CHAPTER 12

STANDARD COSTING

QUESTION 1

The standard mix to produce one unit of the product is as follows:

Material Standard Quantity (Units) Standard Price per Unit (₹) Standard Cost (₹)
Material X 60 15 900
Material Y 80 20 1,600
Material Z 100 25 2,500
Total 240 - 5,000

During the month of April, 10 units were actually produced and consumption was as follows:

Material Actual Quantity (Units) Actual Price per Unit (₹) Actual Cost (₹)
Material X 640 17.50 11,200
Material Y 950 18.00 17,100
Material Z 870 27.50 23,925
Total 2,460 - 52,225

Calculate all material variances.

ANSWER

1. Material Cost Variance = (SQ × SP) – (AQ × AP)

= ₹50,000 – ₹52,225 = ₹2,225 A
2. Material Price Variance = (AQ × SP) – (AQ × AP)
= ₹50,350 - ₹52,225 = ₹1,875 A
3. Material Usage Variance = (SQ × SP) – (AQ × SP)
= ₹50,000 – ₹50,350 = ₹350 A
4. Material Mix Variance = (RSQ × SP) – (AQ × SP)
= ₹51,250 – ₹50,350 = ₹900 F
5. Material Yield Variance = (SQ × SP) – (RSQ × SP)
= ₹50,000 – ₹51,250 = ₹1,250 A

Working notes:

a. Basic Calculation

Materials SQ × SP RSQ × SP AQ × SP AQ × AP
X 600 × ₹15.00 615 × ₹15.00 640 × ₹15.00 640 × ₹17.50
Y 800 × ₹20.00 820 × ₹20.00 950 × ₹20.00 950 × ₹18.00
Z 1,000 × ₹25.00 1,025 × ₹25.00 870 × ₹25.00 870 × ₹27.50
Total ₹50,000 ₹51,250 ₹50,350 ₹52,225

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b. SQ of input for actual output:

Materials X = 60 units × 10 units of FG = 600 units
Materials Y = 80 units × 10 units of FG = 800 units
Materials Z = 100 units × 10 units of FG = 1,000 units

c. RSQ (Revised Standard Quantity) of actual input:

Materials X = 2,460 units × 60/240 = 615 units
Materials Y = 2,460 units × 80/240 = 820 units
Materials Z = 2,460 units × 100/240 = 1,025 units

QUESTION 2

The standard cost of a chemical mixture is as follows:

 60% of Material A @ ₹50 per kg
 40% of Material B @ ₹60 per kg

A standard loss of 25% on output is expected in production. The cost records for a period have
shown the following usage:
 540 kg of Material A @ ₹60 per kg
 260 kg of Material B @ ₹50 per kg

The quantity processed was 680 kilograms of good product.

From the above given information, calculate the following:

1. Material Cost Variance
2. Material Price Variance
3. Material Usage Variance
4. Material Mix Variance
5. Material Yield Variance

ANSWER

(1) Material Cost Variance = (SQ × SP) – (AQ × AP)

= ₹45,900 – ₹45,400 = ₹500 F

(2) Material Price Variance = (AQ × SP) – (AQ × AP)

= ₹42,600 - ₹45,400 = ₹2,800 A

(3) Material Usage Variance = (SQ × SP) – (AQ × SP)

= ₹45,900 – ₹42,600 = ₹3,300 F

(4) Material Mix Variance = (RSQ × SP) – (AQ × SP)

= ₹43,200 – ₹42,600 = ₹600 F
(5) Material Yield Variance = (SQ × SP) – (RSQ × SP)
= ₹45,900 – ₹43,200 = ₹2,700 F

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Working notes:

(a) Basic Calculation

Materials SQ × SP RSQ × SP AQ × SP AQ × AP
A 510 × ₹50 480 × ₹50 540 × ₹50 540 × ₹60
B 340 × ₹60 320 × ₹60 260 × ₹60 260 × ₹50
Total ₹45,900 ₹43,200 ₹42,600 ₹45,400

