Standard Costing

Material Quantity Variance

FormuDifference between Standard and Actual Quantity x Standard Rate

1 Standard quantity allowed for production

(per unit consumption x actual units)

2 Actual quantity used in production

Difference - Standard Rate

Material quantity variance -

Material Price Variance

FormuDifference between Standard and Actual rate x Actual quantity purchased or issued

Standard rate for purchases

Actual rate on purchases

Difference - Actual Quantity purchase / issue

Material price variance -

Labour hour/ efficency Variance

FormuDifference between Standard and Actual hours x Standard Rate

Standard hours allowed for production

(per unit hour consumption x actual units)

Actual hours used in production

Difference

Standard Rate

Labour hour/ efficency Variance -

Labour Wage Variance

FormuDifference between Standard and Actual rate x Actual hours used

Standard rate for payment of labour

Actual rate paid to labour

Difference Actual hours used

Labour Price Variance

Fatory over head VarianceImportant:Controllable variance = Spending variance + Variable portion of efficiency varianceVolume variance = Idle capacity + Fixed portion of efficiency variance.

2 - Variance method

1 Controllable Variance

a) Actual factory overhead

I) Fixed FOH 20,000

II) Variable FOH 19,250 39,250

b) Budgeted Factory overhead

I) Fixed budgeted overhead 20,000

II) Variable budgeted OH

(Standard hours allowed x 11,000

Variable per unit rate) 1.50 16,500 36,500

CONTROLLABLE VARIANCE UF 2,750

2 Volume Variance

a) Budget FOH 36,500

b) Standand Factory Overhead

Standard hours allowed x 11,000

Total Standard Factory overhead rate 3.50 38,500

VOLUME VARIANCE Fav 2,000

OR

a) Budget FOH


II) Variable budgeted OH

(Standard hours allowed x 4,500


b) Standand Factory Overhead


0.90 4,050

II) Variable budgeted OH 4,500

1.50 6,750 10,800

Uf 15,950 OR

VolumeVariance = 500 hours x 0.90 = 450 UF

VolumeVariance = Difference b/w STd. Hours and normal capacity x F.FOH rate

3 - Variance method1 Spending Variance

a) Actual amount of factory overhead

I) Fixed FOH 20,000

II) Variable FOH 19,250 39,250

b) Budget FOH allowance based in actual hours

I) Fixed budgeted overhead

II) Variable budgeted OH 20,000

(Actual hours x 13,750


Spending Variance Fav 1,375

2 Idle Capacity Variance

a) Budget FOH based in Actual hours 40,625

b) Standard Overhead charged to productionActual hours x 13,750


Idle Capacity Variance Fav 7,500

3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)

Actual hours allowed x 13,750


b) Overhead charged to production (Based on Standard hours)

Standard hours allowed x 11,000


Efficiency Variance UF 9,625

4 - Variance method

1 Spending Variance

a) Actual amount of factory overhead

I) Fixed FOH

II) Variable FOH -

b) Budget allowance based on actual hours

I) Fixed budgeted overheadII) Variable budgeted OH

(Actual hours x

Variable per unit rate) - -

Spending Variance -

2 Variable Efficiency Variance:

Budget allowance based on actual hours -

Budget allowance based on Standard hours allowed -

Variable Efficiency Variance: -

3 Fixed Efficiency Variance:

Actual hours x Fixed FOH rate -

Standard hours allowed x Fixed FOH rate -

Fixed Efficiency Variance: -


Normal Capacity hours x Fixed FOH rate -

Actual hours worked x Fixed FOH rate -

Idle Capacity Variance -

Expected Yeild or Input ratio = Output / Input x 100

Material Price Variance - at different materials:

Calculate the material price variance for each material by same procedure.

Material A (Difference b/w std and actual rate) x actual qty purchase or used for Material A

Material B (Difference b/w std and actual rate) x actual qty purchase or used for Material B

Material C (Difference b/w std and actual rate) x actual qty purchase or used for Material CMATERIAL PRICE VARIANCE

Material Mix Variance

Formula (Difference b/w actual qty used and actual qty at std mix) x Standard price

Material Actual Standard Actual Qty Variance Quantity used Mix % at Std. mix

Gum Base 157,000 66.67 154,000 3,000 unfav

Corn Syrup 38,000 16.67 38,500 500 fav

Sugar 36,000 16.67 38,500 2,500 fav 231,000 100 231,000 MATERIAL MIX VARIAN

Expected Yeild = Output / Input

Expected Yeild = 1000 = 0.8333 Therefore;1200 Normal loss = 1 - Expected yeild

or Normal loss = 1 - 0.8333Output = Input x Expected yeild Normal loss = 0.1667

1200 x 0.8333Abnormal loss - when loss is more 0.1667

Output = 1000 lbsAbnormal gain - when loss is less than 0.1667

or

Input = Output / Expected yeild1000 / 0.8333

Input = 1200 lbs

Material Yeild Variance Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std average material rate

Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price

Material Actual Qty Standard Std. Qty at Variance at Std. mix Mix % Std. Mix

Gum Base 154,000 66.67 160,000 6,000 Fav

Corn Syrup 38,500 16.67 40,000 1,500 Fav

Sugar 38,500 16.67 40,000 1,500 Fav 231,000 100 240,000 MATERIAL yeild VARIAN

Actual production / Expected yeild =200,000 lbs / 0.83333

Std. QTY 240,000

Material Quantity Variance:

Material mix variance 300 UMaterial yeild variance 2250 Fav

MQV 1950 FavORMaterial Quantity Variance:

Material Actual QTY Std. Qty Variance Std. at actual mix at Std. mix rate

Gum Base 157,000 160,000 3,000 Fav 0.25

Corn Syrup 38,000 40,000 2,000 Fav 0.40

Sugar 36,000 40,000 4,000 Fav 0.10 231,000 240,000 MQV

Labour Efficiency Variance

(20 / 1000 units = 0.02 hours per units x 192,500 Expected Output)

Actual hours used DifferenceStd. RateLabor Efficiency Variance

Labour Rate Variance:Standard rateActual rate (23,104 / 3,800 hours)

DifferenceActual hoursLabor Rate Variance

Labour Yeild Variance:Standard hours allowed for Expected Output(20 / 1000 units = 0.02 hours per units x 192,500 Expected Output)

Standard hours allowed for Actual output(20 / 1000 units = 0.02 hours per units x 200,000 Actual Output)

DifferenceStd. RateLabour Yeild Variance:

LYV (Difference b/w Expected output and actual output x per unit hour cons.) x Std. Rate

FACTORY OVERHEAD VARIANCE:

3 - Variance method

1 Spending Variancea) Actual amount of factory overhead

Fixed FOHVariable FOH

Std. Hours allowed for Expected Output

b) Budget allowance based in actual hours Fixed budgeted overheadVariable budgeted OH(Actual hours x 3800Variable per unit rate) 2

Spending Variance

Fixed FOH = 4,000 hours x 3= 12,000

2 Idle Capacity Variancea) Budget allowance based in Actual hours

b) Overhead charged to productionActual hours x 3800Total Standard Factory overhead rate 5

Idle Capacity Variance

3a) Overhead charged to production (Based on Actual hours)Actual hours worked x 3800Total Standard Factory overhead rate 5

b) Overhead charged to production (Based on Standard hours)Standard hours allowed x 4000Total Standard Factory overhead rate 5

Efficiency Variance

FOH EFFICIENCY VARIANCE:

Overhead charged to production - Based on Actual hours:Actual hours allowed x 3800Total Standard Factory overhead rate 5

Overhead charged to production - Based on Std. Hours on Expected output:Std. hours allowed on expected output x 3850Total Standard Factory overhead rate 5


Efficiency Variance (TOTAL)

FOH YEILD VARIANCE:

Overhead charged to production - Based on Std. Hours on Expected output:Std. hours allowed on expected output x 3850Total Standard Factory overhead rate 5

Overhead charged to production - Based on Std. Hours on Actual output:Std. hours allowed on Actual output x 4000Total Standard Factory overhead rate 5

FOH YEILD VARIANCE:

(Difference b/w std and actual rate) x actual qty purchase or used for Material A xxx

(Difference b/w std and actual rate) x actual qty purchase or used for Material B xxxx

(Difference b/w std and actual rate) x actual qty purchase or used for Material C xxxMATERIAL PRICE VARIANCE xxxx

Standard price Material Mix Variance

0.25 750 unfav

0.40 200 fav

0.10 250 fav MATERIAL MIX VARIAN 300 unfav

Abnormal loss - when loss is more 0.1667

Abnormal gain - when loss is less than 0.1667

Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std average material rate

Standard price Material yeild variance

0.25 1,500 Fav

0.40 600 Fav

0.10 150 Fav MATERIAL yeild VARIAN 2,250 Fav

Material QtyVariance

750

800

400 1,950

3,850

3800 50 Fav

6300 Fav

66.08

0.08 U3800

304 U

3,850

4,000

150 6

900 Fav

(Difference b/w Expected output and actual output x per unit hour cons.) x Std. Rate

12,000 10,000 22,000

12,000

7,600 19,600 2,400 UNFAV.

19,600

19,000 Idle Capacity Variance 600 UnFav.

19,000

20,000 1,000 Fav

19,000

Overhead charged to production - Based on Std. Hours on Expected output:

19,250 FOH EFFICIENCY VARIANCE: 250 Fav


19,250

Overhead charged to production - Based on Std. Hours on Actual output:

20,000 FOH YEILD VARIANCE: 750 Fav

Sol of Ex - 1


Formula: Difference between Standard and Actual Quantity x Standard Rate

Standard quantity allowed for production(7,200 Chairs x 12 m per chair) 86,400 meters

Actual quantity used in production 87,300 meters

Difference 900 UF Standard Rate 0.80

Material quantity variance 720 UF


Formula: Difference between Standard and Actual rate x Actual quantity purchased

Standard rate for purchases 0.80 Actual rate on purchases 0.78

Difference 0.02 F Actual Quantity purchased 100,000

Material price variance 2,000 F

Difference between Standard and Actual Quantity x Standard Rate

Difference between Standard and Actual rate x Actual quantity purchased

Solution of Ex-2

Material Price Variance (At the time of purchases)


Standard rate for purchases 3.65

Actual rate on purchases 3.60

Difference 0.05 F Actual Quantity purchase 2,000

Material price variance 100 F

Material Price Variance (at the time of issue)

Difference between Standard and Actual rate x Actual quantity ISSUE


Difference 0.05 F Actual Quantity issued 1,775

Material price variance 89 F


Difference between Standard and Actual rate x Actual quantity ISSUE

Solution of Ex -3


Difference between Standard and Actual hours x Standard Rate

Standard hours allowed for production(2,000 units x 0.80 hours) 1,600 Actual hours used in production 1,580

Difference 20 F Standard Rate 6.75

Labour hour/ efficency Variance 135 F


Difference between Standard and Actual rate x Actual hours used

Standard rate for payment of labour 6.75 Actual rate paid to labour 6.90

Difference 0.15 u Actual hours used 1,580

Labour Price Variance 237 u

Difference between Standard and Actual hours x Standard Rate


Solution of Ex -4

Fatory over head Variance2 - Variance method

1 Controllable Variancea) Actual amount of factory overhead Rs. 11,000

Fixed FOH 4,500 Variable FOH 6,500

b) Budget allowance based in standard hours allowedFixed budgeted overhead 4,500 Variable budgeted OH(Standard hours allowed x 4,500 Variable per unit rate) 1.50 6,750

CONTROLLABLE VARIANCE

2 Volume Variancea) Budget allowance based in standard hours allowed

b) Standard Overhead charged to productionStandard hours allowed x 4,500 Total Standard Factory overhead rate 2.40

VOLUME VARIANCE

3 - Variance method



b) Budget allowance based in actual hours workedFixed budgeted overhead 4,500 Variable budgeted OH(Actual hours worked x 4,400

Variable per unit rate) 1.50 6,600 Spending Variance

2 Idle Capacity Variancea) Budget allowance based in Actual hours allowed

b) Overhead charged to production (Based on Actual hours)Actual hours allowed x 4,400 Total Standard Factory overhead rate 2.40


3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)Actual hours allowed xTotal Standard Factory overhead rate

b) Overhead charged to production (Based on Standard hours)Standard hours allowed x 4,500 Total Standard Factory overhead rate 2.40

Efficiency Variance

4 - Variance method



b) Budget allowance based on actual hours Fixed budgeted overhead 4,500 Variable budgeted OH(Actual hours x 4,400 Variable per unit rate) 1.50 6,600

Spending Variance


Budget allowance based on actual hours

Budget allowance based on Standard hours allowed

Variable Efficiency Variance:

Proof ORDifference between actual hours and Standard hours x variable FOH rate

(4500 hours std. - 4400 hours actual) x 1.50

(100 hours Fav x 1.50)

Rs. 150 Fav.


Actual hours x Fixed FOH rate (4,400 hours x 0.90)

Standard hours allowed x Fixed FOH rate (4,500 hours x 0.90)

Fixed Efficiency Variance:

Proof ORDifference between actual hours and Standard hours x Fixed FOH rate



Rs. 90 Fav.


Normal Capacity hours x Fixed FOH rate (5,000 hours x 0.90)

Actual hours worked x Fixed FOH rate (4,400 hours x 0.90)


Proof ORDifference between actual hours and Normal capacity hours x Fixed FOH rate


(600 hours Unfav x 0.90)

Rs. 540 Unfav.

Example

2 - Variance method

1 Controllable Variancea) Actual amount of factory overhead





Fixed budgeted overhead 4,500 Variable budgeted OH(Standard hours allowed x 4,500 Variable per unit rate) 1.50 6,750

b) Standard Factory overheadFixed FOH (4,500 x 0.90) 4,050 Variable FOH (4,500 x 1.50) 6,750

VOLUME VARIANCE

1 Spending Variancea) Actual factory overhead

Fixed FOH 4,500 Variable FOH 6,500 11,000

b) Budgeted FOHFixed budgeted overhead 4,500 Variable budgeted OH(Actual hours worked x 4,400 Variable per unit rate) 1.50 6,600 11,100

Spending Variance 100

2 Idle Capacity Variancea) Budgeted FOH

Fixed budgeted overhead 4,500 Variable budgeted OH(Actual hours worked x 4,400 Variable per unit rate) 1.50 6,600 11,100

b)Standard FOHFixed FOH (4,400 hours x 0.90) 3,960 Variable FOH (4,400 hours x 1.50) 6,600 10,560

Idle Capacity Variance 540

3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)Actual hours allowed x 4,400 Total Standard Factory overhead rate 2.40 10,560

b) Overhead charged to production (Based on Standard hours)Standard hours allowed x 4,500 Total Standard Factory overhead rate 2.40 10,800

Efficiency Variance 240

4 - Variance method


Fixed FOHVariable FOH 11,000

b) Budget allowance based on actual hours Fixed budgeted overhead 4,500 Variable budgeted OH

(Actual hours x 4,600 Variable per unit rate) 1.50 6,900 11,400

Spending Variance 400


Proof ORDifference between actual hours and Standard hours x variable FOH rate


(100 hours UF x 1.50)

Rs. 150 UF


Actual hours x Fixed FOH rate (4,400 hours x 0.90) 4,140

Standard hours allowed x Fixed FOH rate (4,500 hours x 0.90) 4,050

Fixed Efficiency Variance: (90)




Rs. 90 Fav.


