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Students'Handbook on Cost Accountinq and Financial Management

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UV Limited presents the following inlormation for November. Calculate the Cost Variances.

o Budgeted Production of Product P = 200 units.

r Standard Consumption of Raw Materials = 2 Kg per unit of P'

o Standard Price ol MaterialA = Rs.6 per Kg.

. Actually, 250 units of P were produced. MaterialA was purchased at Rs.8 per Kg and consumed at 1.8 Kg per unit of P.

Solution:

illtuslration eiildtiilil'eti.st:llr iC#EH: i1fliffi: i*;SB!t :FffiS[i ji::ii!itffitt*ii.i*l+'r:i':,"."",,:i;Iffi*$rVINAYAK ttd produces an article blending two basic Raw Materials A and B. lt operates a Standard Costing system. Standard Mlx

of A and B are 4}o/oand 60% respectively & their Standard Prices per kg are Rs.4 and Rs.3 respectively.

The Normal Loss in processing is 15%. During April, the Company produced 1,700 kg of output. The position of Stock and

Purchases lor the month oI April is as under:

Materials Stock on 1-Aor Stock on 3FApr Purchased Cost ol Purchase

A 35 kqs 5 kss 800 kss Rs.3,400

B 40 kqs 50 kos 1,200 kgs Rs.3,000

Analyse the Material Cost Variances into - (a) Price (b) Mix and (c) Yield. Also compute Purchase Price Variance.

Solution:

SQxSP(1)

AQXAP(2)

AQxSP(3)

Material VariancesCost = (1) - (2) = 600 A

Y-,Pd6s =(3) - (2) Usage = (1) - (3)

=900A =300F

(250x2)xRs.6= Rs.3,000

(250 x 1.8)x Rs.8

= Rs.3,600

(250x1.8)xRs.6= Rs.2,700

NotesPafticularc Materia! A Material B

1. Actual Quantity Consumed (AQ)

= Ooenino Stock + Purchases - Closinq Stock35+800-5=830k9 40+1,200 - 50 = 1,190 kg

2. Actual Price =Cost of Materials Purchased

Material Purchase QuantityEHq = Rs.4.25 per ks800 kg 'E='lo9' =Rs.2.50 per kg

1,200 kg

3. ActualCost, i.e. AQ x AP, using FIFO Method:

Issues out of Opening Stock valued at Standard Cost

Issues out of Current Purchases valued at Current Actual Price

(35 kg x Rs.4.00)+ (795 k9 x Rs.4.25)

= Rs.3r519

(40 kg x Rs.3.00)+(1,150 k9 x Rs.2.50)

= Rs.2,995

4, Comoutation of Standard Ouantitv (SQ) 5. Comoutation of Revised Actual OuantiW (RAO)

Normal Loss is 15ol0. So, Output = 100o/o 'l5o/o = 850/0.

Since Actual Output is 1,700 k9, SQ= i$#= 2,000 kg.

-

Material A B

Standard Mix 40o/o 600/o

Standard Qtty 800 kg 1,200 kg

Total AQ Consumed = 830 + 1,190

= 2,020 kg.

TMaterial A B

Standard Mix 40o/o 600/o

RAQ 808 kg L,2lZkg

10.15

Standard Costing

Chart

PafticularcSQxSP

(1)AQxAP

(2)AQxSP

(3)RAQ x SP

(4)

MaterialAMaterial B

800 kg x Rs.4 = 3,2001,200 kS x Rs.3 = 3,500

830 kg x Rs.?

1.190 ko x Rs.?

830 kg x Rs.4 = 3,3201.190 ko x Rs.3 = 3,570

808 kg x Rs.4 = 3,232l.2l2kaxRs.3=3.636

Total (WN 4) Rs.6,800 (WN 3) Rs.6,514 Rs.6,890 (WN 5) Rs.O868

Variances: Material Cost Variance.= (1) - (2'l = 286 F

+Material Price Variance = (3) - (2) = 376 f

=(4)-(3)=2Zn =(1)-(4)=68R

MaterialPurchase PriceVariance(MPPV) = (PQ x SP)-(PQ x AP) = PQ x (SP-AP) = 4OO F, computed as under-For A = 800 kg x (Rs.4.00 - Rs.4.25) = 2OO AFor B = 1,200 kg x (Rs.3.00 - Rs.2.50) = 500 F

iffiiis,!,$ffii*: ffi liLilidetails relatino to Product X durinq the month of are available -

Material Usage Variance = (1) - (3) = 90 R

YVMaterial [4ix Variance Materibl Yield Variance

Calculate the Actual Quantity ol Material used during the month of April.

Solution: MaterialPriceVariance = AQ x SP-AQ x AP = AQ x (SP-AP) = Rs.9,800 Adverce,

GivenSP=Rs.40perkgandAP=Rs.42perkg.So,AQx(Rs.40-Rs.42)=-Rs.9,800.Solving,AQ=d9O0kg.

Material Mix Variance for both the materials was Rs.45 adverse.

Solution:1. LetSQforMaterialg = Qunits. MUVforg = (1)-(3) = (Q x 15)-(70 x 15) = 369n.

On solving, 15Q = 759. Hence, Q = 50 units. Therefore, SQ for Material B = 50 units.

Z. SQ for MaterialA = 50 units. SQ for Material B = 50 units (as computed above). Hence, Std Mix is 1:1.

3. Let AQ of Material A be K units. Total AQ = (K + 70) units. Since Standard mix is 1:1, MQ of A and B are each

(K t 70) .no 6 1'o) respectivety,22It is given that Material Mix Variance = (4) - (3) = 45A

On substituting, we have, tq3 x L2 + {f,P x 151 - [(Kx12) + (70x15)] = -45

Upon simpliffing, we have, 6K + 420 + 7.5K + 525 - 12K - 1,050 = 45.On solving the above, 1.5K = 50 or K = 40 units' Hence, AQ for A = 4O units.

Material Price Variance: Rs.9,800 (Adverse)

Material Usage Variance: Rs.4,000 (Favourable)Standard Cost per unit of X: Materials: 50 kg at Rs.4O/kg

Actual Production: 100 units

the missino data indicated marks in the

Particulars MaterialA MaterialB

Standard Price per unit

Actual Price per unit

Standard lnput (Kgs)

Actual lnput (Kgs)

Material Price Variance

Material Usage Variance

MaterialCost Variance

Rs.l2Rs.l5

50

? (B)

? (c)? (E)

?ffi

Rs.15

Rs.20

? (A)

70

? (D)

Rs.300 Adverse

? (G)

10.t7

Students'Handbook on Cost Accountinq and Financial Management

5. Variance ChaftSQxSP

(1)AQxAP

(21AQxSP

(3)RAQ x SP

(4)

A (qiven) 50 x 12 = 600 (WN 3) 40 x 15 = 600 ffiN3)40x12=480 (WN4)55x12=660

B (WN 1) 50 x 15 = 750 (oiven) 70 x 20 = 1,400 (qiven) 70 x 15 = 1,050 ffiN4)55x15=825Rs.1,350 Rs.2100O Rs.1,530 Rs.1,485

4. Total AQ = 40 + 70 = 110 units. Rewriting 110 units in the ratio 1:1, MQ for A and B is 55 units each.

Note: All Prices SP & AP are given in the question. SQ for A and AQ for B is also available in the question.

After completing the Working Note Table given above, the Material Cost Variances (for A and B) are computed below -Material Cost Variance = (1) - (2) = Nil + 650 A = 650A

v-lMaterial Price var'iancs Material Usage Variance

= (3) - (2) = 120R + 350A = 470 A

=(4)-(3)=45R

Answer: (A) 50 kgs (B) 40 kgs (C) Rs.120A, (D) Rs.350A, (E) Rs.120F, (F) Nil, (G) Rs.650A'

=(1)-(4)=135R

Given the followinq data. comoute the relevant variances -Particulars Skilled Semi-skilled Un+killed

Number in Standard gang (for 40 hour week)

Standard rate per hour (Rs.)

Actual number in the gang (for 42 hour week)

Actual rate of oav (Rs.)

16

3

14

4

6

2

9

3

3

1

2

2

edgooStandardHours.However,duringtheweek,4hoursperworkerwasconsidercdidle time due to machine breakdown.

Solution: Working Notes:1. Idle Time Variance = Abnormal (Actual) Idle Hours x Standard Rate.

For Skilled Labour : (14 x 4)x Rs.3 = 168A

ForSemi-skilled Labour: (9 x 4) x Rs.2 = 72A

= (1) - (3) = 120F + 300A #0 A

a,Material Mix Variance Material Yield Variance

For Unskilled Labour :

Total Idle Time Variance

(2x4\xRe.1 = 8A

= 248A

2. Comoutation of Standard Hourc (SH) 3. Computation of Revised Actual Hourc (RAH)

TotalStandard Hours (Given) = 900 hours

*tvGrade Skilled Semi-skilled Unskilled

Standard Mix 16 6 3

Standard Hours 576 hours 216 hours 108 hours

Total AH = (14x42) + (9x42) + (2x42) = 1,050 DLH

Grade Skilled Semi-skilled

Standard Mix 16 6

Unskilled

3

RAH 672 hours 252 hours 126 hours

4. Variance Chart

PafticularcSHxSR

(1)AHxAR

(2)AHxSR

(3)RAH X SR,

(4)

Skilled

Semi-skilled

Unskilled

576xRs.3=L,728216xRs.2=432108xRs.1=108

(14 x 42) x Rs.4= 2,352

(9 x 42) x Rs.3 =1,134(2x42\xRs.2=168

(14 x42) x Rs.3=1,764

(9x42)xRs.2=756(2x 42) x Rs.1 = 84

672xRs.3=2,0L6252xRs.2=5(X126xRs.1=126

Total Rs.2,268 Rs.3,654 Rs.A604 Rs.21646

10.18

Standard Costing

Variances: Labour Cost Variance = (1) - (2) = 1,386 ArLabour Rate Variance = (3) - (2) = 1,050 I

*Labour Efficienry Variance = (1) - (3) = 336 R

Labour Mix Var.