(b) SQ of input for actual output:

Input – Loss = Output
Input – 25% Output = Output
Input = 125% Output
Input of Raw Material = 125% × 680 kgs of Good Product = 850 kgs

Materials A = 850 kgs × 60% = 510 kgs

Materials B = 850 kgs × 40% = 340 kgs

(c) RSQ (Revised Standard Quantity) of actual input:

Materials A = 800 kgs × 60% = 480 kgs
Materials B = 800 kgs × 40% = 320 kgs

QUESTION 3

J.K. Ltd. manufactures NXE by mixing three raw materials. For every batch of 100 kg. of
NXE, 125 kg. of raw materials are used. In April, 60 batches were prepared to produce an
output of 5,600 kg. of NXE. The standard and actual particulars for April, are as follows:

Standard Actual Materials

Materials Mix Price per kg Mix Price per kg Purchased
% (₹) % (₹) (kg)
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,200
Calculate all variances.

ANSWER

1. Material Price Variance = (AQP × SP) – (AQP × AP)

(Based on purchase) = ₹1,26,000 - ₹1,28,200 = ₹2,200 A
Or
Material Price Variance = (AQ used × SP) – (AQ used × AP)
(Based on consumption) = ₹1,12,500 - ₹1,15,500 = ₹3,000 A

2. Material Mix Variance = (RSQ × SP) – (AQ × SP)

= ₹1,05,000 – ₹1,12,500 = ₹7,500 A

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3. Material Yield Variance = (SQ × SP) – (RSQ × SP)

= ₹98,000 – ₹1,05,000 = ₹7,000 A

4. Material Usage Variance = (SQ × SP) – (AQ × SP)

= ₹98,000 – ₹1,12,500 = ₹14,500 A

5. Material Cost Variance = MUV + MPV

(based on purchase) = ₹14,500 A + ₹2,200 A = ₹16,700 A
Or
Material Cost Variance = (SQ × SP) – (AQ × AP)
(based on consumption) = ₹98,000 – ₹1,15,500 = ₹17,500 A

Working notes:

a. Basic calculation

Materials SQ × SP RSQ × SP AQC × SP AQC × AP AQP × SP AQP × AP

A 3,500 × ₹20 3,750 × ₹20 4,500 × ₹20 4,500 × ₹21 5,000 × ₹20 5,000 × ₹21
B 2,100 × ₹10 2,250 × ₹10 1,500 × ₹10 1,500 × ₹8 2,000 × ₹10 2,000 × ₹8
C 1,400 × ₹5 1,500 × ₹5 1,500 × ₹5 1,500 × ₹6 1,200 × ₹5 1,200 × ₹6
Total ₹98,000 ₹1,05,000 ₹1,12,500 ₹1,15,500 ₹1,26,000 ₹1,28,200

b. Actual quantity of materials used = 125 kg × 60 batches = 7,500 kgs.

Materials A = 7,500 kgs. × 60% = 4,500 kgs.
Materials B = 7,500 kgs. × 20% = 1,500 kgs.
Materials C = 7,500 kgs. × 20% = 1,500 kgs.

c. RSQ (Revised Standard Quantity) of actual input:

Materials A = 7,500 kgs. × 50% = 3,750 kgs.
Materials B = 7,500 kgs. × 30% = 2,250 kgs.
Materials C = 7,500 kgs. × 20% = 1,500 kgs.

d. SQ of input for actual output = 5,600 kgs × 125 kg/100 kg = 7,000 kgs.
Materials A = 7,000 kgs. × 50% = 3,500 kgs.
Materials B = 7,000 kgs. × 30% = 2,100 kgs.
Materials C = 7,000 kgs. × 20% = 1,400 kgs.