Normal Capacity hours x Fixed FOH r (5,000 hours x 0.90) 4,500

Actual hours worked x Fixed FOH rate (4,400 hours x 0.90) 3,960

Idle Capacity Variance 540

Proof ORDifference between actual hours and Normal capacity hours x Fixed FOH rate


(600 hours Unfav x 0.90)

Rs. 540 Unfav.

Example

Fatory over head Variance

11,000

11,250 (250) F

11,250

10,800 (450) U

11,000

11,100 (100) F

11,100

10,560 (540) U

10,560

10,800 (240) F

11,000

11,100 100 Fav

11,100

11,250

150 Fav

Difference between actual hours and Standard hours x variable FOH rate

3,960

4,050

90 Fav

4,500

3,960

540 Unfav

Difference between actual hours and Normal capacity hours x Fixed FOH rate

11,000

11,250 250 F

11,250

10,800 450 UF

Fav

UF

Fav

UF

UF

Unfav


FormulaDifference between Standard and Actual Quantity x Standard Rate

Standard quantity allowed for production(per unit consumption x actual units)(2 kgs x 7000 units) 14,000

Actual quantity used in production 14,400

Difference 400 U Standard Rate 0.50

Material quantity variance 200 U


FormulaDifference between Standard and Actual rate x Actual quantity purchased or issued


Difference 0.01 U Actual Quantity used 14,400

Material price variance 144 U


FormulaDifference between Standard and Actual hours x Standard Rate

Standard hours allowed for production(per unit hour consumption x actual units)(10,000 hours / 8,000 units = 1.25 x 7000) 8,750 Actual hours used in production 9,000

Difference 250 U Standard Rate 9

Labour hour/ efficency Variance 2,250 U


FormulaDifference between Standard and Actual rate x Actual hours used

Standard rate for payment of labour 9.00 Actual rate paid to labour

(76,500 / 9,000 hours) 8.50 Difference 0.50 F Actual hours used 9,000

Labour Price Variance 4,500 F




b) Budget allowance based in standard hours allowedFixed budgeted overhead 5,000 Variable budgeted OH(Standard hours allowed xVariable per unit rate)(1.25 hours x 7000 units = 8750 hours x 1.50) 13,125



b) Overhead charged to productionStandard hours allowed xTotal Standard Factory overhead rate

(1.25 hours x 7000 units x 2)VOLUME VARIANCE

OR (Difference b/w Std time and Normal Capacity) x Fixed cost rate

(1,250 hours x 0.50)= Rs. 625

3 - Variance method



b) Budget allowance based in actual hours Fixed budgeted overhead 5,000 Variable budgeted OH(Actual hours xVariable per unit rate)(9,000 hours x 1.50) 13,500

Spending Variance


b) Overhead charged to productionActual hours xTotal Standard Factory overhead rate

(9,000 hours x 2)

Idle Capacity VarianceOR (Difference b/w Actual time and Normal Capacity) x Fixed cost rate

(1,000 hours x 0.50)= Rs.500

3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)Actual hours worked xTotal Standard Factory overhead rate

(9,000 hours x 2)

b) Overhead charged to production (Based on Standard hours)Standard hours allowed xTotal Standard Factory overhead rate

(1.25 hours x 7000 units = 8,750 hours x 2)Efficiency Variance

4 - Variance method



b) Budget allowance based in actual hours Fixed budgeted overhead 5,000 Variable budgeted OH(Actual hours xVariable per unit rate)(9,000 hours x 1.50) 13,500

Spending Variance


b) Overhead charged to productionActual hours xTotal Standard Factory overhead rate

(9,000 hours x 2)

Idle Capacity VarianceOR (Difference b/w Actual time and Normal Capacity) x Fixed cost rate

(1,000 hours x 0.50)= Rs.500


Budget allowance based on actual hours Actual hours x Variable FOH rate

Budget allowance based on Standard hours allowed Standard hours allowed x Variable FOH rate

Variable Efficiency Variance:


Budget allowance based on actual hours Actual hours x Fixed FOH rate

Budget allowance based on Standard hours allowed Standard hours allowed x Fixed FOH rate

Fixed Efficiency Variance:

Difference between Standard and Actual Quantity x Standard Rate

Difference between Standard and Actual rate x Actual quantity purchased or issued



17,550

18,125

575 F

18,125

17,500 (625) U

17,550

18,500

950 F

18,500

18,000 - 500 U

(Difference b/w Actual time and Normal Capacity) x Fixed cost rate

18,000

17,500 500 U

17,550

18,500

950

-

18,000 - (18,000)

(Difference b/w Actual time and Normal Capacity) x Fixed cost rate

-

-

-

-

-

Quantity Schedule:

Units in process (at start) 80 units (all material, 50% conversion) Units put in to process 7,850 units

Total 7,930 units

Units completed & tansferred out 7,830 units Units in process (at end) 100 units (all material, 50% conversion)

7,930 units

Equivalent Production Unit Material Conversion

Units completed & transferred out 7,830 7,830 Less: Opening stock (80) (80)

Unit started & completed 7,750 7,750 Add: Opening stock - work this period - 40 Add: Closing stock - work this period 100 50

EPU 7,850 7,840



Standard quantity allowed for production(7,850 units x 24 kgs per unit) 188,400


Difference 4,010 UF Standard Rate 3

Material quantity variance 12,030 UF


Formula: Difference between Standard and Actual rate x Actual quantity used

Standard rate for purchases 3 Actual rate on purchases 3.04

Difference 0.04 Actual Quantity 192,410

Material price variance 7,696.40 UF

Labour hour/ efficency VarianceFormula: Difference between Standard and Actual hours x Standard Rate

Standard hours allowed for production(7,840 units x 6 hours per unit consumption) 47,040

Actual hours used in production 46,830

Difference 210 F Standard Rate 6.50

Labour hour/ efficency Variance 1,365 F

Labour Price VarianceFormula: Difference between Standard and Actual rate x Actual hours used


Difference 0.10 UF Actual hours used 46,830

Labour Price Variance 4,683 UF

UF






Note: Standard hours allowed = 7,840 units x 6 =47,040 hours Standard variable rate = Rs. 22,500 / 45,000 hours = 0.50


b) Overhead charged to productionStandard hours allowed x 47,040 Total Standard Factory overhead rate 0.75

VOLUME VARIANCE

Note: Total FOH rate = Rs. 33,750 / 45,000 hours = 0.75

3 VARIANCE:



b) Budget allowance based in actual hours workedFixed budgeted overhead 11,250 Variable budgeted OH(Actual hours worked x 46,830 Variable per unit rate) 0.50 23,415

Spending Variance

2 Idle Capacity Variancea) Budget allowance based in Actual hours allowed

b) Overhead charged to production (Based on Actual hours)Actual hours allowed x 46,830 Total Standard Factory overhead rate 0.75


3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)Actual hours allowed xTotal Standard Factory overhead rate

b) Overhead charged to production (Based on Standard hours)Standard hours allowed x 4,500 Total Standard Factory overhead rate 2.40

Efficiency Variance

4 - Variance method


Proof

Difference between actual hours and Standard hours x variable FOH rate

(47,040 hours std. - 46,830 hours actual) x 0.50

(210 hours F x 0.50)

105 Fav



(47,040 hours std. - 46,830 hours actual) x 0.25

(210 hours F x 0.25)

52.5 Fav

Controllable variance = Spending variance + Variable portion of efficiency variance=1,675 UF + 105 F = 1570 UF

Volume variance = Idle capacity + Fixed portion of efficiency variance. = 457.5 F + 52.5 F = 510 F

units (all material, 50% conversion)

units (all material, 50% conversion)

Difference between Standard and Actual rate x Actual quantity used


36,340

34,770 1,570 U

Standard variable rate = Rs. 22,500 / 45,000 hours = 0.50

34,770

35,280 510 F

36,340

34,665

1,675 UF

34,665

35,123 458 FAV

35,123

35,280 (158) Fav

Expected Yeild or Input ratio = Output / Input x 100



Material A (Difference b/w std and actual rate) x actual qty purchase or used for Material A

