38 Standard Costing

Standard Costing
Learning Objectives
After studying this chapter, you should be able to Describe how unit input standards are developed, and explain why standard costing systems are adopted. Explain the purpose of a standard cost sheet. Compute and journalize the direct materials and direct labour variances, and explain how they are used for control. Compute overhead variances in three different ways, and explain overhead accounting. Calculate mix and yield variances for direct materials and direct labour.
Sec 1_Ch-03_Sandard Costing.indd 3.1
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Problems and Solutions: Advanced Management Accounting
INTRODUCTORY THEORY
Standard costing system is a costing system that: (i) traces direct costs to output produced by multiplying the standard prices or rates by the standard quantities of inputs allowed for actual output produced, and (ii) allocates overhead costs on the basis of the standard overhead costs rates times the standard quantities of the allocation bases allowed for the actual outputs produced. Establishing Standards Developing and establishing standards requires signicant inputs from various sources. Three potential sources of quantitative standards are as follows: 1. Historical experience 2. Engineering studies 3. Input from operating personnel Classication of Standards
Standards
Basic Standards Used only when they are likely to remain constant over a long period of time
Ideal Standards Can be achieved only if everything operates perfectly and demands maximum level of efciency
Normal Standards Can be achieved under normal operating conditions
Standard cost is a carefully determined cost of a unit of output. According to CIMA ofcial terminology standard cost is: A predetermined calculation of how much costs should be under specied working conditions. It is built up from an assessment of the value of cost elements and correlates technical specications and the qualication of minerals, labour and other costs to the prices and/or usage rates expected to apply during the period in which the standard cost is intended to be used. Its main purpose is to provide basis for control through variance accounting for the valuation of stock and work-in-progress and in some cases, for xing selling prices. Objectives for Adopting Standard Costing System 1. 2. 3. 4. Cost Management Planning and Control Decision-making Product Costing
Variance Analysis and Accounting
Variance analysis is the analysis of the cost variances and its component parts and explanation of these variances. Cost variance is the difference between a standard cost and the comparable actual cost incurred during a period.
Classication of Variances Direct Material Price Variance = Actual Quantity (Standard Price Actual Price) Direct Material Usage Variance = Standard Price (Standard Quantity Actual Quantity)
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Standard Costing 3.3

Variances
Controllable Which can be controlled by the departmental head
Uncontrollable (i) Which are beyond the control of departmentl heads, e.g. price
Timing of Price Variance Computation The direct material price variance can be computed at one of two points: 1. When the direct materials are issued for use in production, or 2. When they are purchased. Computing the price variance at the point of purchase is preferable. It is better to have information on variances earlier than later. The more timely the information, the more the likeliness of a proper managerial action. Timing of the Computation of the Direct Material Usage Variance The direct material usage variance should be computed as direct materials are issued for production. To facilitate this process, many companies use three forms: 1. A standard bill of materials, 2. Color-coded excessive usage forms, and 3. Color-coded returned material forms. Direct Labour Rate Variance = Actual Time (Standard Rate Actual Rate) Direct Labour Efciency Variance = Standard Rate (Standard Time Actual Rate) Responsibility for the Direct Material Variances The responsibility for controlling the direct material price variance is usually lies with the purchasing manager. The production manager is responsible for direct material usage. However, at times, the cause of the variance is attributable to other individuals and factors outside the production area. For example, purchase of low quality direct material may give a bad output. In this case, the responsibility should be assigned to purchasing rather than production. Responsibility for the Direct Labour Variances Direct labour rates are largely determined by such external forces as labour market and union contracts. When direct labour rate variances occur, they often do so because an average wage rate is used for the rate standard or because more skilled and more highly paid labourers are used for less skilled task. However, the use of direct labour is controllable by the production manager. For this reason, responsibility for the direct labour rate variance is generally assigned to the individuals who can take good decision for allocation of labour. The same is true of the direct labour efciency variance. However, as is true of all variances, once the cause is discovered, responsibility may be assigned elsewhere. Variable Overhead Efciency Variance The variable overhead efciency variance is directly related to the direct labour efciency variance. If variable overhead is truly driven by direct labour hours, then like the direct labour efciency variance, it is caused by efcient or inefcient use of direct labour. If more (or fewer) direct labour hours are used the standard calls for then the total variable cost will increase (or decrease). Responsibility for Variable Overhead Expenditure Variance and Variable Overhead Efciency Variance Ability to control is a prerequisite for assigning responsibility. Price changes of variable overhead items are generally beyond the control of supervisors. If price changes are small, the expenditure variance is primarily a matter of the
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3.4
efcient use of overhead in production, which is controllable by production supervisors. Accordingly, responsibility for the variable overhead expenditure variance is generally assigned to production departments. The reasons for unfavourable variable overhead variance are similar to direct labour efciency variance. Responsibility for the variable overhead efciency variance should be assigned to the production manager. Variance Analysis Overhead Costs 1. Variable Overhead Variance = (Standard Variable Overhead Actual Variable Overhead) 2. Variable Overhead Expenditure Variance = (Budgeted Variable Overhead for Actual Hours Actual Variable Overhead) 3. Variable Overhead Efciency Variance = Standard Variable Overhead Per Hour (Standard Hours for Actual Output Actual Hours) Variable Overhead Expenditure Variance It is similar to the price variances of direct materials and direct labour though there some conceptual differences. Variable overhead is not a homogenous input it is made up of a large number of individual items such as indirect materials, indirect labour, electricity, maintenance, and so on. A variable overhead expenditure variance can arise because prices for individual variable items have increased or decreased. The variable overhead expenditure variance is also affected by how efciently overhead is used. The waste or inefciency in the use of variable overhead increases the actual variable overhead cost. This increased cost, in turn, is reected in an increased actual variable overhead rate. Thus, even if the actual prices of the individual overhead items were equal to the budgeted or standard prices, an unfavourable variable overhead expenditure variance could still take place. Fixed Overhead Variances 1. Total Fixed Overhead Variance = Absorbed Fixed Overhead Actual Fixed Overhead 2. Fixed Overhead Expenditure Variance = Budgeted Overhead Actual Overhead 3. Fixed Overhead Volume Variance = Standard Rate of Absorption Per Unit (Actual Production Budgeted Production) 4. Fixed Overhead Capacity Variance = Standard Rate of Absorption Per Hour (Actual Hours Capacity Budgeted Hours Capacity) 5. Fixed Overhead Efciency Variance = Standard Rate of Absorption Per Hour ( Standard Hours Required Actual Hours)
SFOR SH
AFOH Spending Variance BFOH Volume Variance
SH
SH (D) Standard Hours
Graphical representation of xed overhead variances
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Points to Remember
Advantages and Disadvantages of Standard Costing Advantages: Basis for measuring operating performance and cost control Helps in price fixation Facilitates evaluation of jobs Facilitates estimation of cost of new product Helps in inventory valuation Useful in measurement of profit Supports business planning, budgeting and managerial decisions Aids in standardization of products, operations and processes Defines the responsibilities of departmental managers Sets a uniform basis for comparison of all elements of costs. Disadvantages: Variation in price Varying level of output Changing standard of technology Misleads technical people Revision of standard Cannot reflect value in exchange.
Direct Material Mix and Yield Variance The mix variance is the difference in the standard cost of the actual mix of inputs used and the standard cost of the mix of inputs that should ideally have been used. A yield variance occurs whenever the actual yield (output) differs from the standard yield. For direct materials, the sum of the mix and yield variances equals the direct material usage variance. Direct Material Mix Variance = Total Actual Quantity (Standard Cost Per Unit of Standard Mix Standard Cost Per Unit of Standard Mix)
or, Standard Price (Revised Actual Quantity Actual Quantity)

Direct Material Yield Variance = Standard Price of Yield (Actual Yield Standard Yield) or, Standard Price (Standard Quantity Revised Actual Quantity) Direct Labour Mix and Yield Variance The direct labour mix and yield variance is calculated in the same way as the direct material mix and yield variance. Direct Labour Mix Variance = Total Actual Time (Standard Rate of Standard Labour Standard Rate of Actual Labour) or, (Revised Actual Hours Actual Hours) Standard Rate Direct Labour Yield Variance = Standard Rate (Total Standard Time Total Actual Time) or, Standard Rate ( Standard Hours Revised Actual Hours)
Question 1: Calculate Material Price Variance and Material Usage Variance:
Standard (1 FG) Kg 18,000 Rate 10 Amount (`) 1,80,000 Kg 20,000 5,000 Actual (1 FG) Rate 12 20 Amount (`) 2,40,000 1.00.000
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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 Adverse Material Usage Variance = Excess price variance + (S.Q. A.Q.) S.P. due to emergency order = (12 20) 5,000 + (18,000 25,000) 10 = ` 1,10,000
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 Actual: Output Materials used Cost of materials ` 1 per kg 2,10,000 kg 2,80,000 kg ` 2,52,000
Calculate (a) Material Usage Variance (b) Material Price Variance (c) Material Cost Variance.
Solution:
Data for Material Variance (2,10,000 kg)

Standard (Output 2,10,000 kg) Qty. 3,00,000 kg Rate 1 Amount (`) 3,00,000 Qty. 2,80,000 Actual (Output 2,10,000 kg) Rate 0.90 Amount (`) 2,52,000
Statement of Variance
Sl. No. 1. 2. 3. Particulars Material Usage Variance Material Price Variance Material Cost Variance Basis (Std.Qty. A.Qty.) S.P. (3,00,000 2,80,000) 1 (S.P. A.P.) A.S. (1 0.90) 2,80,000 (Material Usage + Material Price Variance) i.e. SCAC Amount (`) 20,000 Favourable 28,000 Favourable 48,000 Favourable
Question 3: From the data given below, calculate the material price variance, the materials usage variance and
material cost variance. Consumption per 100 Units of Product

Raw material A B Standard 40 units @ ` 50 per unit 60 units @ ` 40 per unit Actual 50 units @ ` 50 per unit 60 unit @ ` 45 per unit
Solution:
Data for Material Variances

Standard Item A B Qty. 40 60 Rate 50 40 Amount (`) 2,000 2,400 4,400 Item A B Qty. 50 60 110 Actual Rate 50 45 Amount (`) 2,500 2,700 5,200
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Standard Costing 3.7 Statement of Variances

Sl. No. 1. Particulars Material Price Variance Basis (S.P. A.P.) A.Q. A (50 50) 50 = 0 B (40 45) 60 = 300 Adverse (S.Q A.Q.) S.R A (40 50) 50 = 500 B (60 60) 40 = 0 Amount (`)
300 (Adverse) 500 (Adverse)
2.
Material Usage Variance
Material Cost Variance
= Material Price Variance + Material Usage Variance = 300 A + 500 A = ` 800 (Adverse) = Standard Cost Actual Cost = 4,400 5,200 = ` 800 (Adverse)
Standard Quantity (Kg) Unit Price (`) 2.00 3.00 6.00 4.00 Total (`) 20.00 60.00 120.0 200.00 Quantity (Kg) 5 10 15 30 Actual Unit Price (`) 3.00 6.00 5.00 5.00 Total (`) 15.00 60.00 75.00 150.00
OR Material Cost Variance
Question 4: From the following information, compute (a) Cost Variance (b) Price and (c) Usage Variance.
Material A Material B Material C Total
10 20 20 50
Solution:
Data for Material Variance

Budgeted/Standard (1 FG) A B C 10 20 20 2 3 6 Amount (`) 20 60 120 200 Item A B C Qty. 5 10 15 110 Actual (1 FG) Rate 3 6 5 Amount (`) 15 60 75 150
Sl. No. 1. Particulars Material Price Variance Basis (S.R. A.R.) AQ A (2 3) 5 = 5 Adv B (3 6) 10 = 30 Adv C (6 5) 15 = 15 Fav (S.Q. A.S.) S.R. A (10 5) 2 = 10F B (20 10) 3 = 30F C (20 15) 6 = 30F M.P.V. + M.U.V. 20 Adverse + 70F Amount (`)
20 (Adverse)
2.
70 Favourable
3.
50 Favourable
Question 5: Mixers Ltd. is engaged in producing a standard mix using 60 kgs of chemical X and 40 kg of chemical
Y. The standard loss of production is 30%. The standard price of X is ` 5 per kg and of Y is ` 10 per kg. The actual mixture and yield were as follows:
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X 80 kgs @ ` 4.50 per kg and Y 70 kgs @ ` 8.00 per kg. Actual yield is 140 kgs. Calculate material variances, price and usage.
Solution:
Data of Material Variance

Budgeted Raw Material X Y Qty. 60 40 100 kg Rate 5 10 Amount (`) 300 400 700 Qty. 120 80 200 Standard Rate 5 10 Amount 600 800 1,400 Qty. 80 70 150 Actual Rate 4.5 8 Amount (`) 360 560 920
Statement of Variances
Sl. No. 1. Particulars Material Price Variance (M.P.V.) Material Usage Variance (M.U.V.) Material Cost Variance Basis (S.P. A.P.) A.Q. X (5 4.5) 80 = 40F Y (10 8) 70 = 140F (S.Q. A.Q.) S.R. X (120 80) 5 = 200F Y (80 70) 3 = 100F M.P.V. + M.U.V. = SC AC Amount (`)
180F
2.
300F 480F
3.
Question 6: Standard Chemical Co. Ltd produces a certain chemical, the standard material cost being:
40% material X at ` 45 per kg 60% material Y at ` 120 per kg A standard loss of 10% is expected in production. During January 1995, 200 kg of material X and Y were mixed: 84 kg material X at ` 46 per kg, 116 kg material Y at ` 118 per kg and produced 182 kg of the chemical. Calculate the following variance for the month: (i) Material Price; (ii) Material; (iii) Material
Solution:

Budgeted (90 FG) Material X Y Qty. 40 kg 60 kg 100 Rate 20 30 Amount (`) 1,200 1,800 3,000 Qty. 80.88 121.33 202.2 (WI) Standard (182 FG) Rate 20 30 Amount (`) 1,618 3,640 5,258 Qty. 90 110 200 Actual (182 FG) Rate 18 34 Amount (`) 1,630 3,740 5,360
Sl. No. 1. Particulars Material Price Variance (M.P.V.) Material Usage Variance (M.U.V.) Material Cost Variance Basis (S.P. A.P.) A.Q. X (20 18) 90 = 180F Y (30 34) 110 = 440(A) (S.Q. A.Q.) S.R. X (80.88 90) 20 = 182.4(A) Y (121.33 110) 30 = 340F M.P.V. + M.U.V. (SC AC) 260A + 157.50 F Amount (`)
260 (A)
2.
157F 102 (A)
3.
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Standard Costing 3.9 For WI For 90 we need input = 100 100 ____ For 1 we need input = 182 90 = 202.2 40% of 202.2 = 80.88 60% of 202.2 = 121.33
Question 7: 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 A B Standard Mix 40% 60% Standard Price per kg ` 4.00 ` 3.00
The standard loss in processing is 15%. During April, 1980, the company produced 1,700 kg of nished output. The position stock and purchases for the month of April, 1980 is as under:
Material A B Stock on 1.4.80 of kg 35 40 Stock on 30.4.80 kg 5 50 Purchased during April 1980 kg 800 1,200 Cost (`) 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:

Budgeted Material A B Qty. 40 60 100 Rate 4 3 Amount (`) 160 180 340 Qty. 800 1200 Standard Rate 4 3 Amount (`) 3,200 3,600 6800 Standard for Actual Qty. 808 1212 830 1,190 2,020 Actual Rate 4.2394 2.5168 Amount (`) 3,518.75 2,995 6,513.75
Sl. No. 1. Particulars Material Price Variance Basis (S.R. A.R.) A.Q. A (4 4.2394) 830 = 199A B (3 2.5168) 1190 = 575F (S.Q. A.Q.) S.R. A (800 830) 4 = 120A B (1200 4190) 3 = 30F (Standard Ratio for total standard quantity Standard ratio for total actual quantity) S.R. A (800 808) 4 = 32A B (1200 1212) 3 = 36F (Standard Ratio for actual mix Actual ratio for actual mix) S.R. A (808 830) 4 = 88A B (1212 1190) 3 = 66 Fav. Material price variance + Material Usage Variance 376 Fav. + 90 Adv. Amount (`)
376 (Fav.)
2.
90 (Adv.)
3.
Material Yield Variance
68 (Adv.)
4.
Material Mix Variance
22 (Adv.) 286 (Fav.)
5.
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Problems and Solutions: Advanced Management Accounting = ` ` 35 4 + 795 4.25 _________________ 35 + 795 3518.85 _______ = 4.239 830 1190
Material A
Material B
2995 40 3 + 1150 2.5 _______________ = ` ____ 40 + 1150 = ` 2.5168
Question 8: 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 A B C Qty. (kg) 600 400 500 Price (` per kg) 1 2 3
During December 1991, eight mixes were processed and actual materials consumed were as follows:
Direct Materials A B C Qty. (kg) 5,000 2,900 4,400 Price (` per kg) 2 4 5
Actual production for December was 6,20,000 tiles.

Solution:

Budgeted (80,000) Materials A B C Qty. 600 400 500 1,500 Rate 1 2 3 Amount (`) 600 800 1,500 2,900 Standard (6,20,000) Qty. 4650 3100 3875 Rate 1 2 3 Amount (`) 4,650 6,200 11,625 22,476 S.Q. for Act. Mix Qty. 4,920 3,280 4,100 Qty. 5,000 2,900 4,400 12,300 Actual (6,20,000) Rate 2 4 5 Amount (`) 10,000 11,600 22,000 43,600
Sl. No. 1. Particulars Material Price Variance (M.P.V.) Basis (S.R. A.R.) A.Q. A (1 2) 5000 = 5000A B (2 4) 2900 = 5800F C (3 5) 4400 = 8800A (S.Q. A.Q.) S.R. A (4650 5000) 1 = 350A B (3100 2900) 2 = 400F C (3875 4400) 3 = 1575A Amount 19,600 (Adv.)
2.
Material Usage Variance (M.U.V.)
1,525 (Adv.)
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3. Material Mix Variance (S.Q. for actual mix Actual Quantity) S.R. A (4920 5000) 1 = 80Adv. B (3280 2900) 2 = 750F C (4100 4400) 3 = 900A (standard quantity Standard ratio for actual quantity) S.R. A (4650 4920) 1 = 270A B (3100 3280) 2 = 360A C (3875 4100) 3 = 675A M.P.V. M.U.V. 19,600 A + 1525 A
220 (Adv)
4.
1,305 (Adv)
5.
21,125 (Adv.)
Working Note Calculation of Budgeted No. of Tiles

20,000 12 12 sq.inch A 20,000 Sq. ft __ ___________ = 80,000 units = No. of Tiles = a = 6 6 sq. in. 36 3 sq.inch
Question 9: From the data given below, calculate:
Particulars Qty. (kg) Raw material purchases Issue to works Works stock of material: Opening Closing 2,000 kg 2,150 kg 300 kg 200 kg X Value ` 4,000 Qty. (kg) 5,000 3,950 1,000 1,250 Y Value ` 6,250
4
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

Raw Material X Y Budgeted/Standard Qty. (W.N. 1) 2,405 3,680 Rate 1.90 1.30 Amount (`) 4,569.5 4,784 Qty. (W.N. 2) 2,250 3,700 Standard Rate 2 1.25 Amount (`) 4,500 4,625
Sl. No. 1. Particulars Material Price Variance Basis (S.R A.R.) A.Q. purchaser Material X (1.90 2) 2,000 Material Y (1.30 1.25) 5,000 (S.Q A.Q.) S.R. Material X (2,405 2,250) 1.90 Material Y (3,680 3,700) 1.30 Amount (`) 200 (Adv.) 250 (fav.) 294.50 (Fav.) 26 (Adv.)
2.
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Working Note 1: Calculation of Standard Quantity of Raw Material Required Material X No. of products Material required for/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 = 3,680 kg Working Note 2: Calculation of Actual Quantity Consumed
Material Opening Stock at works Issue to works by purchase department () Closing stock at works Actual consumption X (kg) 300 2,150 200 2,250 Y (kg) 1,000 3,950 1,250 3,700
Question 10 (Break up of Material Cost Variances when standard mix and actual usage are given): X Ltd is
producing oor 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 xed for a batch of 900 sq. m of oor 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 gures to management showing the break-up of material cost variances arising during the period.
Solution:
Data for Variance

Budgeted Q A B C 10 2,000 800 20 FG R 1 1.5 30 A 2,000 1,200 600 3,800 Q 3,00,500 1,19,600 3,100 150.5 lot Standard Q A B C 3,01,000 1,20,400 3,010 150 lot R 1 1.5 30 FG A 3,01,000 1,80,600 90,300 5,71,900 Actual R 1.1 1.65 29.5 FG A 3,30,550 1,97,340 91,450 6,19,340
Material Price Variance: = (SR AR) AQty A = (1 1.1) 3,00,500 B = (1.5 1.65) 1,19,600 C = (30 29.5) 3,100
= (30,050) = (17,940) = 1,550 46,440 (Adverse)
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Standard Costing 3.13 Material Usage Variance: = (SQ AQ) SR A = (3,01,000 3,00,500) 1 = 500 B = (1,20,400 1,19,600) 1.5 = 1200 (2,700) _______ C = (3,010 3,100) 30 = Adverse. (1,000) Material Cost Variance: = SC AC = MPV + MUV = (46,440) + (1,000) = (47,440) Adverse.
Question 11: 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:
1. 2. 3. 4. 5. 6.
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 Data for Material Variance
Standard Material A B Qty. (kg) 50 50 100 for 90G Rate (`/kg) 12 15 Amount (`) 600 750 1,350 Standard Ratio for Actual Mix 55 55 110 Actual Qty. (kg) 40 70 110 (W.N. 2) Rate (`/kg) 15 20 Amount (`) 600 1,400 (B.f.) 2,000
Solution:
Statement of Requirement 1. Material Mix Variance
2. Material Usage Variance
3. Material Price Variance
= = = = = = = = = =
(55 40) 12 + (55 70) 15 15 12 + (15 15) 15 3 = 45 45 (Adverse) (S.Q. A.Q.) S.R. (50 40) 12 + (50 70) 15 180 (Adverse) (S.R. A.R.) A.Q. (12 15) 40 + (15 20) 70 420 (Adverse)
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Problems and Solutions: Advanced Management Accounting = (110 90) = 20 kg A = 110 70 = 40 kg 1,400 _____ B= ` = ` 20/kg 70
4. Actual Loss 5. Actual Input of Chemical 6. Actual Price per Kg of
Working Note 1 M.C.V = S.C. A.C. 650 = 1,350 A.C. Actual Cost = 1,350 + 650 = 2,000 Working Note 2 Material Yield Variance = (Total Standard Quantity Total Actual Quantity) Standard Weighted Avg. Rate 1,350 135 = (100 T.A.Q.) _____ 100 13,500 ______ = 100 T.A.Q. 1,350 10 = 100 T.A.Q. Total Actual Quantity = 100 + 10 = 110 kg
Question 12: The following data is provided.
Particulars Standard Price/Unit Actual Price/Unit Standard Input (kgs) Actual Input (kgs) Material Price Variance Material Uses Variance Material Cost Variance A ` 12 ` 15 50 ? ? ? ? B ` 15 ` 20 ? 70 ? ` 300 Adv. ?
Required: Calculat\e the missing data indicated by the question marks from the above table.
Material mix variance for both products together was ` 45 adverse.

