Standard Costing

Main Requirement – Calculating variance

Calculating Variance gv‡b n‡jv cv_©K¨ wbY©q|
GLv‡b g~jZ Standard Ges Actual cost Gi g‡a¨ cv_©K¨ wbY©q Kiv nq|
Standard gv‡b hv nIqv DwPZ Avi Actual gv‡b hv n‡q‡Q| hvi djvdj †K cÖKvk Kiv nq Favorable (F) Ges
Adverse (A) bv‡g|
djvdj Positive n‡j Favorable (F)
djvdj Negative n‡j Adverse (A)
Formulas
(i) Material Cost Variance (MCV) = (SQ SP) – (AQ AP)
(ii) Material Usage variance (MUV) = (SQ SP) – (AQ SP) or (SQ – AQ) SP
(iii) Material Price variance: ( MPV) = (AQ SP) – (AQ AP) or (SP – AP) AQ
Here, SQ = Standard Quantity
AQ = Actual Quantity
SP = Standard Price
AP = Actual Price
Things to Remember –
Standard Price and Actual Price means Price of Per unit.
Standard Quantity and Actual Quantity Gi mgq ‡Lqvj ivL‡Z n‡e Output or production ‡hb mgvb nq|
Output or production mgvb bv n‡j Standard Quantity ‡K Actual Output or production Abyhvqx cwieZ©b K‡i
wb‡Z n‡e|
Some other Material Variance
(iv) Material Mix Variance = (RSQ – AQ) SP
(v) Material Yield Variance = (SQ – AQ) ASP
Here, RSQ = Revised Standard Quantity = × Total Actual Input
ASP= Average Standard Price =

(i) Labor Cost Variance(LCV)=(SH SR) – (AH AR)

(ii) Labor Rate Variance(LRV) =(AH SR) – (AH AR) or (SR AR) AH
(iii) Labor Efficiency Variance (LEV) =(SH SR) – (AH SR) or (SH—AH) SR
Here, SH = Standard Hour
AH = Actual Hour
SR = Standard Rate
AR = Actual Rate
Things to Remember –
Standard Rate and Actual Rate means Rate Per Hour.
Idle Time ‡`Iqv _vK‡j Idle Time Variance wbY©q Ki‡Z n‡e Ges Labor Efficiency Variance (LEV) wbY©q Gi
mgq Actual Hour cwieZ©b K‡i wb‡Z n‡e|
Formula of Idle Time Variance= Abnormal Idle Time SR
AH For Labor Efficiency Variance (LEV) = Normal Actual hour – Idle Time
Note - Idle Time Variance is always negative or adverse

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 Math exercises for Increasing Skill
Problem 1 The following data apply to the production of a standard
product known as X: Standard Quantity 1,000 kg. of material M,
standard price per kg. Tk. 2.40. During a certain month 1,150 kg. Of
Materials was actually used and the actual price paid for material was
TK.2.60 per kg.
Calculate – Material Cost, Price and usage variance.
Solution to Problem 01
Here,
Standard quantity (SQ) = 1000 k.g.
Standard Price (SP) = Tk. 2.40
Actual quantity (AQ) = 1,150 k.g.
Actual price (AP) =TK. 2.60

So, Material cost variance = (SQ SP) – (AQ AP)

= (1000 2.40) – (1,150 2.60)
= 2400 -2990
= 590(A)
Material Price variance = (SP –AP) AQ
= (2.40 - 2.60) 1150
= - 0.2 1150
= 230(A)

Material Usage variance = (SQ – AQ) SP

= (1000 -1150) 2.40
= - 150 2.40
= 360(A)

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Problem 2 The following are the particulars regarding the standard and the
actual production of the product X.
Standard quantity of material per unit 5 kg
Standard price Tk. 5 per kg.
Actual number of units produced 400
Actual quantity of materials used 2,200 kg
Price of material TK. 4.80 per kg
Calculate Variances.
Solution to Problem 02
Standard quantity (SQ) = (400 5) = 2000 k.g
Standard price (SP) = Tk. 5
Actual quantity (AQ) = 2200 k.g
Actual prince (AP) = Tk. 4.80