QUESTION 4

Following data is extracted from the books of XYZ Ltd. for the month of January, 2023:

1. Estimation:

Particulars Quantity (kg.) Price (₹) Amount (₹)

Material A 800 ? -
Material B 600 30.00 18,000

Normal loss was expected to be 10% of total input materials.

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2. Actuals: 1480 kg of output produced.

Particulars Quantity (kg.) Price (₹) Amount (₹)

Material A 900 ? -
Material B ? 32.50 -
59,825

3. Other Information:

Material Cost Variance ₹3,625 (F)

Material Price Variance ₹175 (F)

You are required to calculate:

1. Standard Price of Material A;
2. Actual Quantity of Material B;
3. Actual Price of Material A;
4. Revised standard quantity of Material A and Material B; and
5. Material Mix Variance.

ANSWER

1. Material Cost Variance = (SQ × SP) – (AQ × AP)

₹3,625 = (SQ × SP) – ₹59,825
(SQ × SP) = ₹63,450
(SQA × SPA) + (SQB × SPB) = ₹63,450
(940 kg × SPA) + (705 kg ×₹30) = ₹63,450
(940 kg × SPA) + ₹21,150 = ₹63,450
(940 kg × SPA) = ₹42,300
SPA = 42,300 ÷ 940 kg
Standard Price of Material A = ₹45

Working notes:

SQ of input for actual output = 1,480 kg ÷ 90% = 1,645 kgs

Materials A = 1,645 kgs × 8/14 = 940 kgs
Materials B = 1,645 kgs × 6/14 = 705 kgs

2. Material Price Variance (A + B) = (AQ × SP) – (AQ × AP)

₹175 = (AQ × SP) – ₹ 59,825
(AQ × SP) = ₹60,000
(AQA × SPA) + (AQB × SPB) = ₹60,000
(900 kg × ₹45) + (AQB × ₹30) = ₹60,000
(AQB × ₹30) = ₹60,000 - ₹40,500 = ₹19,500
Actual Quantity of Material B = ₹19,500 ÷ ₹30 = 650 kg.

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3. Actual Material Cost (A + B) = (AQ × AP) = ₹59,825

(AQA × APA) + (AQB × APB) = ₹59,825
(900 kg × APA) + (650 kg × ₹ 32.5) = ₹59,825
(900 kg × APA) + ₹21,125 = ₹59,825
(900 kg × APA) = ₹38,700
Actual Price of Material A = ₹38,700 ÷ 900 kg = ₹43

4. Revised Standard Quantity (RSQ) of A & B:

Materials A = (900 + 650) × 8/14 = 886 kgs
Materials B = (900 + 650) × 6/14 = 664 kgs

5. Material Mix Variance (A + B) = (RSQ × SP) – (AQ × SP)

= (886 × 45) + (664 × 30) – 60,000
= ₹210 A

QUESTION 5

NPX Ltd. uses standard costing system for manufacturing of its product X. Following is the
budget data given in relation to labour hours for manufacture of 1 unit of Product X:

Labour Hours Rate (₹)

Skilled 2 6
Semi-Skilled 3 4
Un-Skilled 5 3
Total 10 -

In the month of January, 2023, total 10,000 units were produced following are the details:

Labour Hours Rate (₹) Amount (₹)

Skilled 18,000 7 1,26,000
Semi-Skilled 33,000 3.5 1,15,500
Un-Skilled 58,000 4 2,32,000
Total 1,09,000 - 4,73,500

Actual Idle hours (abnormal) during the month:

Skilled 500
Semi-Skilled 700
Un-skilled 800
Total 2,000

Calculate:
(a) Labour Variances.
(b) Also show the effect on Labour Rate Variance if 5,000 hours of Skilled Labour are
paid @ ₹5.5 per hour and balance were paid @ ₹7 per hour.

