VARIANCE ANALYSIS
1. Direct Material Variances
Direct material variance is related with the variance in cost of actual material with
cost of standard materials. This variance is created due to change into rate of
material or change into consumption units of materials. Material consumption unit
variance is created due to change into the ratio of two or more than two materials
and change into output of final product. The material variance can be shown on the
following chart as below:
Material Cost Variance (MCV)
Material Price Variance (MPV)
Material Usage Variance (MUV)
Material Yield Variance (MYV)
Material Mix Variance (MMV)
For calculating the above material variances, the following formulas have to be
applied:
a. Material Cost Variance = SQ  SP – AQ  AP
b. Material Price Variance = AQ (SP–AP)
c. Material Usage Variance = SP (SQ – AQ)
Total Weight of AM
d. Material Mix Variance = Total Weight of SM  (SC of SM)– SC of AM
e. Material Yield Variance = SR (Actual Yield – Standard Yield)
Where,
SQ = Standard Quantity
AQ = Actual Quantity SP = Standard Price AP
=
Actual Price
AM = Actual Mix
SM = Standard Mix SC of SM = Standard cost of
Standard Mix SC of AM = Standard cost of Actual Mix
2. Direct Labour Variance
Direct labour variance is related with the variance in the cost of actual labour with
cost of standard labour. This variance is create due to change into rate of labour or
change into consumption time of labour. Due to cost on time of labour the cost of
labour also be high. Labour efficiency variance is concerned with the variance of
labour mix and labour yield variance. Labour variance can be shown the following
chart as below.
Direct Labour Cost Variance (LCV)
Labour Rate Variance (LRV)
Labour Efficiency Variance (LEV)
Labour Mix Variance (LMV)
Labour Idle Time Variance (LITV)
Labour Yield Variance (LYV)
The following are applied for finding out the above variance.
a. Labour Cost Variance = ST  SR – AT  AR
b. Labour Rate Variance = AT (SR – AR)
c. Labour Efficiency Variance = SR (ST – AT)
d. Labour Idle Time Variance = Idle Time  SR
Actual Labour Mix

e. Labour Mix Variance =  Std. Labour Mix  SC of SM– SC of AM


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f. Labour Yield Variance = SR (Actual Yield – Std. Yield)
Where,
ST = Standard Time SR = Standard Rate
AT = Actual Time
AR
=
Actual Rate
AM = Actual Mix
SM = Standard Mix
SC of SM = Standard cost of
Standard Mix
SC of AM = Standard cost of Actual Mix
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PROBLEMS ON STANDARD COSTING
P – 1. Bello chemical Industries provide the following information from their
records: For making 10 kg. of OMO, the standard material requirement is:
Material
Quantity (kgs.)
Rate per kg. (Rs.)
X
8
6.00
Y
4
4.00
During December 1995, 100 kgs. of OMO were produced. The actual consumption
of materials is as under:
Material
Quantity (kgs.)
Rate per kg. (Rs.)
X
75
7.00
Y
50
5.00
Calculate:
a. Material Cost Variance
b. Material Price Variance
c. Material Usage Variance
P – 2. From the following data, calculate material variances.
Material Standard Quantity Standard Rate Actual Quantity Actual Rate
X
8,000 kg.
Rs. 1.05
7,500 kg.
Rs. 1.20
Y
3,000 kg.
Rs. 2.15
3,300 kg.
Rs. 2.30
Z
2,000 kg.
Rs. 3.30
2,400 kg.
Rs. 3.50
Also write a note on the relationship of various variances that you compute.
P – 3. Sarkar & Co. Ltd. manufactures product P and uses a standard cost system.
Standard product and cost specification for 1000 kg. of product are as follows:
Material
Quantity in kg.
Price (Rs.) Cost /kg. (Rs.)
A
800
2.50
2,000
B
200
4.00
800
C
200
1.00
200
Input
1,200
3,000
Output
1,000
3,000
Material records indicate:
Consumption in April
A
157,000 kg. @ Rs. 2.40
B
38,000 kg. @ Rs. 4.20
C
36,000 kg. @ Rs. 1.10
Actual finished production for the month of January is 2,00,000 kg. Calculate
material variances.
