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Work Book Operating Costing and Variance

This document provides instruction and problems for students regarding operating costing and standard costing. It includes two sample problems: 1) A transportation business problem calculating operating costs per kilometer and expected profit. 2) A lorry transport problem providing operating cost data to calculate performance metrics like cost per day and kilometer. It also includes a standard costing problem calculating variances for material and labor.

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Ashwini Khare
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0% found this document useful (0 votes)
162 views6 pages

Work Book Operating Costing and Variance

This document provides instruction and problems for students regarding operating costing and standard costing. It includes two sample problems: 1) A transportation business problem calculating operating costs per kilometer and expected profit. 2) A lorry transport problem providing operating cost data to calculate performance metrics like cost per day and kilometer. It also includes a standard costing problem calculating variances for material and labor.

Uploaded by

Ashwini Khare
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Dr.

Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Module 3
Operating Costing
Instruction for students:
1) Be ready with Pen, Pencil, and Calculator etc.
2) For Flexible Budget, student has to copy down the given problems and
format for solution on separate sheet.
3) For Cash Budget student has to copy down the given problems and format
for solution on separate sheet.

Problem. No. 1 Mr. Sohan Singh has started transport business with a fleet of 10 taxies. The various
expenses incurred by him are given below:
(i) Cost of each taxi Rs. 75,000
(ii) Salary of office Staff Rs. 1,500 p.m.
(iii) Salary of Garage’s Supervisor Rs. 2,000 p.m.
(iv) Rent of Garage Rs. 1,000 p.m
(v) Drivers Salary (per taxi) Rs. 400 pm.
(vi) Road Tax and Repairs per taxi Rs. 2,160 p.a.
(vii) Insurance premium @ 4% of cost p.a.
The life of a taxi is 3,00,000 km. and at the end of which it is estimated to be sold at Rs. 15,000. A
taxi runs on an average 4,000 Km. per month of which 20% it runs empty, petrol consumption 9 Km.
per litre of petrol costing Rs. 6.30 per litre. Oil and other sundry expenses amount to Rs. 10 per 100
Km.
Calculate the effective cost of running a taxi per kilometre. If the hire charge is Rs. 1.80 per
Kilometre, find out the profit that Mr.Sohan may expect to make in the first year of operation.

Solution:
Statement of Operating cost
No.of taxi: 10 Distance travelled:4000 kms
Particulars Working Amount Amount
A Fixed Expenses

Total Fixed Expenses (A)


B Repairs & Maintenance
Total Repairs & Maintenance (B)
C Running Expenses :-

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Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Total Running Expenses (C)


Total Operating Cost (A+B+C)

Operating cost per Km = Total Operating Cost


A
Total distance travelled

Effective Operating cost per Km = Total Operating Cost


B
Effective distance travelled

C Profit per km per taxi (Hire charges- effective operating cost)

D Overall profit in year (0.15x 3,200 Kms x 10 taxi x 12 months)

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Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Problem. No. 2 The Kangaroo Transport operates a fleet of lorries. The records for lorry L-
14 reveal the following information for September, 2019:

Days maintained 30
Days operated 25
Days Idle 05
Total hours operated 300
Total Kms covered 2,500
Total tones carried 200 ( 4 tonne-load per
trip, journey empty)
The following information is made available:
1. Operating costs for the month: Petrol Rs.400, oil Rs.170, grease Rs.90, wages to driver
Rs.550, wages to Peon Rs.350.
2. Repairs & Maintenance costs for the month: Repairs Rs.170, overhead Rs.60, Tyres
Rs.150, Garage charges Rs.100.
3. Fixed costs for the month based on the estimates for the year : Insurance Rs.50, Licence,
Tax etc. Rs. 80, Interest Rs.40, other overheads Rs.190.
5. Capital costs: Cost of acquisition Rs.54,000, Residual value at the end of 5 years life is
Rs.36,000. Prepare a operating Cost Sheet and performance statement showing:
(a) Cost per day maintained;
(b) Cost per day operated ;
(c) Cost per kilometer;
(d) Cost per hour;
(e) Cost per commercial tonne
Solution:
Statement of Operating cost
No.of taxi: Distance
travelled:2500 kms
Particulars Working Amount Amount
A Fixed Expenses
Insurance premium
License , Tax etc.
Interest
Other overheads
Depreciation
Total Fixed Expenses (A)
B Repairs & Maintenance
Repairs
Overheads
Tyre
Garage charges
Total Repairs & Maintenance
(B)
C Running Expenses :-
Petrol
Oil & sundry expenses
Grease
Wages to driver
Wages to peon
Total Running Expenses (C)
Total Operating Cost (A+B+C)
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Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