= (4) - (3) = 42r

Classificatit based on

Labour Sub-eff Var.

=(1)-(4)=378R

Classification Orrt on

Idle Time Var.WN1=248A

Revised Eff. Var.(bal.fig) = 88 A

Yatiances

fitur*rdCIaBiYoHlffiMthe Overhead Variances

Itote: t. StanOard time for 1 unit is 20 hours. 2. This includes 300 hours abnormal idle time.

Solution:

(a) VOH Standard Rate Per hour =

(b) VOH Standard Rate Per unit =

1. Basic CalculationsBudgeted voH Rs.7,800

Budgeted Hours

Budgeted VOH

(300 x 20) hours= Rs.1.3O per hour.

Budgeted Output- Rs'7'8oo

= Rs,2G oer unit.300 units

From the lollowinq inlormation peltaining to January, calcrJlate

Particulars Production (in units) Variable Overheads (Rs.) Hours worked

Budseted 300 7,800 (See Note 1)

Actual 250 7.000 4.500 ((See Note 2)

2. VarianceAlternative 1: Computation based on Time Alternative 2: Computation based on OutputSHxSR AVOH AHxSR AOxSR AVOH SOxSR

(1) (2) (3) (1) (2) (3)

(250x20)x Rs.1.30 ph

= Rs.6,500Rs.7,000(given)

4,500 hrsxRs.1.30 ph

= Rs.5,850250 unitsxRs.26 pu

= Rs.6,500Rs.7,000(given)

4.500 hrs xRs.tb Du20 hrs pu

= Rs.5.850

Variances: VOH Cost Variance = (1) - (2) = 500 R

*VOH Expenditure Variance = (3) - (2) = 1,1501

vVOH Efficiency Variance = (1) - (3) = 650 f

YVVOH Idle Time Variance VOH Revised Efficiency Variance

= 300 x 1.30 = 390 A (bal.fig) = 1,040 F

From the inlormation to calculate

Particulars Budgeted Actual

Number of working days

Production in unitsFixed Overhead in Rs.

25

20,000

30.000

27

22,000

31.000

Budgeted Fixed Overhead Rate is Re.1 per hour.

Solution:

Actua! Hours Worked in February is 31,500.

1. Basic CalculationsBudgeted FOH Rs.30,000

Hours - 30^000 ho.Jrs= Re.1 per hour. (given)

Note: In the above calculation, BH = 30,000 hrs is the balancing figure.

(a) FOH Standard Rate per hour =Budgeted

10.19

Students' Handbook on Cost Accounting and Financial Management

(b) FOH Standard Rate per unit = ^S:9'ool = Rs.1.5o per unit'20,000 units

Budgeted FOH

Budgeted Output

2. Chart

AOxSR AFOH BFOH AHxSR pFoH = BFon x4PBD

(1) (21 (3) (4) (s)

22,000 units x Rs.1.50 pu

= Rs.33,000Rs.31,000 Rs.30,000

31,500 hrs x Re.1 ph

= Rs.31,500RS.30,OO0 , Z = Rs.32,400'25

FOH Expenditure Variance = (3) - (2) = 1,000 A

FOH TFOH Volume Variance = (1) - (3) = 3,000 f

Variances:

(d) FOH Standard Rate per unit =

tFOH CapacityVariance=(4)-(5)=900A

Budgeted FOH

tFOH EfficiencyVariance=(1)-(4)= 1,500 F

tFOH Calendar

Variance=(5)-(3)= 2,400 F

FOH CalendarVariance=(5)-(3)

= 5,760 A

ffiationS:FOH.Vartancgs :.. "".". ,.:..":'i,"..:.: .i...,,...,..,.'i,i...:i',..ii.: ,:.*,. 1,,,.. ."" .. ":, ";.,.il*fl*iA Company has a normal capacity of 120 machines, working I hours per day of 25 days in a month. The Fixed Overheads are

budgeted at Rs.1,44,000 per month. The standard time required to manufacture one unit of product is 4 hours. ln April, theCompany worked 24 days of 840 machine hours per day and produced 5,305 units of output. The Actual Fixed Overheads werc

Rs.1,42,0fi). From the above, compute all FOH related variances.

Solution: 1. Basic Calculations(a) Budgeted Hours = 120 machines x 8 hours x 25 days = 24,000 machine hours.

(b) Budgeted output = r 3o'000,!o"f,, = 6,000 units.4 hours per unit

(c) FoH Standard Rate per hour = =!Y!9:t:0,'!o'Budgeted Hours= =f:l:*1'ooo = Rs.6 per hour.

24,000 hours

= f:1i*{r09 = Rs.24 per unit.5,000 unitsBudgeted Output

Variances: FOH CostVariance = (1) - (ffi+

FOH Expenditure Variance = (3) - (2) = 2,000 f FOH Volume Variance = (1) - = 14,680 A

CapacityVariance=(4)-(5)= L7,280 A

FOH EfficiencyVariance=(1)-(4)= 6,360 F

2. Chart

AOxSR AFOH BFOH AHxSR pFoH = BFoH x49BD

(1) (2) (3) (4) (s)

5,305 units x Rs.24 pu

= Rs,L,27,320Rs.1,42,000

(Given)Rs.1,44,000

(Given)(24 x 840) hrs x Rs.5 ph

= Rs.1,20,960Rs.1,44,OOO

" ff =Rs.1,38,240

Vinak Ltd has furnished the information for the month olPailiculars BudEeted Actuals

Output (units)

Hours

Fixed OverheadVariable Overhead

Workino Davs

30,000

30,000

Rs.45,000

Rs.60,000

25

32,500

33,000

Rs.50,0fil

Rs.68,0fi)

26

Calculate the variances.

10.20

Standard Costing

Solution: 1. Basic Calculations

(a) voH standard Rate per hour = #ffi# = *H#iffi = Rs.2 per hour.

(b) voH standard Rate perunt = ffiffi = ,'ffiffi- = Rs.Z per unit'

(c) FoH Standard Rate per hour = ffinffi = Affiiffi = Rs'1.50 per hour'

(d) FoH Standard Rate perunn = ,ffiffi = effi#h = Rs'1'50 per unit'

, Chaft

AOXSR(1)

AVOHQI

AHXSR(3)

VOH VariancesCost (1) - (2\ = 3,000 A

a-,Expenditure (3) - (2) Efficiencv (1) - (3)

= 2,000 A = 1,000 A32,500 unitsxRs.2 pu

= Rs.65,000

GivenRs.68,000

33,000 hrs x Rs.2 Ph

= Rs.66,000

? ol{ Variances

AOxSR AFOH BFOH AHXSR PFOH = BFOH x49

(1) (2) (3) (4) (s)

32,500 units x Rs.1.50 Pu

= Rs.48,750Rs.50,000

(9iven)Rs.45,000

(given)33,000 hrs x Re,1'fi

= Rs.49,500Rs.45,000 * #' =Rs.46,800

Variances: FOH Cost Variance = (1) - = 1,250 A

FOH Expenditure Variance = (3) - (2) = 5,000 A

FOH CapacitYVariance = (4)-(5)= 2,700 F

FOH Volume Variance = (1 = 3,750 F

FOH EfficiencyVariance=(1)-(4)=750A

FOH CalendarVariance=(5)-(3)

= 1,800 F

ln a Factory, the standard units of production for 'iiii#o- ati,zti,ooo unlts. Actual production durirq Aprilrwas 8,000

of April, ttreie was one statutory holiday. The estim-i1tGr-fand actualunits. Each month has 20 working days. During the

Semwariable Charges include 600/o expenses ol fixed natu

Calculate the Expenditure, Volume and Calendar variances'

Solution:

(a) VOH Standard Rate Per unit =

(b) FOH Standard Rate Per unit =

Budgeted VOH

Budgeted OutPut

Budgeted FOH

Budgeted OutPut

1. Basic Calculations_ Rs,[6,000 + (1,800 x 40olo)] -

1,20,000 units

_ Rs.[12,000 + (1,800 x 600/o)]

1,20,000 units

Re,0.056 P.u.

= Re.0.109 p.u.

may be deemed as Expenditure Variance'

flrrarhaadc ware tG fnllows

Overheads Estimated Actual

Fixed

Variable

SemiVariable

12,000

6,000

1,800

1,190

480

192

nature and 4oYool variaDle nalure.