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ANSWER

(a) Calculation of Labour Variances:

Labour Cost Variance = (SH × SR) – (AH × AR)

= ₹3,90,000 - ₹4,73,500
= ₹83,500 A

Labour Rate Variance = (AH × SR) – (AH × AR)

= ₹4,14,000 – ₹4,73,500
= ₹59,500 A

Labour Efficiency Variance = (SH × SR) – (AHW × SR)

= ₹3,90,000 – ₹4,05,800
= ₹15,800 A

Labour Mix Variance = (RSH × SR) – (AHW × SR)

= ₹4,17,300 – ₹4,05,800
= ₹11,500 F

Labour Yield Variance = (SH × SR) – (RSH × SR)

= ₹3,90,000 – ₹4,17,300
= ₹27,300 A

Labour Idle Variance = (AHW × SR) – (AH × SR)

= ₹4,05,800 – ₹4,14,000
= ₹8,200 A

(b) Labour Rate Variance revised:

Labour rate Variance = (AH × SR) – (AH × AR)

Skilled = (18,000×6) – (5,000×5.5 + 13,000×7)
= 10,500 A
Semi-Skilled = 33,000 × (4 – 3.5)
= 16,500 F
Un-Skilled = 58,000 × (3 - 4)
= 58,000 A

Total = 10,500 A + 16,500 F + 58,000 A

= ₹52,000 A

Effect on Labour Rate Variance

= Adverse effect decreased by ₹7,500
(₹59,500A to ₹52,000 A)

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STANDARD COSTING

Working notes:

1. Basic Calculation

Workers SH × SR RSH × SR AHW × SR AH × SR AH × AR

Skilled 20,000 × 6 21,400 × 6 17,500 × 6 18,000 × 6 18,000 × 7
Semi-Skilled 30,000 × 4 32,100 × 4 32,300 × 4 33,000 × 4 33,000 × 3.5
Un-Skilled 50,000 × 3 53,500 × 3 57,200 × 3 58,000 × 3 58,000 × 4
Total ₹3,90,000 ₹4,17,300 ₹4,05,800 ₹4,14,000 ₹4,73,500

2. RSH (Revised Standard Hours):

Total Actual Hours Worked = 17,500 + 32,300 + 57,200 = 1,07,000 hours

Skilled = 1,07,000 × 2/10 = 21,400 hours

Semi-Skilled = 1,07,000 × 3/10 = 32,100 hours
Un-Skilled = 1,07,000 × 5/10 = 53,500 hours

3. SH (Standard hours) for actual output 10,000 units:

Skilled = 10,000 × 2 = 20,000 hours

Semi-Skilled = 10,000 × 3 = 30,000 hours
Un-Skilled = 10,000 × 5 = 50,000 hours

QUESTION 6

The cost detail of J&G Ltd. for the month of September, 2023 is as follows:

Particulars Budgeted Actual

Fixed overhead ₹15,00,000 ₹15,60,000
Units of production 7,500 7,800
Standard time for one unit 2 hours -
Actual hours worked - 16,000 hours

Required:
Calculate
(i) Fixed Overhead Cost Variance
(ii) Fixed Overhead Expenditure Variance
(iii) Fixed Overhead Volume Variance
(iv) Fixed Overhead Efficiency Variance and
(v) Fixed Overhead Capacity Variance.

ANSWER

(i) Fixed Overhead Cost Variance = Recovered Fixed OH – Actual Fixed OH

15,00,000
= ×7,800 – ₹15,60,000
7,500
= Nil

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(ii) Fixed OH Expenditure Variance = Budgeted Fixed OH – Actual Fixed OH

= ₹15,00,000 – ₹15,60,000 = 60,000 A

(iii) Fixed OH Volume Variance = Recovered Fixed OH – Budgeted Fixed OH

15,00,000
= ×7,800 – ₹15,00,000 = 60,000 F

(iv) Fixed OH Efficiency Variance = Recovered Fixed OH – Recovered Fixed OH for AH