Solution:

Material Qty. (kg) A B 50 50 (W.N. 1) 100 Standard Rate 12 15 Amount 600 750 1,350 Standard Ratio for Actual Mix 50 50 Actual Qty. (kg) 40 70 100 (70 + x) Rate 15 20 Amount 600 1400 2,000
Working Note 1 Material Usage Variance = (S.Q. A.Q.) S.R. 300 Adv. = (S.Q. 70) 15 20 = S.Q. 70 S.Q. = 20 + 70 = 50 Working Note 2 Material Mix Variance = (S.R. for Actual Mix A.R. for Actual Mix) S.R. = 45 Working Note 3 MPV = A (12 15) 70 = 210 A B (15 20) 70 = 350 A
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Question 13: 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) Material X Y Lab. Hrs 90 1,000 = 90,000 60 1,000 = 60,000 1,35,000 Rate `/hr 2 3 Amount ` 1,80,000 1,80,000 3,60,000 Standard (4100) Lab. Hrs (W.N. 2) 92,250 61,500 1,53,750 Rate 2 3 Amount (`) 1,84,500 1,84,500 3,69,000 Actual (4100 units) Lab. Hrs 80 900 = 72,000 70 900 = 63,000 1,35,000 Rate 2.50 2.00 Amount (`) 1,80,000 1,26,000 3,06,000
Sl. No. 1. Particulars Labour rate variances Basis (S.R. A.R.) Actual payment hours Grade X (2 2.50) 72,000 = 36,000A Grade Y (3 2) 63,000 = 63,000F (Standard hour Actual work hr.) Standard rate Grade X (92,250 72,000) 2 = 40,500F Grade Y (61,500 63,000) 3 = 4500F Amount
27,000 (Fav.)
2.
Labour efciency variance
36,000 (Fav.)
Working Note 1 Calculation of Net Production

Budgeted (Units) Gross Production () Loss (Normal) Net Production 5,000 1,000 (20% of 5,000) 4,000 Actual (Units) 5,000 9,00 4,100
We should assume that Budgeted gross & actual gross production will be same. Working Note 2 Calculation of Revised Budgeted Hrs. X 4,000 F.G. 90,000 Lab. Hr. 90,000 ______ 1 F.G. Lab. hr. 4,000 90,000 ______ 4,100 Lab. hr. 4100 F.G. 4,000 = 92,250 Lab. Hr. Y 4,000 F.G. 60,000 Lab. Hr. 60,000 ______ 1 F.G. Lab. Hr. 4,000
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Problems and Solutions: Advanced Management Accounting 60,000 ______ 4,100 Lab. Hr. 4,000 = 61,500 Lab. Hr.
4100 F.G.
Question 14: 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 ` 1.25 , Re 0.80 and Re 0,70, respectively. In a normal working week of 40 hours the gang is expected to produce 1,000 units of output. In a certain week, the gang consisted of 13 men, 4 women and 3 boys. Actual wages were paid at the rates of ` 120, Re 0.85 and Re. 0.65, respectively. Two hours were lost due to abnormal idle time and 960 units of output were produced. Calculate various labour variances. Solution: Question 15: 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 Category or Workers No. of Labourers 75 45 60 Weekly wage rate per Labourer (`) 60 40 30 Actual No. of Labourers 70 30 80 Weekly wage rate per Labourer (`) 70 50 20
Skilled Semi-skilled Unskilled
The work is actually completed in 32 weeks.

Required: Calculate the various labour variances. Solution:
Data for Labour Variance

Budgeted (1000) Lab Hr. Men Women Boys 400 200 200 Rate 1 2 3 Amount (`) 400 400 600 1,400 Revised Budgeted (960) Lab Hr. 384 192 192 Rate 1 2 3 Amount (`) 384 384 576 1,344 Lab Hr. 520 160 120 Actual (960) Rate 3 4 5 Amount (`) 1,560 640 600 2,800 Actual Working Hours 494 152 114
Statement of Labour Variance

Sl. No. 1. 2. Particulars Labour Cost Variance Labour Rate Variance (S.C. A.C.) 1344 2800 (S.R. A.R.) Actual Pay. Hrs Men (1 3) 520 = 1040 Adv. Women (2 4) 160 = 320 Adv. Boys (5 5) 120 = 240 Adv. (Standard Hrs. Act. Wor. Hours) S.R. Men (384 494) 1 = 110 A. Women (192 152) 2 = 80 F. Boys (192 114) 3 = 234 F. Men 13 2 1 Women 4 2 2 Boys 3 2 3 = 26 A = 16 A = 18 A Basis Amount (`) 1,456 (Adv.)
1,600 (Adv)
3.
Labour Efciency Variance
204 (Fav.)
4.
Labour Adle Hour Variance
60 (Ad.)
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Question 16: The following of the two departments are given below:
Dept. A Actual gross wages ( direct) Standard hours produced Standard rate per hour Actual Hours Worked ` 2,000 8,000 30 Paise 8,200 Dept. B ` 1,800 6,000 35Paise 5,800
Required: Calculate each of the three wage variance for the two department. Solution:
Data for Labour Variance

Budget/Revised Category Skilled Time (weeks) 2,250 Rate (`/week) 60 Amount (`) 1,35,000 Standard Ratio for Actual Mix (weeks) Actual Qty. 2,240 Rate 70 Amount (`) 1,56,800
2,400 Semi-skilled 1,350 40 54,000
2,250 5760 5,400 1,350 5,760 5,400
960
50
48,000
1,440 Unskilled 1,800 30 54,000
1,800 5,760 1,920 5,400

5760
2,560
20
51,200
5,400
2,43,000
5,760
2,56,000
Statement of Labour Variances

Sl. No. 1. 2. Particulars Labour cost variance Labour rate variance Basis Std. Cost Act. Cost 2,43,000 2,56,000 = 13,000 (Adv.) (S.R. A.R.) Act. Pay. Hrs Skilled (60 70) 2240 = 22400A Semi-skilled (40 50) 960 = 9600A Unskilled (30 20) 2,560 = 25600F (S.Q. A.Q.) S.R. Skilled (2,250 2,240) 60 Semi-skilled (1,350 960) 40 Unskilled (1,800 2,560) 30 = 600F. = 15,600F. = 22,500A Amount 13,000 (Adv.)
6,400 (Adv.)
3.
Labour efciency variance
6,600 (Adv.)
4.
Labour mix variance
(S. Ratio for Actual Mix Actual Ratio for Actual Mix) S.R. Skilled (2,400 2,240) 60 = 9,600F. Semi-Skilled (1,440 960) 40 = 19,200 Fav. Unskilled (1,920 2,560) 30 = 19,200 Adv. (Standard Ratio for Standard Quantity Standard Ratio for Actual Quantity) S.R. Skilled (2,250 2,400) 60 = 9000A. Semi-Skilled (1350 1440) 40 = 3600A. Unskilled (1800 1920) 30 = 3600A.
9,600 (Fav.)
5.
Labour yield variance
16,200 (Adv.)
Question 17: The following data is given:

Particulars Production (in units) Man hours to produce above Variable Overheads (in Rupees) Budget 400 8,000 10,000 Actual 360 7,000 9,150
The standard time to produce one unit of the product is 20 hours.
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Required: Calculate variable overheads variances and give necessary journal entries to record transactions. Solution:
Budget Q Labour Hours 8,000 400 FG R 1.25 A 10,000 Q 7,200 360 FG Standard R 1.25 A 9,000 Q 7,000 360 FG Actual R 1.3071 A 9,150
V.O/H. Cost Variance: = SC AC = 9,000 9,150 = (150) Adv. V.O/H. Efciency Variance: = (SH AH) SR = (7,200 7,000) 1.25 = 250 Fav. V.O/ H. Exp. Variance: = (SR AR) AW Hr = (1.25 1.3071) 7,000 = (400) Adv
Question 18: In Department A of a plant, the following data are submitted for the week ended 31st March 1993:
Standard output for 40 hours per week Budgeted xed overheads Actual output Actual hours worked Actual xed overheads 1,400 units ` 1,400 1,200 units 32 hours ` 1,500
Required: You are required to prepare a statement of variances. Solution:
B Hr RR BOV Actual 40 35 1,400 1,500 AH S Hr Rec 32 34.2857 34.2857 35 Budgeted Hrs = 40 Budgeted O/P = 1,400 Budgeted F O/H = 1,400 Recovery rate/hr = 35 Recovery rate/Unit =`1 Actual Hrs = 32 Actual O/P = 1,200 Budgeted Hrs for actual O/P = 34.2857 = Std Hrs Actual O/H = 1,000 Actual recovery = 1,200 Fixed O/H Vol. Variance = (Recov. O/H Budgeted O/H) = 1,200 1,400 = (200) Adv Fixed O/H Exp Variance = = (Budgeted O/H Actual O/H) = 1,100 1,000 = (100) Adv.
Data for Variance:
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Standard Costing 3.19 F O/H Efciency Variance = (S Hr Actual Hr) RR = (34.2857 32) 35 = 80 Fav. F O\H Capacity Variance = (Act Working Hr Budgeted Hr)RR = (32 40)35 = (280) Adv.
Question 19: AB Company limited is having Standard Costing system in operation for quite some time. The following data relating to the month of April, 1994 is available from the cost records: Budgeted Actual Output (in units) 30,000 32,500 Operating hours 60,000 60,000 Fixed overheads 45,000 50,000 Variable overhead (`) 60,000 68,000 Working days 25 26 Required: To work out the relevant variances. Solution:
Basic Calculations: Budgeted Hours ______________ Budgeted Units 30,000 ______ = 1 hour = 30,000 Total Standard Overhead Rate per hour: Budgeted Overheads _________________ = Budgeted Hours 1,05,000 ________ = = ` 3.50 per hour 30,000 Standard Fixed Overhead Rate per hour Budgeted Fixed Overheads ______________________ = Budgeted Hours 60,000 ______ = =`2 30,000 OCV = Recovered Overheads Actual Overheads Recovered Overheads = Standard Hours for Actual Output Standard Rate = 32,500 ` 3.50 = 1,13,750 OCV = 1,13,750 1,18,000 = ` 4,250 (Adverse) Total Overhead Cost Variance may be segregated into (i) Variable Overhead Cost Variance and (ii) Fixed Overhead Cost Variance. Variable Overhead Cost Variance = Recovered V. Overheads Actual V. Overheads = 32,500 hrs. ` 2 ` 68,000 = ` 3,000 (Adverse) Fixed Overhead Cost Variance = Recovered Overheads Actual Overheads = 32,500 hrs. ` 1.50 ` 50,000 = ` 48,750 ` 50,000 = ` 1,250 (Adverse) The Fixed Overhead cost variance can be segregated into (i) Expenditure Variance and (ii) Volume Variance. Standard time per unit =
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Expenditure Variance = Budgeted Overheads Std. Overheads = ` 45,000 ` 50,000 = ` 5,000 (A) = Recovered Overheads Budgeted Overheads = 32,500 hrs. ` 1.50 ` 45,000 = ` 48,750 ` 45,000 = ` 3,750 (Favourable) Fixed Overhead Volume Variance can be segregated into Efciency Variance and Capacity Variance. Efciency Variance = Recovered Overheads Std. Overheads Or Standard Rate (Standard Hours for Actual Output Actual Hours) = 1.5 (32,500 33,000) = ` 750 (Adverse) Capacity Variance = Standard Rate (Actual Hours Budgeted Hours) = 1.50 (33,000 30,000) = ` 4,500 (Favourable) Capacity Variance may further be divided into (i) Calendar Variance and (ii) Revised Capacity Variance. Calendar Variance = Extra /Decit hours worked were 25 while actual days worked. The total number of extra hours worked therefore, will be 1,200, i.e. 30,000/2,500 = 1, 200 ` 1.5 = ` 1,800 (Favourable) Revised Capacity Variance is the Capacity Variance left after segregating Calendar Variance. In other words, Revised Capacity Variance can be calculated as follows: Revised Capacity Variance = Capacity Variance Calendar Variance = ` 4,500 (F) ` 1,800 (F) = ` 2,700 (F) Alternatively , Calendar Variance may also be calculated as follows: Calendar Variance = Possible Overheads Budgeted Overheads = 31,200 hrs. ` 1.50 45,000 = ` 46,800 45,000 = 1,800 (Favourable) Revised Capacity Variance = Standard Overheads Possible Overheads = ` 1.5 33,000 ` 1.5 31,200 = ` 49,500 ` 46,800 = ` 2,700(F) Verication: OCV = FOCV + VOCV = ` 1,250 (A) + ` 3,000 (A) = ` 4,250 (A) FOCV = FOEXPV + FOVV = ` 5,000 (A) + ` 3,750 (F) = ` 1,250 (A) FOVV = ` FOCAPV + FOEFFV = ` 4,500 (F) + ` 750 (A) ` 3,750(F) = Calendar Variance + Revised Capacity Variance FOCAPV = ` 1,800 (F) + ` 2,000 (F) = ` 4,500 (F)
Question 20: Consider the following data.
Particulars Hrs. Output (units) Fixed Overhead(`) Budget 20,000 5,000 10,000 Actual 20,100 5,200 10,200
Required: Calculate the xed overhead variables.
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Standard Costing 3.21 Data for Fixed OH Variances

Budgeted Output 5,000 Actual 5,200 Recovery Rate 2 Recovered 10,400 Budget xed OH 10,000 Actual Expenditure 10,200
Statement of Fixed OH Variances

Sl. No. 1. 2. 3. Particulars Fixed OH cost variances Fixed OH volume variances Fixed OH Expenditure variances Recovered Actual Budget Recovered Budget Actual Basis Amount 200 Fav. 400 Fav. 200 Adv.
Question 21:
Budgeted no. of working days Budgeted no. of hours per month Fixed overhead rate Actual no. of working days in June 24 12,000 Re. 0.50 per hour 25
Compute the calendar variance

Solution:
Calendar Variance = (Actual days Budgeted days) Recovery Rate Per day = (25 24) 250 (W.N. 1) = 1 250 = ` 250 Favourable. Working Note 1 Calculation of Recovery Rate Budget no. of hours per month = 12,000 hrs. xed OH rate = 0.50/ hr. Budget xed OH (In a month) = ` 6,000 Total xed Budget OH 6,000 __________________________ _____ Recovery Rate per day = = = ` 250/day No. of working days in a month 24 Question 22: You are given the following data:
Budgeted Fixed overhead for July Units of production in July Standard time for one unit Actual hours worked ` 10,000 5,000 4 hours 20,100 hours Actual 10,500 4,500
Calculate all variances relating to xed overheads.

Solution
Data for Fixed Overhead (OH) Variances

Budgeted Hour for Budgeted Output 5,000 4 = 20,000 Budget Hour for Actual Output Recovery Rate ` 0.50/hr Recovered 9,000 Budgeted Fixed Overhead 10,000 Actual Expenditure 10,500
20,000 4,500 = 18,000 5,000
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Problems and Solutions: Advanced Management Accounting Statement of Fixed OH Variances
Sl. No. 1. 2. 3.
Particulars Fixed OH volume variances Fixed OH expenditure variances Fixed OH cost variances
Basis Recovered Budget 9,000 10,000 Budget Actual 10,000 10,500 Recovered Actual 9,000 10,500
Amount 1,000 (Adv.) 500 (Adv.) 1,500 (Adv.)
Question 23: Fixed overhead as per budget, i.e. estimated ` 5,000 Budgeted hours, i.e. estimated 10,000 Actual hours worked 7,000 Actual xed overhead 5,600 Required: Compute the expenditure and volume variances. Solution:
Data for Fixed Overhead Variances

Budgeted Hours 10,000 Actual Hours 7,000 Recovery Rate ` 0.50/hr. Recovered 3,500 Budget xed Overhead ` 5,000 Actual xed overhead ` 5,600
Statement of Fixed Overhead Variances

Sl. No. 1. 2. 3. Particulars Fixed overhead Expenditure variance Fixed overhead volume variance Fixed overhead total variance Budget Actual ` 5,000 ` 5,600 Recovered Budget ` 3,500 ` 5,000 Recovered Actual ` 3,500 ` 5,600 Basis Amount 600 (Adv.) 1500 (Adv.) 2100 (Adv.)
Question 24:
Budgeted Output Product A B C D E F G Budgeted Hour 10 2 8 50 10 8 12 100 15 15 20 40 Actual Hour 8 Actual Output A C D F G
Budgeted overhead = `10,000 Actual overhead = ` 12,500.

Required: Calculate the xed overhead volume and Exp variance.
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Solution:
Data for xed OH variances

Budgeted Hour for Budgeted output 100 (7) Budgeted hour for Actual Output 88 (10 + 8 + 50 + 8 + 12) Recovery Rate 100 Recovered 8,800 Budget xed Overhead 10,000 Actual 12,500
Statement of xed overhead variances

Sl. No. 1. 2. Particulars Fixed overhead expenditure variances Fixed overhead volume variances Budget Actual 10,000 12,500 Recover Budget 8,800 10,000 Basis Amount 2,500 (Adv.) 1,200 (Adv.)
Note: If a company produces different products and every product does not consume equal budgeted hours, it is better to apportion high part of xed 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.
Question 25: A company has a normal capacity of 120 machines, working 8 hours per day of 25 days in a month. The xed 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 xed overheads were ` 1,42,000. Required: To compute
1. 2. 3. 4. 5. 6.
Efciency variance Revised capacity variances Calendar variance Expense variance Volume variance Total xed overheads variance Data for Fixed Overhead Variances
Budgeted Hours for Budgeted Output Recovery Rate ` 6 / hr. Recovered (`) 1,27,320 (21,220 6) Budget Fixed Overhead (`) 1,44,000 Actual Working Hrs. (`) 21,840 Hrs. Actual (`) 1,42,000
24,000 Hr. (6,000 Unit) Budgeted hour for Actual Output (S. Hr) 21,220 (4 5,305)
Sl. No. 1. 2. Particulars Efciency variance Revised Capacity variance Basis (S. Hr A.W.Hr) R.R = (21.220 21,840) 6 Total Cap. variance Calendar Variance 12,960 5,760 (W.N. 1) Amount (`) 3,720 (Adv.) 18,720 (Adv.)
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3.