P – 4. Following are the particulars in respect of a product where two types of
materials A and B are used:
Material input
Standard
Actual
Tons
Rate
Tons
Rate
A
120
10.00
140
9.50
B
80
7.50
60
9.00
200
200
Less: Loss
20
18
Net production
180
182
You are required to calculate:
(a)
Material price variance
(b)
Material mix variance
(c)
Material Yield variance
(d)
Material usage variance
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P – 5. Pieco Ltd. is producing a ‘standard mix’ by using 60 kg. of material X and
40 kg. of material Y. The standard loss of production is 30%. The standard price of
X is Rs. 5 per kg. and that of Y Rs. 10 per kg.
The actual mixture and yield were as follows:
X
80 kg. @ Rs. 4.50 per kg.
Y
70 kg. @ Rs. 8 per kg.
Actual yield is 115 kg.
Calculate material variances.
P – 6. The standard cost of a certain chemical mixture is:
35% material A at Rs. 25 per kg.
65% material B at Rs. 36 per kg.
A standard loss of 5% is expected in production. During a period there is used:
125 kg. of material A at Rs. 27 per kg. and
275 kg. of material B at Rs. 34 per kg.
The actual output was 365 kg.
Calculate:
(a)
Material cost variance
(b)
Material price variance
(c)
Material mix variance
(d)
Material yield variance
P –7 B. K. Chemical Ltd. manufactures BXE by mixing three raw materials. For
each batch of 100 kg. of BXE, 125 kg. of raw materials are used. In June, 60 batches
were produced whereas expected output was 5,600 kg. of BXE. The standard and
actual particulars for June are as follows:
Raw material
Standard
Actual
Material
Mix % Price/kg. (Rs.) Mix % Price/ kg. (Rs.) purchased (kg.)
A
50
20
60
21
5,000
B
30
10
20
8
2,000
C
20
5
20
6
1,200
Calculate all variances.
P –8. 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.
Materials
Standard mix
Standard price per
A
40%
Rs. 4.00
B
60%
Rs. 3.00
The standard loss in processing is 15%.
During April, 1990, the company produced 1,700 kg. of finished output. The
position of stock and purchases for the month of April, 1980 is as under:
Material Stock on 1–4–90 Stock on 30–4–90 Purchases during April 1990
kg.
kg.
kg.
Cost Rs.
A
35
5
500
3,400
B
40
50
1,200
3,000
Calculate the following variances:
i)
Material price variances
ii)
Material usage variances
iii)
Material yield variances
iv)
Material mix variances
v)
Total material cost variances
P – 9. A company manufacturing ‘distempers’ operates a costing system. The
standard cost of one of the products of the company shows the following standards:
Materials Quantity (kg.)
Standard price per (kg.)
Amount (Rs.)
A
40
75
3,000
B
10
50
500
4
C
50
20
1,000
Material cost per unit (Total)
4,500
The standard input mix is 100 kg. and the standard output of the finished product is
90 kg. The actual results for period are:
Materials used
A
240,000 kg. @ Rs. 80 per kg.
B
40,000 kg. @ Rs. 52 per kg.
C
220,000 kg. @ Rs. 21 per kg.
Actual cost of the finished product = 4,20,000 kg.
You are required to calculate the material price, mix and yield variances.
P –10. From the following particulars compute (a) material cost variance (b)
material price variance and (c) material usage variance.
Quantity of material purchased – 3,000 units
Value of materials purchase – Rs. 9,000
Standard quantity of materials required per tonne of output - 30 units
Standard rate of material – Rs. 2.5 per unit
Opening stock of materials – Nil
Closing stock of materials – 500 units
Output during the period – 80 tonnes
P – 11. Standard set for materials consumption was 100 kg @ Rs. 2.25 per kg. in a
cost period:
Opening stock was 100 kg @ 2.25 per kg.
Purchase made 500 kg @ Rs. 2.15 per kg.
Consumption 110 kg
Calculate:
Usage variance (b) Price variance (i) When variance is calculated at point of
purchase (ii) When variance is calculated at point of issue on FIFO basis (iii) When
variance is calculated at point of issue on LIFO basis.