2. VOH Chart (based on

AOXSR(r)

AVOH(2)

SOxSR(3)

VOH VariancesCost (1) - (2\ = 108'80 A

a-,Expenditure (3) - (2) Efficienry (1) - (3)

Not Determinable8,000 unitsxRe.0.056

= Rs.448.00

Rs.480+(Rs. 1 92 x 40o/o)

= Rs.556.80

Notdeterminable

10.21

Students'Handbook on Cost Accounting and Financial Management

3. Fixed OH Chaft

AOXSR AFOH BFOH AHXSR pFoH = BFoH x4PBD

(1) (2) (3) (4) (s)

8,000 utsxRe.0.109 pu

= Rs.872.001,190+(192x60%)

= Rs.1,305.20

1,20,000 units x Re.0.10912 months

= Rs.1.090

Notdeterminable

Rs,1,090 tS = Rs.1,035.50

Variances

Variances: FOH

+FOH Expenditure Variance = (3) - (2) = 215.20 A FOH Volume Variance = (1) - (3) = 218.00 A

Out of the above Volume Variance, Calendar Variance = (5) - (3) = 54.50 ANoter FOH Capacity and Efficiency Variance cannot be calculated to lack of sufficient information.

sffi:lllusfation 11: FOH Variances - Reverse WorkingA Cost Accountant of a Company was given the following information regarding the Overheads for February -(a) Overheads Cost Variance Rs.I,400 adverse.

(b) Overheads Volume Variance Rs.1,000 adverse.

(c) Budgeted Hours for February, 1,200 hours.

(d) Budgeted Overheads for February, Rs$,000.

(e) Actual Rate of Recovery ol Overheads Rs.8 per hour.

Solution: Since OH Capacity & Efficiency Variances are to be computed, FOH Variances are to be analysed.

Variances:V

FoH Expenditure Variance = (3) - (z) = EOOI (Oif) FOH Volume Variance = (1) - (3) = 1,000 A

*Efficiency Variance

= (1) - (4) = 1,000 fWorking Notes:1. Since FOH Cost Variance = 1,400 A and Volume Variance = 1,000 A, Expenditure Variance = (bal.figure) = 400 A.

2. FOH Expenditure Variance = (3) - (2) = 400R (as computed above).Hence, 6,000 - (2) = - 400. Hence, WN (2) = 61400.

trlpacity Variance

= (4) - (3) = 2,000 A

3. FOH Volume VarianceHence,

4. FOH Standard Rate per hour =

= (1) - (3) = 1,000 A.(1)- 6,000=-1,000.

Actual 'FOH

per Hour

Hence, WN (1) = 5,000.

Budgeted FOH _ _Rs.6.000Budgeted Hours r, = Rs'S Per hour'

- Rs'6,400 = goo hourc.

Rs.8

(1 ) Overheads Expenditure Variance.

(2) Actual Overheads lncurred.

(3) Actual Hours for Actual Production.

(4) Overheads Capacity Variance.

(5) Overheads Etliciency Variance.

(6) Standard Hours for Actual Production.

FOH VariancesAO x SR pu= SHx SR ph

(1)AFOH

(2)BFOH(3)

AHXSR(4)

(b/f) 11,000 x Rs.5 ph (WN 4)

Rs.5,000 (WN 3)

(wN 2)

Rs.6,400

(Given)

Rs.5.000

(WN 5) 800 hrs x Rs.5 (WN 4)

Rs.4,000Note: Since number of days information is not given, PFOH is not relevant in the above computation.

5. Actual Hours for Actual Production = -----:-------Actual Rate

t0.22

Answer:(1) Overheads Expenditure Variance(2) Actual Overheads Incurred(3) Actual Hours for Actual Production

(4) Overheads Capacity Variance = Rs.2,OOO A(5) Overheads Efficiency Variance = Rs.1r0OO F(6) Standard Hours for Actual Production =1,000 hourc

= Rs.4O0 A

= Rs.6r400

= 8OO hourc

Note: Activity Ratio, Capacity Ratio and Efficiency Ratio are Control-Ratios or Budget-Ratios. lRefer Ctrapter feBudgetary Controlfor discussion on these Ratiosl. However, these Ratios can be easily computed using the FOI-LVariance

Chart and Working Note References. Hence, these computations are qiven here.

Solution: 1. Efficiency Ratio =Standard Hours

2. Capacity Ratio =

Actual Hours

Actual Hours

Budgeted Hours

l#llli:l.ii.-:..ii;.iiii.!i'.:,.Ii.;:l,lllil#*iill;iiiifii$.iitiiiiii;ffi;n.ll+liil*;ri;;i+i..ieThe Activity Ratio of a concern is 95.6% whereas the Capacity Ratio ii ios.z.. wtrit is the Efficiincy natioiSolution: The relationship is Activity (or Volume) Ratio = Capacity Ratio x Efficiency Ratio.

- (60 u$!s.x 8 hours) = 960/o

500 hours

= _- l9o hog=-- =78.LZSo/o(S0unitsxShours)

On substitution, we have 95.60/o = 105o/o x Efficiency Ratio.

ifl*:### i:Ii1';:;,?.

On solving, we have, Efficienq Ratio =

Hence, Efficiency Ratio = #ffi = 91.05o/o

isriiii'ry;i:i,t#,, ,i$S,*1#$iqii.;lf+'rir-rj"qi;$t*iffl'!j.;;l..,s;i,i1*?i:ii;i,i,ft{,s,

75o/o x Efficiency Ratio.

Solution: 1. Volume Ratio =Actuat

. Ogtput

= 5,909 ,1'g

= 83.33oloBudgeted Output 6,000 units

2. Also, the relationship between

On substitution, we getRatios is Activity (or Volume) Ratio = Capacity Ratio x Efficiency Ratio.

83.33olo =

## = 111'11o/o

ryi ffi "' +:*.i ,t*iF.*'ffi l4il'u**.-.iWili:,:i;,,*i;r,r:, i.,r..".:.iii?r:il;i,,:,..

A Company manufactures two products X and Y. Product X requires 8 hours to pioAuce while Product Y requires'l!- trours. lnApril, of 22 effective working days ol8 hours a day, 1,2fit units of X and 800 uniis of Y were produced. The Company employs100 workers in the Production Department to produce X and Y. The Budgeted Hourc are 1,86,000 for the yfar.'Caliulatecapacity, Activity and Efficiency Ratio and establish their inter-relationship.

Solution: Budget-Ratios can be easily computed using the FOH Variance Computation ChaG given below -

Galculate & Ratio from the data:Capacity Ratio

Standard Time per unit750h

4 hoursBudgeted Output

ActualOutput6,000 units5,fiD units

when FOH Volume Variance related ratios are to be computed, the workino notes are asWN (1) (2) (3) @) (s)

Cost Factor AOXSR AFOH BFOH AHxSR PFOHTime Factorincluded in above

SH = StandardHours

BH = BudgetedHours AH = Actual Hours

PH = PossibleHours

Hours(1,200 x 8) +(800 x 12) --19,200 hours

Not Applicablefor Ratio

Computation

1,96,000 _12 months

15,500 hours

22 days x 8 hours x 100 men= 17,600 hours

(NotApplicable in

this question.)

10.23

Output-based Computation wN Reference and Answer-Ratio Tim*basetl computatrcn

1. CapacitYRatio

Actual Hours

Budgeted Hours

Standard Output

Budgeted OutPut

WN 't _ I/rouu lruur> = 113.55o/o

WN 3 15,500 hours

2. EfficiencyRatio

Standard Hours

Actual Hours

Actual Output

Standard Output

WN 1 _ 19,200 hours = 109.09o/o

WN 4 17,600 hours

wN 1 _ 19,200 hours = L23,g7o/o

WN 3 15,500 hours

3. Volume orLevel ofActivityRatio

Standard Hours

Budreted Houts

Actual Output

Budgeted OutPut

Efficiency Ratio = 113'55o/o x 109'09o/o

illt o+rto:$les jryfiffi.]shies.. . .i-ilii ""'i:'' :it':ii:rii""'

'

ffiriysti[effia) Turnover and (b) Profit.

Sales Variances under Total Approach:Total Sales Variance = (1) - (2)

+V ^-r-^ rr-r..-^ \r^-ianaa - /1\

Sales Price Variance = (3) - (2) = 57,000 ISales Mix Variance

= (4) - (3) = 30,200 R

The direction of sales Variances, (i.e. whether Favourable or Adverse), is interpreted in the reverse of what is

applied for cost variances, io,-negative cost Variances are Adverse, and positive cost variances are Favourable'

However, negative sares viri#ceitre Favourable, and positive Sales Variances are Adverse'

123.87o/o

= (1) - (4) = 95,200 f

Variances from the data,

Actuals Cost per unitTov Brand

5,750 units at Rs.120 each



Rs.90

Rs.l70Rs.130

Bravo Toys

Champ Toys

Suoer Tovs

5,000 units at Rs.l00 each


6.(X)0 units at Rs.l80 each

HOn:I^*..r-ri^n af Qaviecd Ar*ual OuantiW (RAO) 2. Computation ABudgeted and Actual MaEin

Type Bravo ChamP SuPer

BldgetedMix 5 4 6

RAa 5,200 units 4,160 units 6,240 units

Total AQ Sold = 5,750 + 4,850 + 5,000 = 15,600 units'Budgeted Margin (BM)

= Budgeted Price (BP) -Standard Cost (SC)

ActualMargtn (AM)

= Actual Price (AP) -Standard Cost (SC)

Bravo 100-90=10 120-90=30

Champ 200-170=30 180-170=10

Super 180-130=50 165-130=35

onAQXBP

(3)RAQ X BP

(4)ParticularcBQXBP

(1)AqxAP

(2)