Material B (Difference b/w std and actual rate) x actual qty purchase or used for Material B

Material C (Difference b/w std and actual rate) x actual qty purchase or used for Material C

MATERIAL PRICE VARIANCE



Material Actual Standard Actual Qty Variance Quantity use Mix % at Std. mix

Material A 1,500 33.33 1,600 100 Fav

Material B 3,300 66.67 3,200 100 Unfav

4,800 100 4,800 MATERIAL MIX VA


Expected Yeild = 8000 2.66666666673000

orOutput = Input x Expected yeild

3000 x 2.667Output = 8001

orInput = Output / Expected yeild 10,000 / 2.667

8000/2.667 3750 InputInput = 3000 4800 Actual Input

1,050 x 0.30315

Material Yeild Variance



Material Actual Qty Standard Std. Qty at Variance

at Std. mix Mix % Std. Mix

A 1,600 33.33 1,250 (350) Unfav

B 3,200 66.67 2,500 (700) Unfav

4,800 100 3,750 MATERIAL yeild V

Std. Qty allowed = Actual production / Expected yeild 10,000 / 2.667

Std. Qty allowed 3750

(Difference b/w std and actual rate) x actual qty purchase or used for Material A xxx

(Difference b/w std and actual rate) x actual qty purchase or used for Material B xxxx

(Difference b/w std and actual rate) x actual qty purchase or used for Material C xxx

MATERIAL PRICE VARIANCE xxxx


Standard Material Mix Price Variance

0.10 10.00 Fav

0.40 40.00 Unfav

MATERIAL MIX VA 30.00 unfav

1,050 x 0.30



Standard Material yeild

Price variance

0.10 (35) Unfav

0.40 (280) Unfav

MATERIAL yeild V (315) Unfav

Actual consumption Standard consumption for 12,500 FG: Kgs Rate

A 8,750 0.056 A 1,500 0.0600 B 3,750 0.380 B 625 0.4000 C 6,250 0.280 C 1,000 0.2500

18,750 0.716 3,125 0.710

Input rate = Output rate =


Expected Yeild = 12,500 4 tubes per kg 3,125

or Output = Input x Expected yeild

3125 x 4 Output = 12,500

or Input = Output / Expected yeild

12500 / 4 Input = 3,125

For actual output (77,500 tubes), Standard input as per expected yeild Input = Output / Expected yeild Input = 77,500 / 4

Input = 19,375 Standard input allowed for actual production

Actual input = 18,750 Variance 625 Fav

Material Yeild variance = 625 fav input x input rate 0.1888 Material Yeild variance = 118 Fav

METHOD NO.2: Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std material rate (Output rate)

Expected output as per expected yeild:

Output = Input x Expected yeild

Output = 18,750 kgs x 4 tubes per kg

Output = 75,000

Expected output as per expected yeild Actual output

Difference Std. material output average rate MATERIAL YEILD VARAINCE



Material Actual Standard Actual Qty Variance Qty used Mix % at Std. mix

Material A 8,750 48 9,000 250 Fav

Material B 3,750 20 3,750 -

Material C 6,250 32 6,000 250 Unfav 18,750 100 18,750 MATERIAL MIX VARIANCE





A 9,000 48 9,300 300 Fav

B 3,750 20 3,875 125 Fav

C 6,000 32 6,200 200 Fav 18,750 100 19,375 MATERIAL yeild VARIANCE

Std. Qty allowed = Actual production / Expected yeild 77,500 / 4

Std. Qty allowed 19,375

Std. mixing ratio 90 0.48 250 0.20 250 0.32 590 1

0.1888 per kg 0.0472 per tube

Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std material rate (Output rate)

75,000 77,500 2,500 Fav 0.05 118 Fav



0.060 15 Fav

0.400 -

0.250 63 unfav MATERIAL MIX VARIANCE 48 unfav



Standard Material yeild Price variance

0.06 18 Fav

0.40 50 Fav

0.25 50 Fav MATERIAL yeild VARIANCE 118 Fav

Required no.1: Standard quantity allowed of material:

Actual production 4,000 units Per unit standard consumption of material 6 lbs

Standard quantity allowed 24,000 lbs

Required no.2: Actual quantity used of material:

Standard quantity allowed 24,000 lbs add: unfavourable quantity variance 1,000 lbs

Actual quantity used 25,000 lbs

Required no. 3: Standard hours allowed:

Actual production 4,000 units Per unit standard consumption of labour 1 hour

Standard hours allowed 4,000 hours

Required no. 4: Actual hours worked:

Standard hours allowed 4,000 hours Less: Favourable labour efficiency variance (200) hours

Actual hours allowed 3,800 hours

Note: Favourable hours = Rs. 800 efficiency variance / Rs. 4 per hour = 200 hours

Required no. 5: Actual direct labour rate:

Standard direct labor rate 4 Add: unfavourable labor rate variance 0.20

Actual direct labour rate 4.20

Note: Unfavourable rate = Rs. 760 labor rate variance / 3,800 actual hours worked

= 0.20

Required no. 6: Actual Factory overhead

Standard factory overhead (4,000 units actual production x Rs. 3 per unit FOH rate)

Add: unfavourable FOH variance

Actual Factory overhead

Note: Unfavourable rate = Rs. 760 labor rate variance / 3,800 actual hours worked

12,000

500

12,500

FORMULA:



Material A (Difference b/w std and actual rate) x actual qty purchase or used for M

Material B (Difference b/w std and actual rate) x actual qty purchase or used for M

Material C (Difference b/w std and actual rate) x actual qty purchase or used for M MATERIAL PRICE VARIANCE

e0 Recognized at the time of purchases:

Material Standard Actual Variance Actual Rate Rate Qty Purchase

Gum base 0.25 0.24 0.01 Fav 162,000 Corn syrup 0.40 0.42 0.02 Unfav 30,000 Sugar 0.10 0.11 0.01 Unfav 32,000

MPV

Recognized at the time of used

Material Standard Actual Variance Actual Rate Rate Qty Used

Gum base 0.25 0.24 0.01 Fav 157,000 Corn syrup 0.40 0.42 0.02 Unfav 38,000 Sugar 0.10 0.11 0.01 Unfav 36,000

MPV


Formula (Difference b/w actual qty used at actual mix and actual qty at std mix) x Std. Rate

Step # 1: Actual quantity used - in the production for 200,000 lbs of chewing gum (F.G) during Jan

Material Opening Purchases Closing Stock Stock

Gum base 10,000 162,000 15,000 Corn syrup 12,000 30,000 4,000 Sugar 15,000 32,000 11,000

Actual quantity used - in the production of 200,000 lbs of chewing gum

Step # 2:

Material Actual Qty Standard Actual Qty Variance at actual mix Mix % at Std. mix

Gum Base 157,000 0.6667 154,000 3,000 unfav Corn Syrup 38,000 0.1667 38,500 500 fav Sugar 36,000 0.1667 38,500 2,500 fav

231,000 1.0000 231,000 MATERIAL MIX VARIANCE

Working: Standard Ratio:

Material Standard Standard Consumption Ratio

Gum Base 800 0.6667 Corn syrup 200 0.1667 Sugar 200 0.1667

1,200


Expected Yeil 1,000 = 0.8333 Therefore; 1,200 Normal loss = 1 - Expected yeild

or Normal loss = 1 - 0.8333 Output = Input x Expected yeild Normal loss = ###

1200 x 0.8333 Abnormal loss - when loss is more 0.1667

Output = 1000 lbs Abnormal gain - when loss is less than 0.1667

or Input = Output / Expected yeild

1000 / 0.8333 Input = 1200 lbs


METHOD NO.1: Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price


Gum Base 154,000 0.6667 160,000 6,000 Fav Corn Syrup 38,500 0.1667 40,000 1,500 Fav Sugar 38,500 0.1667 40,000 1,500 Fav

