Standard Costing

STANDARD COSTING WITH SOLUTIONS

Question 1: Calculate Material Price Variance and Material Usage Variance: Standard (1 FG) Actual (1 FG)

Kg Rate Amount (`) Kg Rate Amount (` 18,000 10 1,80,000 20,000

5,000 12 20

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)

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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 2,10,000 Kg Materials used 2,80,000 Kg Cost of materials ` 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) Actual (Output 2,10,000 kg)

Qty. Rate Amount (`) Qty. Rate Amount (`) 3,00,000 kg 1 3,00,000 2,80,000 0.90 2,52,000

Statement of Variance Sl. No. Particulars Basis Amount (`)

1.

2.

3.

Material Usage Variance

Material Price Variance

Material Cost Variance

(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. SCAC

20,000 Favourable

28,000 Favourable

48,000 Favourable

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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 Standard Actual

A B

40 units @ ` 50 per unit 60 units @ ` 40 per unit

50 units @ ` 50 per unit 60 unit @ `45 per unit

Solution: Data for Material Variances Standard Actual

Item Qty. Rate Amount (`)


A B

40 60

50 40

2,000 2,400

A B

50 60

50 45

2,500 2,700

4,400 110 5,200 Statement of Variances

Sl. No. Particulars Basis Amount (`) 1.

2.



(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

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)

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Question 4: From the following information, compute (a) Cost Variance (b) Price and (c) Usage Variance.

Standard Actual Quantity Unit Price Total (`) Quantity Unit Price Total (`)

Material A Material B Material C Total

10 20 20 50

2 3 6 4

20 60 120 200

5 10 15 30

3 6 5 5

15 60 75 150

Solution: Data for Material Variance Budgeted/Standard (1 FG) Actual (1 FG)

Amount (`)


A B C

10 20 20

2 3 6

20 60 120

A B C

5 10 15

3 6 5

15 60 75

200 30 150 Statement of Variance


2.

3.




(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)

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 B

40% 60%

`4.00

` 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

kg Cost (`) A B

35 40

5 50

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 (`)



A B

40 60

4 3

160 180

800 1200

4 3

3,200 3,600

808 1,212

830 1,190

4.2394 2.5168

3,518.75 2,995.00

100 340 2,000 6,800 2,020 6,513.75 Statement of Variance

Sl. No.

Particulars Basis Amount (`) 1.

2.

3.

4.

5.



Material Yield Variance

Material Mix Variance


(S.P. A.P.) A.Q. A: (4 4.2394) 830 = 199 (A) B: (3 2.5168) 1190 = 575 (F) (S.Q. A.Q.) S.R. A: (800 830) 4 = 120 (A) B: (1,200 4,190) 3 = 30 (F) (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) (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) Material price variance + Material Usage Variance 376 (F) + 90 (A)

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 B C

5,000 2,900 4,400

2 4 5

Actual production for December was 6,20,000 tiles. Solution: Data for Material Variance Materials Budgeted (80,000) Standard (6,20,000) S.Q. for

Act. Mix Actual (6,20,000)

Materials Qty. Rate (`) Qty. Rate (`) Qty. Qty. Rate (`) A B C

600 400 500

1 2 3

600 800

1,500

4,650 3,100 3,875

1 2 3

4,650 6,200

11,625

4,920 3,280 4,100

5,000 2,900 4,400

2 4 5

10,000 11,600 22,000

1500 2900 22,475 12,300 43,600 Statement of Variance

S.. No. Particulars Basis Amount (`) 1.

2.

3.

4.

5.

Material Price Variance (M.P.V.)

Material Usage Variance (M.U.V.)

Material Mix Variance

Material Yield Variance


(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)

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) Value Qty. (kg) Value Raw material purchases Issue to works Works stock of material: Opening Closing

2,000 kg 2,150 kg

300 kg 200 kg

` 4,000

5,000 3,950

1,000 1,250

` 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 Standard

Raw Material Qty. (W.N. 1) Rate Amount (`) Qty. (W.N. 2) Rate Amount (`) X Y

2,405 3,680

1.90 1.30

4,569.50 4,784.00

2,250 3,700

2.00 1.25

4,500 4,625

Statement of Variances Sl. No. Particulars Basis Amount (`)

1.

2.