Problem 3 Mohan Mfg. Co. which has adopted standard costing furnishes the
following information:
Standard
Materials for 75kg. Finished products 100 kg.
Price of materials Tk. 2 per kg.
Actual
Output 1,50,000 kg
Materials used 1,80,000 kg
Cost of materials Tk. 3,42,000
Calculate:
(a) Material cost variance, (b) Material price variance, (c) Material usage
variance.
Solution to Problem 3
Standard quantity (SQ) = = 2,00,000 k.g
Standard price (SP) = Tk. 2.
Actual quantity (AQ) = 1,80,000 k.g
Actual price (AP) = = Tk. 1.9

Material cost variance = (SQ SP) – (AQ AP)

= (2,00,000 2) – (1,80,000 1.9)
= 4,00,000 – 3,42,000
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 = 58,000(F)

Material Price variance = (SP –AP) AQ

= (2 – 1.9) 1,80,000
= 0.1 1,80,000
= 18,000(F)

Material Usage variance = (SQ– AQ) SP

= (2,00,000 -1,80,000) 2
= 20,000 2
= 40,000(F)
Problem 4
Shajan manufacturing company has adopted standard costing furnishes the
following information:
Standard data:
100 kg materials for finished product of 70 kg. The price of materials being Tk.
10 Per kg.
Actual data:
Output 2, 10,000 kg
Materials used 2,80,000 KG
Cost of materials Tk. 25,20,000
Calculate: (i) Materials cost variance; (ii) Materials price variance;
(iii) Materials usage variance.
Solution to Problem 4
Standard quantity (SQ) = = 3,00,000 k.g
Standard price (SP) = Tk. 10
Actual quantity (AQ) = 2,80,000 kg.
Actual price (AP) = Tk. 9

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Problem 5
The standard mix for producing 8,000 bottles of product X is:
Material A: 1,000 liters @ Tk. 0.10
Material B: 2,000 liters @ Tk. 0.40
During May, 10,000 bottles of product X were produced from an input of
Material A: 1,500 liters @ Tk. 0.11
Material B: 3,300 liters @ Tk. 0.37
Required: Compute material cost, price, usage, Mix and Yield variance.
Solution to Problem 05
Standard Quantity A (SQA) = × 10,000 = 1250
Standard Quantity B (SQB) = = 2500
Standard Price A (SPA) = 0.10
Standard Price B (SPB) = 0.40
Actual quantity A (AQA) = 1,500
Actual quantity B (AQB) = 3,300
Actual price A (APA) = 0.11
Actual price B (APB) = 0.37

Material cost variance = (SQ SP) – (AQ AP)

For Material A = (1250 0.10) – (1500 0.11) = 125 -165 = 40(A)
For Material B = (2500 ) - ( 3300 0.37) = 1000 - 1221 = 221(A)
= 261 (A)
Material price variance (SP – AP) AQ
For Material A = (0.10 – 0.11) 1500 = - 0.01 1500 = 15(A)
For Material B = ( 0.40 - 0.37) 3300 = 0.03 3300 = 99(F)
= 84(F)
Material Usage Variance = (SQ -AQ) SP
For Material A = (1250 – 1500) 0.10 = - 250 0.10 = 25(A)
For Material B = (2500 – 3300) 0.40 = - 800 0.40 = 320(A)
=345 (A)

Material Mix Variance = (RSQ - AQ) SP

For Material (A) = (1600 – 1500) 0.10 = 10(F)
For Material (B) = (3200 – 3300) 0.40 = 40(A)
= 30 (A)
Material Yield Variance = (SQ – AQ) ASP
For Material (A) = (1250 – 1500) 0.3 = 75 (A)
For Material (B) = (2500 – 3300) 0.3 = 240 (A)
= 315(A)

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Working
Revised standard Quantity (RSQ) = Total actual input

RSQ (A) = (1,500 + 3,300)

= 4,800 = 1600
RSQ (B) = (1500 + 3300)
= 4800 = 3200

Average standard price (ASP) =

( ) ( )
=
=
=
= 0.3

Problem 6 Standard Mix for 2,000 Units of product Y is

Material A: 4,000 KG @ Tk. 3 Per KG
Material B: 6,000 KG @ Tk. 3.50 Per KG
Actual Mix for 2,500 Units of product Y is
Material A: 5,000 KG @ Tk. 3 Per KG
Material B: 8,000 KG @ Tk. 3.80 Per KG
Required: Compute material cost, price, usage, mix and Yield variance.