What is the effect on closing stock valuation when materials are charged out to cost
on basis (ii) and (iii) above?
P – 12. From the following information, compute (i) Mix variance (ii) Price variance
(iii) Usage variance (iv) Sub-usage variance and (v) Cost variance
Materials
Standard
Actual
Quantity
Rate
Amount Quantity
Rate
Amount
(kg)
(kg)
Material A
10
2
Rs.20
5
3
Rs.15
Material B
20
3
60
10
6
60
Material C
20
6
120
15
5
75
Total
50
4
200
30
5
150
P – 13. The standard material cost for100 kg chemical D is made up of
Chemical A – 30 kgs @ Rs. 4 per kg
Chemical B – 40 kgs @ Rs. 5 per kg
Chemical C – 80 kgs @ Rs. 6 per kg
In a batch, 500 kg of chemical D were produced from a mix of
Chemical A – 140 kg at a cost of Rs. 588
Chemical B – 220 kg at a cost of Rs.
1056
Chemical C – 440 kg at a cost of Rs. 2860
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How do the yield, mix and the price factors contribute to the variance in the actual
cost per 100 kgs of chemical D over the standard cost?
P – 14. Modern Tiles Ltd. makes plastic tiles of standard size of 6"×6"×1/8". From
the following information, you are required to calculate for direct materials:
i)
The cost variance in total
ii)
The cost variance sub divided in to (a) price (b) usage
iii)
The usage variance analysed to show (a) mixture (b) yield
A standard mix of the compound required to produce an output of 20,000 square
feet of tiles 1/8" thick is as follows:
Direct materials
Quantity (kg)
Price per kg
A
600
Rs. 0.9
B
400
0.65
C
500
0.40
During December 2002, 8 mixes were processed and actual materials consumed
were:
Direct materials
Quantity (kg) Price per kg
A
5,000
Rs. 0.85
B
2,900
0.60
C
4,400
0.45
Actual production for December was 620,000 tiles.
P –15. One kilogram of product requires two chemicals A and B. The following
were the details of product K for the month of June.
(a)
Standard mix chemical A – 50% and chemical B 50%.
(b)
Standard price per kilogram of chemical A Rs. 12, chemical B Rs. 15
(c)
Actual input of chemical B 70 kilogram
(d)
Actual price per kilogram if chemical A Rs. 15
(e)
Standard normal loss 10% of total input.
(f)
Material cost variance total Rs. 650 adverse.
(g)
Material yield variance total Rs. 135 adverse.
You are required to calculate:
Material mix variance
Material usage variance
Material price variance
Actual loss of actual input
Actual input of chemical A
Actual price per kg of chemical B.
Labour Variances
P – 16. The standard cost card for one unit of product shows the following costs for
material and labour:
Material 4 pieces @ Rs. 5.00
Labour 10 hours @ Rs. 1.50
5,700 units of the product were manufactured during the month of March, 1992 with
the following material and labour costs:
Material – 23,000 pieces @ Rs. 4.95
Labour – 56,800 hours @ Rs. 1.52
Calculate appropriate material and labour variances.
P – 17. For a unit of product A, the standard data is given below:
Material
5 kg. @ Rs. 40 per kg.
Rs. 200
Labour
40 hrs. @ Re. 1.00 per hour
Rs. 40
6
Rs. 240
Actual data:
Actual production 100 units
Materials 490 kg. @ Rs. 42 each
Labour
Rs. 20,580
3960 hrs. @ Rs. 1.10 per 4356
unit
24,936
Calculate:
1.
Material cost variance
2.
Material price variance
3.
Material usage variance
4.
Labour cost variance
5.
Labour rate variance
6.
Labour efficiency variance
P – 18. The standard cost card for a product shows as thus:
Per unit Rs.
Material cost 2 kg. @ Rs. 2.50 each 5.00
Wages
2 hours @ 50 p. each 1.00
The actuals which have emerged from business operation are as follows:
Production
8,000 units
Materials consumed – 16,500 kg. @ Rs. 2.40 each Rs. 39,600
Wages paid – 18,000 hours @ 40 p. each
Rs. 7,200
P – 19. The standard cost on ‘material’ and ‘labour’ for the making of a unit of a
certain product are estimated as under:
Material 80 kg. at 1.50 per kg.