Performance Statement
(a) Cost per day maintained
(b) Cost per day operated
(c) Cost per kilometre
(d) Cost per hour
(e) Cost per commercial tonne
Outward = 4 tonnes x 25 days x 50 kms
Return = 0 tonnes x25days x 50 kms
Total tonne
Cost per commercial tonne

Module 5
Standard Costing & Variance Analysis
Problem. No. 1 A manufacturing concern, which has adopted standard costing, furnished the

following information regarding Standard Material for 70 kg finished product: 100 kg.

Price of materials: Re. 1 per kg.

Actual Output: 2,10,000 kg.

Material used: 2,80,000 kg.

Cost of material: Rs. 2,52,000

(a) Material Cost Variance

(b) Material Price Variance

(c) Material Usage Variance

Solution:

1) Standard quantity for 70 kg standard output

Standard quantity of material = 100 kg.

2,10,000 kg. of finished products


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Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

(2,10,000 x 100)/70 = 3,00,000 kg

2) Actual price per kg = Rs. 2,52,000/2,80,000 = Re. 0.90

A) Material Cost Variance = (Standard quantity for actual output x standard rate) – (Actual

quantity x Actual rate)

(3,00,000x 1) – (2,80,000 x 0.90) = 3,00,000 x 2,52,000 = Rs. 48,000 (favorable)

B) Material Price Variance =Actual quantity(Standard price ‐Actual Price)

=2,80,000 (Re.1 – Re.0.90) = 2,80,000x0.10= Rs. 28,000 (favorable)

C) Material Usage Variance = Standard Rate (Standard quantity for actual output – Actual

quantity)

= Re. 1 (3,00,000 – 2,80,000) =Re. 1 x 20,000 =Rs. 20,000 (favorable)

Verification:

MCV = MPV + MUV

(a) Rs. 48,000 (F) = Rs.28,000 (F) + Rs.20,000 (F)

Problem. No. 2 A Chemical Company gives you the following standard and actual data relating to
a batch of the Chemical X – 461.
Standard Rate:
Rs.
Material A: 450 Kgs. @ Rs. 20: 9,000
Material B: 360 Kgs. @ Rs. 10: 3,600
Labour: 2,400 hours @ Rs. 2.50 per hour: 6,000
Fixed Overheads: @ Rs. 6 per hour: 14,400
33,000

Actual Rate:
Rs.
Material A: 450 Kgs. @ Rs. 19: 8,550
Material B: 360 Kgs. @ Rs. 11: 3,960
Labour: 2,500 hours @ Rs. 3 per hour: 7,500
Fixed Overheads actually spent 11,500
31,510
Actual process loss being 100 units, actual output = 710 units.

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Dr. Ambedkar Institute of Management Studies & Research, Deekshabhoomi, Nagpur

You are required to calculate:


(a) Material Cost Variance
(b) Material Price Variance
(c) Labour Cost Variance
(d) Labour Rate Variance

Solution:
Standard Actual
Material Quantity Kg. Rate Kg Amount Rs. Quantity Kg. Rate Kg Amount Rs.
A 450 20 9,000 450 19 8,550
B 360 10 3,600 360 11 3,960
810 12,600 12,510

Material Variances:
(a) Material Cost Variance:
MCV = SC for Actual Output – Actual Output
= 12,600 – 12,510
= Rs. 90 (F)
(b) Material Price Variance:
MPV = AQ (SR – AR)
Material A= 450 (20 -19) = Rs. 450 (F)
Material B= 360 (10 -11) = Rs. 360 (A)
Rs. 90 (A)

Labour Variances:
(d) Labour Cost Variance:
LCV = SC of Labour for Actual Output – Actual Cost of Labour
= 6,000 – 7,500
= Rs. 1,500 (A)
(e) Labour Rate Variance:
LRV = AT (SR – AR)
= 2,500 (2.50 – 3)
= Rs. 1,250 (A)

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