Calendar variance (Actual days Bud. days) = (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
5,760 (Fav.) 2,000 Fav. 16,680 (Adv.) 14,680 (Adv.)
4. 5. 6.
Expenses variance Volume variance Total xed overhead variance
Working Note 1 Calculation of Total Capacity Variance Total Capacity Variance = (Actual Working Hr Budgeted Hour) R.R. = (21,840 24,000) 6 = 12,960 Adverse
Question 26: The following gures are extracted from the books of a company:
Particulars Output ( in units) Hours Overhead Cost-xed Variable Number of days 1,200 6,000 25 1,250 6,650 27 Budget 6,000 3,000 Actual 6,500 3,300
Required: Compute and analyse the overhead variances.
Note: Assume 8 Working Hour Per day, Budgeted Hours = 20 8, Actual Hour = 21 8.
Solution:
Data for Fixed Overhead Variances

Budgeted Hours for Budgeted output 3,000 Hrs Standard Hours. 3,250 Recovery Rate ` 0.4 / hr. Recovered Fixed OH (`) 3,250 0.40 = 1,300 Budgeted Fixed Overhead (`) 1,200 Actual working Hours for Actual output 3,300 Actual Fixed Overhead (`) 1,250
Sl. No. 1. 2. 3. 4. 5 6. Particulars Fixed OH Volume Variances Fixed OH Expenditure Variances Fixed OH Cost Variance Fixed OH Efciency Variance Fixed OH Capacity Variance Fixed OH Calendar Variance Recover Budget 1,300 1,200 Budget Actual 1,200 1,250 Recover Actual 1,300 1,250 (S. Hr. A.W.Hr) R.R. = (3,250 3,300) 0.40 (A.W.Hr Bud. Hr) R.R. = (3,300 3,000) 0.40 (Actual Work Days Budgeted days) R.R./day
1,200 = (27 24) 25
Basis
Amount (`) 100 Fav. 50 Adv. 50 Fav. 20 Adv. 120 Fav. 96 Fav.
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7. 8. Fixed OH Balanced Capacity Variance Variable OH Variable 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
24 Fav.
150 Adv.
Question 27: The following information was obtained from the records of a manufacturing unit using Standard Costing System:
Production Working days Fixed overhead Variable overhead Standard 4,000 units ` 20 40,000 12,000 Actual 3,800 units ` 21 39,000 12,000
Required: Calculate the following overhead variances:
(a) Variance overhead variance (b) Fixed overhead variance. (i) Expenditure Variance (b) Volume Variance (c) Efciency Variance (iv) Calendar variance.
Solution:
Data for Overhead Variances

Budgeted Hours (4,000 Units) 20 8 Hrs = 160 Hrs Budgeted Hours for actual output
160 4,000 3,800 152 Hours.
Recovery Rate ` 250/hr.
Budgeted xed OH ` 40,000 Recovered ` 38,000
Actual working Hrs. 21 8 Hrs = 168 Hrs Actual ` 39,000
Sl. No. 1. Particulars Variable OH Variances Basis Standard Variable OH for actual output Actual variable OH for actual output
12,000 4,000 3,800 12,000 = 11,400 12,000
Amount (`)
600 (Adv.)
2.
Fixed OH Variance
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 (21 20)
40,000 20
1,000 (Adv.)
3.
Fixed OH Expenditure Variance
1,000 (Fav.)
4. 5. 6.
Fixed OH Volume Variance Fixed OH Efciency Variance Fixed OH Calendar Variance
2,000 (Adv.) 4,000 (Adv.)
2,000 Fav.
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Question 28: A Cost Accountant of a company was given the following information regarding the overheads for February 1987: 1. Overheads cost variance ` 1,400 adverse. 2. Overheads volume variance 1,000 adverse. 3. Budgeted hours for February 1987 1,200 hours. 4. Budgeted overheads for February 1987 ` 6,000. 5. Actual rate of recovery of overheads ` 8 per hour. Required: To assist the cost accountant in computing the following for February 1986
1. 2. 3. 4. 5. 6.
Overheads expenditure variance Actual overheads incurred Actual hours for actual production Overheads capacity variance Overheads efciency variance Standard hours for actual production. Statement of Required Information
Sl. No. 1. 2. 3. Particulars Overhead Expenditure Variance Actual Overhead incurred Actual Hours for Actual production
Actual - OH Actual Rate
Solution:
Basis W.N. 1 W.N. 2 Amount (`) 400 A. 6,400 800 hrs.
4.
Overheads Capacity Variance
(Act. Work. Hr. Bud. Hr) R.R. 6,000 (800 1,200) 1,200 (Standard Hr. Act. Wor. Hr.) R.R. (1,000 800) 5 W.N. 3
2,000 Adv.
5. 6.
Overheads Efciency Variance Standard hours for actual production
1,000 Fav. 1,000 hrs.
Working Note 1 Calculation of Expenditure Variance Overhead Variance = Expenditure Variance + Volume Variance 1,400 = Expenditure Variance 1,000 Expenditure Variance = 1,400 + 1,000 = 400 Adverse Working Note 2 Calculation of Actual Overhead Overhead Expenditure Variance = Budgeted Actual 400 = 6,000 Actual Actual OH Expenditure = 6,000 + 400 = ` 6,400 Working Note 3 Calculation of Standard Hour for Actual Production Overhead volume variance = Recovered Budgeted 1,000 = Recovered 6,000 Recovered = ` 5,000 Again overhead
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Standard Costing 3.27 Recovered 5,000

Standard Hour
= = =
Standard hour Recover Rate Standard Hour ` 5 1,000 hr.
Question 29: 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
Raw material used Cost of Raw material used Direct labour cost Variable Overhead Actual hours worked 13,000 kg ` 61,100 ` 66,924 ` 36,000 7,920
The management has noted that actual costs per batch deviate somewhat from standard costs per batch.
Required: Prepare a statement which will contain a detailed explanation of the difference between the actual costs
and standard costs.

Solution:
Data for Resource Variance

Budgeted (1 FG) Particulars Mat (kg) Labour (hrs.) V OH (hours) Qty. 0.6 0.36 0.36 Rate 4.50 8.25 4.75 Amount (`) 2.7 2.97 1.71 Qty. 12,600 7,560 7,560 Standard (21,000) Rate 4.50 8.25 4.75 Amount (`) 56,700 62,370 35,910 Qty. 13,000 7,920 7,920 Actual (21,000) Rate 4.70 8.45 4.545 Amount (`) 61,100 66,924 36,000
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. Particulars Material Price Variance Material Usage Variance Material Cost Variance Labour Rate Variance Labour Efciency Variance Labour Cost Variance Variable OH Expenditure Variance Variable OH Efciency Variance Variable OH Cost Variance Basis (4.50 4.70) 13,000 (S.R. A.R.) A.Q. (S.Q. A.Q.) S.R. (1,26,000 13,000) 4.50 S.C. A.C. 56,700 61,100 (S.R. A.R.) Act Wor. Hrs. (8.25 8.45) 7920 (Standard Hrs. A.W.Hr) . S.R. (7,560 7,920) 8.25 S.C. A.C. 62,370 66,924 (S.R. A.R.) Act W. Hrs. (4.75 4.545) 7,920 (Stan. Hrs. A.W. Hrs.) S.R. (7,560 7,920) 4.545 S.C. A.C. 35,910 36,000 Amount (`) 2,600 (Adv.)
1,800 (Adv.) 4,400 (Adv.) 1,584 (Adv.) 2,970 (Adv.) 4,554 (Adv.) 1,626 Fav. 1,636 Adv. 10 Adv.
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Question 30: 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 nished 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 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:
(a) (c) (e) (g) (i) (k) (m)
Direct Material Cost Variance Material Usage Variance Wage Rate Variance Idle Time Variance Fixed Expenses Expenditure Variance Fixed Expenses Capacity Variance Total Cost Variance.
Budgeted (1 Unit) Qty. 1 2 2 Rate 50 3 10 Amount (`) 50 6 20
(b) (d) (f) (h) (j) (l)
Material Price Variance Direct Labour Cost Variance Labour Efciency Variance Variable Expenses Variance Fixed Expenses Volume Variance Fixed Expenses Efciency Variance
Solution:
Particulars Mat (unit) Labour (hrs.) V OH (hrs.) Standard (3,500) Qty. 3,500 7,000 7,000 Rate 50 3 10 Amount (`) 1,75,000 21,000 70,000 Qty. 3,600 6,800 6,400 Actual (3,500) Rate 52.50 3.25 9.6875 Amount (`) 1,89,000 22,100 62,000
Data for Overhead Variances

Budgeted Hrs 9,600 Budgeted Hrs for actual output 7,000 Recovery Rate ` 20 / hrs. Recovered ` 1,40,000 Budgeted Fixed OH 1,92,000 Actual Working Hrs. 6,400 Actual 1,88,000
Sl. No. (a) Particulars Material Cost Variance Basis S.C. A.C. 1,75,000 1,89,000 Amount 14,000 A.
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(b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) (m) Material Price Variance Material Usage Variance Labour Cost Volume Wage Rate Variance Labour Efciency Variance Idle Time Variance Variable Expenses Variances Fix. OH Expenditure Variance Fix OH Volume Variances Fixed Expenses (OH) Capacity Variance Fixed Expenses (OH) Efciency Variance Total cost variance (S.R. A.R.) A.Q. (50 52.50) 3,600 (S.Q. A.Q.) S.R (3,500 3,600) 50 S.C. A.C. 21,000 22,100 (S.R. A.R.) A.P. Hrs (3 3.25) 6,800 (S. Hr. A.W.Hr) S.R. (7,000 6,400) 3 Idle Hr x. S.R. 400 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.Hr Bud. Hr) R.R. (6,400 9,600) 20 (S.Hr. A.W.Hr) R.R. (7,000 6,400) 20
9,000 A. 5,000 A. 1,100 A. 1,700 A. 1,800 Fav. 1,200 Adv. 8,000 F. 4,000 F. 52,000 Adv. 64,000 Adv. 12,000 Fav.
Question 31: 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 efciency 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 gures and work out all the relevant variance. Solution:
Budgeted (1 FG) Qty. Mat (Meter) Labour (hrs.) V OH (hrs.) 2 1 1 Rate 6 4.40 3 Amount (`) 12 4.40 3 Qty. 12,000 6,000 6,000 Standard (6,000) Rate 6 4.40 3 Amount (`) 72,000 26,400 18,000 Qty. 12,670 6,500 (W.N. 1) 6,500 (W.N. 1) Actual Rate 5.70 4.3 3.15 Amount (`) 72,215 27,950 20,475
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Problems and Solutions: Advanced Management Accounting Statement of Variances
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9.
Particulars Material price variance Labour Rate Variance Variable OH Expenditure Variance Material Usage Variance Labour Efciency Variance VOH Efciency Variance Material Cost Variance Labour Cost Variance Variable OH Cost Variance (S.R. A.R.) A.Q. (6 5.70) 12,670
Basis
Amount 3,801 F. 650 F. 975 A. 4,020 A. 2,200 A. 1,500 A. 215 A. 1,550 A. 2,475 A.
(S.R. A.R.) A.Pay.Hr (4.40 4.30) 6,500 (S.R. A.R.) A.W.Hr (3 3.15) 6,500 (S.Q. A.Q.) S.R. (12,000 12,670) 6 (S. Hr A.W.Hr) S.R. (6,000 6,500) 4.40 (S. Hr A.W.Hr) S.R. (6,000 6,500) 3 S.C. A.C. 72,000 72,215 S.C. A.C. 26,400 27,950 S.C. A.C. 18,000 20,475
Working Note 1 Calculation of Actual Working Hours Variable OH Efciency 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 Hr.
Question 32: 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 Re. 0.07 adverse as compared to the total standard cost per unit of ZED of ` 21. Required: Compute the following
A. B. C. D. E. F.
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.
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Standard Costing 3.31 G. H. I. J. K. Material price variance. Labour rate variance. Labour efciency variance. Variable overhead expenditure variance. Variable overheads efciency variance.
Note: Key calculation should form part of the answer. = 6,500 Hr.
Solution:
Statement of Missing Variances

Sl. No. A B C D E F G H I J K Particulars Standard Quantity of Raw Material/unit Standard Direct Labour Rate/hour Standard Direct Material Cost/Unit Standard Direct labour Cost/Unit of 2 E.D. Standard total material cost for the output Actual Total Direct labour cost for output Material Price Variance Labour Rate Variance Labour Efciency Variance Variable OH Expenditure Variance Variable OH Efciency Variance Basis 3,800/1,00 in (W.N. 1) 8,000/1,600 (W.N. 1) 11,400/1,000 (W.N. 1) 8,000/1,000 (W.N. 1) W.N. 1 W.N. 1 (S.R. A.R.) A.Q (3 2.5) 4,000 (S.R. A.R.) A. Day. Hr. (5 5.25) 1,800 (S. Hr A.W.Hr) S.R. (1,600 1,800) 5 (S.R. A.R.) A.W.Hr (1 0.90) 1,800 (S. Hr A.W.Hr) S.R. (1,600 1,800) 1 Amount 3.8 kg 5.00 11.40 8 11,400 9,450 2,000 F. 450 A.
1,000 A. 180 F. 200 A
Working Note 1 Data for Resource Variance

Standard/Budget (1,000 FG) Qty. Material Labour Hr. V OH Hr. 3,800 1,600 1,600 Rate 3 5 1 Amount 11,400 8,000 1,600 Cost per Unit 11.4 (B.f.) 8 1.6 21 Qty. 4,000 (W.N. 2) 1,800 1,800 Actual (1,000 FG) Rate 2.5 5.25 0.90 Amount 10,000 9,450 1,620 Cost per unit 10 9.45 (B.f) 1.62 21.07 (W.N. 3)
Working Note 2 Material Usage Variance 600 200 A.Q. Working Note 3 Over all cost variance = 0.07 Actual cost
= = = =
(S.Q. A.Q.) S.R. (3,800 A.Q.) 3 3,800 A.Q. 3,800 + 200 = 4,000 kg
S.C. A.C. = 21 A.C. = 21 + 0.07 = ` 21.07
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3.32
Question 33: K Limited uses standard costs and exible 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 Re. 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, Re 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 efciency ` 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. Data for Variance
Budgeted Qty. M L V O/H 4 Rate 0.75 1.9 1.2 Amount 3 Qty. 1,78,000 Standard Rate 0.75 1.9 1.2 Amount 1,33,500 Qty. 1,80,050 78,000 78,000 Actual Rate 0.7 2.1 Amount 1,26,000 1,63,800
Statement of Required Information

Sl. No. 1. 2. 3. 4. 5. Particulars Number of kilogram of direct material purchases The number of kilograms of direct material used above the standard allowed The variable production overhead expenditure variance The Actual Hours Worked The number of standard hours allowed for the production achieved Basis (W.N. 1) (W.N. 3) (W.N. 4) (W.N. 1) (W.N. 5) Amount 1,80,000 kg 2,000 kg 4,600 Fav. 7,800 Hrs. 76,000 Hrs.
Direct Wages Paid = 1,63,800 LRV = (SR AR) A Hr = (0.2) Adverse/ Hr. Bud. Rate = 1.9 Actual Paid = 2.1 Actual Wages = 1,63,800 = 78,000 Hour 2.1
MPV = (SR AR) AQ
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Standard Costing 3.33 = (0.75 0.7) AQ = 9,000 AQ = 1,80,000 MUV = (SQ AQ) SR = (1,500) Adverse. 1500 = (SQ 1,80,000) 0.75 SP = 1,78,000. V O/H Exp. Variance = V O/H Cost Efciency = 220 (2,400) = 4,600 Favorable. Working Note 1 Calculation of Actual Hours Budgeted lab. Rate per hour =
Budgeted labour cost Budgeted Hour
= Rate Variance Actual Rate Actual Wages Actual Hours = = = = = = Working Note 2
1,52,000 = Rs. 1.90 80,000
0.20 Adverse ` (1.90 + 0.20) ` 2.10 ` 1,63,800

Wages 1,63,800 = Rate 2.10
7,800 Hrs
Calculation of Actual Quantity Purchased M.P.V. 9,000 Favourable = 9,000 (S.R. A.R.) Actual Quantity purchased 0.05 A. Quantity purchased = 9,000 Actual quantity purchased =
9,000 = 1,80,000Kg 0.05
Working Note 3 Material Usage Variance = (S.Q. A.Q.) S.R. = Excess quantity consumed S.R. Excess quantity consumed = = Working Note 4
1,500 A. 1,500 = 1,500

- 1,500 0.75
2,000 Kg
Calculation of Variable OH Expenditure Variance Variable cost variance = V. OH Exp. variance + V. OH. Efciency Variance 2200 = Expen. variance + (2,400) V. OH. Expenditure Variance = 4,600 Fav. Working Note 5 Calculation of Standard Hours
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Problems and Solutions: Advanced Management Accounting = = = = (S. Hr A.W.Hr) S.R. (S.Hr 78,000) 1.2
-2,400 + 78,000 1.2
V. OH Efciency variance 2,400 S. Hr
76,000
Question 34: 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 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 Efciency Variance Debit 3,250 2,500 1,900 Credit ` 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) (ii) (iii) (iv) (v) (vi) (vii)
Standard direct labour hours allowed for the actual output achieved. Actual direct labour hours worked. Actual direct labour rate. Standard quantity of direct materials allowed (in kg) Actual quantity of direct materials used (in kg) Actual quantity of direct materials purchased (in kg) Actual direct materials price per kg
Particulars Materials Direct labour Variable overheads 5 kgs at ` 2 12 hours at ` 2 12 hours at ` 1 Per unit ` 10 ` 24 ` 12
(May 98)
Question 35: A Ltd. has a manufacturing division which makes a product to which the following details relate:
Relevant xed 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:
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Particulars Direct material used (8,500 kg) Direct wages (20,000 hours) Variable Overhead Fixed overhead Net prot Sales ` 17,200 42,000 22,000 9,800 91,000 4,000 95,000
Required:
(a) Calculate the variance, which occurred during the month. (b) Calculate the total bonus payments to employees in the division.
Solution:
(a) Calculation of Different Variances

Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. Particulars Material Price Variance Material Usage Variance Material Cost Variance Labour Rate Variance Labour Efciency Variance Labour Cost Variance V OH Expenditure variance Variable OH Efciency variance Variable overhead cost variance Fixed overhead expenditure variance Fixed overhead volume variance Fixed overhead cost variance Basis (S.R. A.R.) A.Q. (2 2.0235) 8,500 (S.Q. A.Q.) S.R. (9,000 8,500) 2 S.C. A.C. (18,000 17,200) (S.R. A.R.) A.P.Hr (2 2.1) 20,000 (S.Hr A.W.Hr) S.R. (21,600 20,000) 2 S.C. A.C. 43,200 42,000 (S.R. A.R.) A.W.Hr (1 1.1) 20,000 (S.W.Hr A.W.Hr) S.R. (21,600 20,000) 1 S.C. A.C. (21,600 22,000) Budget Actual (10,000 9,800) Recovered Budget (9,000 10,000) Recovered Actual (9,000 9,800) Amount (`) 200 Adv. 1,000 F. 800 F. 2,000 A. 3,200 F. 1,200 F. 2,000 A. 1,600 F. 400 A. 200 F. 1,000 A. 800 A.
(b) Statement of Bonus

Particulars (i) 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 2,000) Total Bonus payable Amount (`)
150 1,600 1,750
(ii)
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Working Note Data for Resource Variances

Budgeted Output 2,000 units or 24,000 hrs. Standard hrs./units 21,600 Hrs or 1,800 units Recovery Rate ` 5 / unit or ` 0.4167 / hr. Recovered (`) 9,000 (21,600 0.4167) Budgeted xed-overhead (`) 10,000 Actual Hrs. 20,000
Actual (`) 9,800
Question 36: A company manufactures two products X and Y. Product X requires 8 hours to produce while Y requires 12 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 Efciency ratio and establish their relationship. Solution: Statement Showing Different Ratios
1. Efciency Ratio 2. Capacity Ratio 3. Volume Ratio Relationship Volume Ratio
= Actual Working Hours

Actual Working Hours Budgeted Hours Standard Hours = Budgeted Hours
Standard Hours
= =
19,200 17,600
= 1.0909 = 1.135 = 1.238
17,600 15,500 19,200 = 15,500
= Efciency Ratio Capacity Ratio =

A.W.Hr S.Hr Bud.Hr A.W.Hr
S.Hr Bud.Hr
= 1.238
Hence, all ratios provide more than one results. This indicates the favourable position in respect of efciency as well as capacity. Working Note 1 Calculation of Budget Hours per month, Actual working Hours and standard hours. Budgeted labour Hours = = 15,500 Hours 12 Actual Working Hours = No. of days Hrs Working per days No. of workers = 22 days 8 Hr./day 100 = 17,600 hours. Standard Hours = Standard hours for X + Standard Hours for Y = 12,000 8 + 8,000 12 = 19,200 hours.
Question 37: The following is the information provided by Tulsian Ltd.
Product Budgeted Sales Quantity Units 60 40 Budgeted Selling Price per unit 20 10 Standard Cost Per unit ` 15 4 Actual Sales Quantity Units 44 66 Actual Selling Price per unit ` 25 5 Actual Cost Per unit ` 16 5
1,86,000
A B
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Required:
1. Calculate all the sales variances (a) on sales value basis (b) on sales margin value basis 2. Reconcile the standard prot with actual prot.
Solution:
Data for Sales Variance

Product Qty. A B 60 40 Budgeted Sale Rate 20 10 Amount (`) 1,200 400 1,600 Standard Ratio for actual mix 66 44 110 Actual Sale Qty. 44 66 Rate 25 5 Amount (`) 1,100 330 1,430
Statement of Sales Variances

Sl. No. 1. 2. Particulars Sales Value Variance Sales Price Variance B.S. A.S. (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) 210 = 120 F B (40 44) 10 = 40 F Basis Amount (`) 170 A.
110 F.
3.
Sales Volume Variance
60 A.
4.
Sales Mix Variance
220 A
5.
Sales Yield Variance
160 F
Reconciliation Statement Budgeted prot Adjust Sales Variance: Sales price variance Sales Volume Variance Adjust cost variances: (1060 1034) Actual prot Working Note 1
60 A.
540 110 A.
26 F 396 Statement of Prot

Budget Actual Sales Value A 44 25 = B 66 5 = Less: Cost A 44 16 = B 66 5 = Prot 1,430 1,100 330 (1,034) 704 330 396
Sales Value A 60 20 = B 40 10 = Less : Cost A 60 15 = B 40 4 = Prot
1,600 1,200 400 (1,060) 900 160 540
Subject to Checking
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Question 38: The following in the information given:

Product A Budgeted Sales Quantity (units) Actual Sales Quantity Budgeted Selling Price per unit Actual selling Price per unit Sales Price Variance Sales Volume Variance Sales Value Variance ? 500 ` 12 ` 15 ? 1200(F) ? Product B 400 ? ` 15 `20 ? ? ?
Required: Compute the missing gure indicated by the question from the above table.
Sales Mix Variance for Both the Products Together was ` 450 (F) F Denotes Favorable.
Solution:
Statement showing required missing gures

Sl. No. 1. 2. 3. Particulars Budgeted Sales quantity of A Actual Sales quantity of B Sales price variance W.N. 1 W.N. 1 (B.P. A.P.) Act. Quantity A (12 15) 500 = 1,500 F B (15 20) 800 = 4,000 F (B.Q. A.Q.) B.S.P. (400 800) 15 B.S.P. A.S.P. A 4,800 7,500 B 6,000 16,000 Basis Figures 400 Units 800 Units
` 5,500 F. ` 6,000 F. ` 2,700 F. ` 10,000 F.
4. 5.
Sales Volume Variance of B Sales Value Variance
Working Note 1 Data for Sales Variances