BravoChampSuper

5,000x100=5,00,0004,000 x 200= 8,00,000

6.000 x 180= 10,80,000

5,750 x 120= 6,90,000

4,850 x 180= 8,73,000

5.000 x 165= 8,25,000

5,750 x 100= 5,/5,uuu4,850 x 200= 9,70,000

5.000 x 180= 9,00,000

)rzuu x ruu: Jr4vrvvv4,160 x 200= 8,32,000

6,240 x 180= 11,?!29[

Total Rs.23,80,000 Rs.23,88,000 Rs.241451000 k,24,7E,2N_

Profit IM on

ParticularsBQXBM

(1)AQXAM

(2)AQXBM

(3)RAQ X BM

(4)

5,750x30=1,72,5004,850x10= 48,500

5,000x35=1,75,000

5,750x10= 57,500

4,850x30=1,45,5005,000x50=2,50,0QQ

5,200x10= 52,000

4,160x30=1,24,8006,240 x 50 = 3,12,000

BravoChampSuoer

5,000x10= 50,000

4,000x30=1,20,000('nnnvqn:?nnnnn

Rs.3;96,000 Rs.4r53rOOO Rs.+8qqgqTotal Rs.47O,OOO

t0.24

Standard Costing

Sales Variances under Margin / Profit Apprcach:Total Sales Margin Variance = (1) - (2) = 74,000 A

Sales Margin Price Variance = (3) - (2) = 57,000 A Sales Margin Volume Variance= (1) - (3) = 17,000 A

ffiffiffiiffi;i*iffii ,tiffi.,w ,{ffi# cttOctober

Sales Margin Mix Variance

= (4) - (3) = 35,800 R

Sales Mix Variance

= (4) - (3) = 2,240 F

Sales Margin Quantity Variance

= (1) - (4) = 18,800 F

!r,s*ffilq

Sales Quantity Variance

= (1) - (4) = 3,680 R

Compute the Sales Variances under Total and Margin Approach.

-lSalesPriceVariance = (3)-(2) = 1,280A SalesVolumeVariance = (1)-(3) = 1,440A

5.

Price Relationship: SMPV = SPVVolume Relationship: SMW = SW x Budgeted NP Ratio.

INP Ratio = Budqeted Margin -.r6ale Pricel

Item SMPV (3) - (2) sPv (3) - (2) Item sMw (3) - (2) SW X I{P RAtiO

Bravo .15.000 F 1.15,000 F Bravo 7,500 F 75.000Fx10o/o=7,500F

Champ 97,000 A 97.000 A Champ 25.500 F 1.70.000 F x 15% = 25,500 F

Super 75.000 A 75,000 A Super 50,000 A 1,80,000 Ax27.8o/o = 50,000A

Total 57,000 A s7.000 A This relationship is applicable only for individual products, and not forproduct combinations (as overall NP Ratio is affected by Sales Mix).

Note: NP Ratio for Bravo = ,t=0= = 100/o. Similarly for Champ & Super.100

This relationship is applicable for individualproducts, and also for product combinations;

SOC Ltd orovides the followinq data forthe monm ol

ProductBudgets Actuals

Ouantih Sale Price Cost Quantity Sale Price Cost

A

B

2,160 units1.440 units

Rs.l2 p.u.

Rs.S p,uRs.9 p.u.

Rs.3 o.u

2,240 units960 units

Rs.11 p.u.

Rs.6 o.u.

Rs.8 p.u.

Rs.S o.u

Budgeted Margin (BM)

= Budgeted Price (BP) -Actual Margin (AM)

= Actual Price (AP) -Total AQ Sold = 2,240 + 960 = 3,200 units.

Product A B

Budgeted Mix 2,L60 t,440920 units 1,280 units

lL-9 = 2

3. Total or Turnover Approach (Impact on Turnover

PafticularcBQxBP

(1)AQxAP

(2)AQXBP

(3)RAQ X BP

GIAB

2,160 x 12=25,9201,440x5= 7,200

2,240 x lL= 24,640960x6=5,750

2,240x12=26,880960x5=4,800

1,920 xt2 = 23,0401,280x5=6,400

Total Rs.33,120 Rs.3O,4OO Rs.31,680 Rs.291440

Sales Variances under Total Approach:

4. or on Profit

PafticularcBQxBM

(1)AQXAM

(2)AQXBM

(3)RAQ x BIrl

@lAB

2,160x3=6,4801.440x2=2,880

2,240x2=4,480950.x 3 = 2.880

2,240x3=6,720960x2=1,920

1,920 x3 = 5,7601.280x2=2.560

Total Rs.9,360 Rs.7,360 Rs.8,640 Rs.&320

10.25

Sales Variances under Maryin / Profit Approach:Total Sales Margin Variance = (1) - (2) = 2,000 A

..sales Margin price Va'riance = (3) _ (2) = 1,2g0 A sales tutargin volume varian A

Sales Margin - arjance

= (4) - (j) = SZO F = (1) - (4) = 1,040 A

ffi the products together was Rs,450 Favourable.

Solution: Working Notes:1. Sales Volume Variance for Product R = (1) - (3) = 1,200F. Hence, (EQ x 12)-6,000 = - 1,200

Hence, 12BQ = 4,399. So, BQ for Product R = 400 units.

2. Budgeted Mix between R and S = 400 : 400 i.e. 1: 1

3. Let Ae of product S be e units. Total AQ = (500 + Q) units. Since Budgeted Mix is 1:1, RAQ of R and S are each

(500 + Q) uno (500 + Q) respectivety.2 --

2

It is given that Sales Mix Variance for R and S = (4) - (3) = 450 fonsubstitutins,wehave,tlti!)xlz+tlrfgx15l-[(500x12)+(Qx15)]=-45s

Upon simplifying, we have, 6,750 + 13.5Q - 6,000 - 15Q = -459

Onsolvingtheabove,l.sQ=1,200orQ=800units'Hence,AQforS=8Oounits'

4. Total Ae = 500 + 800 = 1,300 units. Rewriting 1,300 units in the ratio 1:1, RAQ for R and S is 650 units each'

tha mieeino data. indicated marks in the table.

Particulars Product R Product S

Standard Sales QuantitY (units)

Actual Sales Quantity (units)

Standard Price Per unit Rs.

Actual Price per unit Rs.

Sales Price Variance

Sales Volume Variance

Sales Value Variance

?

500

12

15

?

Rs.l,200 Favourable7

400

?

15

20

?

?7

5. Chart

PafticularcBQXBP

(1)AQxAP

(2)AQXBP

(3)RAQ X BP

(4)

Product R

Product S

(WN 1) 400 x 12= 4,800(oiven) zl00 x 15= 6,000

(given) 500 x 15=7,500(WN 3) 800x 20=16,000

(given) 500 x 12= 6,000(WN 3) 800x 15=12,000

(WN 4) 650 x 12=7,800(WN 4) 650 x 15= 9,750

Total Rs.10,800 Rs.23,5OO Rs.18,000 Rs.17,550

Aftar

Pafticularc Product R Product S

Standard Sales Quantity (units) 400 (wN 1) 400 (qiven)

Actual Sales Quantity (unitS) 500 (given) 800 (wN 3)

Standard Price oer unit Rs.12 (given) Rs.15 (siven)

Actual Price per unit Rs.15 (given) Rs.20 (qiven)

Sales Price Variance G) - (2) Rs.1,500F Rs.4,000F

Sales Volume Variance (1) - (3) Rs.1,200F Rs.6,000F

Sales Value Variance (1) - (2) Rs.2,700F Rs.10,000F

10.26

Material Purchased 24,$0 kg Rs.l'05'600

MaterialConsumed 22,800 kg

Actual Wages paid lor 5,940 hours Rs.29,7fi)

Unit produced 2160 units.

Standard Rates and Prices are -o Direct Material Rate is Rs.4.00 per unit.

o Direct Labour Rate is Rs.4.00 per hour.

r Standard lnput is 10 kg for one unit.

o Standard is 2.5 hours unit.

ffiur variances lor the month of August.

Note: 1. Actual Purchase Price of Materials = ElP9lo = Rs.4'40 per kg'24,000 kg

2. Material Purchase Price Variance = Purc. Qttyx(Std Price - Actual Price) = 24,000 kg x (4 - 4'40) = Rs'9,600 A

1. Variances

SQxSP(1)

AQXAP(2)

AQXSP(3)

Material VariancesCost (1) - (2) = Rs'13'920 A

vTPrice (3) - (2) Usage (1) - (3)

= Rs.9,120 A = Rsj,800 i(2,160 utsx 10 kg)

x Rs.4 per kg

= Rs.86,400

22,800 kgsx Rs.4.40per kg (See Note 1)

= Rs.1,00,320

22,800 kgsx Rs.4per kg

= Rs.91,200

2. Variances

SHXSR(1)

AHXAR(2)

AHXSR(3)

labour VarianossCost (1) - (2\ = Rs.8,100 A

Y-,Rate (3) - (2) Efficiencv (1) - (3)

= Rs.5,940 A = Rs.2,160 A

(2,160 utsx 2.5 hrs)x Rs.4 ph

= Rs.21,600

5,940 hrsx lns5 ptr

= Rs.29,700 (given)5,940 hrsx Rs.4 Ph

= Rs.23,760

Particulars Budget (stan!!q(!l Actual

Product (units) 8,000 6,000

Material: TotalQuantityTotalAmount

16,0$ kg

Rs.32,000

13,000 kg

Rs.27,3fi1

Labour: Total Hours

TotalAmount

2,4NRs.3,0fi)

2,000

Rs.3,0fi)

VOH: TotalHoursTotalAmount

2,4NRs.2,400

2,000

Rs.2,2fi)

information

compudiilom iiance, (c) Labour Rate variance, (d)

f-aOou, Etficiency Variince, (e) Overniid Efficiency Variance, and (f) Overhead Budget Variance.