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Problem 7 Standard material for 100 units are given below
Material A 45 KG @ Tk. 2.00 Per KG
Material B 40 KG @ Tk. 4.00 Per KG
Material C 25 KG @ Tk. 6.00 Per KG
Total 110 KG
Standard Loss 10 KG
100 KG

Actual Production was 2,000 Units and Actual Material Usage is as follows :
Material A 1000 KG @ Tk. 1.90 Per KG
Material B 850 KG @ Tk. 4.20 Per KG
Material C 450 KG @ Tk. 6.50 Per KG

Required: Compute material cost, price, usage, mix and Yield variance.
Solution to Problem 07
Standard Quantity A (SQA) = × 2,000 = 900
Standard Quantity B (SQB) = = 800
Standard Quantity C (SQc) = = 500
Standard PriceA (SPA) = 2
Standard PriceB (SPB) = 4
Standard PriceC (SPc) = 6
Actual QuantityA (AQA) = 1,000
Actual QuantityB (AQB) = 850
Actual QuantityC (AQc) = 450
Actual PriceA (APA) = 1.90
Actual PriceB (APB) = 4.20
Actual PriceC (APc) = 6.50

Material cost variance = (SQ SP) – (AQ AP)

For Material A = (900 2) – (1000 1.90) = 1,800 – 1,900 = 100(A)
For Material B = (800 ) - (850 4.20) = 3,200 – 3,570 = 370(A)
For Material C = (500 ) - (450 6.50) = 3,000 - 2,925= 75 (F)
395 (A)

Revised standard Quantity (RSQ) = Total actual input

RSQ (A) = (1000 +850+450)
= 2300
= 940.90 or 941
RSQ (B) = (1000 +850+450)
= 2300
= 836.36 or 836

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RSQ (B) = (1000 +850+450)
= 2300
= 522.72 or 523
Average standard price (ASP) =
( ) ( ) ( )
=
= 3
Now, Material Mix variance = (RSQ - AQ) SP
For Material (A) = (900-1000) 3 = 300(A)
For Material (B) = (800-850) 3 = 150 (A)
For Material (C) = (500-450) 3 = 150 (F)
300(A)
Problem 8 Data relating to a job are as given below:
Standard rate of wages per hour Tk. 10
Standard hours 300
Actual rate of wages per hour Tk. 12
Actual hours 200
You are required to calculate:
(i) Labor cost variance,
(ii) Labor rate variance, and
(iii)Labor efficiency variance.
Solution to Problem 8
Standard Hour (SH) = 300
Standard Rate (SR) = 10
Actual Hour (AH) = 200
Actual Rate (AR) = 12
i) Labour Cost variance = (SH SR) - ( AH AR)
= (300 10) - (200 12)
= 3000 – 2400
= 600 (F)
ii) Labour Rate variance = (SR – AR) AH
= (10 – 12) 200
= - 2 200
= 400 (A)
iii) Labour Efficiency variance = (SH – AH) SR
= (300 – 200) 10
= 100 10
= 1000 (F)

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Problem 9 Calculate the Labor Variance from the Following Information :
Budgeted Production 400 Units
Actual Production 420 Units
Standard Hourly Production 2 Units
Standard rate of Wages Tk. 1.76
Actual rate of Wages Tk. 1.60
Abnormal Idle Time 20 Hours
Total Wages paid Tk. 352
Solution to Problem 9
Standard Hour (SH) = = 210
Standard Rate (SR) = 1.76
Actual Hours (AH) =
= 220
Actual Rate (AR) = 1.60
Idle time = 20 hours
Actual hour for efficiency variance (220 -20) or 200 Hours
Idle time variance = Abnormal Idle time SR
= 20 1.76
= 35.2 (A)
Labour cost variance = (SH SR) - ( AH AR)
= (210 1.76) - (220 1.60)