(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

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 X (kg) Y (kg) Opening Stock at works Issue to works by purchase department

300 2,150

1,000 3,950

() Closing stock at works

2,450 200

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

Amount (`) Qty Rate Amount (`) A B C

2,000 800 20

1 1.5 30

2,000 1,200 600

3,00,500 1,19,600 3,100

1.1 1.65 29.5

3,30,550 1,97,340 91,450

1 lot 3,800 150.5 lot 6,19,340

Standard Qty Rate Amount (`)

A B C

3,01,000 1,20,400 3,010

1 1.5 30

3,01,000 1,80,600

90,300

150 lot 5,71,900

Material Price Variance: A = (1 1.1) 3,00,500 = 30,050 (A) (1.5 1.65) 1,19,600 = 17,940 (A) C = (30 29.5) 3,100 = 1,550(F) = 46,440 (A) Material Usage Variance= (SQ AQ) SR

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).

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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 Actual Material Qty.

(kg) Rate (`/kg)

Amount

(`) Standard Ratio for

Actual Mix

Qty. (kg) Rate (`/kg)

Amount

(`)

A B

50 50

12 15

600 750

55 55

40 70

15 20

600 1,400 (B.f.)

100 for 90G

1,350 110 110 (W.N. 2) 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

Grade Y: 60 Labourers at ` 3 per hour Actual Wages: Grade X: 80 Labourers at ` 2.50 per hour

Grade Y: 70 Labourers at ` 2.00 per hour 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) Standard (4100) Actual (4100 units) Material Lab. Hrs Rate

`/hr Amount

(` Lab. Hrs (W.N. 2)

Rate Amount (`)

Lab. Hrs Rate Amount (`)

X Y

90 1,000 = 90,000 60 1,000 = 60,000

1,50,000

2

3

1,80,000

1,80,000

3,60,00

92,250

61,500

1,53,750

2

3

1,84,500

1,84,500

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.

2.

Labour rate variances

Labour efficiency variance

(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) (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) Actual (Units) Gross Production () Loss (Normal)

Net Production

5,000 1,000 (20% of 5,000)

4,000

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) Revised Budgeted (960) Actual (960) Actual Working Hours Lab Hr. Rate Amount

(`) Lab Hr. Rate Amount

(`) Lab Hr. Rate Amount

(`) Men Women

400 200

1 2

400 400 600

384 192

1 2

384 384 576

520 160

3 4

1,560 640 600

494 152

Boys 200 3 1,400 192 3 1,344 120 5 2,800 114

Statement of Labour Variance Sl. No. Particulars Basis Amount (`)

1.

2.

3.

4.

Labour Cost Variance

Labour Rate Variance

Labour Efficiency Variance

Labour Idle Time Variance

(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)

(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)

(Idle Time S.R.) Men: 13 2 1 = 26 (A) Women: 4 2 2 = 16 (A) Boys: 3 2 3 = 18 (A)

1,456 (A)

1,600 (A)

204 (F)

60 (A)

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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 Workers

No. of Labourers Weekly wage rate per Labourer (`)

No. of Labourers

Weekly wage rate per Labourer (`)

Skilled Semi-skilled Unskilled

75 45 60

60 40 30

70 30 80

70 50 20

The work is actually completed in 32 weeks. Required: Calculate the various labour variances. Solution: Data for Labour Variance

Category Budget/Revised Actual Category Time

(weeks) Rate

(`/week) Amount

(`) Standard Ratio for Actual Mix (weeks)


Skilled Semi-skilled Unskilled

2,250 1,350 1,800

60 40 30

1,35,000 54,000 54,000

2,250 _____

2,400 (5400 5,760 1,350 _____

1,440 ( 5400 5,760 1,800 _____

1,920 (5400 5,760 5760

2,240 960

2,560 5,760

70 50 20

1,56,800 48,000 51,200

5400 2,43,000 5760 5,760 2,56,000

Statement of Labour Variances Sl. No.

Particulars Basis Amount (`)

1.

2.

3.

4.

5.

Labour cost variance

Labour rate variance


Labour mix variance

Labour yield variance

Standard Cost Actual Cost 2,43,000 2,56,000 = 13,000 (Adv.)

(S.R. A.R.) Actual Payment Hrs Skilled: (60 70) 2240 = 22400 (A) Semi-skilled: (40 50) 960 = 9600 (A) Unskilled: (30 = 25600 (F)

(S.Q. A.Q.) S.R Skilled: (2,250 2,240) 60 = 600 (F) Semi-skilled: (1,350 960) 40 = 15,600 (F) Unskilled: (1,800 2,560) = 22,500 (A)

(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)

(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)

13,000 (A)

6,400 (A)

6,600 (A)

9,600 (F)

16,200 (A)

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Question 18: The following data is given: Particulars Budget Actual

Production (in units) Man hours to produce above Variable Overheads (in `)

400 8,000 10,000

360 7,000 9,150

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) Standard (360 FG) Actual (360 FG) Hrs Rate Amount

(`) Hrs Rate Amount

`) Hrs Rate Amount

(`) Labour 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)