Solution: 1. Basic Calculations

(a) standard Price of Materials = ##B = Rs.2 per kg.

(b) Standard euantity of Materiats = uffiffi x 6,000 units = 12,000 kg.

(c) Standard Rate of Labour = ffi9ffi = Rs.1.25 per hour'

(d) Standard Hours for Labour = ffi# x 6,000 units = 1,800 hourc'

(e) voH standard Rate per hour = #ffi# = #ffi = Re'l Per hour'

t0.27

2. MaterialsSQxSP

(1)AQXAP

(2)AQXSP

(3)Material Variances

Price (3) - (2) Usage (1) - (3)

= 1,300 A = 2,000 A12,000 kg x Rs.2

= Rs.24,000

13,000 kg x Rs.l2Jd= Rs.27,300

13,000 kg x Rs.2

= Rs.26,000

3. LabourSHxSR

(1)AHXAR

(2)AHXSR

(3)labour Variances

Cost (1) - (2\ = 750 A

Y-'Rate (3) - (2) EfficiencY (1) - (3)

=500A =250A1,800 hrsx Rs.1.25

= Rs.2,250

2,000 hrsx Rs.li5d= Rs.3,000

2,000 hrs x Rs.1.25

= Rs.7,500

SHXSR(1)

AVOH(2)

AHXSR(3)

VOH VariancesCost (1) - (2) = 400A

Y-'Expenditure (3) - (2) Efficiencv (1) - (3)

= 200A = 200A1,800 hrsx Re.l

= Rs.1,800

Given

Rs.2,200

2,000 hrs x Re.l

= Rs.2,000

lift 'Irri ,Foilvri *lliiffi,illl+,ilTrtlii++r rk i:l tlti*[++S]1'fr,ill+iq*]*iiiiiiffiltr.i ;l;,1:';15,':..:ii:ii;ilil*Hff

KpR Limired operares . UJdr-di'stanoaio'coiting in respeCt ot 6iie oi iti pioaucts, which is manufactured within a single

3. VOH Variances:

Note: Expenditure Variance is also called as Budget Variance'

under:

The production Schedule for the month of June, required completion of 40,000 units. However 40,960 units were completed

during the month without Opening and Closing Work-in-Process inventories.

purchases during the month ol June, 2,25,000 kgs of Material at the rate ol Rs.4.50 per kg. Production and Sales records lor the

actual results:

selling Price to be so fixed as to allow a mark-up ol20Yo on selling Price.

o Calculate MaterialVariances based on consumption of material'

o Calculate Labour Variances and the TOlat Variance lor Factory Overhead.

. Prepare lncome Statement lor June showing Actual Gross Margin.

. An incentive scheme is in operation in the Company whereby Employees are paid a bonus of 50o/o of Direct Labour Hour

saved at Standard Direct Labour Hour rate. Calculate the Bonus Amount.

Solution:

aact ncntra Tha Slandard Cost Card of a Droduct iS ts

Direct Material

Direct Labour

Factorv Overhead

5 kgs at Rs.4.20 h"fi "

3 hours at Rs.3.00

Rs.l.20 per Labour Houl

Rs.21.00

Rs. 9.il1

Rs. 3.60

Total Manulacturing Cost Rs.33.60

illaterial Used2,05,699191

Direct Labour 1,21,200 hours, Cost incurred Rs.3,87,8tO

Total Factorv Overhead Cost incurred Rs.1,00,000

Sales40,0$ uniB

SQxSP(1)

AQXAP(2)

AQxSP(3)

Material VariancesCost (1) -(2) = Rs.65,040 A

(40,960x 5) kg x Rs.4.20

= Rs.8,60,1602,05,600 kg x Rs.4.5

= Rs.9,25,2002,05,600 kg x Rs.4.2

= Rs.8,63,520Price (3) - (2) Usage (1) - (3)

= 61,680 A = 3,360 A

Vv

10.28

Standard Costinq

2. Labour Variances:SHxSR

(1)AHxAR

(2)AHxSR

(3)[abour Variances

Qqq(l) L2) = Rs'19,200 A

(40,960x3) hrs x Rs.3

= Rs.3,68,640t,2!,200 hrsx Rs.E2d

= Rs.3,87,8401,2L,200 hours x Rs.3

= Rs.3,63,600Rate (3) - (2) Efficiency (1) - (3)

= 24,240 A = 5,040 A

5. Income asParticularc Rs. Rs.

Sales (40,000 units Rs.42 p.u)

Less: Actual Cost of Production:Direct Materials (2,05,600 kgs x Rs.4.50 per kg)Direct Labour (L,21,200 Hours x Rs.3.20 per hour)Manufacturing Overhead (Actuals as given)

SuFTotal Actual Cost of 40,960 unitsLess: Closinq Stock of Finished Goods (960 units at Rs.33.60 per unit)

9,25,2003,87,8401,00,000

16,80,000

13.80.784

14,t3,040(32.256\

Profit 2,99,2L6

3. Total FOH Variances = Absorbed OH less Actual OH = [(40,960 unib x Rs.3.60) - Rs.1,00,0001 = 47,456 F

4. (a) Profit per unit = 2Oo/o on Sale Price = 1/5th on Price =1/4h on Cost

(b) Selling Price per unit = Cost + Profit = Rs.33.60 + tl4h thereon = Rs.42 per unit

Note: In the above statement, Closing Stock of Finished Goods have been valued at Standard Cost of Rs.33.60 per unit.

Alternatively, Closing Stock of FG can be valued at Average current Cost per uni, = f'=11113'T0 x 960 units =' 40,960 units

Rs.33,118. In such case, the Profit will.be Rs.3rO0rO78.

5. Bonus = 50o/o x Time Saved x Standard Rate per hour= 50o/o of [(40,960 unitsx 3 hours) - L,21,200 hours] x Rs.3 per hour = Rs.2r520.

lllustration 22: WIP Yahation & Goc* Variances Com${8tiofl - FIFO lrdhod RIP, H96, tffflA Company manufacturing two products A and B uses a Standard Costing system. The following data relating to October havebeen furnished to you -

Particulars of Standard Cost oer unit A .BDirect Materials

Direct Wages

Fixed Overheads

Rs. 2

Rs.8Rs.16

Rs. 4Rs. 6Rs.'12

Total Standard Cost Rs.26 Rs.22

Units processed / in process -Beginning of the month - All Materials applied and 50% complete for Labour and OH

End of the month - All Materials applied and 807o complete for Labour and 0HUnits comoleted and transferred to Warehouse durinq the month

4,000

8,000

16,000

12,000

12,000

20,000

The following were the ?9!qll-qg-sj_s- fecorded during the month -Direct Materials purchased at Standard Price amount to Rs.2,00,000 and the Actual Cost ol which is Rs.2,20,000. DirectMaterials used for consumption at Standard Price amount to Rs.1,75,000. Direct Wages for actual hours worked at StandardRates were Rs.4,20,000 and at Actual Wage Rates were Rs.4,12,000. Fixed Overheads budgeted were Rs.8,25,000 and the actualFixed Overheads incurred were Rs.8,50,000.

You are required to calculate the following for the month of October -o Direct Materials Price Variance at the point of consumption and at the point of purchase.

o Direct Materials Usage Variance.

o Direct Wages Rate and Efficiency Variances.

. Fixed Overheads Volume and Expenditure Variances.

. Standard Cost of Work in Process at the end of the month.

10.29

1. of A-Particularc Input Particularc Output Materials. Labour and OH

Opening WIP

Fresh Input (b/f)4,000

20,000

Transfer from -Opening WIPFresh Units (bal.fiq)

4,00012,OOO

olo E.U Vo E.U

Nil

100o/o

Nil

12,000

50o/o

100o/o

2,00012.000

Total Transfer

Closinq WIP

16,000

8,000 100o/o

12,000

8,000 80o/o

14,0006.400

Total 24,000 Total 24,000 20,000 20,400


Solution: Either FIFO or WAC Method can be used for computing equivalent production of Product A and B. In this

solution, FIFO Method has been adopted.

Prcduction - Product A - FIFO Method

Method

eenStandardPricesandActualPricesisRs,2,00,000andRs.2,20,000(forthequantitypurchased), the actual costs of the material consumed is computed using this relationship.

MaterialPurchasePriceVariance=PQxSP-PQxAP=Rs.2,00,000-Rs.2,20,000=Rs.2Or000A.This is called Direct Materials Price Variance at the point of purchase.