231,000 1.0000 240,000 MATERIAL YEILD VARIANCE

Input = Actual production (Output) / Expected yeild =200,000 lbs / 0.83333

Std. QTY 240,000 allowed

METHOD NO.2 (As per output rate): Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std material rate (Output rate)

Expected output as per expected yeild:

Output = Input x Expected yeild

Output = 231,000 x 0.83333

Output = 192,500

Expected output as per expected yeild Actual output

Difference Std. material output average rate MATERIAL YEILD VARAINCE

METHOD #3: (AS per INPUT rate) For actual output (200,000 lbs), Standard input as per expected yeild

Input = Output / Expected yeild Input = 200,000 / 0.8333

Input = 240,000 Standard input allowed for actual production

Actual input = 231,000 Variance 9,000 Fav

Material Yeild variance = 9,000 fav input x input rate 0.25 Material Yeild variance = 2,250 Fav

Summary: Input Expected Output

Yeild

Actual 231,000 0.8333 192,500

Standard 240,000 0.8333 200,000

Difference 9,000 Fav 7,500 Fav

Rate 0.25 0.30

MYV 2,250 Fav 2,250 Fav

METHOD NO.4: Material yeild variance = Difference between (Actual input x input material rate) and (Actual output x output rate)

Actual input at std. input rate: (231,000 units x 0.25) 57,750

Actual output at std. output rate: (200,000 units x 0.30) 60,000

MATERIAL YEILD VARAINCE 2,250 Fav


Material mix variance 300 U Material yeild variance 2,250 Fav

MQV 1,950 Fav OR Material Quantity Variance:


Gum Base 157,000 160,000 3,000 Fav 0.25

Corn Syrup 38,000 40,000 2,000 Fav 0.40

Sugar 36,000 40,000 4,000 Fav 0.10 231,000 240,000 MQV


Labor Efficience Variance(2) = Diff b/w std. hours allowed for expected output and actual hours used x Std rate

Actual input = 231,000 lbs and Actual Output 200,000lbs

Actual input = 231,000 lbs and Expected output as per Expected yeild 192,500 lbs

(192,500 units x 0.02 hours)

Actual hours used Difference Std. Rate Labor Efficiency Variance

Working: Std. hour used for one unit of output:

Std. hour used / output 20 hours / 1000 units 0.02 std. hours allowed for one unit.

Labour Rate Variance: Standard rate Actual rate (23,104 / 3,800 hours)

Difference Actual hours Labor Rate Variance

Labour Yeild Variance: Expected output 192,500


Actual output 200,000 Units Yeild 7,500 Std. hours allowed for one unit 0.02

Hours Total hours saved 150 Std. rate per hour 6

Labor yeild variance 900 Fav

LYV (Difference b/w Expected output and actual output x per unit hour cons.) x Std. Rate

xxx

xxxx

xxx xxxx

MPV Qty Purchase

1,620 Fav 600 Unfav 320 Unfav 700 Fav

MPV

1,570 Fav 760 Unfav 360 Unfav 450 Fav

Formula (Difference b/w actual qty used at actual mix and actual qty at std mix) x Std. Rate

Actual quantity used - in the production for 200,000 lbs of chewing gum (F.G) during Jan

Actual material Used

157,000 38,000 36,000 231,000 Actual

Input

Std. Material Mix Rate Variance

0.25 750 unfav 0.40 200 fav 0.10 250 fav

MATERIAL MIX VARIANCE 300 unfav

Abnormal loss - when loss is more 0.1667

Abnormal gain - when loss is less than 0.1667


Std. MYV Price 0.25 1,500 Fav 0.40 600 Fav 0.10 150 Fav

MATERIAL YEILD VARIANCE 2,250 Fav

Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std material rate (Output rate)

192,500 200,000 7,500 Fav 0.30 2,250 Fav

Standard input allowed for actual production

Material yeild variance = Difference between (Actual input x input material rate) and (Actual output x output rate)

Material Qty Variance

750

800

400 1,950

Labor Efficience Variance(2) = Diff b/w std. hours allowed for expected output and actual hours used x Std rate

3,850

3,800 50 Fav 6 300 Fav

6.00 6.08 0.08 U 3,800 304 U

(Difference b/w Expected output and actual output x per unit hour cons.) x Std. Rate

Aplha Beeta

Actual Sales 120 million @ Rs. 1.10 40 million @ Rs. 2.20 Actual COGS 120 million @ Rs. 0.90 40 million @ Rs. 1.80

Budgeted Sales 110 million @ Rs. 1.35 70 million @ Rs. 2.70 Budgeted COGS 110 million @ Rs. 1.10 70 million @ Rs. 2.20

Required (1): Calculate a) Sales Price variance b) Sales volume variance c) Cost price variance d) Cost volume variance

Required (2) Sales mix and the final sales volume variance

Solution Sales Price Variance: (Actual quantity x Actual mix x Actual rate) - (Actual quantity x Actual mix x Std. rate)

[(Actual qty x actual rate) + (actual qty x actual rate)] - [(Actual qty x std rate) + (actual qty x std rate)]

[(6,000 x 10) + (2,000 x 20)] - [(6,000 x 12.5) + (2,000 x 25)]

Rs. 25,000 (Un-Favourable)

Sales Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate)

[(Actual Qty x std rate) + (Actual Qty x std. rate)] - [(Budgeted Qty x std rate) + (Budgeted qty x std rate)]

[(6,000 x 12.5) + (2,000 x 25)] - [(5,000 x 12.5) + (3,500 x 25)]

Rs. 25,000 (Un-Favourable)

Req no. 3: Cost Price variance

[(Actual qty x actual COGS rate) + (actual qty x actual COGSrate)] - [(Actual qty x std COGSrate) + (actual qty x std COGSrate)]

Cost Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate)

[(Actual Qty x std COGsrate) + (Actual Qty x std. COGSrate)] - [(Budgeted Qty x std COGS rate) + (Budgeted qty x std COGS rate)]

SALES MIX VARIANCE

Actual quantity x actual mix x standard rate

Less: Actual quantity x actual mix x standard COGS rat

Less: Actual sales (both) x budgeted average gross profit (6,000 + 2000) x 3.5294

SALES MIX VARIANCE

Total

Rs. 220 million Rs. 180 million

Rs. 337.50 million Rs. 275.00 million

(Actual quantity x Actual mix x Actual rate) - (Actual quantity x Actual mix x Std. rate)


[(6,000 x 10) + (2,000 x 20)] - [(6,000 x 12.5) + (2,000 x 25)]

(Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate)


[(6,000 x 12.5) + (2,000 x 25)] - [(5,000 x 12.5) + (3,500 x 25)]




125,000

(100,000)

25,000 Less: Actual sales (both) x budgeted average gross profit

(28,235.20)

(3,235.20) Unfav.