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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 1,400 units Budgeted fixed overheads ` 1,400 Actual output 1,200 units Actual hours worked 32 hours Actual fixed overheads ` 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)

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Question 25: Budgeted no. of working days 24 Budgeted no. of hours per month 12,000 Fixed overhead rate ` 0.50 per hour Actual no. of working days in June 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 = Total fixed Budget Oh 6,000 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 Basis Amount 1 Fixed overhead volume

variances Recovered-Budgeted 9000- 10,000

1,000(A) 2 Fixed Overhead expenditure

variances Budgeted- Actual 10,000 10,500

500(A) 3 Fixed overhead cost variances Recovered-Actual

9000 10,500 1,500(A)

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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 Basis Amount

1.

2.

3.

Fixed overhead Expenditure variance

Fixed overhead volume variance

Fixed overhead total variance

Budgeted Actual ` 5,000 ` 5,600 Recovered Budgeted ` 3,500 ` 5,000 Recovered Actual ` 3,500 ` 5,600

600 (A)

1500 (A)

2100 (A) --------------------------------------------------------------------------------------------------------------------------------------

Question 28: Budgeted Output Budgeted Hour Actual Hour Actual Output

A B C D E F G

10 2 8 50 10 8 12 100

8

20 40

15 15

A

C D

F G

Budgeted overhead = `10,000 Actual overhead = ` 12,500.

Required: Calculate the fixed overhead volume and Exp variance. Solution:

Statement of fixed overhead variances Sl. No. Particulars Basis Amount

1.

2.

Fixed overhead expenditure variances

Fixed overhead volume variances

Budgeted Actual 10,000 12,500 Recovered Budgeted 8,800 10,000

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:- Eciency variance 2:-Revised capacity variances 3:- Calendar variance 4:- Expense variance 5:- Volume variance

6:- Total fixed overheads variance

Statement of Variances Sl. Particulars Basis Amount (`)

1.

2.

3.

4.

5.

6.

Efficiency variance

Revised Capacity variance

Calendar variance

Expenses variance

Volume variance

Total fixed overhead variance

(S. Hr A.W.Hr) R.R = (21.220 21,840) 6

Total Cap. variance Calendar Variance 12,960 5,760 (W.N. 1)

(Actual days Budgeted days) Standard Rate/day = (26 25) 5,760 = 5,760

Budgeted Actual 1,44,000 1,42,000

Recovered Budgeted 1,27,320 1,44,000

Recovered Actual 1,27,320 1,42,000

3,720 (A)

18,720 (A)

5,760 (F)

2,000 (F)

16,680 (A)

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) Hours Overhead Cost-fixed Variable Number of days

6,000 3,000

1,200 6,000

25

6,500 3,300

1,250 6,650

27

Required: Compute and analyse the overhead variances.

Note: Assume 8 Working Hour Per day, Budgeted Hours = 20 8, Actual Hour = 21 8.


2.

3.

4.

5

6.

7.

8.

Fixed OH Volume Variances

Fixed OH Expenditure Variances

Fixed OH Cost Variance

Fixed OH Efficiency Variance

Fixed OH Capacity Variance

Fixed OH Calendar Variance

Fixed OH Balanced Capacity Variance

Variable OH Variable

Recoverd Budgeted 1,300 1,200

Budgeted Actual 1,200 1,250

Recovered Actual 1,300 1,250

(S. Hrs A.W.Hrs) Recovery Rate = (3,250 3,300) 0.40

(A.W.Hrs Bud. Hrs) Recovery Rate = (3,300 3,000) 0.40

(Actual Work Days Budgeted days) R.R./day 1,200 _____

= (27 25) 25

Total Capacity Variance Calendar Variance = 120 Fav. 96 Fav.

Standard variable OH for Actual Output Actual variable OH Actual Output

6,000 _____

= 6,500 6,650 6,000

= 6,500 6,650

100 (F)

50 (A)

50 (F)

20 (A)

120 (F)

96 (F)

24 (F)

150 (A)

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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) Eciency Variance (iv) Calendar variance.

Statement of Variances Sl. No.


1.

2.

3.

4.

5.

6.

Variable OH Variances

Fixed OH Variance

Fixed OH Expenditure Variance

Fixed OH Volume Variance

Fixed OH Efficiency Variance

Fixed OH Calendar Variance

Standard Variable OH for actual output Actual variable OH for actual output 12,000 ______

4000 3,800 12,000 = 11,400 12,000

Recovered Actual 38,000 39,000 = 1,000

Budget Actual 40,000 39,000

Recovered Budged 38,000 40,000

(Standard Working Hr Actual Working Hour) R.R./hr. (152 168) ` 250/hr.