Direct Materials Price Variance at the point of consumption = Material Price Variance (as per Chaft) = Rs.17r500 A

2. Statement of Equivalent Production - Prcduct B

Particularc Input Pafticularc Output Materials Labour and OH

Opening WIP

Fresh Input (b/012,000

20,000

Transfer from -Opening WIP

Fresh Units (bal.fiq)12,000

8,000

olo E.U olo E.U

Nil

100o/o

Nil

8,000

50o/o

100o/o

6,ooo8,000

Total TransferClosino WIP

20,00012.000 100o/o

8,00012,000 80o/o

14,000

9,600

Tota! 32,000 Total 32,OOO 20,000 23,600

3.SQxSP

(1) = Std CostAQXAP

(2)AQxSP


Cost (1) - (2\ = 72,500 A

Price (3) - (2) Usage (1) - (3)

= 17,500 A = 55,000 A

(20,000 x Rs.2) +(20,000 x Rs.4)

= Rs.1,20,000

Rs.1,75,000 , #= Rs.1,92,500 (See Note)

Given

Rs,1,75,000

4. LabourSHxSR

(1) = Std CostAHXAR

(2)AHxSR

(3)Labour Variances

Rate (3) - (2) EfficiencY (1) - (3)

= 8.000 f = 1,15,200 A

(20,400 x Rs.8) + (23,600 x Rs.6)

= Rs.3,04,800

Rs.4,12,000(given)

Rs.4,20,000(given)

5.AOxSR

(1) = Std CostAFOH

(2)BFOH(3)

FOH Variancescost (1) - (2) = 2,40,4004

vTExpenditure (3) - (2) Volume (1) - (3)

= 25.000 A = 2,15,'100 A

(20,+00 x Rs.16) + (23,600 x Rs.12)

= Rs.6,09,600

Rs.8,50,000(9iven)

Rs.8,25,000(given)

6. Valuation of WIP at StandardPafticularc Product A Product B

Materials

Labour

Fixed Overheads

8,000 units x Rs.2 = Rs. 16,000

6,400 units x Rs.8 = Rs. 51,200

6,400 units x Rs.16 = Rs.1,02,400

12,000 units x Rs.4 = Rs" 48,000

9,600 units x Rs,6 = Rs. 57,600

9,500 unib x Rs.12 = Rs.1,15,200

Total Standard Cost of WIP Rs.1,69,600 Rs.21201800

10.30

Standard Costing

for Product and willbe

ihe Variances will be as under: Material Usage 17,500 A, Materials Usage 1,000 F, Labour Rate 8,000 F, Labour Efficiency

63,200 A, FOH Expenditure 25,000 A, FOH Volume = 1,11,400 A. Valuation of WIP = same as above.

Illu$tration 23: Budget vs Actual - All VariancEs 0omputation M08

The Standard Costs ol the are as lollows -Particulars

Direct Material (1 kg at Re 1 per kg)

Direct Wages (1 hour at Rs.1.50 per hour)

Re.1.00

Re,1.50

Re.0.50Variable Overhead (1 hour at Re. 0.50

Actual results for the month showed that 78,400 kg of material were used and 70'rt00 labour hours were recorded'

Required:o Prepare a Flexible Budget for the month and compare with actual results.

o Calculate Material, Labour, Sales Price, Variable OH and Fixed OH Expenditure Variances and Sales Volume (Profit)Variance.

tfote: fixeO Overhead have been considered as Standard Fixed Overhead for 36,000 units at Rs.0.50 per unit. Alternatively,

the amount of Budgeted Fixed Overhead Rs.40,000 may also be considered here.

Note: If WAC Met rod is the ProducUon A ts as unoer

Product A Product BEouivalent Units Materials 24,000 units, Labour & OH 22,400 units. Materials 32.000 units, Labour & OH 29,600 units.

TQM Ltd has furnished the followinq information for the month ending 30tt' lune -Pariiculars Master Actual Variance

Units produced and sold 90,000 72,000

Sales 3,20,000 2,80.000 40,000 (A)

Direct MaterialDirect Wages

Variable OverheadFixed Overhead

80,000

1,20,000

40,000

40.000

73,600

1,04,800

37,600

39.200

6,400 (F)

15,200 (F)

2,400 (F)

800 (F)

Total Cost 2,80,000 2.55,200

1. Flexible and its rison with actual rcsults in Rs.

Pafticulars

Master Budqet forFlexible Budgetfor 72,000 units Actuals

VarianceFlexible "

Budget vsActuals

80,000 uts Per Unit

(a) (b) = (a +80,OOO) (c) =72,000x(b) (d) = siven e =(d --c)

(a) Sales 3.20.000 4.00 2,88,000 2,80,000 8.000 (A)

Direct Material

Direct WagesVariable Overhead

80,0001,20,000

40,000

1.001.50

0.50

72,0401,08,000

36,000

73,6001,04,800

37,600

1,600 (A)

3,200 (F)

1.600 (A)

(b) Total Variable Cost 2,40,000 3.00 2.16.000 2,16,000 Nit

(c) Contribution (a - b) 80,000 1.00 72,000 64.000 8,000 (A)

(d) Fixed Overhead 40,000 0.50 (see Note) 36.000 39,200 3.200 (A)

(e) Net Profit (c - d) 40,000 0.50 36,000 24,8OO 11,200(A)

2. of Material cost varaances:SQxSP

(1)AQXAP

(2)AQxSP


Cost (1) - (2) = 1.,600 AY-t

Price (3) - (2) Usase (1) - (3)F A

(72,000 x 1k9) x Re.l

= Rs.72,000Given

Rs,73r60078,440 kg x Re.1

= Rs,78r40O

3. of Labour cost variances:SHxSR

(1)AHXAP

(2)AHxSR

(3)Labour Variances

Rate (3) - (2) Efficienry (1) - (3)

= 800 F = 2,400 F

(72,000 x thr) x Rs.1.5 ph

= Rs.11081000Given

Rs.1104180070,400 hrsx Rs.1.50

= Rs.11051600

3210.31

4. Com of VOH CostSHxSR

(1)AVOH

(2)'AH X SR

(3)VOH Variances

Rate (3) - (2) EfficiencY (1) - (3)

= 2,400 A = 800 F

(72,000 x thr) x Rs.0.5 ph

= Rs.34000Given

Rs.37,60070,400 hrsx Rs.0.50

= Rs.35,200

5- Comnutation of F( lH CostAOXSR

(1)AFOH

(21BFOH(3)

AHXSR(4)

FOH VariancesCost (1) - (2) = 3,200 A

72,000 units x Rs.0.5p.u.

= Rs.3O000 '

Given

Rs.39,200Given

Rs.40,0O070,400 hrs x Rs.0.5 ph

= Rs.35r20O

v vExpenditure (3) - (2) Volume (1) - (3)

= 800 f = 4,000 A

t v.Capacity (4)-(3) EfFrciency (1)-(4)

4,800 A 8!q J

6_ of Sales VariancesBQxBM

(1)AQXAM

(21AQxBM

(3)Sales Variances

TSMV (1) - (2\ = 12,000 A

80,000 unitsx Re,0.5 pu

= Rs.35r00072,000 utsx Re.0.39 pu

= Rs.2&00072,000 unitsx Re.0.5 pu

= Rs.36,000SMPV (3) -(2) sMW (1) - (3)

= 8.000 A = 4,000 A

Yv

Note., SMPV = S-dles Margin Price Variance is the same as Sales Price Variance (SPV).

. Budgeted Margin = Budgeted Price - Standard Cost = 4'00 - 3.50 = Rs.0.50 pcr unit.

= Rs.O.39 per unit.. Actual Margin = Actuat price - Standard cost = ,##ffi- 3.s0)

rriiiiiil-rrnii Lid produces tn'ro prooucii"l ano B. The information obtained from the standard costs and budgets for the

hflo oroducts are as under

Particulars Price and Hates Product A Product B

Budoeted Outout Der month 640 units 800 units

Direct Materials P

oR

S

Rs.S per kgHs.4 per kgRs.2 per kgRs.3 per kq

4 kgs8 kg:

10 kgs4 kqs

Direct Labour Grade I

Grade ll

Rs.4 per hourRs,3 per hour

8 hours4 hours

4 hours8 hours

hichRs.43,200isvariable.Profitis20YoolSel!ingPrice.

Actual data for the month of October are as under -1. Materials Consumption

P 2,560 kg at Rs.5.50 Per kg

O 4,900 kg at Rs.3.75 Per kg

R 8,000 kg at Rs.2.10 per kg

S 3,160 kg at Rs.3.10 per

2. Labour Cost Grade I 7,920 hours at Rs.4.20 ph

Grade ll 8,520 hours at Rs.3.40 Ph

3.0Hincurred Rs.66,800

4. Actual Output A = 610 units; B = 780 units

Compute all relevant variances.

Sotution: 1- Comoutation of Sellinq Prices per unit for Products A and !Pafticulars Product A Product B

P

aR

s

Materials Cost - 5 kg x Rs.4 -- Rs.20

4 kg x Rs.8 = Rs.322 kg x Rs.10 = ns.ZO

3 kS x Rs.4 = Rs.12

10.32

Standard Costing

Particularc Product A Product B

Labour - Grade IGrade II

VOH at Rs.2.50 per hour (as below)FOH at Rs.1.50 oer hour (as below)

8 hours x Rs.4 = 32

4 hours x Rs.3 = 12

12xRs.2,50=Rs.3012xRs.1.50=Rs.18

4 hoursx Rs.4 = Rs.16

8 hours x Rs.3 = Rs.24

12xRs.2.50=Rs.3012xRs.1.50=Rs.18

Total Cost

Add: Profit = 1/5h on Sales = 1/4s on Cost

Rs.1zl4

144x1/+=Rs.35Rs.120

t20xVq=Rs.30Sellinq Price Rs.18O Rs.150

2. OverheadPafticularc Fixed OH Variable OH

Amount of OH

Budgeted Hours

OH Rate per hour

(Rs.69,120 - Rs.43,200) = Rs.25,920

(640x12)+(800x12)= 7,680 + 9,600 = 17,280 hours

FOH = 1.50 per hour

Rs.43,200 (given)

(640x12)+(800x12)= 7,680 + 9,600 = 17,280 hours

VOH = Rs.2.50 per hour

Total hours required per unit = (4 + 8) and (8 + 4) = 12 hours per unit for each A and B.