Pg 614, Illustration 1 of Standard costing:

Sales price Variance

Product Base yr Current yr Variance Current Rate Rate Qty sold

X 5.00 6.60 1.60 Fav 10,000 Y 4.00 3.50 0.50 Unfav 4,000 Z 2.60 3.00 0.40 Fav 20,000

Sales price variance

Sales volume variance:

Product Base yr Current yr Variance Base yr Qty Qty rate

X 8,000 10,000 2,000 Fav 5.00 Y 7,000 4,000 3,000 Unfav 4.00 Z 20,000 20,000 - 2.60

Sales Volume variance

Cost price Variance

Product Base yr Current yr Variance Current Rate Rate Qty sold

X 4.000 4.000 - 10,000 Y 3.500 3.500 - 4,000 Z 2.175 2.800 0.625 Unfav 20,000

Cost price variance

Cost volume variance:

Product Base yr Current yr Variance Base yr Qty Qty rate

X 8,000 10,000 2,000 Unfav 4.000 Y 7,000 4,000 3,000 Fav 3.500 Z 20,000 20,000 - 2.175

Cost Volume variance

Sales Mix Variance

Product Current Qty Base yr Base yr Sales Current yr Qty Variance Sold Qty Mixing ratio at base yr mix ratio

X 10,000 8,000 0.2286 7,771 2,229 Y 4,000 7,000 0.2000 6,800 2,800 Z 20,000 20,000 0.5714 19,429 571

34,000 35,000 1

Final Sales volume variance:

a) Calculate the amount of average gross profit (Base year)

Average G.P = Total amount of G.P (Base yr) Total units sold in Base year

20,000 35,000

Average G.P = 0.5714

b) Calculate the difference in two years sales volume:

Base year sales (in units) 35,000 Current year sales (in units) 34,000

Difference in volume 1,000 Unfav

x Average Gross profit 0.5714

FINAL SALES VOLUME VARIANCE 571

SPV

16,000 Fav 2,000 Unfav 8,000 Fav 22,000 Fav

SVV

10,000 Fav 12,000 Unfav - 2,000 Unfav

CPV

- - 12,500 Unfav 12,500 Unfav

CVV

8,000 Unfav 10,500 Fav -

2,500 Fav

Base yr SMV G.P

Fav 1.000 2,229 Fav Unfav 0.500 1,400 Unfav Fav 0.425 243 Fav

1,071 Fav

Unfav

Aplha Beeta Total

Actual Sales 120 million @ Rs. 1.10 40 million @ Rs. 2.20 Rs. 220 million Actual COGS 120 million @ Rs. 0.90 40 million @ Rs. 1.80 Rs. 180 million

Budgeted Sales 110 million @ Rs. 1.35 70 million @ Rs. 2.70 Rs. 337.50 million Budgeted COGS 110 million @ Rs. 1.10 70 million @ Rs. 2.20 Rs. 275.00 million

Required (1): Calculate a) Sales Price variance b) Sales volume variance c) Cost price variance d) Cost volume variance

Required (2) Sales mix and the final sales volume variance

Solution Sales Price Variance: (Actual quantity x Actual mix x Actual rate) - (Actual quantity x Actual mix x Std. rate)


[(120 m x 1.10) + (40 m x 2.20)] - [(120 m x 1.35) + (40 m x 2.70)]

Rs. 220 - Rs. 270

Rs. 50 million (unfavourable)

Sales Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate)


[(120 m x 1.35) + (40 m x 2.70)] - [(110 m x 1.35) + (70 m x 2.70)]

[162 + 108] - [ 148.50 + 189]

270 - 337.50

67.50 (Unfavourable)

Req no. 3: Cost Price variance


[(120 m x 0.90) + (40 m x 1.80)] - [(120 m x 1.10) + (40 m x 2.20)]

[108 + 72] - [ 132 + 88]

180 - 220

40 Million (Favourable)

Cost Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate)


[(120 m x 1.10) + (40 m x 2.20)] - [(110 m x 1.10) + (70 m x 2.20)]

[ 132 + 88] - [ 121 + 154]

220 - 275

Rs. 55 (Favourable)

SALES MIX VARIANCE

Actual quantity x actual mix x standard rate 270

Less: Actual quantity x actual mix x standard COGS rate (220)

50 Less: Actual sales (both) x budgeted average gross profit (120 m + 40 m) x 0.347 (55.52)

SALES MIX VARIANCE (5.52)

FINAL SALES VOLUME VARIANCE

Budget sales 337.50 Less: Budgeted COGS (275.00) Budgeted Gross Profit 62.50 Less: Actual sales (both) x budgeted average gross profit (120 m + 40 m) x 0.347 (55.52)

6.98

(Actual quantity x Actual mix x Actual rate) - (Actual quantity x Actual mix x Std. rate)







unfavourable

unfavourable

Required no. 1: Schedule of allocation of variance:

Variances Total WIP

Material Price variance W-1 9,600 3,600 Labour efficiency variance W-2 6,000 1,200 FOH Controllable W-3 7,200 2,880 FOH Volume W-3 12,000 4,800

34,800 12,480

Note: Total material purchase price variance = 12,000 Less: MPV charged to R/M (at end) (12,000 / 200,000 x 40,000) (2,400) MPV on R/ m (at end)

MPV-Recognized at the time of purchases (12,000 / 200,000 x 160,000) 9,600 MPV on used material

W-1 Material Price variance allocation

Material Allocation MPV Inventory Percentage

WIP 60,000 37.50 3,600 FG 20,000 12.50 1,200 COGS 80,000 50.00 4,800

160,000 100.00 9,600

W-2 Labour Efficiency variance allocation

Labour Allocation Variance Cost Percentage

WIP 20,000 20.00 1,200 FG 20,000 20.00 1,200 COGS 60,000 60.00 3,600

100,000 100.00 6,000

W-3 FOH Controllable & Volume variance allocation

FOH Allocation Controllable Cost Percentage Variance

WIP 80,000 40.00 2,880 FG 20,000 10.00 720 COGS 100,000 50.00 3,600

200,000 100.00 7,200

Required no.2: COMPARATIVE COGS

Standard Variance Actual

Material purchased 200,000 12,000 212,000 Less: Ending R/Material (40,000) (2,400) (42,400) Raw material used 160,000 9,600 169,600

Direct labor 100,000 6,000 106,000

Prime Cost 260,000 15,600 275,600 Factory overhead 200,000 19,200 219,200

Manufacturing cost 460,000 34,800 494,800 Less: WIP (at end) (160,000) (12,480) (172,480)

Cost of Goods manufactured 300,000 22,320 322,320 Less: Finished goods (at end) (60,000) (4,320) (64,320)

Cost of Goods Sold 240,000 18,000 258,000

Required no. 3: Income Statement (Actual Basis)

Sales 520,000 Less: Cost of goods sold (258,000)

Gross Profit (actual) 262,000

Less: Operating Expenses: Administrative Expenses 120,000 Marketing Expenses 60,000 (180,000)

NET INCOME (Actual) 82,000

Required no. 4: Reconcilation of Standard and Actual Income:

NET INCOME (Actual) 82,000

Add: Variance allocated to COGS 18,000

Net Income (standard) 100,000

FG COGS

1,200 4,800 1,200 3,600 720 3,600 1,200 6,000 4,320 18,000

MPV on R/ m (at end)

MPV on used material

Volume Variance

4,800 1,200 6,000 12,000

Requried no.1: Material Price, Mix and Yeild variance:

Material Price variance:

Material Actual Price Standard Price Variance Actual QTY

Purchases

A 2,200 2,150 50 Unfav. 2,000

B 1,850 1,750 100 Unfav. 1,200

C 1,200 1,250 50 Fav 500

Material Price variance



Mate Actual Standard Actual Qty Variance Qty. used Mix % at Std. mix

A 1,870 50 1,705 165 unfav

B 1,100 40 1,364 264 fav

C 440 10 341 99 unfav 3,410 100 3,410 MATERIAL MIX VARIANCE

Material Yeild Variance Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price

Mat Actual Qty Standard Std. Qty at Variance at Std. mix Mix % Std. Mix

A 1,705 50 1,778.70 73.70 Fav

B 1,364 40 1,422.96 58.96 Fav

C 341 10 355.74 14.74 Fav 3,410 100 3,557.40 MATERIAL yeild VARIANCE


Expected Yeild = 100 0.90909090909110

orOutput = Input x Expected yeild

3,557.4 x 0.9090909

Output = 3,234 tons

orInput = Output / Expected yeild

3,234 tons / 0.9090909

Input = 3,557.40


1

(500 / 100 tons = 5 hours per ton x 3,100 expe 15,500

2 Actual hours used 15,800

300

Standard rat 37.50

11,250

Working: Expected output:

Expected output = Actual Input x Expected yeild

3,410 tons x 0.909090

3100

Labour Rate Variance:

Standard rate 37.50

Actual rate 39.75

2.25

Actual hours 15,800

35,550

Labour Yeild Variance:



(500 / 100 tons = 5 hours per ton x 3,100 expe 15,500

Standard hours allowed for Actual output

(500 / 100 tons = 5 hours per ton x 3,234 actu 16,170

670

Standard rat 37.50

25,125

FACTORY OVERHEAD VARIANCE:

3 - Variance method



b) Budget allowance based on actual hours Fixed budgeted overhead 618,750 Variable budgeted OH(Actual hours x 15,800 Variable per unit rate) 25 395,000

Variable rate = Rs. 412,500 / 16,500 hours25


b) Overhead charged to productionActual hours x 15,800

Total Standard Factory overhead rate 62.50

Total FOH rate = (Fixed cost + Variable cost) / 16,500 hour

62.5

3

a) Overhead charged to production (Based on Actual hours)Actual hours worked x 15,800 Total Standard Factory overhead rate 62.50

b) Overhead charged to production (Based on Standard hours)Standard hours allowed on actual output x 16,170 Total Standard Factory overhead rate 62.50

3,234 tons x 5 hours per ton

=16,170 hours


Overhead charged to production - Based on Actual hours:Actual hours allowed x 15,800 Total Standard Factory overhead rate 62.50

Overhead charged to production - Based on Std. Hours on Expected output:Std. hours allowed on expected output x 15,500 Total Standard Factory overhead rate 62.50

FOH YEILD VARIANCE:

Overhead charged to production - Based on Std. Hours on Expected output:Std. hours allowed on expected output x 15,500 Total Standard Factory overhead rate 62.50

Overhead charged to production - Based on Std. Hours on Actual output:Std. hours allowed on Actual output x 16,170 Total Standard Factory overhead rate 62.50

Std. Hours allowed on actual output

Efficiency Variance (TOTAL)

= Actual output x std. Hour consumption= 3,234 x 5 hours 16,170 hours



b) Budget allowance based in actual hours Fixed budgeted overhead 618,750 Variable budgeted OH(Actual hours x 15,800 Variable per unit rate) x Rs 25 395,000

Spending Variance

Standard Variable rate = 412


b) Overhead charged to production

Actual hours x 15,800 Total Standard Factory overhead rate x Rs 62.50

Idle Capacity Varianc

Standard Total FOH rate = (618,750 + 412,500) / 16,500 hours = Rs. 62.50

3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)Actual hours worked x 15800Total Standard Factory overhead rate 62.5

b) Overhead charged to production (Based on Standard hours)Standard hours allowed for actual input x 17,050 Total Standard Factory overhead rate x Rs 62.50

Efficiency Variance

Working: Standard hours allowed for actual input:Actual input 3410 tonsPer ton hourconsumption 5

17050 hours

4 Factory overhead Yeild variance

Std. hours allowed for actual input (Std. hours for actual input x Total std. FOH rate)(17,050 x Rs. 62.5)

Std. hours allowed for actual Output (std. hours for actual Output x Total std. FOH rate)(3,234 tons x 5 hours = 16,170 hours x 62.5)

Material Price

Variance

100,000 Unfav.

120,000 Unfav.

25,000 Fav

195,000 Unfav.



2,150 354,750 unfav

1,750 462,000 fav

1,250 123,750 unfav MATERIAL MIX VARIANCE 16,500 unfav


Standard Material yeild Price variance

2,150 158,455 Fav

1,750 103,180 Fav

1,250 18,425 Fav MATERIAL yeild VARIANCE 280,060 Fav

Unfav

Unfav

U

U

Fav

978,250

1,013,750

35,500 Fav

1,013,750

987,500

26,250 UnFav.

987,500

1,010,625

23,125 Fav

987,500


968,750 18,750 Unfav


968,750

Overhead charged to production - Based on Std. Hours on Actual output:

1,010,625 41,875 Fav

= Actual output x std. Hour consumption

978,250

1,013,750 35,500 Fav

1,013,750

987,500 26,250 Unfav


987,500

1,065,625 -

78,125 Fav.

1,065,625

1,010,625

55,000 Unfav

1 Company is cement producing company. 2 2major component mixing - A (Lime) and B (Clay) + Water + 3rd component C(insignificant) 3 Data is for 100 output:

Material Tns Cost % of output Amount A 55 2,150 50 118,250 B 44 1,750 40 77,000 C 11 1,250 10 13,750 INPUT 110 5,150 100 209,000 OUTPUT 100

5 To convert 110 tons into 100 tons, 500 labor hours at Rs. 37.50 per ton. FOH is applied on D/L

6 In producing 3,234 tons, the following cost were incurred:

Direct labor 15,800 hours at Rs. 39.75 Fixed FOH 553,750 VariableFOH 424,500

7 Material Purchases Consumed Qty Price

A 2,000 2,200 1,870 B 1,200 1,850 1,100 C 500 1,200 440

8 No WIP at start and material price variance is recorded at the time of purchases.

Requried no.1: Material Price, Mix and Yeild variance:

Material Price variance:

Material Price Variance Actual QTY Actual Std. Purchases

A 2,200 2,150 50 Unfav. 2,000

B 1,850 1,750 100 Unfav. 1,200

C 1,200 1,250 50 Fav 500 Material Price variance



Material Actual Standard Actual Qty Variance Qty. used Mix % at Std. mix

A 1,870 50 1,705 165 unfav

B 1,100 40 1,364 264 fav

C 440 10 341 99 unfav 3,410 100 3,410 MATERIAL MIX VARIANCE

Material Yeild Variance Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price Material Actual Qty Standard Std. Qty at Variance

at Std. mix Mix % Std. Mix A 1,705 50 1,779 74 Fav

B 1,364 40 1,423 59 Fav

C 341 10 356 15 Fav 3,410 100 3,557 MATERIAL yeild VARIANCE


Expected Yeild = 100 0.9090909091

110or

Output = Input x Expected yeild3,557.4 x 0.9090909

Output = 3,234 tonsor

Input = Output / Expected yeild3,234 tons / 0.9090909

Input = 3,557.40


Material mix variance 16,500 U Material yeild variance 280,060 Fav

MQV 263,560 Fav OR Material Quantity Variance:


A 1,870 1,779 91 Unfav 2,150.00

B 1,100 1,423 323 Fav 1,750.00

C 440 356 84 Unfav 1,250.00 3,410 240,000 MQV


1(500 / 100 tons = 5 hours per ton x 3, 15,500

2 Actual hours used 15,800 300

Standard r 37.50 11,250

Working: Expected output:Expected output = Actual Input x Expected yeild

3,410 tons x 0.9090903100

Labour Rate Variance:Standard rate 37.50 Actual rate 39.75

2.25 Actual hou 15,800

35,550 Labour Yeild Variance:

(500 / 100 tons = 5 hours per ton x 3, 15,500

Standard hours allowed for Actual output(500 / 100 tons = 5 hours per ton x 3,2 16,170

670 Standard r 37.50

25,125



b) Budget allowance based in actual hours Fixed budgeted overhead 618,750 Variable budgeted OH(Actual hours x 15,800 Variable per unit rate) x Rs 25 395,000



Spending Variance

Standard Variable rate = 412


b) Overhead charged to productionActual hours x 15,800 Total Standard Factory overhead rate x Rs 62.50



3 Efficiency Variancea) Overhead charged to production (Based on Actual hours)Actual hours worked x 15800Total Standard Factory overhead rate 62.5

b) Overhead charged to production (Based on Standard hours)Standard hours allowed for actual input x 17,050 Total Standard Factory overhead rate x Rs 62.50

Efficiency Variance

Working: Standard hours allowed for actual input:Actual input 3410 tonsPer ton hourconsumption 5

17050 hours

4 Factory overhead Yeild variance

Std. hours allowed for actual input (Std. hours for actual input x Total std. FOH rate)(17,050 x Rs. 62.5)

Std. hours allowed for actual Output (std. hours for actual Output x Total std. FOH rate)(3,234 tons x 5 hours = 16,170 hours x 62.5)

2major component mixing - A (Lime) and B (Clay) + Water + 3rd component C(insignificant)

To convert 110 tons into 100 tons, 500 labor hours at Rs. 37.50 per ton. FOH is applied on D/L

MPV

100,000 Unfav.