(Actual Working days Budgeted Working days) R.R. per day

40,000 ______

(21 20) 2

600 (A)

1,000 (A)

1,000 (F)

2,000 (A)

4,000 (A)

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 eciency variance 6:- Standard hours for actual production. Solution: Statement of Required Information

Sl. No. Particulars Basis Amount (`)

1.

2.

3.

4.

5.

6.

Overhead Expenditure Variance

Actual Overhead incurred

Actual Hours for Actual production

Overheads Capacity Variance

Overheads Efficiency Variance

Standard hours for actual production

W.N. 1

W.N. 2

Actual Overhead _______________

Actual Rate (Actual hrs worked) Recvoery Rate

6,000 _____

(800 1,200) 1,200

(Standard Hr. Act. worked Hr.) R.R. (1,000 800) 5

W.N. 3

400 A.

6,400

800 hrs.

2,000 (A)

1,000 (F)

1,000 hrs.

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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 36 hr @ `8.25/hour 36 hr @ `4.75/hour

Standard output per month

` 270 ` 297 `` 171

` 738 24,000 units

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 dierence between the actual costs and standard costs Solution: Data for Resource Variance

Particulars Budgeted (1 FG) Standard (21,000) Actual (21,000) Qty. Rate Amount

(`) Qty. Rate Amount


(`)

Mat (kg) Labour (hrs.) V OH (hours)

0.6 0.36 0.36

4.50 8.25 4.75

2.7 2.97 1.71

12,600 7,560 7,560

4.50 8.25 4.75

56,700 62,370 35,910

13,000 7,920 7,920

4.70 8.45 4.545

61,100 66,924 36,000

Statement of Variances Sl. No.


1.

2.

3.

4.

5.

6.

7.

8.

9.







Variable OH Expenditure Variance

Variable OH Efficiency Variance

Variable OH Cost Variance

(4.50 4.70) 13,000 (S.P. A.P.) A.Q.

(S.Q. A.Q.) S.P. (1,26,00 13,000) 4.50

S.C. A.C. 56,700 61,100

(S.R. A.R.) Actual Working Hours (8.25 8.45) 7920

(Standard Hrs. Actual Working Hours) . S.R. (7,560 7,920) 8.25

S.C. A.C. 62,370 66,924

(S.R. A.R.) Actual Working Hours (4.75 4.545) 7,920

(Standard Hrs. Actual Working Hours) S.R. (7,560 7,920) 4.545

S.C. A.C. 35,910 36,000

2,600 (A)

1,800 (A)

4,400 (A)

1,584 (A)

2,970 (A)

4,554 (A)

1,626 (F)

1,636 (A)

10 (A)

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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) Direct wages Fixed expenses Variable expenses Total standard cost per unit

50 6

40 20

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 Eciency Variance 11:- Variable Expenses Variance 12:- Fixed Expenses Volume Variance 13:- Fixed Expenses Eciency Variance Solution:

Particulars Budgeted (1 Unit) Standard (3,500) Actual (3,500) Qty. Rate Amount (`) Qty. Rate Amount (`) Qty. Rate Amount (`)

Mat (unit) Labour (hrs.) V OH (hrs.)

1 2 2

50 3 10

50 6 20

3,500 7,000 7,000

50 3 10

1,75,000 21,000 70,000

3,600 6,800 6,400

52.50 3.25

9.6875

1,89,000 22,100 62,000

Statement of Variances 1.

2.

3.

4.

5.

6.

7.

8.

9

10

11

12

13.


Material price Variance

Material usage Variance

Labour Cost Variacne

Wage Rate Variance


Idle time Variance

Variable Expenses Variances

Fix OH Expenditure Variance

FIx OH Volumne Variance

Fixed Exp.(OH) Capacity Variance

Fixed Expenses(OH) Efficiency Variance

Total Cost Variance

S.C. A.C. 1,75,000 1,80,000

(S.R. A.R>) X AQ (50 52.50) X 3600

(S.Q. A.Q.) X S.R. (3,500 3,600) X 50

S.C. A.C. 21,000 22.100

(S.R. A.R>) X A.P. Hrs (3 3.25) X 6,800

(S.Hrs A.W. Hrs) X S.R (7,000 6,400) X 3

Idle Hrs. X S.R. (400 X 3) S.C> -A.C. 70,000 62,000

Budget Actual 1,92,000 1,88,000 Recovered Budget 1,40,000 1,92,000

(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

1400 (A)

9000 (A)

5,000 (A)

1,100 (A)

1,700 (A)

1,800 (F)

1,200 (A)

8000 (F)

4000(F)

52,000(A)

64,000 (A)

12,000(F)

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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 - ? Hours@ ` ? 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) Standard (6,000) Actual Qty. Rate Amount (`) Qty. Rate Amount (`) Qty. Rate Amount (`)

Mat (Meter) Labour (hrs.) V OH (hrs.)