Labour 18 hrs. at Rs. 1.25 per hr.
On completion of the production of a units, it was found that 75 kg. of material
costing Rs. 1.75 per kg. has been consumed and that the time taken was 16 hours, the
wage rate being 1.50 per hour.
You are required to calculate material and labour variances.
P –20. The standard cost of a product is: 10 hours per unit at Rs. 5 per hour. The
actual data is:
Production
1,000 units
Hours taken:
Production
10,400 hours
Idle time
400 hours
Total time
10,800 hours
Payments made Rs. 56,160 at Rs. 5.20 per hour. Calculate:
(a)
Labour cost variance
(b)
Labour efficiency variance
(c)
Labour rate variance
(d)
Idle time variance
P – 21. For the following data, calculate:
(a)
Labour cost variance
(b)
Labour rate variance
(c)
Labour efficiency variance
Dept. A
Dept. B
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Actual direct wages
Standard hours
Standard rate per hour
Actual hours, worked
2,000
8,000
30 paise
8,200
1,800
6,000
35 paise
5,800
P – 22. A gang of workers usually consists of 10 men, 5 women and 5 boys paid at
standard hourly rates of Re. 1.25, Re. 0.80 and Re. 0.70 respectively. In a normal
working week of 40 hours, the gang is expected to produce 1,000 units of output.
In a certain week, the gang consisted of 13 men, 4 women and 3 boys; actual hourly
rates being Rs. 1.20, Re. 0.85 and Re. 0.65 respectively. Two hours were lost due to
abnormal idle time and 960 units of output were produced.
Calculate appropriate labour variances.
P –23. A job is scheduled to be completed in 30 weeks with a labour employment of
100 skilled operatives, 40 semi–skilled operatives and 60 unskilled operatives. The
standard weekly wages of each type of operatives are – skilled Rs. 60, semi–skilled
Rs. 36 and unskilled Rs. 24. The work is actually completed in 32 weeks with a
labour force of 80 skilled, 50 semi–skilled and 70 unskilled operatives and the actual
weekly wage rates average Rs. 65 for skilled, Rs. 40 for semi–skilled and Rs. 20 for
unskilled labour. Analyze the variance in the labour cost due to various reasons.
P –24. The standard labour composition and the actual labour composition engaged
during the month are given below:
Skilled Semi–skilled
Unskilled
(a)
Standard number of workers in a group
30
10
10
(b)
Standard wage rate (rupees per hour)
5
3
2
(c)
Actual number of workers employed during 24
15
12
the month in the group
(d)
Actual wage rate per hour (Rs.)
6
2.5
2
During the month of 200 working hours, the group produced 9,600 standard hours
of work.
Required:
Calculations showing wage rate variance, labour efficiency variance, labour mix
variance and total labour cost variance.
P – 25. From the following data, calculate (i) labour cost variance (ii) labour
efficiency variance (iii) labour rate variance and others.
Workmen
Standard
Actual for 620,000 tiles
Hrs.
Rate
Total Hrs.
Rate
Total
Workmen A 20
3
60
30
3
90
Workmen B 25
4
100
15
4.5
67.5
160
157.5
P – 26. The details regarding the composition and the weekly wages rates of labour
force engaged on a job scheduled to completed in 30 weeks are as follows:
Workers
Standard
Actual
No. of labours Wages/week No. of labour Wage/Week
Skilled
75
60
70
70
Semi-skilled 45
40
30
50
Unskilled
60
30
80
20
The work is actually completed in 32 weeks. Calculate the various variances.
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P – 27 The standard labour component and the actual labour component engaged in
a week for a job is as under.
Skilled Semi skilledUnskilled
workers workers
workers
(a) Standard number of workers in the gang
32
12
6
(b) Standard wage rate per hr.
3
2
1
(c) Actual number of workers employed in the Gang 28
18
4
(d) Actual wage rate per hr.
4
3
2
During the 40 hrs working week, the gang produced 1800 standard labour hours of
work. Calculate the difference variances.