Budgeted Qty. A B 400 (W.N. 2) 400 Rate 12 15 Amount (`) 4,800 6,000 10,800 Standard Ratio 650 650 1300 Actual Qty. 500 800 1,300 (W.N. 3) Rate 15 20 Amount (`) 7,500 16,000 23,500
Working Note 2 Calculation of Budgeted Quantity of A Sales Volume Variance 1,200 100 B.Q. Working Note 3 INCOMPLETE Act be total Actual mix of product A and B. = = = = = (B.Q. A.Q.) S.R. (B.Q. 500) 12 B.Q. 500 100 + 500 400
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Standard Costing 3.39 450 F. = 450 450 450 450 + 6,000 7,500 1,950 1,900 _____ x = 1.5 Question 39: 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 rm actually produced and sold 11,000 units of A at ` 11.50, 5,000 units of B at ` 15.10 and 9,000 units of C at ` 8.55.The rm 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 Re 1. The materials budgeted to be used for each product were:
Materials Products A B C X Units 2 4 1 Y Units 3 1 4
Sales Mix Variance = (S.R. for Actual Mix Actual Ratio Actual Mix) B.S.P. (0.5x 500) 12 + [0.5 (x 500)] 15 = 6x 6,000 + 7.5x 15x + 7,500 = 13.5x 15x = 1.5x =
The rm actually used 54,000 units of X at a cost of ` 1,09,620 and 72,000 units of Y at a cost of ` 73,000.
Required: Determine the mix, quantity and rate variances for sales as well as the yield, mix and price variance
for materials.
Solution:
Sales Variances (Sale Value Method)

Budgeted Sales Product Qty. Units 10,000 6,000 8,000 24,000 Rate (`) Amount (`) Oty. Units 11,000 5,000 9,000 25,000 Rate (`) 11.50 15.10 8.55 Actual Sales Amount (`) Actual Quantity Budgeted Price 1,32,000 75,000 81,000 2,88,000
A B C
12 15 9
1,20,000 90,000 72,000 2,82,000
1,26,500 75,500 76,950 2,78,950
Computation of Sales Variances: (1) Sales Value Variance = Actual Sales Budgeted Sales = ` 2,78,950 ` 2,82,000 = ` 3,050(A) (2) Sales Price Variance = Actual quantity (Actual price Budgeted price) = ` 2,78,950 ` 2,88,000 = ` 9,050(A) (3) Sales Quantiy Variance = Budgeted price (Actual Qty. Budgeted Qty.) = ` 2,88,000 ` 2,82,000 = ` 6,000 (F) (4) Sales Mix variance = Total actual Qty. (Budgeted price of actual mix budgeted price of budgeted mix) ` 2,88,000 ` 2,82,000 ___________ ___________ = 25,000 = 25,000 units ` 11.52 ` 11.75) 25,000 units 24,000 units = ` 5,750(A) (5) Sales Sub Quantity Variance = Budgeted price of budgeted mix (Total actual quantity Total budgeted qty.) = ` 11.75 (25,000 -24,000) = ` 11.750(F)
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Check Sales Value Variance ` 3,050(A) Sales Quantity Variance ` 6,000(F)
= Sales price variance + Sales quantity variance = ` 9,050(A) + ` 6,000(F) = Sales mix variance + Sales sub-quantity variance = ` 5,750(A) + ` 11,750(F) Alternative Solution (Sales Margin Method) Basic Calculation:
Budgeted Margin Product A B C Qty. Units 10,000 6,000 8,000 24,000 Rate ` 5 6 3 Amount ` 50,000 36,000 24,000 1,10,000
Actual Margin Qty. Units 11,000 5,000 9,000 25,000 Rate ` 4.50 6.10 2.55
Actual Quantity X Budgeted Margin ` 49,500 30,500 22,950 1,02,950 Amount ` 55,000 30,000 27,000 1,12,000
= Actual margin Budgeted margin = ` 1,02,950 ` 1,10,000 = ` 7,050(A) Sales price margin variance = Actual quantity (Actual margin Budgeted margin) = ` 1,02,950 ` 1,12,000 = ` 9,050(A) Sales margin mix variance = Total actual quantity (Budgeted margin of actual mix budgeted margin of budgeted mix) ` 1,10,000 ` 1,12,000 ___________ ___________ = 25,000 units 25,000 units 24,000 units = ` 2,583 (A) Sales margin sub quantity variance = Budgeted margin of budgeted mix X (Total actual Qty. Total budgeted qty.) ` 1,10,000 ___________ = (25,000 units 24,000 units) 24,000 units = ` 4,583(F) Material Variances: Basic Calculations Standard and actual costs of material for actual output, i.e. 11,000 units of A, 5,000 units of B and 9,000 units of C and standard cost of actual input material.
Computation of Variance: Sales margin variance
Standard Cost Material Qty Units 51,000 74,000 1,25,000 Rate ` 2 1 Amount ` 1,02,000 74,000 1,76,000
Actual Cost Qty. Units 54,000 72,000 1,26,000 ` 1,09,620 73,000 1,82,620
Actual quantity Standard price Rate Amount ` 1,08,000 72,000 1,80,000
X Y
11,000 2 + 5,000 4 + 9,000 1 = 51,000 11,000 3 + 5,000 1 + 9,000 4 = 74,000
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Standard Costing 3.41 Computation of variances: Material cost Variance Material Price variance Material mix variance
Material yield variance
= Standard cost Actual cost = ` 1,76,000 1,82,620 = ` 6,620 (A) = Actual quantity (Standard price Actual price) = ` 1,80,000 ` 1,82,620 = ` 2,620(A) = Total quantity (Standard price of standard mix Standard price of actual mix) ` 1,76,000 ` 1,80,000 ____________ ____________ = 1,26,000 units = ` 2,592(A) 1,25,000 units 1,26,000 units = Standard price of standard mix X (Total standard quantity Total actual quantity) ` 1,76,000 ____________ = (` 1,25,000 ` 1,26,000) 1,25,000 units = ` 1,408 (A)
Check: Material Cost Variance ` 6,620(A)
= Material price variance + Material mix variance + Material yield variance = ` 2,620(A) + ` 2,592(A) +` 1,408(A)
Question 40: Ravi, Richard, Rahim and Roop Singh are regional salesmen distributing the product of Super Perfumes
Ltd. The selling price of the product is ` 400 per unit. The sales quota and the standard selling expenses for the year are:
Sales man Ravi Richard Rahim Roop Singh Sales Quota ` 7,50,000 9,00,000 11,50,000 6,00,000 Standard selling exp. ` 2,25,000 2,47,500 2,87,500 2,25,000
Actual data for the year were as follows:

Ravi Days on eld work km covered 200 20,000 ` Sales Salary Free Samples Post and Stationary Other expenses. 8,00,000 80,000 9,000 8,000 9,000 Richard 175 18,000 ` 10,00,000 80,000 7,500 9,000 5,000 Rahim 225 18,000 ` 10,50,000 80,000 5,375 10,000 4,000 Roopsingh 250 30,000 ` 5,20,000 80,000 8,000 6,000 10,000
The salesmen are allowed conveyance allowance of ` 1.50 per km and a daily allowance of ` 80 per day for the days spent on eldwork. Ravi gets a commission of 6% on sales and others are given a commission of 5% on sales. Corporate sales ofce expenses are chargeable at the rate of ` 30 per unit sold in the case of Ravi and Richard and ` 40 per unit in the case of Rahim and Roop Singh.
Required: Prepare a schedule showing the selling cost variances by salesmen.
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Solution
Working Note:
Particulars (1) Standard sales units: Sales quota/` 400 (ii) Standard selling expenses per unit(`) (std. selling expenses/Std. sales units) (iii) Actual sales units: Actual sales/`, 400 (iv) Actual selling costs Daily allowance Conveyance allowance Salaries Free samples Postage and stationery Other expenses Commission on sales Corporate sales ofce expenses Total actual selling cost (v) Standard selling cost (Actual units sold Std. selling expenses per unit) ` 16,000 30,000 80,000 9,000 8,000 9,000 48,000 60,000 2,60,000 2,40,000 ` 14,000 27,000 80,000 7,500 9,000 5,000 50,000 75,000 2,67,500 2,75,000 ` 18,000 27,000 80,000 5,375 10,000 4,000 52,500 1,05,000 3,01,875 2,62,500 ` 20,000 45,000 80,000 8,000 6,000 10,000 26,000 52,000 2,47,000 1,95,000 2,000 2,500 2,625 1,300 120 110 100 150 Ravi 1,875 Richard 2,250 Rahim 2,875 Roop Singh 1,500
Since all the selling expenses have been related to sales units, only one variance can be calculated by comparing the standard and actual selling costs as is shown in the schedule below:
Schedule showing the selling cost variance by salesman Particulars Standard selling Expenses (Refer to Working Note (v) Actual Selling Expenses (Refer to Working Note (iv) Selling cost variance Ravi ` 2,40,000 Richard ` 2,75,000 Rahim ` 2,62,500 Roop Singh ` 1,95,000 Total ` 9,72,500
2,60,000 (20,000) (A)
2,67,500 7,500 (A)
3,01,875 (39,375) (A)
2,47,000 (52,000) (A)
10,76,375 (1,03,875) (A)
A = Adverse F = Favourable = 1,300 Question 41: Global Ltd is engaged in marketing of wide range of consumer goods, A, B, C and D are the zonal sales ofcers for four zones. The company xes annual sales target for them individually. You are furnished with the following: 1. The Standard costs of sales target in respect A, B, C and D are ` 5,00,000, ` 3,75,000, ` 4,00,000 and ` 4,25,000, respectively. 2. A, B, C and D respectively earned ` 29,900, ` 23,500, ` 24,500 and ` 25,800 as commission at 5% on actual sales affected by them during the previous year. 3. The relevant variances, as computed by a qualied cost accountant, are as follows:
Particulars Sales price variance Sales Volume variance Sales margin mix variance A 4,000 (F) 6,000(A) 14,000(A) B 6,000(A) 26,000(F) 8,000(F) C 5,000(A) 15,000(F) 17,000(F) D 2,000(A) 8,000(F) 3,000(A)
= Adverse variance and (F) = Favorable variance.
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Required:
1. Compute the amount of sales target xed and the actual amount of contribution earned in case of each of the zonal sales ofcer. 2. Evaluate the overall performance of these zonal sales ofcers taking three relevant base factors and then recommend whose performance is the best.
Solution:
Statement of Zone-Wise Sales Target Fixed and the Actual Amount of Contribution Earned
Particulars Zonal Sales Ofcers Commission Earned Actual Sales (Commission earned 100/5) Sales Price Variance Sales Volume Variance Sales Target Budgeted Sales Standard Cost of Sales Target Standard Budgeted Margin Sales Margin Mix Variance Sales Price Variance A 29.9 598 4(F) 6(A) 600 500 100 14(A) 4(F) 90 B 2.523.5 470 6(F) 26(F) 450 375 75 8(F) 6(A) 77 C 24.5 490 5(A) 15(F) 480 400 80 17(F) 5(A) 92 (`000) D 25.8 516 2(A) 8(F) 510 425 85 3(A) 2(A) 80
Note: The problem does not provide information about sales margin quantity variance. Hence, for computing actual contribution the sales margin variances has been assumed to be zero. Evaluation of the Performance Base Factor Zonal Sales Ofcers A B C D 1. Efciency in achieving target sales: (a) Whether target achieved No Yes Yes Yes Actual Sales 598100 470100 490100 516100 Target Sales 600 450 480 510 ActualSales to Target Sales Ratio 99.67 104.4 102.08 101.18 Ranking IV I II III 2. (a) Contribution earned (in `000) 90 77 92 80 (b) Ranking II IV I III 3. (a) Standard Margin Sales Target Ratio 16.67 16.67 16.67 16.67 (b) Actual Margin (i) (c) Actual Sales Ratio(%) 15.05 16.38 18.78 15.50 (d) Ranking IV II I III (e) Recommendation: The above review of performance of four ofcers based on three base factors, clearly depicts that the performance of Mr C is the best. Statement Zone-Wise Target Fixed and the Actual Amount of Contribution Earned 1. Efciency in achieving target sales: A B C D (A) Whether target achieved No Yes Yes Yes Actual Sales 598100 470100 490100 516100
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Problems and Solutions: Advanced Management Accounting 600 99.67 IV 90 II 16.67 15.025 IV 450 104.4 I 77 IV 16.67 16.38 II 480 102.08 II 92 I 16.67 18.78 I 510 101.18 III 80 III 16.67 15.50 III
Target Sales ActualSales to Target Sales Ratio Ranking 2. (a) Contribution earned (in `000) (b) Ranking 3. (a) Standard Margin Sales Target Ratio (b) Actual Margin (i) (c) Actual Sales Ratio(%) (d) Ranking
Question 42: Goodwill Ltd. manufactures readymade shirts of a specic quality in lots to each special order from
its overseas customers. The standard costs for one dozen of shirts are:
` Direct material (24 metres @ ` 11) Direct labour (3 hours @ ` 49) Overheads (3 hours @ ` 40) Standard cost per dozen 264 147 120 531
During July, 1993 it worked on three orders, for which the months job cost records show the following:
Lot No. 45(UK) 46(US) 47(CAN) Units 1,700 Doz. 1,200 Doz. 1,000 Doz. Materials Used 40,440 meters 28,825 meters 24,100 meters Hours Worked 5,130 2,890 2,980
Additional Information: (a) The company bought 95,000 m of material during July at a cost of ` 10,64,000. The material price variance is recorded when materials are purchased. All inventories are carried at cost. (b) Direct labour during July amounted to ` 5,50,000. The employees were paid at ` 50 per hour. (c) Overheads during the month amounted to ` 4,56,000. (d) A total of ` 57,60,000 was budgeted for overheads for the year 1993-94, based on estimated production of the plants normal capacity of 48,000 dozen shirts annually. Overheads at the level of production are 40% xed and 60% variable. Overhead is applied on the basis of direct labour hours (e) There was no work in progress at the beginning of July. During July, lot numbers 45 and 47 were completed. All materials were issued for lot number 46 which was 80% complete as regards conversion.
Required:
(A) Computation of standard cost of production of the shirts per dozen as well as in total for lot numbers 45,46 and 47. (B) Find out the variation in quantity of material used and labour hours worked for each lot as well as in total. (C) Calculate the material price variance; labour rate variance; variable overhead efciency variance and xed overheads volume variance.
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Solution:
Computation of Standard Cost of Producing of Shirts per Dozen as well as in Total (Lot Nos. 45, 46, 47)
Lot No. 45(UK) 46 (Us) 47(CAN) TOTAL Cost per Dozen (`) 531 477.60 (in Progress) 531 Dozens 1,700 1,200 1,000 Total Standard Cost (`) 9,02,700 5,73,120 5,31,000 20,06,820
Cost of Lot No. 46 (Material100% complete) ` 264.00 Conversion cost (Labour and Overhead 80% complete) ` 213.60 ` 477.60 Statement of Variation Between Standard Quantity of Material and Actual Quantity of Material Used for Each Lot as well as in Total
Lot No. 1 45 (UK) Output in Dozens 2 1,700 1,200 1,000 Std. Qty (in Mtrs.) Per dozen 3 24 24 24 Total Std. Qty (in Mtrs) 4=23 40,800 28,800 24,000 93,600 Total Actual Qty (in mtrs) 5 40,440 28,285 24,100 93,365 Variations (in Mtrs) 6=54 360(F) 25(A) 100(A) 235(F)
Total variation
Statement of Variation between Standard Labour Hours and Actual Labour Hours Workers for Each Lot As Well As in Total
Lot No. 1 45(UK) 46 (US) 47(CAN) Total variation Output in Dozens 2 1,700 1,200 1,000 Std. Labour Hour Per dozen 3 3 3 3 Total Std. Labour Hour 4 5,100 2,880 3,000 10,980 Total Actual Labour Hours 5 5,130 2,890 2,980 11,000 Variations (in Hours) 6=54 30(A) 10(A) 200(F) 20(A)
(C) Material Price Variance = Actual Qty ( Standard Rate Actual Rate) ` 10,64,000 __________ at the Point of Purchase = 95,000 m ` 11 m 9,50,000 = ` 10,45,000 ` 10,64,000 = ` 19,000 (A) Labour Rate Variance = Actual hours (Standard rate Actual rate) = ` 11,000(A) Variable Overhead = Std. Variable Overhead Rate (Std. Hours for Actual production efciency variance Actual Hours) = ` 24 (10,980 11,000) = ` 480 (A) Standard Variable Overhead Rate per hour = 60% of ` 40 = ` 24 Fixed Overhead volume Variance = Standard Fixed Overhead Rate per hour (Std. Hours for Actual Production Budgeted Hours) = ` 16 (10,980 hours 12,000hours) = ` 16,320 (A) = Adverse (F) = Favourable Standard Fixed Overhead Rate per hours = 40% of ` 40 ` 16.
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Question 43: A company manufacturing two products uses standard costing system. The following date relating to
the month of October have been furnished to you:

Particulars Standard cost per unit: Direct Materials Direct Wages Fixed Overheads Unit processed/ In Process: Beginning of the month: End of the month : All materials applied And 80% complete in respect of labour and overheads Units completed and transferred to ware house during the month 4,000 8,000 16,000 12,000 12,000 20,000 Products A (`) 2 8 16 26 B (`) 4 6 12 22
The following were the actual costs recorded during the month: Direct Materials purchased at standard price amount to ` 2,00,000 and the actual cost of which is ` 2,20,000. Direct materials used for consumption at standard price amount to ` 1,75,000. Direct wages for actual hours worked at standard wage rates were ` 4,20,000 and at actual wage rates were ` 4,12,000. Fixed overheads budgeted were ` 8,25,000 and the actual xed overheads incurred were ` 8,50,000.
Required: Calculate the following for the month of October.
(i) (ii) (iii) (iv) (v) (vi) (vii)
Direct materials price variance at the point of consumption and at the point of purchase. Direct materials usage variance. Direct wages rate variance. Direct wages efciency variance. Fixed overheads expenditure variance. Fixed overheads volume variance. Standard cost of work-in-progress at the end of the month.
Solution:
Working Note 1 Statement of Equivalent Production (FIFO)

Material Product A Opening W.I.P. (100%, 50%) Introduced 4,000 Opening W.I.P. Current 20,000 Transferred Closing W.I.P. (100%, 80%) 24,000 Product B O.P. W.I.P. Introduced 12,000 O.P. W.I.P. 20,000 Current Transferred W.O.W.I.P. 32,000 4,000 12,000 16,000 8,000 24,000 12,000 8,000 20,000 12,000 32,000 12,000 20,000 9,600 23,600 8,000 20,000 8,000 6,400 20,400 6,000 8,000 12,000 Labour 2,000 12,000
Working Note 2 Let per kg of material = Labour Rate = ` 1/kg ` 1/hr.
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Particulars Material Labour Overhead Product A 2 kg 1 = 2 8 hr 1 = 8 8 hr 2 = 16 Product B 4 kg 1 = 4 6 hr 1 = 6 6 hr 2 = 12
Working Note 3 Data for Resource Variance (A and B)

Budget Material A B Qty. 2 kg 4 kg 6 kg Labour A B 8 Hr 6 Hr 14 Hr 1 14 8 20,400 6 23,600 3,04,800 1 3,04,800 4,20,000 0.921 4,12,000 1 6 Rate Amount (`) Qty. 2 kg 20,000 = 40,000 kg 4 kg 20,000 = 80,000 kg 1,20,000 kg 1 1,20,000 1,75,000 kg 1.1 1,92,500 Standard Rate Amount (`) Qty. Actual Rate Amount (`)
Working Note 4 Data for Fixed Overhead Variance

Budgeted Hour 4,12,500 Standard Hr. for Actual Output 3,04,800 Recovery Rate 2 Recovered 3,04,800 2 = 6,09,600 Budgeted Overhead 8,25,000 Actual Working Hrs. 4,20,000 Actual Overhead 8,50,000
Sl. No. 1. Particulars Material Price Variance (a) At the time of purchase (b) At the time of consumption 2. 3. 4. 5. 6. 7. Material Usage Variance Wages Rate Variance Wages Efciency Variance Fixed overhead Expenditure variance Fixed overhead Volume Variance Standard cost of work in progress at the end of month Basis (S.P. A.P.) A.Q.Pur. (1 1.10) 2,00,000 (S.P. A.P.) A.Q. Consumed (1 1.10) 1,75,000 (S.Q. A.Q.) S.R. (1,20,000 1,75,000) 1 (S.R. A.R.) A.P.Hr (1 0.981) 4,20,000 (S.Hr. A.W.Hr) S.R. = (3,04,800 4,20,000) 1 Budget Actual 8,25,000 8,50,000 Recovered Budget 6,09,600 8,25,000 A. [[2X100% + (8+16) 80%] 8000 B. [[4X100% + (6+12) 80%] 12,000 Figures
20,000 A. 17,500 A. 55,000 A. 8,000 F. 1,15,200 A. 25,000 A. 2,15,400 A. 1,69,600 2,20,800
Question 44: 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
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own performance, they have a good system. They use the weighted average method and actual costs for nancial 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.
March 1 March 31 Cost Data March1 Return in Process Labour Overheads March 1 to 31 Labour ( 4,000 hrs) Overhead ` 12,000 5,000 1,78,000 90,000 Return in Process(25% complete) Return started in March Return in Process ( 80% complete) 200 Nos. 825 Nos. 125 Nos.
Required: Compute
(a) (b) (c) (d)
For each cost element equivalent units of performance and the actual cost per equivalent unit. Actual cost of return in process on March 31. The standard cost per return and The total labour rate and labour efciency variance as well as total overhead volume and overhead budget variances. (a) Statement of Cost (Weighted Avg.)
Labour Current Opening Cost Total A Qty. (WN1) B Rate (` PU) A B 1,78,000 12,000 1,90,000 1,000 190 Overhead 90,000 5,000 95,000 1,000 95
Solution:
(b) Calculation of Actual cost of closing W.I.P.