2 1 1

6 4.40

3

12 4.40

3

12,000 6,000 6,000

6 4.40

3

72,000 26,400 18,000

12,670 6,500 (W.N. 1) 6,500 (W.N. 1)

5.70 4.3 3.15

72,215 27,950 20,475

Statement of Variances 1.

2.

3.

4.

5.

6.

7.

8.

9.



Variable OH Expenditure Variance



VOH Efficiency Variance



Variable OH Cost Variance

(S.R>- A.R>) X A.Q. (6 5.70) X 12,670

(S.R> - A.R> ) X A.Pay Hr (4.40 4.30) X 6,500

(S.R> -A.R.) X A.W. Hr (3 3.15 ) X 6,500

(S.Q. A.Q>) X S.R. (12,000 12,670) X 6

(S. HR A.W.Hr ) X S.R. (6,000 6,500) X 4.40

(S. Hr A.W. Hr ) X S.R. (6,000 6,500) X3

S.C. A.C. 72,000 72,215

S.C. A.C. 26,400 27, 950 S.C A.C. 18,000 20,475

3,801 (F)

650 (F)

975 (A)

4,020(A)

2,200(A)

1,500(A)

215(A)

1,550(A)

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 1,600 Actual direct labour hours 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 eciency variance. Variable overhead expenditure variance. Variable overheads eciency variance. Note: Key calculation should form part of the answer.

= 6,500 Hr. Solution:- Statement of Missing Variances S.No. Particulars Basis Amount A Standard Quantity of Raw Material/unit 3,800/1.00 in (W.N.1) 3.8 Kg B Standard Direct Labour Rate/Hour 8,000/1,600(W.N.1) 5.00 C Standard Direct Material Cost/unit 11,400/1,000 (W.N. 1) 11.40 D Standard Direct Labour Cost/unit of Z.E.D. 8,000/1,000(W.N. 1) 8 E Standard total material cost for the output W.N.-1 11,400 F Actual Total Direct labour cost for output W.N.- 1 9,450 G Material Price Variance (S.R A.R.) X AQ

(3 2.5 ) X 4000 2000(F)

H LAbour Rate Variance (S.R. -A.R.) X A. Day. Hrs ( 5 5.25 ) X 1,800

450(A) I Labour efficiency variance S. Hrs A.W. Hrs ) X S.R.

(1,600- 1,800) X5 1,000(A)

J Varaicne OH Expenditure Variance (S.R. A.R.) X A. W. Hrs. 180(F)

( 1 0.90) X 1800 K Variable OH Efficiency variance (S. Hrs A.W. Hrs) X S.R.

1600 1800) X1 200(A)

Working Notes: 1. Data for Resource Variance

Standard/Budget (1,000 FG) Actual (1,000 FG) Qty. Rate Amount

(`) Cost per Unit Qty. Rate Amount

(`) Cost per unit

Material Labour hours Variable overhead hours

3,800 1,600 1,600

3 5 1

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

10 9.45 (B.f )

1.62

21 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 Standard Actual Qty. Rate Amount



(``) Material Labour Variable overhead

4 2 2

0.75 1.9 1.2

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

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. Particulars Basis Amount

1. 2.

3. 4. 5.

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

(W.N. 1) (W.N. 3)

(W.N. 4) (W.N. 1) (W.N. 5)

1,80,000 kg 2,000 kg

4,600 (F) 78,000 Hrs. 76,000 Hrs.

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

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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:

(`)

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

15.00 10.00 7.50 32.50

The following data was obtained from Zed Companys record for April 1998 Particulars Debit Credit

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

3,250 2,500 1,900

` 1,25,000

`` 68,250

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

Direct labour Variable overheads

5 kgs at ` 2 12 hours at ` 2

12 hours at ` 1

` 10

`24

`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. Particulars Basis Amount 1. Material Price Variance (S.R. A.R.) A.Q.

(2 2.0235) 8,500 200 (A)

2. Material Usage Variance (S.Q. A.Q.) S.R. (9,000 8,500) 2

1,000 (F)

3. Material Cost Variance S.C. A.C. (18,000 17,200)

800 (F)

4. Labour Rate Variance (S.R. A.R.) Actual Payment Hours (2 2.1) 20,000

2,000 (A)

5. Labour Efficiency Variance (S.Hr Actual Working Hours) S.R. (21,600 20,000) 2

3,200 (F)

6. Labour Cost Variance S.C. A.C. 43,200 42,000

1,200 (F)

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 variance

Budgeted Actual (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)

(b) Statement of Bonus

Particulars Amount (`) (i)

(ii)

15% of S.C. of Material saved (S.Q. A.Q) S.C. 15% (9,000 8,500) 2 15% 50% of S.C. of lab. Hrs. saved 50% 2 (21,600 20,000)

150

1,600

Total Bonus payable 1,750 Working Notes:

Data for Resource Variances Budgeted Output Recovery Rate Budgeted fixed-overhead Actual Hrs.

