sales
Master Budget
Budget
Flexible
10,000
9,000
9,000
Total (`)
Per Unit (`)
Total (`)
Actual
(`)
Variance
20,000 (A)
8,00,000
80
7,20,000
7,00,000
Direct Material
Direct Wages
Variable Overhead
3,00,000
1,00,000
30
10
2,70,000
90,000
2,62,000
94,000
Total Variable Cost
6,00,000
60
5,40,000
5,40,000
Contribution
Fixed Overhead
2,00,000
1,00,000
20
10
1,80,000
1,00,000
1,60,000
98,000
20,000 (A)
2,000 (F)
Net Profit
1,00,000
10
80,000
62,000
18,000 (A)
8,000 (F)
4,000 (A)
—
(ii) Calculation of Variances:
Material Volume Variance: SP (SQ – AQ) = 20 (9,000 – 9,800) = 16,000 (A)
Variable Overhead efficiency variance SR (SH – AR) = 10 (9,000 – 8,800) = 2,000 (F)
--------------------------------------------------------------------------------------------------------------------------------------Question 80: The following information relates to a manufacturing concern:
Standard
Amount (`)
72,000
48,000
2,40,000
60,000
1,20,000
5,40,000
60,000
6,00,000
12,000
Material A 24,000 kgs @ ` 3 per kg.
Material B 12,000 kgs @ ` 4 per kg
Wages 60,000 hours @ ` 4 per hour
Variable overheads 60,000 hours @ `1 per hour
Fixed overheads 60,000 hours @ ` 2 per hour
Total Cost
Budgeted profit
Budgeted sales
Budgeted production (units)
Actual
Amount (`)
4,57,500
62,370
44,649
1,91,250
1,20,900
45,000
47,700
900 units
Sales (9,000 units)
Material A consumed 22,275 kgs.
Material B consumed 10,890 kgs.
Wages paid (48,000 hours)
Fixed Overhead
Variable overhead
Labour hours worked
Closing work in progress
Degree of completion:
Material A and B
Wage and overheads
100%
50%
Required:
(i) Calculate all the material and labour variances.
(ii) Calculate variable overhead expenditure and efficiency variances, fixed overhead expenditure and
volume variances and sales price and sales volume variances.
Solution:
Statement of Equivalent Production in Units
Particulars
Units Completed
Closing W.I.P.
Equivalent Units
Materials
% age
Units
100%
9,000
100%
900
9,900
Wages &
% age
100%
50%
Units
9,000
450
9,450
Material Variances
Standard quantity for actual output ** x
Material A
19,800 @ 3
59,400
Material B
9,900 @ 4
39,600
29,700
99,000
Actual quantity X Actual
22,275 @ 2.8*
62,370
10,889 @ 4.1*
44,649
33,165
1,07,019
Actual Cost/Actual Quantity
Standard Quantity for actual output = (std qty/budgeted prod) × actual output
--------------------------------------------------------------------------------------------------------------------------------------Question 78: X uses traditional standard costing system. The inspection and setup costs are actually `
1,760 against a budget of ` 2,000. ABC system is being implemented and accordingly, the number of
batches is identified as the cost driver for inspection and setup costs. The budgeted production is 10,000 units
inbatches of 1,000 units, whereas actually, 8,800 units were produced in 11 batches.
(i) Find the volume and total fixed overhead variance under the traditional standard costing system.
(ii) Find the total fixed overhead cost variance under the ABC system.
Solution:
(a) (i) Traditional Standard Costing System
Budgeted
Overhead Cost/unit
Fixed Overhead expenditure
variance
Std absorption Rate =
2000/10000
Fixed Over head volume
variance
Actual
2,000/10,000 = 0.2
Variance=absorbed Budget
= 0.2 X 8,800 – 1760
= 1,760 – 1,760 = 0
Budgeted Oh-Actual OH
= 2,000 – 1,760 =240(F)
= ` 0.2 per unit
=Std absorption rate X(Budget unit
s-Actual units)
1,760/8,800 = 0.2
Overhead – actual overhead
=0.2X (10,000-8,800)=240(A)
Varification:
Total Fixed Overhead variance
= Expenditure Variance + Volume Variance
= 240(F) + 240(a) = 0
(ii)
Total Cost(`)
Production (units)
No. of batches
Batch Size (units/batch)
Cost/batch
Budget
Actual
ABC Standard
2000
10000
10
1000
200
1760
8800
11
800
160
1800
8800
9
1000
200
Under ABC 8800 units should have been produced in standard batch size of 1000 units/batch
No. of batches=8800/100=8.8=9 since no. fraction is possible
Std Cost under ABC=budgeted cost/batch X ABC std no of batches = 200 X 9 = 1800
Under ABC, variability is with respect to batches and not units
Absorbed Overheads= 9 batches X Std rate per batch = 9 X 200 = ` 1800
Actual Over heads = ` 1760
Total Overhead cost variance = ` 40 (F).
---------------------------------------------------------------------------------------------------------------------------------------
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