Standard is defined as a criterion or measure of acceptable cost performance.There are several ways to advise standards:

a. Engineering estimatesb. Observed estimatesc. Predicted estimatesd. Desired behavior

The standard cost may be defined as costs that should be reasonably incurred in the manufacture of a product. The main components of standard costs are:

1. Standard direct material2. Standard direct labour cost3. Manufacturing overheads

Basic differences between Standard Costing and Budgetary control are as follows :i. Standard costs are ascertained for material labour and overhead. Here the control of each element of cost is effected by comparing actual costs with standard costs of actual output. Whereas budgets are prepared for different functions like sales, production, capital assets etc. of business. Budgetary control here is concerned with the overall profitability and financial position of the business.ii. Range of standard costing is narrow as it is mainly confined to the control of production costs. But the range of budgeting is wider than that of standard costing. It in fact cover sales, capital and financial expenses as well.iii. Standard costing is confined to the projection of cost accounts only whereas budgetary control includes projection of financial accounts as well.iv. For exercising control, variances are computed in standard costing as well as budgetary control. But these variances are normally recorded in different cost accounts under standard costing whereas they are not revealed under budgets.v. Under standard various causes of variances in respect of each cost element can be analysed in minute detail and corrective action taken accordingly. Whereas budgetary control system deals with total expenses and revenues based on estimates.

Formulation:SQ, Standard usage of material per unitSP, Standard price of material per unitAO, Actual outputAQ, Actual usage of material per unitAP, Actual price of material per unit

MCV (material cost variance) = SQ*SP – AQ*APMPV (material price variance) = AQ*(SP – AP)MUV (material usage variance) = SP*(SQ – AQ)MMV (material mixed variance) = SP*(RSQ – AQ), where RSQ = TAQ*SQ/TSQMYV (material yield variance) = ASP*(SY – AY) where,

SY=TAQ*TO/TSQAY= Actual yieldAvg Std Price = TSC/TO

Q.1 The standard material cost for 100 kgs of chemical ‘X’ is made up of: Component A 30 kg @ Rs. 4 per kg; Component B 40 kg @ Rs. 5 per kg; and Component C 80 kg @ Rs. 6 per kg. In a batch, 500 kgs of chemical ‘X’ were produced from a mix of Component A 140 kgs (cost Rs. 688); 588

Component B 220 kgs (Rs. 1156); and 1056Component C 440 kgs. (Rs. 2660). 2860Calculate material variances. Solution:

X SP AP SQ AQ MCV (SP.SQ-AP.AQ)

MPV (SP-AP).AQ

MUV (SQ-AQ).SP

RSQ TAQ.SQ/TSQ

MMV (RSQ-AQ).SP

MYV (SY-AY).ASP

A 4 4.2 30 28 2.4 -5.6 8 32 16 10.6B 5 4.8 40 44 -11.2 8.8 -20 42.67 -6.65 -21.2C 6 6.5 80 88 -92 -44 -48 85.34 -15.96 -42.4T 5.3

*150 160 -100.8 -40.8 -60 -6.67 53.3*

*Average Standard Price = 4*30+5*40+6*80/30+40+80 = 800/150 = 5.33

Q.2 A Co. Ltd., manufactures a particular product the standard cost of which is as under: (Calculate variances).

Material Units Price AmountM1 100 2.00 Rs. 200M2 200 1.70 Rs. 340

Less Normal wastage300- 30

Production 270 Rs. 540Actual result in a period were as follows:

Material Units Price AmountM1 215 1.80 Rs. 387M2 385 2.00 Rs. 770

600Less wastage -70Production 530 Rs. 1157

Solution:

X SP AP SQ SQ* (530.SQ/270)

AQ MCV (SP.SQ*-AP.AQ)

MPV (SP-AP).AQ

MUV (SQ* -AQ).SP

RSQ TAQ.SQ/TSQ

MMV (SQ-AQ).SP

MYV (SY-AY).ASP

1 2 1.8 100 196.3 215 5.6 43 -37.4 -302 1.7 2 200 392.6 385 -102.58 -115.5 12.92 25.5T 1.8

*300 588.9 600 -96.98 -72.5 -24.48 -4.5

L -30 -58.8 -70

T 270 530 530 1.8* (588.9-600)= 19.98

*Average Standard Price = 2*200+1.7*400/200+400 = 1080/600 = 1.8

Q.3 The standard set for a chemical mixture of a firm is: Material Standard Mix. St. price per tonne

A 40% Rs. 20B 60% Rs. 30

The standard loss is 10 per cent. During a period 182 tonnes of output were produced from A 90 tonnes (Rs. 18 per tonne) and B 110 tonnes (Rs. 34 per tonne). Calculate variance. Solution:

X SP AP SQ SQ* (182.SQ/90)

AQ MCV (SP.SQ*-AP.AQ)

MPV (SP-AP).AQ

MUV (SQ* -AQ).SP

RSQ TAQ.SQ/TSQ

MMV (SQ-AQ).SP

MYV (SY-AY).ASP

A 20 18 80 80.89 90 -2.2 180 -182.2 -200B 30 34 120 121.33 110 -101.1 -440 339.9 300T 26 200 202.22 200 -102 -260 157.7 100L 20 20.22 18 26*(2

02.2-200)=57.72

T 180 182 182

*Average Standard Price = 20*80+30*120/200 = 26

Q.4 A Co. manufactures a special tile of 12”×8”×½” size. The standard mix of material used is as follows: 1200 kgs A @ 30 paise per kg 500 kg B @ 60 paise per kg and 800 kg C @ 70 paise per kg. The mix should produce 12,000 square feet of tiles of ½’’thickness. During a period, 1,00,000 tiles were produced from a mix of the following:7000 kg A (paise 32 per kg); 3000 kg B (paise 65 per kg); and 5000 kg. C (paise 75 per kg). Compute variances. Solution:Area of tile = 12/12*8/12 = 96*144 = 2/3Number of tiles for 12000 sq ft of area = 12000/2/3 = 18000 tiles

X SP AP SQ SQ* 1 lakh/18

AQ MCV (SP.SQ*

MPV (SP-

MUV (SQ*

RSQ TAQ.SQ

MMV (RSQ-

MYV (SY-

000 -AP.AQ)

AP).AQ -AQ).SP /TSQ AQ).SP AY).ASP

A .30 .32 1200 6666.67 7000 -240 -140 -99.99 7200 200B .60 .65 500 2777.77 3000 -283.338 -150 -133.38 3000 0C .70 .75 800 4444.44 5000 -638.892 -250 -388.89 4800 200T .

488*

2500 13888.89

15000

-1162 -540 -622 -80 0.488 (15000-13888.89)

# 1 lakh

*Average Standard Price = 0.3*1200+0.6*500+0.7*800/2500 = .488

Q.5 The standard set for output of a company is as under: Material Standard Mix Standard price per kg.

A 40% Rs. 4B 60% Rs. 3

The standard loss is 15 per cent of input. During April 2007, the company produced 1,700 kgs of finished output. The materials details are given below:

Material Opening Stock Closing Stock Purchase in AprilA 35 kg. 5 kg. 800 kg. Rs. 3,400B 40 kg. 50 kg. 1,200 kg. Rs. 3,000

Solution:

X SP AP SQ AQ MCV (SP.SQ-AP.AQ)

MPV (SP-AP).AQ

MUV (SQ-AQ).SP

RSQ TAQ.SQ/TSQ

MMV (RSQ-AQ).SP

MYV (SY-AY).ASP

A 4 4.25

800 830 (35+795)

-327.5 -207.5 -120 808 -88

B 3 2.5 1200 1190 (40+1150)

625 595 30 1212 66

L 3.4 300 320 297.5 387.5 -90 2020 -22T 2000 2020 3.4*(300

-320) = 68

Net Actual Product = 1700 kgsIt is extent to 85%100 % Actual Output = 1700*100/85 = 2000Material used = Opening Stock + Purchase - Closing StockActual Material for A = 35 + 800 – 5 = 830 kg

Actual Material for B = 40 + 1200 – 50 = 1190 kgStandard Quantity for A = 2000*40/100 = 800 kgStandard Quantity for B = 2000*60/100 = 1200 kg

Cost of Actual Material for A = 3400/800 = 4.25Cost of Actual Material for B = 3000/1200 = 2.5

Q.6 A gang of workers normally consists of 30 men, 15 women and 10 boys. The standard hourly labour rates are – Men: 80 paise, Women: 60 paise, and boys: 40 paise. In a normal week of 40 hours, the gang is expected to produce 2000 unit of output. During the week ended December 31, 2007, the gang consisted of 40 men, 10 women and 5 boys. The actual wage rates were 70 paise, 65 paise, and 30 paise respectively. 4 hours were lost due to power breakdown, Actual output 1600 units. Compute labour variances. Solution:ATW = 40*36+10*36+5*36 = 1980SM for Men = 30*1980/(40+10+5) = 30*1980/55 =1080SM for Women = 15*1980/(40+10+5) = 15*1980/55 = 540SM for Boy = 10*1980/(40+10+5) = 10*1980/55 =360STAP = 40*1600/2000 = 32

Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATPMen 0.80*30*32 0.80*1080 0.80*40*36 0.80*40*40 0.70*40*40Women 0.60*15*32 0.60*540 0.60*10*36 0.60*10*40 0.65*10*40Boys 0.40*10*32 0.40*360 0.40*5*36 0.40*5*40 0.30*5*40Total 1184 1332 1440 1600 1440LEV = A-B = -148LMV = B-C = -108LITV = C-D = -160LRV = D-E = 160LCV = A-E = -256

Q.7 A gang of workers normally consists of 10 skilled, 5 semi-skilled and 5 unskilled workers paid at standard hourly rates 75p, 50p, and 40p respectively. In a normal working week of 40 hours the gang is expected to produce 1,000 unit of output. In a certain week, the gang consisted of 13 skilled, 4 semi-skilled and 3 unskilled workers and produced 1,000 units. Actual wages Rs. 450. Actual hours worked 720. Assuming that each worker worked the same hours, compute variances. Solution:ATW = 720; Each worker has worked for 710/20 = 36 hoursSM for skilled = 10*720/20 = 360SM for semi-skilled = 5*720/20 = 180SM for unskilled = 5*720/20 = 180STAP = 40*1600/2000 = 32

Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATPskilled 0.75*10*40 0.75*360 0.75*13*36 0.75*13*40semi-skilled 0.50*5*40 0.50*180 0.50*4*36 0.50*4*40unskilled 0.40*5*40 0.40*180 0.40*3*36 0.40*3*40Total 480 432 466.2 518 450LEV = A-B = 48LMV = B-C = -34.2LITV = C-D = -51.8LRV = D-E = 68

LCV = A-E = 30

Q.8 The standard labour and actual labour engaged in a week for a job are as under: Skilled Semi-skilled Unskilled

Standard No. of workers 32 12 6Standard hourly Rate (Rs.) 3 2 1Actual No. of workers 28 18 4Actual Hourly Rate (Rs.) 4 3 2During the 40 hour working week, the gang produced 1,800 standard labour hours of work. Compute variances. Solution:ATW = 28*40+18*40+4*40 = 2000SM for skilled = 32*2000/50 = 1280SM for semi-skilled = 12*2000/50 = 480SM for unskilled = 6*2000/50 = 240STAP = 1800/2000 = 0.9

Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATPSkilled 3*32*0.9*40 3*1280 3*28*40 3*28*40 4*28*40semi-skilled 2*12*0.9*40 2*480 2*18*40 2*18*40 3*18*40unskilled 1*6*0.9*40 1*240 1*4*40 1*4*40 2*4*40Total 4536 5040 4960 4960 6960LEV = A-B = -504LMV = B-C = 80LITV = C-D = 0LRV = D-E = -2000LCV = A-E = -2424

Q.9 In a factory, 100 workers are engaged and an average rate of wages is Rs. 5 per hour. Standard working hours per week are 40 hours and the standard output is 10 units per hour. During a week in February, wages were paid for 50 workers @ Rs. 5 per hour, 10 workers @ Rs. 7 per hour and 40 workers @ Rs. 4 per hour. Actual output was 380 units. The factory did not work for 5 hours due to breakdown of machinery.Calculate – (i) Labour cost variance; (ii) Labour rate variance; (iii) Labour efficiency variance; and (iv) Idle time variance.Solution:ATW = 50*35+10*35+40*35 = 3500STAP = 380/400 = 0.95

Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATPSkilled 5*50*35 5*50*40 5*50*40semi-skilled 5*10*35 5*10*40 7*10*40Unskilled 5*40*35 5*40*40 4*40*40Total 5*100*0.95*40=19000 5*3500 =17500 17500 20000 19200LEV = A-B = 1500 (F)LMV = B-C = 0LITV = C-D = -2500 (A)LRV = D-E = 800 (F)LCV = A-E = -200 (A)

Q.10 The standard labour – mix for producing 100 units of product is: 4 skilled men @ Rs. 3 per hour for 20 hours 6 unskilled men @ Rs. 2 per hour for 20 hours

But due to shortage of skilled men, more unskilled men were employed to produce 100 units. Actual hours paid for were: 2 skilled men @ Rs. 4 per hour for 25 hours 10 unskilled men @ Rs. 2.50 per hour for 25 hours. Calculate labour variances.Solution:ATW = 2*25+10*25 = 300SM for skilled = 0.4*300/12 = 100SM for unskilled = 0.6*300/12 = 150STAP =

Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATPSkilled 3*4*20 3*0.4*300 3*2*25 3*2*25 4*2*25Unskilled 2*6*20 2*0.6*300 2*10*25 2*10*25 2.5*10*25Total 480 720 650 650 825LEV = A-B = 240 (A)LMV = B-C = 70 (F)LITV = C-D = 0 LRV = D-E = -175 (A)LCV = A-E = -345 (A)