2,000 units or

24,000 hrs.

` 5 / unit or

`` 0.4167 / hr.

10,000 20,000

Standard hrs./units Recovered (`) Actual (`) 21,600 Hrs

or 1,800 units

9,000 (21,600 0.4167)

9,800

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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 Eciency ratio and establish their relationship.

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Question 45: The following is the information provided by Tulsian Ltd. Product Budgeted Sales

Quantity Units Budgeted

Selling Price per unit

Standard Cost Per unit

(`)

Actual Sales Quantity Units

Actual Selling Price per unit

(`)

Actual Cost Per unit

(` A B

60 40

20 10

15 4

44 66

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 Standard Ratio

for actual mix Actual Sale

Product Qty. Rate Amount (`)


A B

60 40

20 10

1,200 400

66 44

44 66

25 5

1,100 330

1,600 110 1,430

Statement of Sales Variances Sl. Particulars Basis Amount

1.

2.

3.

4.

5.

Sales Value Variance

Sales Price Variance

Sales Volume Variance

Sales Mix Variance

Sales Yield Variance

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)

170 (A)

110 (A)

60 (A)

220 (A)

160 (F)

Reconciliation Statement Budgeted profit Adjust Sales Variance: Sales price variance Sales Volume Variance Adjust cost variances: (1060 1034)

540

110 (A) 60 (A)

26 (F)

Actual profit 396 Working Notes:

1. Statement of Profit Budget Actual

Sales Value A: 60 20 B: 40 10

1,200 400

1,600 (1,060)

Sales Value A: 44 25 B: 66 5

1,100 330

1,430 (1,034)

Sales Value A: 60 20 B: 40 10 Less: Cost A: 60 15

900 160

1,600 (1,060)

Sales Value A: 44 25 B: 66 5 Less: Cost A: 44 16

704 330

1,430 (1,034)

Sales Value 540 Sales Value 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 B C

2 4 1

3 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 Actual Sales

Product Qty. Units

Rate (`) Amount(`) Oty. Units

Rate (`) Amount ` Actual Quantity Budgeted Price

A B C

10,000 6,000 8,000

12 15 9

1,20,000 90,000 72,000

11,000 5,000 9,000

11.50 15.10 8.55

1,26,500 75,500 76,950

1,32,000 75,000 81,000

24,000 2,82,000 25,000 2,78,950 2,88,000

Alternative Solution (Sales Margin Method) Basic Calculation

Budgeted Margin Actual Margin Actual Quantity X Budgeted Price (``)

Product Qty. Units

Rate (`) Amount (`) Qty. Units

Rate (`) Amount (``)

A B C

10,000 6,000 8,000

5 6 3

50,000 36,000 24,000

11,000 5,000 9,000

4.50 6.10 2.55

49,500 30,500 22,950

55,000 30,000 27,000

24,000 1,10,000 25,000 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 Actual Cost Actual quantity Standard price

Qty Units

Rate (`) Amount (`) Qty. Units

Amount (`) Rate Amount (`)

X Y

51,000 74,000

2 1

1,02,000 74,000

54,000 72,000

1,09,620 73,000

1,08,000 72,000

1,25,000 1,76,000 1,26,000 1,82,620 1,80,000

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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 5 hrs @ ` 40 per hour Overhead per return 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 eciency 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 ` 12,000

` 90,000 `5,000

Total ` 1,90,000 ` 95,000 Qty. (WN1) (B) Rate (` p.u) (A) (B)

1,000 ` 190

1,000 ` 95

(a) Calculation of Actual cost of closing W.I.P. Labour (190 100) Overhead (95 100)

19,000 9,500

28,500 (b) Standard Cost

Labour: 5 Hrs X 40 200 Overhad: 5 hHR X 20 100 300 (d) Statement of Variances

Sl. No. Particulars Basis Figures 1.

2.

3.

4.