120,000 Unfav.

25,000 Fav 195,000 Unfav.


Standard MMV Price

2,150 354,750 unfav

1,750 462,000 fav

1,250 123,750 unfav MATERIAL MIX VARIANCE 16,500 unfav

Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price Standard MYV Price 2,150 158,455 Fav

1,750 103,180 Fav

1,250 18,425 Fav MATERIAL yeild VARIANCE 280,060 Fav

MQV

196,295 Unfav

565,180 Fav

105,325 Unfav 263,560 Fav

Unfav

Unfav

U

U

Fav

978,250

1,013,750

35,500 Fav

1,013,750

987,500 26,250 Unfav


987,500

1,065,625 - 78,125 Fav.

1,065,625

1,010,625

55,000 Unfav

W-1: Actual cost of material

Items Actual Actual Actual Qty used Rate Cost

Alpha 109,200 7.25 791,700

Beta 149,500 3.25 485,875

Gamma 27,300 13.50 368,550 286,000 1,646,125

W-2: Actual matererial used at Standard rate:

Items Actual Standard Standard Qty used Rate Cost

Alpha 109,200 6.50 709,800

Beta 149,500 4.00 598,000

Gamma 27,300 13.00 354,900 286,000 1,662,700

W-3: Actual material at Standard mix and Standard rate:

Items Actual Standard Mix Actual Qty Standard Qty used at std. mix Rate

Alpha 109,200 5,200 / 13,000 = .40 114,400 6.50

Beta 149,500 6,500 / 13,000 = .50 143,000 4.00

Gamma 27,300 1,300 / 13000 = .10 28,600 13.00 286,000 286,000

W- 4: Standard material for actual production:

Actual Production 253,300

` Standard material for actual production Input ratio 100 Output ratio 90

Actual production is 253,300 kgs which is 90% of Input Therefore Input kgs are 253,300 / 90% 281,444 kgs

Proof: Input 281,444 Less: 10% wastage (28,144) Actual Production (output) 253,300

W-5: Standard material at Standard Mix and rate

Items Standard Standard Material Standard Amount Ratio at Standard Mix Rate

Alpha 40% 112,578 6.50 731,756

Beta 50% 140,722 4.00 562,889

Gamma 10% 28,144 13.00 365,878 281,444 1,660,522

Required1: Direct Material Total Variance

Direct material total variance = Difference between Standard and Actual Cost of material

Actual Cost of Direct material (W-1) 1,646,125

Standard Cost of Direct material (W-5) 1,660,522 Direct Material Total Variance 14,397 Fav

Required 2: Direct Material Price Variance

Material Actual Price Standard Price Variance Actual QTY

Purchases

Alpha 7.25 6.50 0.75 Unfav. 109,200

Beta 3.25 4.00 0.75 Fav 149,500

Gamma 13.50 13.00 0.50 Unfav. 27,300

Material Price variance

Required no 4: Direct Material Mix variance



Material Actual Standard Actual Qty Variance Quantity us Mix % at Std. mix

Alpha 109,200 40 114,400 5,200 Fav

Beta 149,500 50 143,000 6,500 Unfav

Gamma 27,300 10 28,600 1,300 Fav 286,000 100 286,000 MATERIAL MIX VARIANCE

Amount

743,600

572,000

371,800 1,687,400

Direct material total variance = Difference between Standard and Actual Cost of material

Material Price

Variance

81,900 Unfav.

112,125 Fav

13,650 Unfav.

16,575 Fav


Standard Material Mix Rate Variance

6.50 33,800 Fav

4.00 26,000 Unfav

13.00 16,900 Fav MATERIAL MIX VARIANCE 24,700 Fav

Comparative Income Statement Analyzing the Budgeted and Actual Operating Income

Sales (118,000 units x Rs 25)

Less: Cost of Goods sold Cost of Goods manufactured (110,000 units x 17.60) 1,936,000

Add: Finished goods (at start) (20,000 units x 17.60) 352,000 TOTAL FINISHED GOODS AVAILABLE 2,288,000

Less: Finished goods (at end) (12,000 units x 17.60) (211,200)

COST OF GOODS SOLD (STD.) 2,076,800

Add: Unfavourable variance Material quantity variance (W-4) 24,000 Labour price variance (W-7) 25,760

FOH Controllable variance (W-8) 16,500 66,260 66,260

Less: Favourable variance Material Price Variance (W-5) 3,750 Labour hour variance (W-6) 32,000

FOH Volume variance (W-9) 7,000

42,750 (42,750) COST OF GOODS SOLD (Actual)

GROSS PROFIT (ACTUAL) Less: Operating Expenses

Administrative and marketing expenses

NET INCOME (ACTUAL)

W-1: Calculation of numbers of units sold:

Units Finished goods (at start) 20,000

Add: Production during the period 110,000 Total FG available for sales 130,000

Less: Finished goods (at end) (12,000)

UNITS SOLD 118,000

W-2: Per unit cost of Product:

Direct material per unit (2 units x 1.50) 3.00

Direct Labor per unit (1.50 hours x 8) 12.00 Variable FOH per unit 1.50 Fixed FOH per unit 1.10

Per unit cost of Product 17.60

W-3: Equivalent Production Unit

Material Unit in process (at start) 10,000

Add: Units put into production 240,000 Total Work in process 250,000

Less: Unit in process (at end) (15,000) Units completed 235,000

Less: Unit in process (at start) - all units (10,000) 225,000

Add: Units in process (at start) - 3/5 completed 6,000 231,000

Add: Units in process (at end) - 1/3 completed 5,000

Actual Material used 236,000

W-4 Material Quantity Variance


Standard quantity allowed for production(110,000 units x 2 lbs per unit) 220,000


Difference 16,000 Standard Rate 1.50

Material quantity variance 24,000

W-5 Material Price Variance

Formula: Difference between Standard and Actual rate x Actual quantity purchased


Difference 0.015 Fav Actual Quantity 250,000

Material price variance 3,750 Fav

W-6 Labour hour/ efficency Variance

Standard hours allowed for production(110,000 units x 1.5 hours per unit) 165,000

Actual hours used in production 161,000 (1,313,760 / 8.16)

Difference 4,000 Fav Standard Rate 8

Labour hour/ efficency Variance 32,000 Fav

W-7 Labour Price Variance


Difference 0.16 UnFav Actual hours used 161,000

Labour Price Variance 25,760 UnFav


W-8 1 Controllable Variancea) Actual amount of factory overhead


b) Budget allowance based in standard hours allowedFixed budgeted overhead

Variable budgeted OH(Standard hours allowed x 110,000

Variable per unit rate) 1.50


W-9 2 Volume Variancea) Budget allowance based in standard hours allowed

b) Overhead charged to productionStandard hours allowed x 110,000

Total Standard Factory overhead rate 2.60

VOLUME VARIANCE

2,950,000

(2,100,310)

849,690

(651,000) 198,690

Unfav per lbs

Unfav

(1,313,760 / 8.16)


114,000

181,500 295,500

114,000

165,000 279,000

16,500 Unfav

279,000

286,000

7,000 Fav

Documents

Standard Costing