P – 28. A gang of workers normally consists of 30 men, 15 women and 10 boys.
They are paid at standard hourly rates as under:
Men
– Rs. 0.8
Women – Rs. 0.6
Boys
– Rs. 0.40
In a normal week of 40 hours, the gang is expected to produce 2000 units of output.
During the week ended 31st December 2001, the gang consisted of 40 men, 10
women and 5 boys. The actual wages paid were @ Rs. 0.70, Rs. 0.65 and Rs. 0.30
respectively. 4 hours were lost due to abnormal idle time and 1600 units were
produced. Calculate (i) wage variance (ii) wage rate variance (iii) labour efficiency
variance (iv) gang composition variance (i.e. labour mix variance) (v) labour subefficiency variance (vi) labour idle time variance.
P – 29. Trishul Industries turns out only one article, the Prime Cost standard for
which have been established as follows:
Per completed piece
Material
5 Lbs @ Rs. 4.20
Rs. 21
Labour
3 hrs. @ Rs. 3
Rs. 9
The production schedule for the month of July, 1998 required completion of 5000
pieces. However 5120 pieces were actually completed.
Purchases for the month July 1998 amounted 30,000 Lbs of materials at a total
invoice price of Rs. 135,000
Production records for the month of July, 1998 showed the following actual results.
Materials requisitioned and used – 25,700 Lbs.
Direct labour – 15,150 hrs Rs. 48,480
Calculate appropriate material and labour variances
P – 30 From the following data of A & Co. Ltd. relating to budgeted and actual
performance for the month of March, ------ compute the material and labour
variances.
Budgeted data for March:
Units to be manufactured – 150,000
Units of direct material required (based on standard rates) – 495,000
Planned purchase of Raw material (units) – 540,000
Average unit cost of direct material – Rs. 8
Direct labour hour per unit of finished goods – 3/4 hrs.
Direct labour cost (total) – Rs. 2992,500
Actual data for March:
Units actually manufactured – 160,000
Direct material cost (purchase cost based on units actually issued) – Rs. 4341,900
Average units cost of direct material – Rs. 8.20
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Total direct labour hours for March – 125,000
Total direct labour cost for March – Rs. 3375,000
P –31. The Hulas Metal Ltd. uses standard costing system to control its direct and
indirect costs. The data relating to standard labour mix and per hour costs are
presented below:
Skilled labour
2 nos.
@ 5 per hr.
Rs. 10
Semi-skilled labour
3 nos.
@ 4 per hr
Rs. 12
Unskilled labour
5 nos.
@ 2 per hr
Rs. 10
10 nos.
Rs. 32
Standard output per gang hour 0.25 Galvanised sheets.
Further more the company also defines its plant capacity informs of direct labour
hours. The annual normal plant capacity is 120,000 DLH per year or 10,000 DLH
per month. The budgeted fixed overhead per year to Rs. 360,000. All manufacturing
overheads are applied to the production on the basis of DLH at Rs. 6 per hour.
The overall result of the company for the month of Chaitra are presented below:
DLH paid - 10,000 hrs.
Actual output 2,300 Galvanised sheets.
Actual labour mix
Skilled
3 nos.
@ 5 per hr.
Rs. 15
Semi-skilled
Unskilled
3 nos.
4 nos.
@ 3 per hr
@ 2.5 per hr
10 nos.
Rs. 9
Rs. 10
Rs. 34
Actual manufacturing overhead paid in total Rs. 65,000
Required:
i)
Labour cost variance sharing labour efficiency, sub-efficiency (yield), labour
mix variance and labour rate variance.
ii)
Calculation of three overhead variance.
P –32. The standard regarding the labour cost and the actual have been presented
below:
Standard
Actual
Types of
Nos.
Rate
Cost
Types of
Nos.
Rate
Cost
labour
labour
Skilled
2
5
10
Skilled
2
5
10
Semi skilled
3
3
9
Semi skilled
4
2.75
11
Unskilled
5
1
5
Unskilled
4
1.5
6
10
24
10
27
Standard output per gang hour
Actual output - 430 units
Weekly working hour - 40
Required: Labour efficiency sub (yield), mix, total efficiency, rate and cost
variance.
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