Overhead Volume Variance

Overhead Budget/Expenditure Variance

(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

18,000 (A)

30,000 (A)

3,000 (A)

8,000 (F) Working Notes:

1. Statement of Equivalent Production (Weighted Avg. Method) Particulars Labour Overhead

Opening W.I.P. Units Started

200 825

Transferred Closing W.I.P. (80%)

900 125

900 100

900 100

1000 1,025 1,025 1000

Statement of Equivalent Production (FIFO) for Variance Analysis

Labour Overhead Opening W.I.P. (25 k)

Units Started

200

825

1,025

Opening W.I.P. Current Transferred Closing W.I.P. (80%)

200 700 900 125

1,025

150 700 100

950

150 700 100

950

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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 (S.P. A.P. ) X A.Q.

(10 11.034) X 2900 3000(A)

2 Material usage variance (S.Q. A.Q.) X S.R. (2800 2900) X 10

1000(A) 3 Material cost variance S.C.- A.C.

28,000 32,000 4000(A)

4 Labour Rate variance (S.R. A.R.) X A.pay. HRs ( 20 20,606) X 3300

2000(A) 5 Labour Efficiency variance (S. Hrs- a.W.Hour) X S.R.

(3,420 3,300) X 20 2400(F)

6 Labour cost variance S.C. A.C. 68,400 68,000

400(F) 7 Fixed overhead volume variance Recovered Budget

1,02,600 90,000 12,600 (F)

8 Fixed overhead efficiency variance (S. Hr. A.W. Hr.) X S.R. (3,420- 3,300) X30

3600 (F) 9 Fixed overhead capacity variance (A.W> Hr Bud. Hr) X R.R.

(3,300 3,000) X 30 9000 (F)

10 Fixed overhead expense variance Budget Actual 90,000 88000

2000 (F) 11 Fixed OH

Cost variance Recovered Actual 1,02,600 88,000

14,600 (F)

Working Note 1 Statement of Equivalent Production (FIFO)

Material Labour & Overhead OP. W.I.P. (100%, 60%) 250 Introduced 1,400

1,650

Opening 250 Current 950 Transferred 1,200 Closing W.I.P. (80%) 450

1,650

950

450

1,400 (Actual output for material)

100 950

90 1,140 (Actual output for labour)

Working Note 2 Data for Resource Variance

Standard Actual Qty. Rate Amount


(`) Material (kg) (1,400) Labour (1,140)

2,800 3,420

10 20

28,000 68,400

2,900 3,300

11.034 20.60

32,000 68,000

Working Note 3

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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 12.00 Total 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 Basis Figures

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

11.




Variable Overhead Expenditure Variance

Variable Overhead Efficiency Variance

Fixed overhead expenditure variance

Fixed overhead volume variance

Fixed overhead efficiency variance

Fixed overhead capacity variance

Labour rate variance


(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

(S.R. A.R.) A.W.Hr (2.4 2.6) 22,400

(S.Hr A.W.Hr) S.R. (22,560 22,400) 2.4

Budget Actual 38,400 38,200

Recovered Budget 36,096 38,200

(S.Hr A.W.Hr) S.R. (22,560 22,400) 1.6

(Bud. Hr. A.W.Hr) S.R. (24,000 22,400) 1.6

(S.R. A.R.) A.Pay. Hrs (4 4.3) 22,400

(S.Hr A.W.Hr) S.R. (22,560 22,400) 4

2,806 (F)

2,256 (A)

550 (F)

4,480 (A)

384 (F)

200 (F)

2,304 (A)

256 (F)

2,560 (A)

6,720 (A)

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%)

300 7,320 7,620 200

7,320

100

120 7,320

80

7,820 7,820 7,420 7,520

Working Note 3 Data for Resource Variance

Particulars Standard Actual Qty. Rate Amount (`) Qty. Rate Amount (`)

Material Labour Variable overhead

7,420 1.5 = 11,130 7,520 3 = 22,560 7,520 3 = 22,560

24 4 7.2 = 2.4 3

2,67,120 90,240 54,144

11,224 22,400 22,400

23.75 4.3 2.60

2,66,570 96,320 58,240

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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 Department B 4 hrs @ ` 1.50 Overheads: Department A 2 hrs @ ` 0.50 Department B 4 hrs @ ` 1.00 Total

3.50 6.00

1.00 4.00

`6.45

` 9.50

` 5.00

`20.95 Transactions for the period are as under: Materials purchased and consumed:

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: Journal Entry (Under Single Plan) in Department A

Particulars Amount (``) Amount (`) 1. Material Control A/C Dr (S.R. A.Q)

Material Price Variance A/c Dr (S.R. A.R.) A.Q. To creditors A/c (Being Material purchased)

18,490 3,010

21,500

2. Creditors A/c Dr To Bank

21,500 21,500 3. W.I.P. Control A/c Dr (S.Q. A.R.)