= SH × SR – AH × SR = ₹15,60,000 - ₹16,00,000
= 40,000 A

(v) Fixed OH Capacity Variance = Recovered Fixed OH for AH - Budgeted

Fixed OH
= ₹16,00,000 - ₹15,00,000
= 1,00,000 F

QUESTION 7

The following standards have been set to manufacture a product:

Direct Material Quantity Rate per Unit (₹) Cost (₹)

Material A 2 units 4 8.00
Material B 3 units 3 9.00
Material C 15 units 1 15.00
Total 32.00

Direct Labour Hours Rate per Hour (₹) Cost (₹)

Labour 3 hours 8 24.00

Total Standard Prime Cost: ₹56.00

The company manufactured and sold 6,000 units of the product during the year. The
actual costs incurred were as follows:
Actual Direct Material Quantity Rate per Unit (₹) Total Cost (₹)
Material A 12,500 units 4.40 -
Material B 18,000 units 2.80 -
Material C 88,500 units 1.20 -

Actual Direct Total Hours Rate per

Details
Labour Worked Hour (₹)
Total Hours 17,500 hours
Paid @ Standard
15,000 hours 8
Rate
₹12 per hour (Over
Paid @ Higher Rate 2,500 hours 12
Standard Rate)
Calculate all materials and labour variances.

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ANSWER

1. Material Price Variance = (AQ × SP) – (AQ × AP)

= ₹1,92,500 - ₹2,11,600 = ₹19,100 A

2. Material Mix Variance = (RSQ × SP) – (AQ × SP)

= ₹1,90,400 – ₹1,92,500 = ₹2,100 A

3. Material Yield Variance = (SQ × SP) – (RSQ × SP)

= ₹1,92,000 – ₹1,90,400
= ₹1,600 F

4. Material Usage Variance = (SQ × SP) – (AQ × SP)

= ₹500 A
= ₹1,92,000 – ₹1,92,500
5. Material Cost Variance = (SQ × SP) – (AQ × AP)
= ₹19,600 A
= ₹1,92,000 – ₹2,11,600

6. Labour Rate Variance = (AH × SR) – (AH × AR)

= (17,500 × ₹8) - (2,500 × ₹12 + 15,000 × ₹8)
= ₹1,40,000 – ₹1,50,000 = ₹10,000 A

7. Labour Efficiency Variance = (SH × SR) – (AH × SR)

= (6,000 × 3 hours × ₹8) - (17,500 × ₹8)
= ₹1,44,000 – ₹1,40,000 = ₹4,000 F

8. Labour Cost Variance = (SH × SR) – (AH × AR)

= ₹1,44,000 - ₹1,50,000 = ₹6,000 A

Working notes:
 Basic calculation in respect of materials:
Materials SQ × SP RSQ × SP AQ × SP AQ × AP
A 12,000 × ₹4.00 11,900 × ₹4.00 12,500 × ₹4.00 12,500 × ₹4.40
B 18,000 × ₹3.00 17,850 × ₹3.00 18,000 × ₹3.00 18,000 × ₹2.80
C 90,000 × ₹1.00 89,250 × ₹1.00 88,500 × ₹1.00 88,500 × ₹1.20
Total ₹1,92,000 ₹1,90,400 ₹1,92,500 ₹2,11,600

 RSQ (Revised Standard Quantity) of actual input:

Total input of materials = 12,500 + 18,000 + 88,500 = 1,19,000 units
Materials A = 1,19,000 × 2/20 = 11,900 units
Materials B = 1,19,000 × 3/20 = 17,850 units
Materials C = 1,19,000 × 15/20 = 89,250 units

 SQ of input for actual output:

Materials A = 6,000 units × 2 units = 12,000 units
Materials B = 6,000 units × 3 units = 18,000 units
Materials C = 6,000 units × 15 units = 90,000 units

CA NOTES COMMUNITY 10
 CA NOTES COMMUNITY NETWORK

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