Labour 190 100 Overhead 95 100 19,000 9,500 28,500
(c) Standard Cost

Labour 5 Hr 40 Overhead 5 Hr 20 200 100 300
(d) Statement of Variances

Sl. No. 1. Particulars Labour Rate Variance (S.R. A.R.) A.P.Hr Basis Figures 18,000 A
1,78,000 40 4,000 4,000
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2. 3. 4. Labour Efciency Variance Overhead Volume Variance Overhead Budget/Expenditure Variance (S.Hr A.W.Hr) S.R. (4,750 4,000) 40 Received Budget 95,000 98,000 Budget Actual 98,000 90,000
30,000 A 3,000 A 8,000 F.
Working Note 1 Statement of Equivalent Production (Weighted Avg. Method)

Particulars OP. W.I.P. Units Started 200 Transferred 825 Clo. W.I.P. (80%) 1,025 900 125 1,025 Lab. 900 100 1000 OH 900 100 1000
Working Note 2 Statement of Equivalent Production (FIFO) for Variance Analysis

Labour OP. W.I.P. (25 k) Units Started 200 OP. W.I.P. Current 825 Transferred Clo. W.I.P. (80%) 1,025 200 700 900 125 1,025 100 950 100 950 150 700 Overhead 150 700

Budgeted Hour 49,000 Standard Hour 5 Hr 950 = 4,750 Recovery Rate 20 Recovered 4,750 20 = 95,000 Budgeted Fixed OH 98,000 A.W.Hr 4,000 Actual Overhead 90,000
Question 45 (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: ` per kg of nished product Direct mat.-2 kg @ ` 10 per kg 20 Direct labour- 3 hrs @ ` 20 per hour 60 Fixed overhead (Recovered on labour hours) 90 Total 170 Budgeted output for the period is 1,000 kg Actual production and cost data for the period are as follows: Actual production from Current Input 950 kg Direct material 2900 kg at ` 32.000 Direct labour 3300 at ` 68,000 Fixed overheads ` 88,000 Stocks: Op.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.
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Required: Computation of cost variances in as much detail as possible and process Cost Reconciliation
statement.
Solution:
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. Particulars Material Price Variance Material Usage Variance Material Cost Variance Labour Rate Variance Labour Efciency Variance Labour Cost Variance Fixed OH Volume Variance Fixed Overhead Efciency Variance Fixed Overhead Capacity Variance Fixed Overhead Expense Variance Fixed OH Cost Variance Basis (S.P. A.P.) A.Q. (10 11.034) 2,900 (S.Q. A.Q.) S.R. (2,800 2,900) 10 S.C. A.C. 28,000 32,000 (S.R. A.R.) A. Pay. Hr (20 20.60) 3,300 (S. Hr A.W.Hr) S.R. (3,420 3,300) 20 S.C. A.C. 68,400 68,000 Recovered Budget 1,02,600 90,000 (S.Hr. A.W.Hr) S.R. (3,420 3,300) 30 (A.W.Hr Bud. Hr) R.R. (3,300 3,000) 30 Budget Actual 90,000 88,000 Recovered Actual 1,02,600 88,000 Figures 3,000 A. 1,000 A. 4,000 A. 2,000 A. 2,400 F. 400 Fav. 12,600 F. 3,600 F. 9,000 F. 2,000 F. 14,600 F.
Working Note 1 Statement of Equivalent Production (FIFO)

Material OP. W.I.P. (100%, 60%) Introduced 250 Opening Current Transferred 1,400 Clo. W.I.P. (80%) 1,650 450 1,650 450 1,400 (Actual output for mat.) 90 1,140 (Actual output for labour) 250 950 1,200 950 Lab OH 100 950

Standard Qty. Material (kg) (1,400) Labour (1,140) 2,800 3,420 Rate 10 20 Amount (`) 28,000 68,400 Qty. 2,900 3,300 Actual Rate 11.034 20.60 Amount (`) 32,000 68,000

Budgeted Hour 3,000 (3 Hr 1,000) Recovery Rate 30/Budgeted Fixed OH 90,000 (90 1,000) Actual Working Hour 3,300
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Standard Hour 3,420 (3 Hr 1140) Recovered 1,02,600 Actual Overhead 88,000
Question 46: 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 Direct Labour 3 hrs @ ` 4 per hr Factory Overheads Total
Output (units) Factory Overheads
` 36.00 12.00 12.00 60.00

6,000 ` 81,600 7,500 92,400 9,000 1,03,200 10,500 1,14,000
The exible 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:
Sl. No. 1. 2. 3. 4. 5. 6. 7. 8. Particulars Material Price Variance Material Usage Variance Material Cost Variance Variable Overhead Price Variance Variable Overhead Expenditure Variance Fixed overhead expenditure variance Fixed overhead volume variance Fixed overhead efciency variance Basis (S.P. A.P.) A.Q. (24 23.75) 11,224 (S.Q. A.Q.) S.P. (11,130 11,224) 24 S.C. A.C. 2,67,120 2,66,570 (S.R. A.R.) A.W.Hr ???? (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 Figures (`) 2,806 F. 2,256 A. 550 F. 4,480 A 384 F. 200 F. 2,304 A. 256 F.
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9. 10. 11.

Fixed overhead capacity variance Labour rate variance Labour efciency variance (Bud. Hr. A.W.Hr) S.R. (24,000 22,400) 1.6 (S.R. A.R.) A.Pay.Hr (4 4.3) 22,400 (S.Hr A.W.Hr) S.R. (22,560 22,400) 4
2,560 A. 6,720 A. 640 F.
Working Note 1 Calculation of Variable OH Rate per unit Variable overhead per unit Working Note 2 Statement of Equivalent Production
Particulars OP. W.I.P. (100%, 60%) 300 Opening Current Transferred Introduced (B.f) 7,520 Clo. W.I.P. (50%, 40%) 7,820 300 7,320 7,600 200 7,820 100 7,420 80 7,520 Material 950 Lab OH 100 950
Change in overhead 10,800 92,400 81,600 = 7.2 = Change in output = 1,500 7,500 6,000

Particulars Qty. Material Labour Variable overhead 7,420 1.5 = 11,130 7,520 3 = 22,560 7,520 3 = 22,560 Standard Rate 24 4
7.2 = 2.4 3
Actual Amount 2,67,120 90,240 54,144 Qty. 11,224 22,400 22,400 Rate 23.75 4.3 2.60 Amount 2,66,570 96,320 58,240

Budgeted Hour 24,000 Hr (1,000 3) Recovery Rate Budgeted xed overhead ` 38,400 Actual working hour 22,400
4.8 = 1.6 3
Recovered 22,560 1.6 = 36,096
Standard Hour 22,560 (3 Hr 7,520)
Actual Fixed OH 96,440 58,240 = 38,200
Question 47: Standard cost sheet per unit of output is as under

Direct material 3 Pcs. @ ` 2.15 Direct labour: Dept A 2 hrs @ ` 1.75 Dept B 4 hrs @ ` 1.50 Overheads: Dept. A 2 hrs @ ` 0.50 Dept B 4 hrs @ ` 1.00 Total 1.00 4.00 ` 5.00 ` 20.95 3.50 6.00 ` 9.50 ` 6.45
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Standard Costing 3.53 Transactions for the period are as under: Materials purchased and consumed: 8,600 pcs. @ ` 2.50 each Labour Time Spent Dept. A. 5,200 hours Dept. B. 12,000 hours There is no change in labour rates: Actual factory overheads are: Dept. A. ` 3,000 Dept. B. ` 12,500 Units produced: Dept. A. 2,800 Dept. B. 2,800 Budgeted overheads: Dept. A. ` 3,000 Dept. 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 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) Creditors A/c Dr To Bank 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) Wages Control A/c. Dr (S.R. A.W.Hr) To wages payable A/c. (S.R. A.P.Hr) (Being labour expenses due) Wages payable A/c. Dr To Bank A/c. W.I.P. control A/c Dr. To wages control A/c To labour Efciency variance A/c. W.I.P. Control A/c Dr Overhead cost variance A/c Dr To Bank Department B A/c To W.I.P. Control A/c Amount (`) 18,490 3,010 21,500 21,500 21,500 18,060 430 18,490 9,100 9,100 9,100 9,100 9,800 9,100 700 2,800 200 3000 30,660 30,660
2. 3.
4.
5. 6.
7.
8.
(Being balance of W.I.P. Control A/c of department A transferred to department B)
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Problems and Solutions: Advanced Management Accounting In Department B Journal Entry

Particulars Amount (`) 30,660 30,660 18,000 NIL 18,000 18,000 18,000 16,800 1,200 18,000 11,200 1,300 12,500
1. 2.
W.I.P. Control A/c Dr To Department A A/c. Wages Control A/c Dr Labour Rate variance A/c Dr To wages payable A/c Wages Payable A/c Dr To Bank W.I.P. control A/c Dr. Labour Efciency variance A/c Dr To wages control A/c W.I.P. control A/c Dr Overhead cost variance A/c Dr To Bank
3. 4.
5.
Question 48 (Incomplete Ledger-Variance Analysis Missing Figures): Upasana Ltd. manufactures paint. It uses
a standard costing system and the variances are reported to the management on fortnightly basis. A re destroyed some important records of the company. You have been able to collect the following information for a fortnight from the spoiled papers/records as a result of consultation with accounting personnel: (a) The paint required two types of raw materials RM1 and RM2.The standard quantity of RM2 in nal product is 5 liters and standard cost thereof is ` 36 per liter. (b) The company purchased 200 kg of RM1 and 550 liters of RM2 during that fortnight . (c) The standard wage rate is ` 24 per labour hour. Actual labour hours were 460 during that fortnight. (d) Variances as disclosed from some spoiled papers are: i. Price variance (RM2) ` 1,320 (A) ii. Usage variance (RM1) ` 240 (F) iii. Labour efciency variance ` 1,440 (A) iv. Some incomplete ledger entries for the fortnight reveal
` 1. Sundry Creditors 2. RM2 Opening balance Opening balance 3,600 3. RM1 0 Closing balance 4.Works-in progress Opening balance RM2 Paid and outstanding 0 14,400 5. Wages 10,350 Closing balance 0 3,600 1,200 Closing balance 8,280 Purchase of raw materials ` 25,440
Required: Compute meaningful variances to be presented to the management. Solution:
Key computation for ascertaining missing gure: 1. Standard cost of RM2 in one unit of nal product . 5 l at ` 36 = ` 180 14,400 ______ Actual output of point = = 80 units of paint. 180
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Standard Costing 3.55 2. Standard quantity of RM 2 required for production of 80 units of paint. 80 5 = 400 l or 14,400 / 36 = 400 l 3. AQ of RM 2 purchased =550 l Opening balance 3,600 /36 = 100 l Add: Purchased 550 650 Less: Closing balance 8,280/36 = 230 AQ of RM 2 consumed = 420 l 4. Actual rate per liter of RM 2 This can be ascertained by means of price variance. Price variance = AQ (SR AR ) 1,320 A = 550 (36 AR ) Less: 1,320 = 19,800 550 AR 19,800 + 1,320 _____________ AR = = ` 38.40 per l 550 1. Standard Rate per kg. of RM 1 i.e., ` 4,800/200 kg = ` 24 per kg of RM 1 2. AQ of RM 1 issued to production of 80 units of paint. This can be ascertained by means of usage variance of RM 1. Usage variance = SR (SQ AQ) 240 = 24 (SQ 150) 240 = 24 SQ 3,600 3,600 + 240 __________ SQ = = 160 kg 24 8. Actual Rate per kg. of RM 1. Total cost of purchase of Raw materials = 25,440 Less: Actual purchase cost of RM 2 = 550 38.40 = 21,120 Actual purchase cost of RM 1: 200 kg = 4,320 Actual Rate per kg of RM 1 = ` 4,320 / 200 kg = ` 21.60 per kg 9. Actual Rate per labour hour = ` 10,350 / 460 hours = ` 22.50 per labour hour. 10. SH for actual production of 80 units of paint: This can be ascertained by means of labour Efciency Variance (LEV). LEV = SR (SH AHP) 1,440 A = 24 (SH 460) () 1,440 = 24 SH 11,040 11,040 + 1,440 _____________ SH = = 400 24 Solution: 1. Material Variances:
SC ` RM 1. 160 kg at ` 24 = 3,840 RM 2. 400 litres at ` 36 = 14,400 18,240 AC ` RM 1. 150 kg. at ` 21.60 3,240 RM 2. 420 38.40 16,128 19,368
(a)
Price Variance = AQ (SR AR) RM 2 = 420 (36 38.40) ` 648 A (b) Usage Variance
RM 1 = 150 (24 21.60)
= 360 F = 1.008 A = Sr (SQ AQ)
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Problems and Solutions: Advanced Management Accounting RM 1 RM 2 = 24 (160 150) = 36 ( 400 420) = 240 F = 720 A 480 A = SC AC = ` 1,128 A
(c)
Material Cost Variance (MCV) 18,240 19,368 Reconciliation : MCV = price V + usage V. 1,128 A = 648 A + 480 A 3. Labour variances:
SC 400 hours at ` 24 = ` 9,600 AC 460 22.50 =
` 10,350
(a) (b) (c)
Labour Rate variances = 460 (24 22.50) Labour Effy. Variance = SR (SH AHP) Labour Cost Variance = SC AC = 9,600 10,350
= = = = =
AHP (SR AR) 690 F 24(400 460) 1,440 A 750 A
Solution: Variance: 480,240,1,320,720, 690, 1,4440.
RECONCILIATION BASED QUESTION

Question 49: The budget output of a single product manufacturing company for 1984 85 was 5,000 units. The nancial results in respect of the actual out put of 4,800 units achieved during the year were as under:
Particulars Direct material Direct wages Variable overheads Fixed overheads Prot Sales Amount (`) 29,700 44,700 72,750 39,000 36,600 2,22,750
The standard wage rate is ` 4.50 per hour and the standard variable overhead rate is ` 7.50 per hour. The cost accounts recorded the following variances for the year:
Variances Material Price Material usage Wage Rate Labour Efciency Variable Overhead Expenses Variable Overhead Efciency Fixed Overhead Expense Selling Price Favourable ` 750 3,000 6,750 Adverse ` 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 prot and the actual prot.
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Solution:
Statement showing standard cost sheet per unit and Original Budget
Particulars Material (See WN 1) Labour (See WN 2) Variable overhead (See WN 3) Fixed overhead (See WN 4) Total Cost Prorit Selling price (See WN 5) Standard cost per unit (`) 6 9 15 7.5 37.5 7.5 45 Original Budget (`) 5,000 units 30,000 45,000 75,000 37,500 1,87,500 37,500 2,25,000
Statement of Reconciliation (Marginal)

Particulars Budgeted Prot 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 Labour Cost Variance Variable Overhead Cost Variance Fixed Overhead Expenditure Variance Fixed Overhead Volume Variance Actual Prot 900 A 1,500 A 750 A 1,500 A N.A. 36,600 6,750 F. 3,000 A. ` 37,500
Working Note 1 M.C.V.
M.C.V. 900 S.C. Budget Cost P.U. Actual output Budget Cost P.U. Working Note 2 Labour Cost Variance
= = = = = = = =
M.P.V. + M.U.V. 300 600 900 Standard Cost Actual Cost Standard Cost 29,700 28,800 28,800 28,800 ______ =6 4,800
= C.R.V. + C.E.V. = 750 + ( 2,250) = 1,500 L.C.V. = S.C. A.C. 1,500 = S.C. 44,700 S.C. = 44,700 1,500 S.C. = 43,200 S.C. implies labour cost for actual output
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3.58
Working Note 3 V OH Cost Variance
V OH Cost Variance
750 S.C. Standard cost 72,000

Budgeted Cost per unit
= = = = = = = = =
V. OH Exp. Variance + V OH Volume Variance 3,000 + ( 3,750) 750 S.C. A.C. S.C. 72,750 72,000 Budgeted cost for actual output Budgeted cost per unit 4,800 72,000 ______ = 15 4,800
Working Note 4 Fixed - OH Expenditure Variance = Budgeted - OH Actual - OH 1,500 = Bud - OH 39,000 Budgeted Overhead = 1,500 + 39,000 = 37,500 Working Note 5 Sales Price Variance = (B.S.P. A.S.P.) A.Qty 6,750 B.S.P. B.S.P. B.S.P. Working Note 6 Sales margin volume variance
Quantity S.P. V.C. (M + C + OH) Total Contribution Less: Fixed Cost Prot
= = = = =
2,22,750 ________ 4,800 4,800 6,750 2,22,750 ______ ________ + 4,800 4,800 B.S.P. 6,750 + 2,22,750 _______________ 4,800 ` 45
Change in Qty Budgeted Contribution per unit

Budget 5,000 45 30 75,000 37,500 37,500 Actual 4,800 45 30 72,000 37,500 34,500
= = = years Sales Direct Material Direct wages Variable Overheads Fixed Overheads Prot (` in lakh) 770 324 137 69 150 90
(B.Q. A.Q.) Bud. Cont. P.U. (5,000 4,800) (7.5 + 7.5) 3,000 A
Question 50: The Summarised results of a company for the two years ended December 31st are given below for 2
(` in lakh) 600 300 120 60 80 40
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Standard Costing 3.59 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 gures 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 prot in year 2.
Solution: Let Selling Price be ` 100 per unit for I year. Then
IInd year Sales S.P. Quantity Sold 7,70,00,000 110 7,00,000 Ist Year 6,00,00,000 100 6,00,000 ` in lakh 40 70 F. 6.66F.
Reconciliation Statement
Particulars Budgeted Prot Sales Variance Basis Price Variance (100 110) 7,00,000 (B.S.P. A.S.P.) A. Qty Volume Variance (B.Q. A.Q.) Bud. Pri. P.U (6,00,000 7,00,000) 6.6666 Fixed OH Volume Variance Received Budget (93.33 80) Fixed OH Expenditure Variance (Budget Actual) 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 Efciency Variance (S.Hr A.Hr) S.R. Variable OH Expenditure Variance (S.R. A.R.) A.W.Hr Variable OH Efciency Variance (S.Hr A.Hr) S.R. Actual Prot
Cost Variance
13.33 F. 70 A. 13.5 F. 12.5 F. 7 A. 10 F. 4 A. 5 F. 90

Budget Material Material Labour V OH Qty. 1,20,000 24,00,000 24,00,000 Rate 250 5 2.5 (` in lakh) Amount 300 120 60 480 Qty. 1,40,000 28,00,000 28,00,000 Standard Rate 250 5 2.5 (` in lakh) Amount 350 140 70 540 Qty. 1,35,000 26,00,000 26,00,000 Actual Rate 240 5.269 2.65 (` in lakh) Amount 324 137 69 530
Working Note 2 Data for xed overhead variance

Budgeted Hour 6,00,000 Actual output 7,00,000 Recovery Rate 13.33 Recovered 93,33,333 Budgeted xed overhead 80,00,000 Actual 1,50,00,000
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3.60
Working Note 3 Calculation of Budget prot per unit Qty. 6,00,000 S.P. 100 V.C. 80 Fixed Cost 80,00,000 Budgeted prot per unit = = =
Budgeted prot per unit
6,00,000 20 80,00,000 6,00,000 1,20,00,000 80,00,000 6,00,000 40,00,000 6,00,000

6.666
Question 51: The standard cost sheet of a company based on the normal output of 30,000 units for a quarter is as
under: ` Direct Materials 4 kg. @ ` 2 per kg. 8.00 Direct Wages 6 Hours @ ` 4 per hour 24.00 Overheads 50% of Direct Wages 12.00 Total Costs 44.00 Prot 6.00 Selling Price 50.00 The budgeted xed overheads amount to ` 1,44,000 per quarter and it is included in the overhead cost given above. On the basis of the budgeted activity of 36,000 units, the company estimated the prot for the second quarter of the year as under: ` Direct Material 2,88,000 Direct Wages 8,64,000 Overheads(50% of Wages) 4,32,000 Total Costs 15,84,000 Sales 18,00,000 Prot 2,16,000 The cost records revealed the following actual data for the second quarter of the year: Production 25,000 units Direct materials consumed 96,000 kg. At ` 2.25 per kg. Direct wages paid, 1,60,000 hours at ` 4.10 per hour. Out of which 6,000 hours being idle time were not recorded on production. Overheads ` 3,32,000 out of which ` 1,50,000 were xed. Sales 25,000 units at an average price of ` 51.50 per unit.
Required:
Prepare a statement of actual Prot/Loss for the second quarter of the year. (i) Analyze the variance and present an operating statement reconciling the budgeted prot with actual prot.
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Solution:
STATEMENT OF ACTUAL PROFIT (LOSS) (For the second quarter of the year) 1. Sales Revenue: 25,000 units ` 51.50 Direct Material 96,000 hours ` 225 Direct wages 1,60,000 hrs ` 4.10 Overheads 2. Total Cost 3. Prot (Loss) (1) (2) ` 12,87,500 2,16,000 6,56,000 3,32,000 12,04,000 83,500
OPERATING STATEMENT (Reconciling the budgeted Prot with Actual Prot)