Labour Rate variance = (SR – AR) AH

= (1.76 – 1.60) 220

Labour efficiency variance = (SH – AH) SR

= (210 – 200) 1.76

Problem 10 Alfa Ltd. manufactured one product of a standard type. The standard wage per
hour was tk. 0.90. The standard output was 20 units per hour. During a week, the actual
wages paid amounted to Tk. 38 for 40 hours, of which 5 hours were idle time. The output
during the week was 820 units.
Calculate necessary labor variances.
Solution to Problem 10
Standard Hour (SH) = = 41
Standard Rate (SR) = 0.90
Actual Hours (AH) = 40
Actual Rate (AR) = = 0.95
Idle time = 5 hours
Actual hour for efficiency variance (40 -5) or 35 Hours

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Problem 11 Sky Chefs, Inc. Prepares in flight meals for a number of major airlines. One of
the company’s products is grilled salmon in dill sauce with baby new potatoes and spring
vegetable. During the most recent weeks, the company prepared 4,000 of these meals using
960 direct labor-hours. The company paid these direct labour workers a total of Tk. 9,600 for
this work or Tk. 10 per hour.
According to the standard cost card for this meal, it should require 0.25 direct labor hour per
meal at a cost of tk. 9.75 per hour.
Required:
(i) What direct labor cost should have been incurred to prepare 4,000 meals? How much does
this differ from the actual direct labor cost?
(ii) Calculate labor rate variance and labor efficiency variance.
Solution to Problem 11
Here,
Actual Hour (AH) = 960 hrs
Actual Rate (AR) = Tk. 10
Standard Hour (SH) = 4,000 0.25
= 1000 hrs
Standard Rate (SR) = Tk. 9.75
i) Direct Labour cost Should be: (1000 9.75) = 9750
The difference is = 9750 – 9600
= 150 Tk.
ii) Labour rate variance:- =(SR –AR) AH
= (9.75 - 10) 960
= - 0.25 960
= 240(A)
Labour efficiency variance = (SH – RH) SR
= (1000 – 960) 9.75
= 40
= 390 (F)

Problem 12 The budgeted prime cost of a product was as following:

Raw materials
Cotton 5 kgs @ Tk. 4.20 Tk. 21.00
Jute 3 kgs @ Tk. 0.80 Tk 2.40
Labor 8 hours @ Tk. 1.50 Tk 12.00
Total Tk. 35.40
The actual cost of the product was as follows:
Cotton 5 Kgs @ Tk. 3.60 Tk. 18.00
Jute 5 kgs @ Tk. 0.70 Tk 3.50
Labor 9 hours @ TK. 1.40 Tk. 12.60
Tk. 34.10
Calculate the variances.

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Solution to Problem 12
Here,
Standard Quantity cotton (SQc) = kg. 5
Standard Quantity Jute (SQj) = Kg. 3
Standard Price cotton (SPc) = Tk. 4.20
Standard Price Jute (SPJ) = Tk. 0.80
Actual quantity cotton (AQc) = Kg. 5
Actual quantity jute (AQj) = Kg. 5
Actual Price cotton (APc) = 3.60
Actual price jute (APj) = Tk. 0.70
Standard Hour (SH) = 8 hrs
Standard Rate (SR) = Tk. 1.50
Actual Hour (AH) = 9 hrs
Actual Rate (AR) = Tk. 1.40
Material cost variance (SQ SP) – (AQ AP)
For Cotton = (5 4.20) – (5 3.60) = 21 – 18 = 3(F)
For Jute = (3 0.80) – ( 5 0.70) = 2.4 – 3.5 = 1.1(A)
= 1.9(F)
Material price variance = ( SP – AP) AQ
For Cotton = (4.20 – 3.60) 5 = 0.6 5 = 3(F)
For Jute = (0.80 - 0.70) 5= 0.1 5 = 0.5(F)
3.5(F)
Material usage variance = (SQ – AQ) SP
For Cotton = (5 - 5) 4.20 = 0 4.20 = 0(F)
For Jute = (3 – 5) 0.80 = 2 0.80 = 1.6(A)
= 1.6(A)
Labour cost variance = (SH SR) - ( AH AR)
= (8 1.50) – (9 1.40)
= 12 – 12.6
= 0.6(A)
Labour Rate variance = (SR – AR) AH
= (1.50 – 1.40) 9
= 0.1 9
= 0.9(F)
Labour efficiency variance = (SH –RH) SR
= (8 - 9) 1.50
= - 1 1.50
= 1.5(A)

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