3. Sales Variances: Total Aooroach or Turnover on

PafticularcBQXBP

(1)AQXAP

(2)AQxBP

(3)RAQ X BP

(4)

A

B

640x180=1,15,200800 x 150= 1.20.000

610x180=1,09,800780x150=1,17,000

610x180=1,09,800780x150=1.17.000

618x180=L,Lt,240772x150 = 1,15,800

Total Rs.2.35,200 Rs.212618OO Rs.2,26,800 Rs.2,27,O4O

Sales Variances under Tota! Approach:Total Sales Variance = (1) - (2) = 8,400 R

Sales Price Variance = (3) - (2) = Nil Sales Volume Variance = (1) - (3) = 8,400 A

Sales Mix Variance Sales Quantity Variance

= (4) - (3) = 240 R = (1) - (4) = 8,160 A

l{otes:1. Since Actual Selling Prices are not given, it is presumed to be the same as Budgeted Price.

2. RAQ for Sales = AQ rewritten in Budgeted Mix i.e. (610 + 780 = 1,390 units, rewritten in the ratio 64: 80)

Variances: Material Cost Variance = (1) - (2) = 2371 n

MaterialPriceVariance = (3)-(2) = t,L7lA MaterialUsageVariance = (1)-(3) = 1,200A

MaterialY{ix Variance tvtateriEl Yield Variance

= (4) - (3) = .14 R = (1) - (4) = 1,156 I

Notes: RAQ for Materials = AQ rewritten in Standard Proportion as under:

o For Product A: Materials P + Q i.e. (2,560 + 4,900 = 7,460 kg) rewritten in the ratio 1:2 between P and Q.

o For Product B: Materials R + S i.e. (8,000 + 3,160 = 11,160 kg) r*written in the ratio 5:2 between R and S.

4,

PafticularcSQxSP

(1)AQxAP

(2)AQxSP

(3)RAQ x SP

(4)

P

aR

S

(610x4)x5=L2,200(610 x 8) x 4= 19,520

(780x10)x2=15,600(780x4)x3=9,360

2,560x5.50=14,0804,900x3.75=18,3758,000 x 2.10= 16,800

3,160x3.t0=9,796

2,560x5=12,8004,900x4=19,6008,000x2=16,0003,160x3=9,480

2,487x5=L2,4354,973x4=t9,8927,97Lx2=15,9423,189x3=9,567

Total Rs.55,680 Rs.59,051 Rs.57,880 Rs.57,836

10.33

Students'Handbook on Cost Accounting and Finanqial Management

PalticularsSHxSR

(1)AHXAR

(2)AHXSR

(3)RAH X SR

(4)

Grade IGrade II

8,000x4=32,0008,680x3=26,040

7,920x4.20=33,2648,520 x 3.40 = 28,968

7,920 x 4 = 31,680

8,520x3=25,5607,885x4=3L,5408,555x3=25,665

Total Rs.58,040 Rs.62,232 Rs.57,240 Rs.57,205

5. Labour Variances:

Variances: Labour Cost Variance = (1) - (2) = 4,192 A

-.LabourRateVdriance = (3)- (2)= 4,992A Labour EfficiencyVariance = (1)-(3) = 800 f

Y _-YLabour Mix Variance Labour Sub-Efficienry Variance

= (4) - (3) = 35R = (1) - (4) = 835F

Notes:1. SH for Labour equals 16,680 hours, and is computed as under:

. Grade I: (610 x 8) + (780 x 4) = 4,880 + 3,L20 = 8,000 hours.

. Grade II: (610 x 4) + (780 x 8) = 2,440 + 6,240 = 8,680 hours.2. RAH is computed as total AH = 7,920 + 8,520 = 16,440 hours re-written in the ratio 8,000 : 8,680.

Note: Since AVOH and AFOH are not given separately, Col. 2 cannot be computed here.

7. FOH Variances:

Note: Since AVOH and AFOH are not given separately, Col. 2 cannot be computed here'

Since AVOH and AFOH are not given separately, Expenditure Variance is computed in Total for VOH and FOH. Hence,

Total OH Expenditure Variance = (3) - (2) = [(Rs.a1,100 + Rs.25,920) - Rs.66,800] = 22OF

FOH Variances: FOH Cost = (1) - (2) = Not Computed

* ._.*Expenditure (3) : (2) = Not Computed Volume (1) - (3) = 900A

a,Capacity (4) - (3) = 1,260A Efficiencv (1) - (4) = 360F

VOH VariancesCost (1) - (2) = Not CPqPqlg!

Exp. (3) - (2) EfficiencY (1) - (3)

= Not Computed = 600F

AVOH + AFOH

= Rs.66,800 (given)16,440 x Rs.2.50

= Rs.41,10016,680 x Rs.2.50

= Rs.41,700

AOxSR(1)

AFOH(2)

BFOH(3)

AHXSR(4)

(610 x Rs.18) + (780 x Rs.18)

= Rs.25,020

AVOH + AFOH

= Rs.66,800 (given)Rs.69,120 - Rs.43,200

= Rs.25,920

t6,440 x 1.50

= 24,660

SI i'Rsvers€ Working with All Variances / Multiple Va

The details regarding a food product manufactured by ABC Company for the last one week are as follows:Standard Cost ( for one

Direct Materials

Direct Wages

Production Overheads

10 units at Rs.1.50

5 hours at Rs.8.00

5 hours at Rs.10.00

Rs. 15

Rs. 40

Rs. 50

Total Standard Cost Rs.l05

lllustrdion 25: Haterhl, Labour and FOH Variances - Reverse Wodrirq

Actuals (for the whole activity) was - Direct Materials Rs.5,435, and Direct Wages Rs.16,324.

t{wtadartd}

10.34

Standard Costing

Price Rs.585(Adverse)

Rate Rs.635(Favourable)

Usage Rs.375(Favourable)

Etf iciency Rs.360(Adverse)Direct Materials

Direct Wages

Production Overheads

1. Actual Output Units

2. Actual Price of Material per unit

3. Actual Quantity of Materials Consumed

4. Quantity of Raw Materials Allowed

5. Actual Wage Rate per Labour Hour

6. ActualLabourHoursworked

7. Labour Hours Allowed

8. Amount of Production Overhead lncurred

9. Amount of Production Overhead Absorbed

10. Production Overhead Capacity Variance

1 1. Production Overhead Etficiency Variance

12. Budgeted Output Units

Calculate the following items -

Solution:

1. Materials Variances:

Note: (e) FOH Cost Variance = (1) - (2) = 1,150 f20,750 -WN(2) = * 1,150

On solving, WN (2) = + 20,750 - 1,150 = 19,600

Note: Since Expenditure and Volume Variance is given for Production OH, it is taken as Fixed OH.

sQxsP(1)

AQXAP(2)

AQxSP(3)

Material VariancesCost (1) - (2) = - 585 + 375 = 210 A

SQ = bal.fig, SP=given

E;lso uniE x Rs.1.5

= Rs.5,225 (WN a)

AQ from Col 3, AP=bal.fig

3,900 units x rc.lL65l= Rs.G,435 (qiven)

AQ=bal.fig, SP=givenx Rs.1.5

= Rs.5,850 (WN b)

vPrice (3) - (2) Usage (1) - (3)

= 585 A (given) = 375 F (given)

Y

Note: (a) Material Cost Variance = (1) - (2) = 210 R

WN (1) - 6,435 (given) = - 210.

On solving, WN (1) = + 6,435 - 210 = 6,225

Putting 6,225 in Col. 1, we get SQ as balancing figure.

Since SQ = 4,tilL,ActualOutput of FG= #HF =415 units FG

(b) Material Usage Variance =(1) - (3) = 375 f6,225las Per (a)l - WN (3) = + 375

On solving, WN (3) = 6,225 - 375 = 5,850.

Putting 5,850 in Col. 3, we get AQ as balancing fig.

Taking this AQ to Col. 2, we get AP as balancing fig.

2.labourSHxSR

(1)AHXAR

(2)AHxSR

(3)Labour Variances

cost (1) - (2) = + 635 - 360 = 276 F

sH = bal.fig, sR=givenx Rs.8 ph

= Rs.16,600 (WN c)

AH from Col 3, AR=bal.fig

2,120 hrs x ns.F7d= Rs.16,324 (given)

AH=bal.fig, SR=givenx Rs.8 ph

= Rs.16.960 (WN d)

tRate (3) - (2) Efficienry (1) - (3)

= 636 F (given) = 360 A (given)

Y

Note: (c) Labour Cost Variance = (1) - (2) = 276 fWN (1) - t6,324 (given) = + 276.

On solving, WN (1) = + 16,324 + 276 = 16,600

Putting 16,600 in Col. 1, we get SH as balancing figure.

Since SH = Z,;7;,Actual Output of FG= ++P =415 units FG

(d) Labour Efficiency Variance =(1) - (3) = 360 R

16,600 [as Per (c)] - WN (3) = - 360

On solving, WN (3) = 15,600 + 360 = 16,960'

Putting 16,960 in Col. 3, we get AH as balancing fig.

Taking this AH to Col. 2, we get AR as balancing fig.