Particulars Working Notes Favourable ` Budgeted Prot (36,000 6) Sales Variance Sales Volume margin variance Sales Price Variance Net variance 3. Prot before adjustment of Cost variance (1) ( 2) 1. Material Price Usage 2. Labour Rate Efciency Idle time Variable Overhead Expenditure Efciency Fixed Overhead Expenditure Efciency Capacity 2(i) (a) 2(i) (b) 2(ii) (b) 21(ii) (c) 2(ii) (d) 3 (iii) 3(iv) 3(vi) 3(vii) 3(viii) 8,000 24,000 16,000 16,000 24,000 4,800 6,000 3,200 20,800 1,14,800 1,87,500 1,04,000 83,500 1(a) 1 1(b) 37,500 Variable Adverse ` 66,000 2,16,000 32,500 Actual `
2,800 10,800
Actual Prot (2) (3)
Working Notes: 1. Sales Variance Based on Prot (a) Sales Value variance a. Statement of actual prot (Loss) (For the second quarter of the year) ` 1. Sales Revenue: 25,000 units ` 51.50 12,87,500 Direct material 96,000hrs. ` 2.25 2,16,000 Direct wages1,60,000 hrs. 6,56,000 Overheads 3,32,000 2. Total Cost 12,04,000 3: Prot (loss) (1) (2) 83,500
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3.62
Problems and Solutions: Advanced Management Accounting Operating statement (Reconciling the budgeted prot with actual prot)
Particulars Working Notes 1(a) 1 ( c) 1 (b) Varia ble Favourable (`) 37,500 Adverse (`) 66,000 Actual 2,16,00 32,500 1,87,500 2 (1) (a) 2 (1) (b) 2 (ii) (b) 2 1(ii) I 2 (ii) (d) 3(iii) 3 (iv) 3 (vi) 3 (vii) 3 (viii) 8,000 2,800 10,800 24,000 16,000 16,000 24,000 4,800 6,000 3,200 20,800 1,14,800 1,04,000 83,500
1: Budgeted Prot (36,000 6) 2: Sales variances (i) Sales Volume margin Variance (ii) Sales price variance (iii) Net variance 3. Prot before adjustment of cost variances (i) (2) 1. Material Price Usage Labour Rate Efciency Idle time Variable Overhead Expenditure Efciency Fixed overhead Expenditure Efciency Capacity Actual prot (2) (3)
Working Notes 1: Sales Variances Based on Prot: (a) Sales Value Variances = Budgeted Prot Actual Prot = 2,16,000 83,500 = ` 1,32,500 (Adverse) (b) Sales Price Variance = Actual Qty. Sold X (Std. Price Actual Price)
Question 52: The Standard Cost Card of producing one unit of Item Q is as under:
Particulars Direct Material Direct Wages Fixed Production Overheads Total Standard Cost Standard Gross Prot Standard Sale Price A 12 kg. @ ` 10 B 5 kg. @ ` 6 5 hrs @ ` 3 Amount (`) = ` 120 = ` 30 = ` 15 = ` 35 = ` 200 = ` 50 = ` 250
Fixed Production Overhead is absorbed an expected annual output of 13,200 units. Actual results for the month of September, 1997 are as under:
Particulars Actual Production: Sales Direct Material Direct Wages Fixed Overheads 1,000 unit 1,000 unit @ ` 250 A 11,000 kg., B 5,200 kg., 5,500 hrs Amount (`) = 2,50,000 1,21,000 = 28,600 = 17,500 = 39,000 2,06,100 = 43,900
Gross Prot
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Required: Calculate all variances. Material price variance is taken out at the time of receipt of material. Material purchased were: 12,000 kg of A @ ` 11 and 5,000 Kg of B @ ` 5.50 Solution:
Basic data: (1) Statement showing standard and actual costs of material For 1,000 units of output and standard cost in actual input
Standard Cost Matrials A B Qty. (kg) 12,000 5,000 Price (`) 10 6 Amount (`) 1,20,000 30,000 1,50,000 Qty. (`) 11,000 5,200 Actual cost Price (`) 11 5.50 Amount (`) 1,21,000 28,600 1,49,600 Standard cost of actual input = (Actual quantity Standard price) Actual Qty.(Kg) 11,000 5,200 Standard Price/kg (`) 10 6 Amount (`) 1,10,000 31,200 1,41,200
1,000 units __________ 16,200 kg = 952.941764 units aprox. 17,000 kg 2. Statement showing standard and actual labour cost of 1000 units 1. Standard yield (units) = Produced and standard cost of actual labour hrs.
Hours 5,000 Rate P.h. (`) 3 Amount (`) 15,000 Hours 5,500 Rate P.h (`) 3,1818 Amount 17,500 Hours 5,500 Rate p.h. (`) 3 Amount (`) 17,500
3. Overhead
Particulars Fixed overhead (`) Hours Output (units) Standard time p.u. (hrs) Standard xed overhead p.u. (`) Standard xed overhead rate p.h.(`) Budgeted 38,500 5,500 1,100 5 35 7 Actual 39,000 5,500 1,000
Computation of material variances (Refer to Basic data 1): Material Cost variance = Standard cost Actual cost = ` 1,50,000 ` 1,49,600 = ` 400 (Fav.) Material Price variance = Actual quantity (Std. price Actual price) = 11,000 kgs. (` 10 ` 11) + 5,200 kgs. (` 6 ` 5.50) = ` 11,000 (Adv.) + ` 2,600 (Fav.) = ` 8,400 (Adv.) Material Usage variance = Standard price (Standard quantity Actual quantity) = ` (12,000 kgs 11,000 kgs)+ ` 6(5,000 kgs 5,200 kgs) = ` 10,000 (Fav.) + ` 1,200 (Adv.) = ` 8,400 (Adv.) Std. price of Std. price of _____________ _______________ Material Mix variance = std. mix per kg actual mix per kg ` 1,50,000 ` 1,41,200 __________ _________ = 16,000 kgs 17,000 kgs 16,200 kgs = ` 1,741.18 (Fav.)
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3.64
= Std. rate (Actual yield Std. yield) = ` 150 {1,000 units 952.9411764 units} = ` 7,058.82 (Fav.) Material purchase variance: = Actual quantity of material purchased (std. price per kg Actual price per kg.) = 12,000 kg (` 10 ` 11) + 5,000 kg (` 6 ` 5.50) = ` 12,000 (Adv.) + ` 2,500 (Fav.) = ` 9,500 (Adv.) Computation of labour variance (Refer to Basis data 2): Labour variance = (Standard cost Actual cost) = ` 15,000 ` 17,500 = ` 2,500 (Adv.) Labour rate variance = Actual hrs (Std. rate Actual rate) = 5,500 (` 3 ` 3.1818) = ` 1,000 (Adv.) Labour efciency variance = Std. rate p.h. (Std. hours Actual hours) = ` 3(5,000 hrs. 5,500 hrs.) = ` 1,500(Adv.) Computation of xed overhead variance Total Fixed overhead variance: = Fixed overhead absorbed Actual xed overhead = 1,000 units ` 35 ` 39,000 = ` 35,000 ` 39,000 = ` 4,000 (Adv.) Fixed Overhead expenditure variance: = Budgeted xed overhead Actual xed overhead = ` 38,500 ` 39,000 = ` 500 (Adv.) Fixed Overhead Volume variance: = Std. xed overhead rate per unit {Actual output Budgeted output) = ` 35{1,000 units 1,100 units} = ` 3,500 (Adv.) Efciency variance: = Std. xed overhead rate per unit {Actual output Budgeted output} = ` 35 {1,000 units 1,100 units} = ` 3,500 (Adv.)
Question 53: Jumbo Enterprises manufactures one product, and the entire product is sold as soon as it is produced. There is no opening or closing stocks and work in progress is negligible. The company operates a standard costing system . The standard cost card for the product is as follows:
Particulars Direct Material 0.5 kg. At ` 4 per kg. Direct wages 2 hours at ` 2 per hour Variable overheads 2 hours at ` 0.30 P.H. Fixed overheads 2 hours at ` 3.70 P.H. Standard Cost Standard Prot Standard selling Price ` 2.00 4.00 0.60 7.40 14.00 6.00 20.00
Selling and administration expenses are not included in the standard cost, and are deducted from prot as a period cost. Budgeted output for April 1987 was 5,100 units, Actual results for April 1987 were as follows:
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Standard Costing 3.65 Production of 4,850 units was sold for ` 95,600 Material consumed in production amounted to 2,300 kg. At a total cost of ` 9,800 Labour hours paid for amounted to 8,500 hours at a cost of ` 16,800. Actual operating hours amounted to 8,000 hours. Variable overheads amounted to ` 2,600 Fixed overheads amounted to ` 42,300. Selling and administration expenses amounted to ` 18,000.
Required: (a) Calculate all variances.(b) Prepare an operating statement for the month ended 30th April 1987. Solution:
= Actual quantity (std. rate Actual rate) = ` 9,200 ` 9,800 = ` 600(A) (ii) Material Usage Variance = Std. rate (Std. quantity Actual quantity)] = ` 4(2,425 kg. 2,300kg.) = ` 500(F) (iii) Labour Rate Variance = Actual hours (Std. rate Actual rate) = ` 17,000 ` 16,800 + ` 200(F) (iv) Labour Efciency Variance = Std. rate (Std. hours Actual hours) = ` 2 (9,700 8,000) = ` 3,400(F) (v) Labour Idle Time Variance = Std. rate idle time = ` 2 500 hrs = ` 1,000 (A) (vi) Variable Overhead Expenditure variance = (Budgeted variable overheads Actual variance Overheads) = (8,000 hrs ` 0.30) ` 2,600 = ` 200 (A) (vii) Variable Overhead Efciency variance = Std. rate (Std. hours Actual hours) = ` 0.30 (9,700 8,000) = ` 510(F) (viii) Fixed Overhead Expenditure variance = (Budgeted xed overheads Actual xed overheads) = (5,100 units ` 7.40) ` 42,300 = ` 4,560 (A) (ix) Fixed Overheads Volume variance = Budgeted xed overheads per hour (Budgeted volume Actual volume) = ` 7,40 (6,100 units - 4,850 units) = ` 1,850 (A) (X) Fixed overheads efciency variance = Budgeted xed overheads per hour (Std. hrs Actual hours) = ` 3.70(9,700 hrs. 8,000 hrs.) = ` 6,290 (F) (xi) Fixed overheads capacity variance: = Budgeted xed overheads per hour (Budgeted capacity Actual capacity) = ` 3.70 (5,100 2) 8,000) = ` 8,140 (A)
(a) Calculation of Variances: (i) Material Price Variance
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3.66
= Actual qty. (Budgeted rate Actual rate) = ` 97,000 ` 95,600 = ` 1,400 (A) (xiii) Sales volume variance = Std. prot per unit (Budgeted sales volume Actual Sales Volume) = ` 6 (5,100 4,850) = ` 1,500 (A) (b) Operating Statement for the mo nth ended 30th April 1997:
Budgeted prot before selling & administration expenses (5,100 units ` 6) Sales Variances: Price Volume Actual sales minus standard cost of sales Cost Variances: Material price Material usage Labour rate Labour efciency Labour idle time Variable overheads expenditure Variable overheads efciency Fixed overheads expenditure Fixed overheads efciency Fixed overheads capacity Actual prot before selling& administration expenses Less: Selling & administration expenses Actual prot for the month Note:A = Adverse Check(not required): ` Sales Less: Cost of materials Labour Varaible overheads Fixed overheads Selling & Admn.expenses Net Prot 9,800 16,800 2,600 43,300 18,000 ` 95,600 F= Favourable (F) ` 500 200 3,400 510 6,290 10,900 1,400(A) 1,500 (A) 2,900(A) 27,700 (A) ` 600 1,000 200 4,560 8,140 14,500 3,600 (A) 24,100 18,000 6,100 Amount ` ` 30,600
(xii) Sales Price Variance
89,500 6,100
Question 54: 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 rm. The standard cost per unit of output of department B is:
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Particulars Direct labour (14 hours at ` 2 per hour) Direct materials: 1. Output of department A ( 3 kg at ` 9 per kg) 2. Acquired by and directly input to department B material (4 kg at ` 5 per kg.) Variable overhead (at ` 1 per direct labour hour worked) Fixed production overheads: 1. Directly incurred by department B (note1) manufacturing overhead (per unit) 2. Allocated to department B general factory overhead (per unit) Standard cost per unit 3 8 11 ` 100 27 20 47 14 $ $ 28
In the rst month of operation of the pilot study (month 7 of the nancial 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 rst month of operation were:
Particulars Direct labour (6500 hours) Direct materials: 1. 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) 1,600 2,900 4,500 $59,000 11,500 32,500 8,000 21,000 ` ` 14,000
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 inefciency 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 inefcient and careless this overspending of $9,000 proves I am right.
Required:
(a) Prepare a brief statement which clearly indicates the reasons for the performance of department B and the extent to which that performance is attributable to department B. The statement should utilize variance analysis to the extent it is applicable and relevant. (b) Comment on the way the pilot standard costing system is currently being operated and suggest how its operation might be improved during the study period.
Solution:
Data for Resource Variance

Material Qty. Output of A X Material Labour Hr. Variable OH 1,500 2,000 7,000 7,000 Standard Rate 9 5 2 1 Amount 13,500 40,000 14,000 7,000 44,500 Qty. 1,400 1,900 6,500 6,500 Actual Rate 15 6.05 2.15 1.23 Amount 21,000 11,500 14,000 8,000 54,500
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3.68
Problems and Solutions: Advanced Management Accounting Data for Fixed Overhead Variances
Budgeted Hour 14 Hr 400 = 5,600 Actual WH is 6500 Standard Hour 7000 (14 Hr x 500) Recovery Rate 4,400/5,600 Actual 4,500 Recovered 4,400/5,600 x 7,000 = 5,500 Budgeted overhead 4,400 (11 400)
(a) Statement of performance

Amount ($) Standard Cost Controllable Variances Material Usage Variance (S.Q. A.Q.) A.R. A (1,500 1,400) 9 = 900 F B (2,000 1,900) 5 = 500 F Labour Efciency Variance (S. Hr A.W.Hr) S.R. (7,000 6,500) 2 Fixed Overhead Variances (S.Hr A.Hr) S.R. (7,000 6,500) 0.78 Variable OH Efciency Variance (S.Hr A.Q.Hr) S.R. = (7,000 6,500) 1 Uncontrollable Variances: Material Prices Variances (S.R. A.R.) A.Q. Output of A (9 15) 1,400 = 7,000 A Material X (5 6.05) 1,900 = 2,000 A Labour Rate Variance (2 2.15) 6,500 Variable OH Expenses Variance (1 1.23) 6,500 Fixed OH Exp. Variance (4,400 4,500) Fixed OH Capacity Variance (6,500 5,600) 0.7857 Actual Cost 50,000
1,400 F 1,000 F
329 F 500 F
9,000 A 975 A 1,495 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 55: ABC Ltd produces jams and other products. The production pattern for all the products is similar rst
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 rm 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:
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Standard Costing 3.69 Fruit extract Glucose syrup Pectin Citric acid Labour Actual output was 1164 kg of jam.
Required:
428 kg @ ` 4 per kg 742 kg @ ` 5 per kg 125 kg @ ` 2 per kg 1 kg @ ` 6 per kg 20 hr @ ` 4 per hour
(a) Calculate the ingredients planning variances that are deemed uncontrollable; (b) Calculate the ingredients operating variances that are deemed controllable; (c) Calculate the mixture and yield variance; Calculate the total Variance for the batch.
Solution:
Data for Resource Variances

Material Fruit Extract Glucose Syrup Pectin Citric Acid Labour Original Standard Qty. 400 700 99 1 1,200 18 2 Rate 1 2 1 5 Amount 400 1,400 99 5 1,904 36 1,940 Qty. 400 700 99 1 1,200 18 2 Revised Standard Rate 2 24 1 5 Amount 800 1,680 99 5 2,584 36 2,620 Qty. 428 742 125 1 1296 20 4 Actual Rate 4 5 2 6 Amount 1,712 3,710 250 6 5,678 80 5,758
(a) Statement of Uncontrollable Planning Variances

Ingredients 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 56=1A 35 80 = 44 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 = 1A 36 80 = 44 A Traditional Variance (Original Actual) Planning Variances (Original Standard Revi. Stan.) Operating Variances (Revised Stand Actual)
Question 56: 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: (`) (`) Selling price per unit 200 Less: 4 kg materials @ ` 20 per kg 80 6 hours labour @ ` 7 per hour 42 122 Contribution per unit 78 For period 3: 2500 units were budgeted to be produced and sold but the actual production and sales were 2850 units. The following information was also available: (i) At the commencement of Period 3 the normal material became unobtainable and it was necessary to use an alternative. Unfortunately, 0.5 kg per unit extra was required and it was thought that the materials would be more difcult to work with.The price of the alternative was expected to be ` 16.50 per kg. In the event, actual usage was 12450 kg at ` 18 per kg.
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3.70
(ii) Weather conditions unexpectedly improved for the period with the result that a `0.50 per hour bad weather bonus, which had been allowedfor in the original standard, did not have to be paid.Because of the difculties expected with the alternative material, management agreed to pay the workers ` 8per hour for period 3 only. During the period 18,800 hours were paid for. After using conventional variances for some time, POV Ltd is contemplating extending its system to include planning and operational variances.
Required:
(a) To prepare a statement reconciling budgeted contribution for the period with actual contribution, using conventional material and labour variances; (b) To prepare a similar reconciliation statement using planning and operational variances;
Solution:
Data for Resource Variances

Material Material (kg) Labour (hrs.) Original Standard Qty. 2,850 4 = 11,400 6 2,850 = 17,100 Rate 20 7 Amount (`) Qty. Revised Standard Rate 16.5 6.5 Amount (`) 2,11,612.50 1,11,150 Qty. 12,450 18,800 2,28,000 12,825 (2,850 4.5) 1,19,700 17,100 Actual Rate 18 8 Amount (`) 2,24,100 1,50,400 3,74,500
(a) Statement of Reconciliation (Planning and Operating Variances)

Amount (`) Budgeted Contribution Sales Variances Cost Volume Variance (2,500 78) Sales Margin Price Sales Margin volume (2,500 2,850) 78 Total Planning Variance (b) Total Operating Variance (b) Actual Contribution (2,850 200 3,75,500) 1,95,000 27,300 F 24,937.5 F 51,737.5 A 1,95,500
(b) Statement of Variances

Particulars 1. Material Cost Variance 2. Material Price Variance 3. Material Usage Variance 4. Labour Cost Variance 5. Labour Rate Variance 6. Labour Efciency Variances Total Variances Traditional Variance (Original Actual Standard) 2,28,000 2,24,100 = 3900 F (20 18) 12,450 = 24,900 F (11,400 12450) 20 = 21,000 A 1,19,700 1,50,400 = 30,700 A (7 8) 18,800 = 18,800 A (17,100 18,800) 7 = 1,1900 A 26,800 A Planning Variances (Original Standard Revised Standard) 2,28,000 2,11,612.5 = 16,387.5 F (20 16.5) 12,825 = 44,887.5 F (11,400 12,825) 20 = 28,500 A 1,19,700 1,11,150 = 8,550 F (7 6.5) 17,100 = 8,550 F (17,100 17,100) 7 = NIL 24,937.5 F Operating Variances (Revised Stand Actual) 2,11,612.5 2,24,100 = 12,487.5 A (16.5 18) 12,450 = 18,675 A (12,825 12,450) 16.5 = 6,187.5 1,11,150 1,50,400 = 39,250 A (6.5 8) 18,800 = 28,200 A (17,100 18,800) 6.5 = 11,050 A 51,737.5 A
Question 57 (Growth, price-recovery, and productivity components): Oceano T-shirt company sells a variety of
T-shirts. Oceano presents the following data for its rst two years of operations, 2003 and 2004. for simplicity, assume that all purchasing and selling costs are included in the average cost per T-shirt and that each customer buys one T-shirt.
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2003 Number of T-shirts purchased Number of T-shirts lost Number of T-shirts sold Average selling price Average cost per T-shirt Administrative capacity in terms of number of customers that can be served Administrative costs Administrative cost per customer 20,000 400 19,600 `15 `10 40,000 `80,000 `2 2004 30,000 300 29,700 `14 `9 36,000 `68,400 `1,90
Administrative costs depend on the number of customers that Oceano has created capacity to support, not the actual number of customers served.
Required: Calculate the growth price-recovery, and productivity components of changes in operating income
between 2003 and 2004.