Material Usage Variance A/c. (S.Q. A.Q.) A.R. To Material control A/c. (A.Q. A.R.) (Being goods issued to production)

18,060 430

18,490

4. Wages Control A/c. Dr (S.R. A.W.Hr) To wages payable A/c. (S.R. A.P.Hr) (Being labour expenses due)

9,100

9,100

5. Wages payable A/c. Dr To Bank A/c

9,100

9,100 6. W.I.P. control A/c Dr.

To wages control A/c To labour Efficiency variance A/c

9,800

9,100 700

7. W.I.P. Control A/c Dr Overhead cost variance A/c Dr

To Bank

2,800 200

3,000

8. Department B A/c Dr To W.I.P. Control A/c

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 Dr To Department A A/c.

30,660

30,660 2. Wages Control A/c Dr

Labour Rate variance A/c Dr To wages payable A/c

18,000 Nil

18,000

3. Wages Payable A/c Dr To Bank

18,000

18,000

4. W.I.P. control A/c Dr Labour Efficiency variance A/c Dr

To wages control A/c

16,800 1,200

18,000

5. W.I.P. control A/c Dr Overhead cost variance A/c Dr

To Bank

11,200 1,300

12,500

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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 Amount (`) Direct material Direct wages Variable overheads Fixed overheads Profit Sales

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 (`) Original Budget (`) 5,000 units

Material (See WN 1) Labour (See WN 2) Variable overhead (See WN 3) Fixed overhead (See WN 4)

6 9

15 7.5

30,000 45,000 75,000 37,500

Total Cost Profit

37.5 7.5

1,87,500 37,500

Selling price (See WN 5) 45 2,25,000

Statement of Reconciliation (Marginal) Particulars Amount (`)

Budgeted Profit Sales Variance: Price Variance Volume Variance: (B.Q. A.Q.) (F.C. + Pro. P.U.)

200 (7.5 + 7.5) 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

37,500

6,750 (F) 3,000 (A)

900 (A)

1,500 (A)

750 (A) 1,500 (A)

N.A.

Actual profit 36,600

Budget Actual Quantity Selling Price per unit Variable cost per unit (Material + Labour + Overhead) Contribution per unit Total Contribution Less: Fixed Cost

5,000 45 30 15

75,000 37,500

4,800 45 30 15

72,000 37,500

Profit 37,500 34,500

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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

IInd year Ist Year Sales Sales Price Quantity Sold

7,70,00,000 110

7,00,000

6,00,00,000 100

6,00,000

Reconciliation Statement

Particulars Basis ` in lakh

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

70 (F) 6.66 (F)

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.

13.33 (F)

70 (A) 13.5 (F) 12.5 (F)

7 (A) 10 (F) 4 (A) 5 (F)

Actual Profit 90 Working Notes:

1. Data for Resource Variance Budget Standard Actual Material Qty. Rate (` in lakh)

Amount

Qty. Rate (` in lakh) Amount

Qty. Rate (` in lakh) Amount

Material Labour Variable Overhead

1,20,000 24,00,000 24,00,000

250 5

2.5

300 120 60

1,40,000 28,00,000

28,00,000

250 5

2.5

350 140 70

1,35,000 26,00,000

26,00,000

240 5.269 2.65

324 137 69

480 540 530

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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 Amount Amount

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

27 20

28

47 14

11

3 8

` 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)

21,000

11,500

14,000

32,500 8,000

4,500

1,600 2,900 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 Standard Actual

Qty. Rate Amount Qty. Rate Amount Output of A X Material Labour Hr. Variable OH

1,500 2,000 7,000 7,000

9 5 2 1

13,500 10,000 14,000 7,000

1,400 1,900 6,500 6,500

15 6.05 2.1538 1.2308

21,000 11,500 14,000 8,000

44,500 54,500

(a) Statement of performance Amount (`) Standard Cost Controllable Variances:

Uncontrollable 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

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 Actual Cost

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) 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 Citric acid 1 kg @ `` 5 per kg 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 Citric acid 1 kg @ ` 6 per kg Labour 20 hr @ ` 4 per hour

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 Original Standard Revised Standard Actual

Qty. Rate (`) Qty. Rate (`) Qty. Rate (`)

Fruit Extract Glucose Syrup Pectin Citric Acid

Labour

400 700

99 1

1 2 1 5 2

400 1,400

99 5

400 700

99 1

2 24 1 5 2

800 1,680

99 5

428 742

125 1

4 5

2 6

4

1,712 3,710

250 6

1,200 18

1,904 36

1,200 18

2,584 36

1296 20

5,678 80

1,940 2,620 5,758 (a) Statement of Uncontrollable Planning Variances Ingredients Traditional Variance

(Original Actual) Planning Variances (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)

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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

Documents

Standard Costing