AOxSR(r)

415 units x R.s.50

= Rs.20,750

(from Labour)2,120 hrsx Rs.10

(f) FOH Volume Variance =(1) - (3) = 750 F

20,750 [as Per WN 1] - WN (3) = + 750

On solving, WN (3) = 20,750 - 750 = 20,000

10.35

Students' Handbook on Cost

Variances: FOH Cost Variance = (1 = + 400 + 750 = 1.150 F

FOH Expenditure = (3) - (2) = 400 F (given) FOH Volume Variance =

Capacity Variance

= (4) - (3) = 1,200 F

=750F

Efficienry Variance

=(1)-(4)=450RAnswer:

S Ltd operates a syitem of standard costing in respect of one of its product which is manufactured within a single cost centre,

and the following information is available.

For one unit ol product, the Standard Material lnput is 20 litres at a Standard Price of Rs.2 per litre. The Standard Wage Rate is

Rs.6 per hour and 5 hours are allowed in which to produce one unit. Fixed Production Overhead is absorbetl at the rate of

1007o of Direct Wages Cost.

During the month just ended, the following occurred -o Actual Price paid for Material Purchased

o Total Direct Wages Cost was

o Fixed Production Overhead incurred was

. Varianceswereasunder-Item Favourable Advelse

Direct Material Price Rs.8,000

Direct Material Usaqe Rs.5,0fl1

Direct Labour Rate Rs.5,760

Direct Labour Etficiencv Rs.2.760

Fixed Production Overhead Expenditure Rs.8,O0

Solution: Since Direct Materials Actual Cost details are not given, the calculations are commenced from Labour Cost.

1. LabourVariances:

Rs.1.95 per litre

Rs.1,56,000

Rs.1,58,0fi)

1. Actual Output Units2. Actual Price of Material Per unit3. Actual Quantity of Materials Consumed

4. Quantity of Raw Materials Allowed

5. Actual Wage Rate per Labour Hour

6. Actual Labour Hours worked

7. Labour Hours Allowed SH = 2,075 hrs

8. Amount of Production OH Incurred AFOH=19,600

9. Amount of Production OH Absorbed SFOH=20,750

10. Production OH Capacity Variance 1,200 F

11. Production OH Efficiency Variance 450 A

AO = 415 unitsAP = Rs.1.65

AQ = 3,900 uts

SQ = 4,150 utsAR = Rs.7.70

AH = 2,120 hrs 12. Budoeted Output Units = Rs.20,000 + Rs'50=400 units

6.

7.

8.

9.

10.

Actual Hours worked

ActualWage Rate per hour

Number of Hours Saved / Excess taken

Fixed OH Capacity Variance

1.

2.

3.

4.

5.

Budgeted Output in unitsActual Output produced Units

Number of Litres Purchased

Number of Litres Consumed

Number ol Litres used abovestandard allowed

SHXSR(1)

AHXAR(21

AHxSR(3)

labour VariancesCost (1){2) = - 5,760 + 2,760 = 3,000 A

SH = bal.fig, SR=givenx Rs.6 ph

= Rs.1,53,000 (WN a)

AH from Col 3, AR=bal.fig

25,040 hrs x Rs.b-.8= Rs.1,56,000 (given)

AH=bal.fig, SR=givenxRs.6 ph

= Rs.1.50.240 (WN b)

YRate (3) - (2) EfficiencY (1) - (3)

=5,760A (given) = 2,760F (given)

Y

Note: (a) Labour Cost Variance = (1) - (2) = 3,000 R

WN (1) - 1,56,000 (given) = - 3,000.

On solving, WN (1) = + 1,56,000 - 3,000 = 1,53,000

Putting 1,53,000 in Col. 1, we get SH as balancing figure.

Since SH=26,500, Actual Output of FG= 4#!" =5,100 unib.

(b) Labour Efficiency Variance =(1) - (3) = 2,760 F

1,53,000 [as per (a)] - WN (3) = + 2,760

On solving, WN (3) = 1,53,000 - 2,760 = L,50,240.

Putting 16,960 in Col. 3, we get AH as balancing fig.

Taking this AH to Col. 2, we get AR as balancing fig'

10.36

SQxSP(1)

AQXAP(2)

AQxSP(3)

Material VariancesCost (1) - (2) = MPV+MUV=225 F

SQ=mmputed,SP=given(5,100 x 20 ltrs)x Rs"2

= Rs.2,04,000

AQ from Col 2, AP=given

1,04,500 ltrs x Rs.1.95

= Rs.2,03,775

AQ=bal.fig,SP=givenx Rs.2

= Rs.2,09,000 (WN d)

fl vPrice (3) - (2) Usage (1) - (3)

MPV= 5,225F = 5,000A(given)MPPV=8,000F(Note)

2. Materials Variances:

Variances:

Important Note:

Price Variance given in the question is Material Purchase Price Variancequestion Actual Price paid for Materials Purchased

FOH Expenditure Variance = (3) - (2) = 8,000 A (given)

Capacity Variance

=(4)-(3)=240r

Actual Hours worked6.

7.

8.

9.

10.

= AH = 25,040 hours

Actual Wage Rate per hour = AR = Rs.6'23

Number of Hours Saved / Excess taken

= SH - AH = 25,500 - 25,040 = 460 hours.

Fixed OH Capacity Variance = 240 F

Fixed OH Efficiency Variance = 2,760 F

j S t-tA uses a lull stanOara ioJt system with Raw Materials Idventory carried at standard. The following data was taken from

Note: (c) Material Purc. Price Var.= PQx (SP - AP) = 8,000 F

PQ x (Rs.2.00 - Rs.1.95) = 8,000

On solving, PQ = Purchase a,,, = ffiH = 1,60,000 liters

(d) Material Usage Variance =(1) - (3) = 5,000 A

2,04,000 [as per Col.1] - WN (3) = - 5,000

On solving, WN (3) = 2,04,000 + 5,000 = 2,09,000.

Putting 2,09,000 in Col. 3, we get AQ as balancing fig.

this AQ to Col. 2, we get AQx AP as bal.

FO H Standard Rate per unit = 10020 of Direct Labour = 5

AOXSR(1)

AFOH(21

BFOH=BOxSR(3)

AHXSR(4)

5,100 units x Rs.30 Pu

= Rs.1,53,000

Given

Rs.1.58.000

15,000 unitd x Rs.30 pu

Rs.1,50,000 WN (e)

(from Labour) 25,040 hrsxRs.6 Ph

= Rs.1,50,240

Note: (e) FOH Expenditure Variance = (3) - (2) = 8,000 A

WN(3) - 1,58,000 = - 8,000

On solving, WN (3) = +1,58,000 - 8,000 = 1,50,000

(f) BFOH = WN(3) = BOx SR Pu = 1,50,000

BO x Rs.30 pu = 1,50,000

On solving, Budgeted Output = BO = 5,000 units.

1. Budgeted Output in units = BO = 5,000 units

2. Actual Output produced Units = AO = 5,100 units

3' Number of Litres Purchased - PQ = 1'60'000 litres

4. Number of Litres Consumed = AQ = 1,04,500 litres

5. Number of Litres used above standard allowed

= SQ - AQ = (5,100 x 20) - 1,04,500 = 2,500 litres

the Comoanv's records lor the vear ended 31't Det)ember -Opening Raw Materials lnventory

Opening Raw Materials lnventory

Net Purchases

Material Price Vailance

Material Usage Variance

Direct Labour Cost (Actuals)

Direct Labour Cost at Standard

300

250

410

10420A900

840

Actual Overhead Cost incurred

Overheads Cost Variance

Opening Work-in-Progress Inventory

Closing Work-in-Progress lnventory

Opening Finished Goods lnventory

Cost of Goods Sold reported

'F'denotes Favourable, 'A' denotes Adverse.

875

45F120

140

360

2,240

t0.37


the

1. Raw Materials Purchases at Standard

2. Raw Materials Consumed at Standard

3. Raw Materials Consumed at Actuals

4. Labour Cost Variance

5. Standard Overhead Costs

6. Total Manufacturino Cost at Standard

7. Cost of Goods Manufactured

8. Cost of Products Sold to Customers

Finished Goods

Item Computation Result (Rs.OOOs)

1. Raw Materials Purchases at Standard = Net Purchases + Material Price Variance

= 410 +10A =410+(-10)Note: Since MPV is adverse, Std Cost should be lower.

400

2. Raw Materials Consumed at Standard = Opg RM Stock + Purchases (at Std) less Clg RM Stock

= 300 + 400 (frorn WN 1) - 250 450

3. Raw Materials Consumed at Actuals = RM Consumed at Standard + Material Usage Variance

= 450+20A =450+20Note: As MUV is adverse, Actual Cost should be higher.

470

4. Labour Cost Variance = Std Labour Cost less Actual Labour Cost = 840 - 900 60A

5. Standard Overhead Costs = Actual OH Costs + OH Cost Variance

= 875+45F =875+45Note: Since OH Cost Variance is Favourable, StandardOH Cost should be hioher.

920

6. Total Manufacturing Cost at Standard = Material + Labour + OH (all at Standard Cost)

= 450 (WN 2) + 840 (qiven) + 920 (WN 5) 2,2L0

7. Cost of Goods Manufactured = Opg WIP Stock + Mfg Cost at Std less Clg WIP Stock

= 120 + 2,210 - 140 2,L90

B. Cost of Products Sold to Customers(at Standard)

= COGS (at actuals as given) + Cost Variances

= 2,240 + 10 A + 20 A + 60A + 45 F

=2,240-10-20-60+45 2,195

9. Closing Finished Goods Inventory = Opg FG Stock + Cost of Goods Manufactured (atStandard) - Cost of Goods Sold (at Standard)

= 360 (given) + 2,190 (WN 6) - 2,195 (WN 8) 355

10.38

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