Solution:
Balance Score Card

Last Year Prot (2003) Revenue 2,94,000 less : Cost Material 2,00,000 Others 80,000 Prot 14,000 48,440 F B. 1,03,060.4 A D. 30,000 F. E. 11,600 F. 11,900 F 3,061 F F. 3,061 F 2,70,000 68,400 77,400 Growth A. (B.Q. A.Q.) B.S.P. Price C. 29,700 A Productivity Current Year Prot (2004) 4,15,800
A. Revenue effect of Growth = (B.Q. A.Q.) B.S.P. = (19,600 29,700) 15 = 1,51,500 Fav. B. Cost Effect of Growth = (B.Q. A.Q.) B.V.C. = (19,600 29,700) 10,204 = 1,03,060.4 A C. Revenue effect of price = (B.S.P. A.S.P.) A.Q. = (15 14) 29,700 = 29,700 A. D. Cost effect of price M.P.V. = (S.R. A.R.) A.Q. = (10 9) 30,000 = 30,000 F E. Cost effect of Price (Fixed) = xed overhead expense variance = Budget Actual = 80,000 68,400 = 11,600 F. F. Productivity (Material Usage Variance) = (30,306.20 30,000) 10 = 3061 F.
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3.72

Budget Qty. Material 20,000 Rate 10 Amount 2,00,000 Qty. 30,306.12 Standard Rate 10 Amount 3,03,061 Qty. 30,000 Actual Rate 9 Amount 2,70.000
Working Note 2 Material cost per unit of nished goods = 2,00,000 ________ = 10.204 19,600
Question 58 (Strategy, balanced scorecard service company): Snyder corporation is a small information systems
consulting rm that specializes in helping companies implement sales management software. The market for Snyders products is very competitive .To compete, Snyder must deliver quality service at a low cost Snyder bills clients in terms of units of work preformed. Which depends on the size and complexity of the sales management system. Snyder presents the following data for 2002 and 2003.
Particulars 1. Units of work performed 2. Selling price 3. Software implementation labor-hours 4. Cost per software implementation labour-hour 5. Software implementation support capacity (in units work) 6. Total cost of software implementation support 7. Software implementation support capacity cost per unit of work 8. Number of employees doing software development 9. Total software development costs 10. Software development cost per employee 2002 60 ` 50,000 30,000 ` 60 90 ` 3,60,000 ` 4,000 3 ` 3,75,000 ` 1,25,000 2003 70 ` 48,000 32,000 ` 63 90 ` 3,69,000 ` 4,100 3 ` 3,90,000 ` 1,30,000
Software implementation labour-hour costs are variable costs. Software implementation support costs for each year depend on the software implementation support capacity(dened in terms of units of work) that Snyder chooses to maintain each year. It does not vary with actual units of work performed that year. At the start of each year management uses its discretion to determine the number of software development employees. The software development staff and costs have no direct relationship with the number of units of work performed. 1. Is Snyder corporations strategy one of product differentiation or cost leadership? Explain briey. 2. Describe key elements you would include in Snyders balanced scorecard and your reasons for doing so.
Question 59: Following a strategy of product differentiation, Westwood corporation makes a high-end kitchen
range hood, KE8. Heres Westwoods data for 2002 and 2003.
2002 1. units of KE8 produced and sold 2. Selling price 3. Direct materials (square feet) 4. Direct material costs per square foot 5. Manufacturing capacity for KE8 6. Conversion costs 7. Conversion costs per unit of capacity (Row 6 Row 5) 8. Selling and customer-service capacity 9. Selling and customer- service costs 10. Cost per customer of selling and customer service capacity (Row 9-Row 8) 40,000 `100 1,20,000 ` 10 50,000 units ` 10,00,000 ` 20 30 customers ` 7,20,000 ` 24,000 2003 42,000 `110 1,23,000 ` 11 50,000 units ` 11,00,000 ` 22 29 customers ` 7,25,000 ` 25,000
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Standard Costing 3.73 Westwood produced no defective units and reduce direct material usage per unit of KE8 in 2003. Conversion costs in each year are tied to manufacturing capacity. Selling and customer- service costs are related to the number of customers that the selling and service functions are designed to support. Westwood has 23 customers in 2002 and 25 customers in 2003.
Required:
1. Calculate the growth price-recovery and productivity components that explain the change in operating income from 2002 to 2003. 2. Suppose during 2003 the market for high-end kitchen range hoods grew at 3% in terms of number of units and all increases in market share (that is increases in the number of units sold greater than 3%) are due to Westwoods product differentiation strategy. Calculate how much of the change in operating income from 2002 to 2003 is due to the industry-market size factor cost leadership and product differentiation.
Solution:
1. Balance Score Card

Year 2002 (` in lakhs) Revenue 40 Cost Material 12 Conversion 10 Selling and distribution 7.20 Prot 10.80 1,40,000 F B. 60,000 A E. 1,05,000 A. 1,92,000 F 30,000 F D. 1,23,000 A Growth (`) A. 2,00,000 F Price (`) C. 4,20,000 F F. 30,000 F Cost: Material 13.53 Conversion 11 Selling & Distribution 7.25 14.42 Productivity Year 2003 (` in lakhs) (19 kg)
A. Revenue effect of Growth = (B.Q. A.Q.) B.S.P. = (40,000 42,000) 100 = 2,00,000 F. B. Cost effect on Growth = (B.Q. A.Q.) B.V.C. = (40,000 42,000) 30 = 60,000 A. C. Revenue effect of price = (B.S.P. A.S.P.) A.Q. = (100 110) 42,000 = 4,20,000 F. D. Cost effect of price = (S.R. A.R.) A.Q. = (10 11) 1,23,000 = 1,23,000 A E. Cost effect of price (xed OH exp. variance) = Budgeted Actual + Selling and Distribution = (10,00,000 11,00,000) + (7,20,000 7,25,000) = 1,00,000 A + 5,000 A = 1,05,000 A. F. Productivity (Material Usage Variance) = (S.Q. A.Q.) S.R. = (1,26,000 1,23,000) 10 = 30,000 F.
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3.74
Problems and Solutions: Advanced Management Accounting 2. Statement of change in income
A. B.
Market Size Product Difference Policy Market Share Price
84,000 F 56,000 F 1,92,000 F 30,000 F 3,62,000 F
C.
Cost Productivity Change in Income

Budget Qty. Material 1,20,000 Rate 10 Amount 12,00,000 Qty. 1,26,000 Standard Rate 10 Amount 1,26,000 Qty. 1,23,000 Actual Rate 11 Amount 13,53,000
Question 60: A company manufacturers a product whose data for a period has been analysed as follows:
Standard Cost Direct materials-5 units at @ 3 Direct labour 5 hr @ 5 per hour. Production overheads-5 hours at @ 4 Total ` 15 25 20 60
Prot margin is at 25% on sale price. Budgeted sales for the period is ` 39,200.
Actual Data Sales Direct materials Direct wages ` 35,000 ` 8,000 ` 12,000
Analysis of variances
Adverse (`) Direct material Price Usage Direct Labour Rate Efciency Production overhead Expenditure Volume 200 340 300 975 800 405 Favorable (`)
Assume that there is no change in stock and that there are no other overheads.
Required: Compute the following from the above details:
1. 2. 3. 4. 5. 6. 7. 8. 9.
Actual production Actual prot Actual hours worked Budgeted hours worked Production overhead efciency variance Production overhead capacity variance Sales price variance Sales volume prot variance Reconciliation between actual prot and budgeted prot.
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Standard Costing 3.75 Working Note 1 Budgeted cost & Prot Material 15 Wages 25 Factory O/H 60 Prot 20 Selling price 80 Budget sales 39200 Budgeted Qty 490 Working Note 2 Material cost variance = M.P.V. + M.U.V. SC AC = 800 + (405) SC = 395 + 8000 Working Note 3 Standard cost = Budgeted cost Actual output Actual output = Working Note 4 Labour eff. variance = (5 hrs A.W. hrs)SR 300 = (5 hrs 507 A.W. hrs)5 AW hrs = 2595 Working Note 5 Production O/H expenditure variance = Budget Actual 200 = (` 20 490) Actual Actual = ` 10,000 (ii) Statement of Actual prot Actual sales 35,000 USS: Material 8,000 Labour 12,000 Variance O/H Fixed O/H 10,000 Actual Prot 5,000 Working Note 6 Budgeted hrs = 5 hrs 490 B hrs (5 490) A hrs ` 2,595 5 hrs (5 507) Prodn overhead efciency variance = (5 hrs A.W. hrs) Rate = (5 507 2,595) = 240 A Fixed overhead capacity variance = (A hrs B hrs) Rate pu = (2595 2450)4 = 580 Sales margin price variance = (BSP ASP)AQ = = 5560 F Sales margin volume variance = (BQ AQ) B pr pu = (490 507)20 = 340 A
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3.76
Question 61: The standard cost sheet of a company based on the normal output of 30,000 units for a quarter is
as under:
Direct Materials Direct Wages Overheads Total Costs Prot Selling Price 4 kg @ ` 2 per kg 6 Hours @ ` 4 per hour 50% of Direct Wages ` 8.00 24.00 12.00 44.00 6.00 50.00
The budgeted xed overheads amount to ` 1, 44,000 per quarter and it is included in the overhead cost given above. On the basis of the budgeted activity of 36,000 units, the company estimated the prot for the second quarter of the year as under:
Particulars Direct Material Direct Wages Overheads(50% of Wages) Total Costs Sales Prot ` 2,88,000 8,64,000 4,32,000 15,84,000 18,00,000 2,16,000
The cost records revealed the following actual data for the second quarter of the year: Production 25,000 units Direct materials consumed 96,000 kg at ` 2.25 per kg Direct wages paid, 1,60,000 hours at ` 4.10 per hour. Out of which 6,000 hours being idle time were not recorded on production. Overheads ` 3,32,000 out of which ` 1,50,000 were xed. Sales 25,000 units at an average price of ` 51.50 per unit.
Required:
(i) Prepare a statement of actual Prot/Loss for the second quarter of the year. (ii) Analyze the variance and present an operating statement reconciling the budgeted prot with actual prot.
Solution:
STATEMENT OF ACTUAL PROFIT (LOSS) (For the second quarter of the year) 1: Sales Revenue: 25,000 units ` 51.50 Direct Material 96,000 hours ` 225 Direct wages 1,60,000 hrs ` 4.10 Overheads 2: Total cost 3: Prot (Loss) (1) (2) ` 12,87,500 2,16,000 6,56,000 3,32,000 12,04,000 83,500
OPERATING STATEMENT (Reconciling the budgeted Prot with Actual Prot)

Particulars Notes Working Favourable ` 1(a) 1 1(b) 37,500 Variable adverse ` 66,000 Actual ` 2,16,000
Budgeted Prot (36,000 6) Sales variance Sales volume margin variance Sales price variance
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Net variance 3. Prot before adjustment of cost variance (1)( 2) Material Price usage 2. Lobour rate Efciency idle time 2(ii) (b) 21(ii) (c) 2(ii) (d) Variable overhead expenditure Efciency Fixed overhead Expenditure Efciency Capacity Actual prot (2)(3) 3(vi) 3(vii) 3(viii) 10,800 1,14,800 6,000 3,200 20,800 1,04,000 83,500 3 (iii) 3(iv) 2,800 2(i) (a) 2(i) (b) 16,000 16,000 24,000 4,800 8,000 24,000 1,87,500 32,500
Working Note 1: Sales Variance Based on Prot (a) Sales Value variance a. Statement of Actual Prot (Loss) (For the second quarter of the year) 1. Sales Revenue: 25,000 units ` 51.50 Direct material 96,000 hrs ` 2.25 Direct wages 1,60,000 hrs Overheads 2. Total cost 3. Prot (loss) (1)(2) ` 12,87,500 2,16,000 6,56,000 3,32,000 12,04,000 83,500
Operating statement (Reconciling the budgeted prot with actual prot)

Working 1: Budgeted Prot (36,000 6) 2: Sales variances (i) Sales Volume margin Variance (ii) Sales price variance (iii) Net variance 3. Prot before adjustment of cost variances (1) (2) Material Price Usage Labour Rate 2 (ii) (b) 16,000 2 (1) (a) 2 (1) (b) 8,000 24,000 1,87,500 Variable notes 1(a) 1(c) 1(b) Favourable ` 37,500 Adverse ` 2,16,00 66,000 32,500 Actual `
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3.78

2 1(ii) I 2 (ii) (d) 3(iii) 3 (iv) 3 (vi) 3 (vii) 3 (viii) 2,800 10,800 16,000 24000 4,800 6,000 3,200 20,800 1,14,800 83,500 1,04,000
Efciency Idle time Variable overhead expenditure Efciency Fixed overhead Expenditure Efciency Capacity Actual prot (2)(3)
Working Note 1: Sales Variances Based on Prot: (a) Sales Value Variances = Budgeted Prot Actual Prot = 2,16,000 83,500 = ` 1,32,500 (Adverse) (b) Sales Price Variance = Actual Qty. Sold (Std. Price Actual Price)
Question 62: The following are budgeted gures for a department in a business for a normal 5-day week of 40
hours
Particulars Direct materials Direct wages Variable overheads Fixed overheads ` 40,000 10,000 15,000 20,000
The standard direct wage rate is ` 2.50 per hour and the budgeted production is 5,000 units sold at ` 20 per unit. Wages are paid at hourly rate, and variable overheads are absorbed at the rate of 150% of direct wages. During a particular week, 4 days are worked instead of 5 days owing to fall in demand for the product, but the productivity of direct labour increased by 10%. Present a prot statement in respect of this week and reconcile the budget prot with actual prot for the week.
Solution:
Statement of prot
Particulars Quantity (units) Sales (`) Uss-Material Labour Variable O/H Fixed O/H Prot Budget 5,000 1,00,000 (5,000 20) 40,000 10,000 15,000 20,000 15,000 Actual 4,400 83,000 (4,400 20) 35,200 8,000 13,200 20,000 11,600
Statement of reconciliation (Marginal) Budgeted prot Sales margin price variance Sales margin volume variance (BQ AQ) B con pu (5,000 4,400) 7
15,000 4
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Standard Costing 3.79 Labour efciency variance Variable O/H efciency variance Fixed O/H expenditure variance Actual prot. (5 hrs A hrs) SR (3,520 3,200) 2.5 (3,520 3,200) 3.75 8
Question 63: S Ltd. operates a system of standard costing in respect of one of its products, which is manufactured
within a single cost center. The following information is available: For one unit of product the standard materials input is 20 liters at a standard price of ` 2 per litre. The standard wage rate is ` 6 per hour and 5 hours are allowed in which to produce one unit. Fixed production overhead is absorbed at the rate of 100% of direct wages cost. During the month just ended the following occurred: Actual price paid for material purchased ` 1.95 per litre Total direct wages cost was ` 1,56,000 Fixed production overhead incurred was ` 1,58,000
Variances Direct material price (at the time of purchase) Direct material usage Direct labour rate Direct labour efciency Fixed production overhead expenditure Favourable (`) 8,000 2,760 Adverse (`) 5,000 5,760 8,000
Required: Calculate the following for the month:
Budgeted output in units, Number of liters purchased, Number of liters used above standard allowed, Actual units produced, Actual hours worked, Average actual wage rate per hour.
Solution:
(a)
(b)
(c) (d)
(e)
direct material price variance = (SP - AP) AQ 8000 = (2 1.95) AQ AQ = 160000 litre - point i direct material usage variance (SQ AQ) SP -5000 = (SQ 160000)2 SQ = 157500 Excess duty = AQ SQ = 2500 litre - point (iii) Direct labour rate variance = (SR AR) A Hrs -5760 = SR A Hrs AR A Hrs - 5760 = 6 (A Hrs) 156000 A Hrs = 25040 - point (v) Actual wages ___________ Average actual wage rate per hour = Actual hrs = 1,56,000/25,040 = ` 6.23 - point (vi)
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3.80 (f)
Problems and Solutions: Advanced Management Accounting Budgeted output = Budgeted O/H / Budgeted O/H per unit = 1,50,000/6 x 5 = 5,000 units - point (vii) = Recovered O/H / Recovery rate = 100% x direct wage cost / 30 = 1,56,000/ 30 = 5,200 units.
(g)
Actual output
Question 64: 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) ` 15.00 Direct Labour (0.5 hour at ` 20 per hour) 10.00 Manufacturing Overhead (75% of direct labour cost) 7.50 Total Cost 32.50 The following data was obtained from Zed Companys record for April 1998:
Debit 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 efciency variance 3,250 2,500 1,900 Credit ` 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) (ii) (iii) (iv) (v) (vi) (vii) (i)
Standard direct labour hours allowed for the actual output achieved. Actual direct labour hours worked. Actual direct labour rate. Standard quantity of direct materials allowed (in kg) Actual quantity of direct materials used (in kg) Actual quantity of direct materials purchased (in kg) Actual direct materials price per kg
(C.A. Final May 1998)
Solution:
(ii)
Standad direct labour hours allowed for the actural output achieved. Actual number of units produced Standard direct labour hours P.U. 4000 Units 0.5 hrs. = 2000 hrs. Actual direct labour hours worked Direct Labour efciency variance = Standard rate per hour (Standard hrs. hor actual output Actual direct Labour hours worked) ` 2,000(F) = ` 20 (2000 hrs. - x) ` 2,000(F) = ` 40,000 20x 20x = 38,000 x = 38,000/20 = 1,900 Actual direct labour hours worked = 1,900 hrs.
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Standard Costing 3.81 (iii) Actual Direct labour rate Direct labour rate variance = Actual hours (Standard rate per labour hour Actual direct labour rate per hour) ` 1,900 (A) = 1,900 hrs. (` 20 - x) ` 1,900 = 38,000 1,900x 1,900x = 39,900 x = 39,900/1,900 = 21 Actual direct labour rate per hour = ` 21 (iv) Standard Quantity of direct materials (in Kgs.) Actual number of units produced Std. quantity of direct material required P.U. (in kgs.) = 4,000 Units 3 kgs. P.U. = 12,000 kgs (v) Actual quantity of direct materials used (in Kgs) Direct material usage variance Std. price per kg of D material (Std. Qty. of Direct material for actual output Actual Qty. of direct materials used for actual output) ` 2,500 (A) = ` 5{(4000 units 3 kgs) x} 2,500 = 60,000 5x 5x = 62,500 x = 62,500/5 = 12,500 Actual Qty. of direct materials used for actual output = 12,500 kgs (vi) Actual quantity of direct materials purchased (in kgs) Direct Material Price Variance Actual Qty. of direct materials purchased (Std. price per kg Actual price per kg) ` 32,500(A) = (Actual Qty. of direct materials purchased ` 5) (Actual Qty. of direct materials Actual price per kg.) = ` 5 Actual Qty. of direct materials purchased ` 68,250 ` 68,250 ` 3,250 = (` 5 Actual Qty. of direct materials purchased) ` 5 Actual Qty. of direct materials purchased = ` 65,000 Actual Qty. of direct materials purchased = 13000 kgs (vii) Actual Direct materials price per kg ` 3,250 (A) = 13,000 kgs (` 5 Actual direct materials price per kg) ` 65,000 + ` 3,250 = 13000 kgs Actual Direct materials price per kg. 13,000 kgs Actual direct materials price per kg = 68,250 Actual direct materials price per kg = ` 5.25
Question 65: The following information is available from the record of Sunrise Ltd. which produces only one
product. Budgeted Income Statement: January 2004

` Sales Revenue (20,000 units at ` 5) Production Costs: Budgeted production 20,000 units ` 1,00,000 `
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3.82
Direct Materials: A B Direct Labour Skilled Un-skilled Production Overhead: Fixed Variable Add: Opening Stock (1,000 units @ ` 4.00) Deduct Closing Stock (1,000 units @ ` 4.00) Budgeted Prot (20,000 units @ Re. 0.50) 4,000 84,000 4,000 20,000 10,000 80,000 (9,000 Hrs. @ ` 3.00) (5,200 Hrs. @ ` 2.50) 27,000 13,000 40,000 (10,000 Kg. @ Re. 0.30) (10,000 Kg. @ Re. 0.70) 3,000 7,000 10,000
20,000
During January 2004 production and sales were both above budget and the following income statement was prepared: Income Statement January 2004
Particulars Sales Revenue: (14,000 units at ` 5) (8,000 units at ` 4.75) Production Costs: Actual production 24,000 units Direct Materials: A B Direct Labour: Skilled Un-skilled Overhead Costs: Fixed Variable Add: Opening Stock (1,000 units @ ` 4) (24,000 units @ ` 0.625) 4,000 1,02,950 18,020 15,000 98,959 (13,000 Hrs. @ ` 2.95) (6,300 Hrs.@ ` 2.60) 38,350 16,380 54,730 (16,000 Kg @ ` 0.20) (10,000 Kg. @ ` 0.80) 3,200 8,000 11,200 70,000 38,000 1,08,000 ` ` `
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Less: Closing Stock (3,000 units @ ` 4) Cost of Goods Sold Actual Prot 12,000 90,950 17,050
During the period 1,000 abnormal idle hours for skilled labour due to machine breakdown, was reported. In the above statement stock is valued at standard cost of ` 4 per unit.
Required: Prepare a standard costing statement analysing the differences between the budget and the actual
performance. In your analysis include calculations of the sales volume and sales price variances; direct material price, mix yield and usage variances direct labour rate, idle time and efciency variances; overhead expenditure and volume variances. (C.A Final May 1995)
Working Notes:
I. Sales Variance (1) Sales Volume Margin Variance (Actual Sales Volume: Budgeted Volume) Standard Margin = (22,000 units - 20,000 units) Re. 1 = ` 2,000 (F) (2) Sales Margin Price Variance Actual Sales Volume (Actual Selling Price Budgeted Selling Price) = [14,000 units (` 5 ` 5] + [8,000 units (` 4.75 ` 5)] = ` 2,000 (A) II. Material Variances (1) Material Price Variance (Standard price-Actual Price) Actual quantity A: (0.30 0.20) 16,000 kg. = ` 1,600 (F) B: (0.70 0.80) 10,000 kg. = ` 1,000 (A) = ` 600 (F) (2) Material Mix Variance Total Actual Quantity (S.C. of Std. mix per kg. S.C. of actual mix per kg.) ` 10,000 ` 11,800 _________ _________ = ` 1,200 (F) = 26,000 kg. 20,000 kg. 26,000 kg.
(3) Material Yield Variance Std, rate per kg. of output (Actual Yield-Std. Yield) = 0.50 (24,000 kg. 26,000 kg.) = ` 1,000 (A) III. Labour Variance (1) Labour Rate Variance (Std. rate p.h. Actual rate p.h.) Actual hours Skilled Labour : (` 3 ` 2.95) 13,000 hrs. = ` 650 (F) Unskilled Labour : (` 2..50 ` 2.60) 6,300 hrs. = ` 630 (A) = ` 20 (F) (2) Labour Efciency Variance (Std. hrs. four Actual output Actual hours) Std. rate p.h. Skilled Labour : (10,800 hrs. 12,000 hrs.) `3 = ` 3,600 (A) Un-skilled Labour : (6,240 hrs 6.300 hrs.) ` 2.50 = ` 150 (A) = `3,750 (A) (3) Idle Time Variance (Idle hours Standard Wage rate p.h.) = ` 3,000(A) Skilled Labour: 1,000 hours ` 3
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3.84
IV. Variable Overhead Variance (1) Variable Overhead Expenditure Variance (Variable Overhead recovered on actual output Actual Variable Overhead) = (24,000 units ` 0.50) ` 15,000 = ` 3,000 (A) V. Fixed Overhead Variances (1) Fixe Overhead Expenditure Variance (Budgeted Expenditure Actual Expenditure) = (` 20,000 ` 18,020) = ` 1,980 (F) (2) Fixed Overhead Volume Variance (Budgeted Volume Actual Volume) Std. rate per unit = (20,000 units 24,000 units) ` 1 = ` 4,000(F) Statement reconciling Actual Prot and Budgeted Prot
Particular working note Budgeted Prot (as, per Budgeted income statement) I. Sales Variances Sales Vol. Margin Variance Sales Margin Price Variance Prot before adjustment of cost variances II. Material Variances Price MIX Yield Using variance Labour Rate Variance Efciency Variance Overhead Expenditure Variance Volume Variance Actual Prot Reference of Favorable Variance Adverse Actual 20,000
1 2`
2,000 2,000 2,000
1 2 3
600 1,200 600(A) 1,000 1,400(A)
16(A) 300(A) 600(F) 510 (A) 90(F) 1,626 13,584 316(A)
Question 66: The Standard Cost of producing one unit of Item Q is an under
Direct Material Direct Wages Fixed Production Overhead Total Standard Cost Standard Gross Prot Standard Sale Price A 12 Kg. @ ` 10 B 5 Kg. @ ` 6 5 Hrs. @ ` 3 120 30 15 35 200 50 250
Fixed Production overhead is absorbed on expected annual output of 13,200 units. External result for the month of September, 2004 are as under: Internal production: 1,000 Units.
Sales Direct Material (B 5,200 Kg.) Direct Wages Fixed Overhead Cross Prot (1,000 Unit @ ` 250) (A 11,000 Kg.) (5,500 Kg.) 2,50,000 1,21,000 28,600 17,500 39,000 2,06,100 43,900
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Standard Costing 3.85 You are required to calculate all variances. Material price variance is taken out at the time of receipt of Material Initial purchased were: 12,000 Kg. of A @ ` 11 & 5,000 Kg. of B @ ` 5.50
(C.A. Final Nov 1997)

Statement showing standard and actual costs of material for 1,000 units of output and standard cost of actual** Standard cost Qty. Kg. 12,000 5,000 Price ` 10 6 Amount ` 1,20,000 30,000 1,50,000 Actual cost Standard cost of actual input Standard price Qty. Price Amount Actual Standard Amount. Qty. price/Kg. Kg. ` ` Kg. ` ` 11,000 11 1,21,000 11,000 10 1,10,000 5,200 550 28,600 5,200 6 31,200 1,49,600 1,41,200
Standard yield (units) =
1,000 units __________ 16,200 kg = 952.94176 units approx. 17,000 kg
STANDARD COSTING AND VARIANCE ANALYSIS (2) Statement showing standard and actual labour cost of 1,000 units produced and standard cost of actual hrs. Hours ` 5,000 (3) Particulars Finished overhead (`) Hours Output (units) Budgeted 38,500 5,500 1,100 5 35 7 Overhead Rate p.h. ` 3 Amount Hours ` 5,500 Rate Amount p.h. ` 3.1818 17,500 Hours ` 5,500 Rate p.h. ` 3 Amount
15,000
17,500
Standard time P.U. (hrs.) Standard xed overhead P.U. (`) Standard xed overhead rate P.H. (`) (a) Material Variances (1) Material cost variance = Standard cost Actual cost = ` 1,50,000 ` 1,49,600 (2) Material Price variance = Actual Quantity (Std. Price Actual Price) = 11,0000 kg (` 10 ` 11) + 5,200 kg (` 6 ` 5.50) = ` 11,000 (A) + ` 2,600 (F) (3) Material usage variance = Standard price (Standard quantity Actual quantity) = ` 10 (12,000 kg. 11,000 kg) + ` 6(5,000 kg 5,200 kg) = ` 10,000 (F) + ` 1,200 (A)
= ` 400(F)
= ` 8,400 (A)
= ` 8,800 (F)
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3.86
(4) Material mix variance = Total actual quantity (Std. price of Std. Mix per Kg. Std. Price of actual mix per Kg.) = 16,200 Kg.
[ ________
` 1,50,000 _________ ` 1,41,200 = ` 1741.18 (F) 17,000 Kg 16,200 Kg.
(5) Material yield variance = Std rate (Actual yield Std. Yield) = ` 150 (1,000 Units 952.9412 Units) = ` 7058.82 (F) (6) Material Purchase price variance = Actual quantity of material purchased (Std. price per Kg. Actual price per Kg.) = 12,000 Kg. (` 10 ` 11) + 5,000 Kg. (` 6 ` 5.50) = ` 12,000 (A) + ` 2,500 (F) = ` 9,500 (A) Labour Variances (1) Labour cost variance = (Standard cost Actual cost) = ` 15,000 `, 7,500 = ` 7,500(A) (2) Labour rate variance = Actual hrs. (Std. rate Actual rate) = 5,500 (` 3 ` 3.1818) = `1,000 (A) (3) Labour efciency variance = Std. rate p.h. (Std. hours Actual hours) = ` 3(5,000 hrs. 5,500 hrs) = ` 1,,,500 (A) Based Overhead Variance (1) Total xed overhead variance = Fixed overhead absorbed Actual xed overhead = (1,000 units ` 35) ` 39,000 = ` 35,000 ` 39,000 = `4,000 (A) (2) Fixed overhead expenditure variance = Budgeted xed overhead Actual xed overhead = ` 38,500 ` 39,000 = ` 500 (A) (3) Fixed overhead volume variance = Std. xed overhead rate per unit (Actual output Budgeted output) = ` 35(1,000 units 1,100 units) = ` 3,500 (A) (4) Efciency variance = Std. xed overhead rate per unit (Actual output Budgeted output) = ` 35(1,000 units 1,100 units) = ` 3,500 (A) (b) Direct Material Variances Production Op. Stock + Cl. Stock Introduced Std Qty. Actual Qty. 10,800 12,000 7,500 Std. requirement 600 7,200 units @ 1.5 Kg. 300 7,200 S.P. Std. Qty. Actual AP SP Qty SP ` ` ` ` 6 64,800 72,000 6/50 = 10,800 kg.
Actual Qty AP ` 78,000
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Standard Costing 3.87 Usage Variance ` 64,800 ` 72,000 Price Variance ` 72,000 ` 78,000 Total Variance ` 64,800 ` 78,000 (c) Direct Labour Variance Production Less: Op. Stock Add: Cl. Stock = ` 7,200 A = ` 6,000 A = ` 13,200 A 7,500 450 180 7,230 Std. Hours Actual Hours 29,000 SR ` 6 Std. Hrs. SR ` 1,73,520 Actual Hrs. SR ` 1,74,000 AR ` 6/25 Actual Hours AR ` 1,81,250 Std. hours produced 7,230 4 = 28,920
28,920
Efciency Variance Rate Variance Total Variance (d) Variable Overheads Variance A = Charged to Production 28,920 1 B = Std. Cost of Actual Hours 29,000 1 C = Actual Overheads (e) Fixed Overheads Variance
(1,73,520 1,74,000) (1,74,000 1,81,250)
= 480 A = 7,250 A = 7,730 A
` 28,920 29,000 36,000 A C Total V
Efciency variance Expenditure variance
` 80 A ` 7,000 A
` 7,080 A ` 86,760 87,000 96,000 94,000 = ` 240 (A) = ` 9,240 (A) = ` 9,000 (A) = ` 2,000 (F) = ` 7,240 (A)
A = Charged to Production 28,920 3 B = Std. Cost of Act. Hrs. 29,000 3 C = Budget D = Actual Efciency Variance (86,760 87,000) Volume Variance (86,760 94,000) Capacity Variance (87,000 96,000) Expenditure Variance (96,000 94,000) Total Variance (86,760 94,000)
Question 67: The following information has been extracted from the books of a company using standard costing
system for November 2004: Direct materials: 80 kgs. of materials were consumed. The purchase cost there of is ` 49,600. Standard price per kg. of direct material ` 60. The expected output is units per kg. of direct material.
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3.88
Direct labour: Budget for a 5-day week of 40 hour. Grade A labour 8,000 hours @ ` 5 per hour. Grade B labour 8,000 hours @ ` 4 per hour. During November 2002, due to shortage of labour, the mix was changed as under Grade A labour 6,000 hours @ ` 5 per hour. Grade B labour 10,000 hours @ ` 4 per hour. Analysis of working revealed: Grade A labour 6,600 hours @ ` 5.20 per hours. Grade B labour 11,000 hours @ ` 3.90 per hours. where were 21 days in November 2004, out of which one day was holiday leaving 20 working days. In fact the company actually worked 21 days in November 2004. However, power failure, machine breakdown, etc. resulted in 240 idle hours of Grade A labour. Variable overheads: Standard cost per unit ` 2.50. Actual overheads ` 15,750 for November 2004. Fixed overheads. Budget ` 4,40,000 per annum. Budget production 62,500 units per annum. Actual overheads for November 2004 ` 35,000. Other data: Budgeted weeks 50 in a year. Actual production in November 2004 6,000 units. Sales: Budget 6,000 units @ ` 60 each. Actual 4,800 units @ ` 62 each. Analysis the variances in as much detail as possible. (I.C.W.A. Final Dec 1998) Direct Material Variances Output = 6,000 units Standard quantity = 6,000/8 1. Direct Material Cost Variance (Std. units Std. price) (Actual units Actual price) = (750 60) (800 62) = 45,000 49,600 2. Direct Material Price Variance Actual Qty. (Std. price per kg. Actual price per kg.) = 800(60 62) 3. Direct Material Usage Variance Std. price per kg. (Std. Qty. Actual Qty.) = 60 (750 800) Price Variance + Usage Variance = Cost Variance = ` 1,600 (A) + ` 3,000 (A) II. Direct Labour Variances Budgeted no. of days = 50 weeks 5 days/per week Budgeted production = 750 kgs.
= 4,600 (A)
= 1,600 (A)
= 3,000 (A) = ` 4,600 (A)
= 250 days = 62,500 units.
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Standard Costing 3.89 Production per day (62,500 units / 250 days) Production for 20 days = 250 units 20 days Std. Time per unit = 16,000 hrs./5,000 units Std. hrs. for actual production = 6,000 units 302 hrs. Std. Hours = 250 units = 5,000 units = 3.2 hrs. = 19,200 hrs.
Revised Std. hours
Actual hrs. on job in revised Std. ratio
Actual hrs.
Actual hrs.
Direct Labour Cost Variance (Std. hrs Std. rate) (Actual hrs. Actual rate) Grade A = (9,600 hrs. ` 5) (6,600 hrs. ` 5.20) = ` 48,000 ` 34,320 Grade B = (9,600 hrs. ` 4) (11,000 hrs. ` 390) = ` 38,400 ` 42,900 2. Direct Labour Rate Variance Actula time (Std. rate Actual rate) Grade A = 6,600 (5 5.20) Grade B = 11,000 (4 3.90) 3. Direct Labour Efciency Variance Std. rate (Std. time for actual output Actual time) Grade A = 5(7,200 6,360) = 4,200 (F) Grade B = 4(12,000 11,000) = 4,000 (F)
1.
= ` 13,680 (F) = ` 4,500 (A) = ` 9,180 (F)
= 1,320 (A) = 1,100 (F)
= 220 (A)
= 8,200 (F)
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3.90
4. Direct Labour Mix Variance Std. rate (Revised Std. time Actual time) Grade A = 5(7,200 6,510) = 3,450 (F) Grade B = 4(10,850 11,000) = 600 (A) = 150 (F) 5. Direct Labour Yield Variance Std. rate (Revised Std. hours Actual hrs. on Job in revised Std. ratio) Grade A = 5(7,200 6,510) = 3,450 (F) Grade B = 4(12,000 10,850) = 4,600 (F) = 8,050 (F) 6. Idle Time Variance Std. Rate (Actual hours on Job Actual hours) Grade A = 5(6,360 6,600) = 1,200 (F) Grade B = 4(11,000 11,000) = (Nil) = 1,200 (A) 7. Direct Labour Revision Variance Std. rate (Std. hrs. Revised Std. hrs.) Grade A = 5(9,600 7,200) = 12,000 (?F) Grade B = 4(9,600 12,000) = 9,600 (A) = 2,400 (F) III. Variable Overhead Variances Std. variable overhead rate per hour = ` 2.50/3.2 hr. = Re. 0.78125 per hr. 1. Variable Overhead Cost Variance (Std. hrs. for actual output Std. variable overhead rate per hour) Actual overhead = (19,200 0.78125) 15,750 = 15,000 15,750 = 750 (A) 2. Variable Overhead Expenditure Variance (Actual hrs. for actual output Std. variable overhead rate per hour) Actual overhead = (17,360 0.78125) 15,750 = 13,563 15,750 = 2,187 (F) IV. Fixed Overhead Variances Std. Fixed overhead = 62,500 units 3.2 hrs. = 2,00,000 hrs. Std. Fixed overhead rate per hour = ` 4,40,000/2,00,000 hrs. = R.s 2.20 per hour Budgeted hours in actual days = = 16,800 hrs.
1. Fixed Overhead Cost Variance (Std. hrs. for actual production Std. xed overhead rate) Actual xed overheads = (19,200 2.20) 35,000 = 42,240 35,000 = 7,240 (F) 2. Fixed Overhead Expenditure Variance Budgeted overheads Actual overheads = (16,000 2.2) 35,000 = 35,200 35,000 = 200 (F) 3. Fixed Overhead Volume Variance Std. rate per hour (Std. hrs. Budgeted hrs.) 2.20 (19,200 16,000) = 7,040 (F)
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Standard Costing 3.91 V. Sales Variances Standard Quantity = 6,000 units. Actual Quality = 4,800 units. Selling price per unit = 60 1. Sales Value Variance (Std Qty. Std. Selling price) (Actula Qty. Actual Selling Price) = (6,000 60) (4,800 62) = 3,60,000 2,97,600 = 62,400 (A) 2. Sales Price Variance Actual Qty. (Std. selling price Actual selling price) = 4,800(60 62) = 9,600 (F) 3. Sales Volume Variance Std. Selling Price (Std. Qty. Actual Qty.) = 60(6,000 4,800) = 72,000 (A) Summary of Variances Variances Particulars Favourable Adverse 1. Direct Material (a) Price (b) Usage Direct Material Cost Variance 2. Direct Labour (a) Rate (b) Efciency Mix Yield Idle time Revision Direct Labour Cost Variance: 3. Variable Overhead (a) Expenditure (b) Efciency 1,600 3,000 4,600 4,600 (A) 150 8,050 2,400 10,600 220 1,200 1,420 9,180 (F) 1,437 1,437 2,187 2,187 750 (A) 7,240 (F) 72,000 72,000 62,400 (A)
Total
Variable Overhead Cost Variance 4. Fixed Overhead (a) Expenditure 200 (b) Volume 7,040 7,240 Fixed Overhead Cost Variances 5. Sales Variances (a) Price 9,600 (b) Volume 9,600 Sales Value Variance
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3.92
Question 68: The following information is available in respect of Y Ltd. for a week:
(a) 400 kg of raw material were actually used in producing product EXE. The purchase cost thereof being ` 24,800. The standard price per kg of raw material is ` 60. The expected output is 12 units of product EXE from each kg of raw material. Raw material price variance and usage variance as computed by cost accountant are ` 800 (adverse) and ` 600 (adverse), respectively. (b) The week is of 40 hours. The standard time to produce one unit of EXE is 30 minutes. The standard wage rate is ` 5 per labour hour. The company employs 60 workers who have been paid hourly wage rate as under: Number of worker: 6 8 46 Hourly Wage Rate (`): 4.80 5.20 5.00 (c) Budgeted overheads for a four weekly period is ` 81,600. The actual xed overheads spent during the said week are ` 19,800. (d) Entire output of EXE has been sold at its standard selling price of ` 15 per unit.
Required:
(i) Compute the variances relating to labour and overheads. (ii) Prepare a statement showing total standard costs, standard prot, and actual prot for the week.
Solution:
Working Notes:
1. Computation of Standard Quantity and Cost of Raw Material required for actual output. Actual Output of E E 4,680 units Standard Output per kg. of Raw Material 12 units Standard Quantity of Raw Material required for actual output (4,680 units/ 12 units) 390 kgs Standard Cost of Raw Material (390 Kgs. @ ` 60) ` 23,400 2. Tabulation of Data for computation of labour variances.
Standard Labour for actual output Standard Time (Hours) 2,340* Rate per hour (`) 5 Amount (`) 11,700 Std. Cost for actual hours (`) 12,000 Actual Labour for actual output Actual Time (Hours) 240 320 1,840 2,400 Rate per hour (`) 4.80 5.20 5.00 Amount (`) 1,152 1,664 9,200 12,016
2,340
11,700
12,000
*4,680 units hrs. 3. Tabulation data for computation of xed overhead variance.
Particulars Fixed Overhead (for One Week) Labour hours (60 workers 40 hrs. per week) Output Standard Rate per hour Standard Rate per Unit (`) (Units) (`) (`) Budgeted data 20,400 2,400 4,800 8.50 4.25 Actual data
(i) Computation of labour and overhead variances 1. Labour Cost Variance (Standard Cost of Labour Actual Cost of Labour) = ` 11,700 ` 12,016 2. Labour Rate Variance Actual hours (Standard Rate Actual Rate) = ` 12,000 ` 12,016
= ` 316
= ` 16
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Standard Costing 3.93 3. Labour Efciency Variance Standard Rate per hour (Standard hours Actual hours paid) = ` 11,700 ` 12,000 = ` 300 4. Total xed overhead cost variance (Fixed overhead absorbed Actual Fixed Overhead) = [(4,680 units `4.25)- ` 19,800] = ` 90 ` 19,800 ` 19,800 5. Fixed Overhead Volume Variance Standard Fixed Overhead per unit (Actual Output Budgeted Output) = ` 4.25 (4,680 units 4,800 units) = ` 510 6. Fixed Overhead Expenditure Variance (Budgeted Fixed Overhead Actual Fixed Overhead) = ` 20,400 ` 19,800 = ` 600 (ii) Statement showing total standard costs, standard prot and actual prot for the week.
Sales (4,680 units @` 15) Less: Standard Cost Direct Material Direct Labour Overheads (4,680 units @ ` 4.25) Standard Prot Less: Adjustment for Variance Raw Material Price Variance Usage Variance Labour Rate Variance Efciency Variance Overhead Expenditure Variance Volume Variance Actual Prot 70,200 23,400 11,700 19,890
54,990 15,210
800(A) 600(A) 16(A) 300(A) 600(F) 510(A)
1,400(A)
316(A)
90(F) 13,584
BALANCE SCORE CARD Balanced Scorecard is a strategic-based performance management system that typically identies objectives and measures for four different perspectives, the nancial perspective, the customer perspective, the process perspective, and the learning and growth perspective. Development
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3.94
Strategy Translation Process, Vision and Strategy Strategy is dened by Kaplan and Norton as: Choosing the market and customer segments the business unit intends to serve, identifying the critical internal and business processes that the unit must excel at to deliver the value propositions to customers in the targeted market segments, and selecting the individual and organizational capabilities required for the internal, customer, and nancial objectives. Strategy translation means specifying objectives, measures, targets, and initiatives for each perspective.
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Common Characteristics of Balanced Scorecards Performance measures used in the balanced scorecard approach tend to fall into the four groups nancial, customer, internal business processes, and learning and growth. Internal business processes are what the company does in an attempt to satisfy customers. Financial Perspective (i) Establishes long term and short term nancial performance objective (ii) Describes the economic consequences of actions taken in other three perspectives. It has three strategic themes: Revenue Growth Cost Reduction Asset Utilization Customer Perspective: Increase market share Increase customer retention Increase customer acquisition Increase customer satisfaction Increase customer productivity Performance value: Decrease price Decrease post purchase functionality Improve product quality Increase delivery reliability Improve product image and reputation Process Perspective: Increase the no. of new product Increase proprietary products Decrease product development cycle time.
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3.96
Operations: Increase product quality Increase process efciency Decrease process time Post sales service: Increase service quality Increase service efciency Decrease service time. Responsibility Accounting Model & Essential Elements 1. Assigning Responsibility 2. Establishing performance measures or Benchmarks 3. Evaluating Performance 4. Assigning Rewards
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38 Standard Costing

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Standard Costing

Sec 1_Ch-03_Sandard Costing.indd 3.1

Problems and Solutions: Advanced Management Accounting

Normal Standards Can be achieved under normal operating conditions

Variance Analysis and Accounting

Sec 1_Ch-03_Sandard Costing.indd 3.2

Standard Costing 3.3

Controllable Which can be controlled by the departmental head

Sec 1_Ch-03_Sandard Costing.indd 3.3

Problems and Solutions: Advanced Management Accounting

AFOH Spending Variance BFOH Volume Variance

SH (D) Standard Hours

Graphical representation of xed overhead variances

Sec 1_Ch-03_Sandard Costing.indd 3.4

Standard Costing 3.5

or, Standard Price (Revised Actual Quantity Actual Quantity)

Sec 1_Ch-03_Sandard Costing.indd 3.5

Problems and Solutions: Advanced Management Accounting

Standard Material for 70 kg of Finished Products 100 kg

Data for Material Variance (2,10,000 kg)

material cost variance. Consumption per 100 Units of Product

Data for Material Variances

Sec 1_Ch-03_Sandard Costing.indd 3.6

Standard Costing 3.7 Statement of Variances

300 (Adverse) 500 (Adverse)

Material Usage Variance

Material Cost Variance

OR Material Cost Variance

Material A Material B Material C Total

Data for Material Variance

Material Usage Variance

Material Cost Variance

Sec 1_Ch-03_Sandard Costing.indd 3.7

Problems and Solutions: Advanced Management Accounting

Data of Material Variance

Data for Material Variance

157F 102 (A)

Sec 1_Ch-03_Sandard Costing.indd 3.8

Data for Material Variances

Material Usage Variance

Material Yield Variance

Material Mix Variance

22 (Adv.) 286 (Fav.)

Material Cost Variance

Sec 1_Ch-03_Sandard Costing.indd 3.9

2995 40 3 + 1150 2.5 _______________ = ` ____ 40 + 1150 = ` 2.5168

Actual production for December was 6,20,000 tiles.

Data for Material Variance

Material Usage Variance (M.U.V.)

Sec 1_Ch-03_Sandard Costing.indd 3.10

Standard Costing 3.11

Material Yield Variance

Material Cost Variance

Working Note Calculation of Budgeted No. of Tiles

Data for material variance

Material Usage Variance

Sec 1_Ch-03_Sandard Costing.indd 3.11

Problems and Solutions: Advanced Management Accounting

Data for Variance

= (30,050) = (17,940) = 1,550 46,440 (Adverse)

Sec 1_Ch-03_Sandard Costing.indd 3.12

Statement of Requirement 1. Material Mix Variance

2. Material Usage Variance

2995 40 3 + 1150 2.5 ___________ = ` 40 + 1150 = ` 2.5168