ILLUSTRATION 1

The standard and actual figures of product ‘Z’ are as under:

Standard Actual
Material quantity 50 units 45 units

Material price per unit ` 1.00 ` 0.80

CALCULATE material cost variances.
SOLUTION

The variances may be calculated as under:

(a) Standard cost = Std. Qty × Std. price = 50 units ×`1.00 = `50
(b) Actual cost = Actual qty. × Actual price = 45 units ×`0.80 = ` 36
Variances:

(i) Price variance = Actual qty (Std. price – Actual price)

= 45 units (`1.00 – `0.80) = ` 9 (F)

(ii) Usage variance = Std. price (Std. qty – Actual qty.)

= `1 (50 units – 45 units) = ` 5 (F)
(iii) Material cost variance = Standard cost – Actual cost
(Total variance) = ` 50 – ` 36 = ` 14 (F)

ILLUSTRATION 2
NXE Manufacturing Concern furnishes the following information:

Standard: Material for 70 kg finished products 100 kg

Price of material ` 1 per kg
Actual: Output 2,10,000 kg
Material used 2,80,000 kg
Cost of Materials ` 2,52,000

CALCULATE: (a) Material usage variance, (b) Material price variance, (c) Material cost
variance.
SOLUTION
100 kg
Standard Quantity of input for actual output (SQ) = 2,10,000 kg ×
70 kg
= 3, 00,000 kg.
Actual Price (AP) = (`2,52,000 ÷ 2, 80,000 kg) = ` 0.90 per kg.
(a) Material Usage Variance = (SQ – AQ) × SP
= (3,00,000 – 2,80,000) × 1= ` 20,000 (F)
(b) Material Price Variance = (SP – AP) × AQ
= (1 – 0.90) × 2,80,000= ` 28, 000 (F)
(c) Material Cost Variance = (SQ × SP) – (AQ × AP)
= (3, 00,000 × 1) – (2, 80,000 × 0.90)

= ` 48, 000 (F)

Check MCV = MPV + MUV

` 48, 000 (F) = ` 28, 000 (F) + `20, 000 (F)

ILLUSTRATION 3
The standard cost of a chemical mixture is as follows:
40% material A at ` 20 per kg
60% material B at ` 30 per kg

A standard loss of 10% of input is expected in production. The cost records for a
period showed the following usage:
90 kg material A at a cost of ` 18 per kg

110 kg material B at a cost of ` 34 per kg

The quantity produced was 182 kg of good product.
CALCULATE (a) Material cost variance, (b) Material price variance, (c) Material usage
variance.
 Basic Calculation
Material Standard for 180 kg. output Actual for 182 kg. output
Qty. Rate Amount Qty Rate Amount
Kg. (`) (`) Kg. (`) (`)
A 80 20 1,600 90 18 1,620
B 120 30 3,600 110 34 3,740
Total 200 5,200 200 5,360
Less: Loss 20   18  
180 5,200 182 5,360
182
Std. cost of actual output = `5,200 × = ` 5, 257.78
180
Calculation of Variances
1. Material Cost Variance = (Std. cost of actual output – Actual cost)
= (5,257.78 – 5,360) = ` 102.22 (A)

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

Material A = (20 – 18) × 90 = ` 180.00 (F)

Material B = (30 – 34)) × 110 = ` 440.00 (A)

MPV = ` 260.00 (A)
3. Material Usage Variance = (Std. Quantity for actual output – Actual
Quantity) × Std. Price
 182 
Material A = 80 90  × 20 = ` 182.22 (A)
 180 
 182 
Material B = 120 110  × 30 = `340.00 (F)
 180 

MUV = `157.78 (F)

 Check
MCV ` 102.22 (A)

MPV `260 (A) MUV `157.78 (F)

ILLUSTRATION 4
ABC Ltd. produces an article by lending two basic raw materials. It operates a standard
costing system and the following standards have been set for raw materials:

Material Standard mix Standard price (` per kg)

A 40% 4
B 60% 3

The standard loss in processing is 15%. During April, the company produced 1,700 kgs.
of finished output.

The position of stock and purchases for the month of April are as under:

Material Stock on Stock on Purchased during

01.04.2021 30.04.2021 April 2021
(Kg.) (Kg.) (Kg.) (`)
A 35 5 800 3,400
B 40 50 1,200 3,000

Opening stock of material is valued at standard price.

CALCULATE the following variances:

(i) Material price variance

(ii) Material usage variance
(iii) Material yield variance

Material mix variance

Total Material cost variance
 Types of material Standard Actual
Qty. Rate Amount Qty. Rate Amount
(Kg.) (`) (`) (Kg.) (`) (`)
A 800 4 3,200 35 4 140.00
795 4.25 3,378.75
B 1200 3 3,600 40 3 120.00
1,150 2.50 2,875.00
Total 2,000 6,800 2,020 6,513.75

(i) Material price variance

= Actual qty. (Std. price – Actual price)

Material A: Since the actual price and standard price in respect of 35 kg. of
raw materials A are same i.e. ` 4, there will be no price variance in respect of
this quantity. Price variance will be in respect of only 795 kg. as given below:

= 795 kg. (` 4 – ` 4.25) = ` 198.75 (A)

Material B: For Material B also, price variance will only be in respect of 1,150
kg. as given below:

= 1,150 kg. (` 3 – ` 2.50) = ` 575 (F)

Total = ` 198.75 (A) + 575 (F) = ` 376.25(F)
(ii) Material usage variance
= (Std. qty. for actual output – Actual qty.) × Std. price

Material A = (800 – 830) × 4 = 120 (A)

Material B = (1,200 – 1,190) × 3 = 30 (F)
` 90 (A)
(iii) Material yield variance
= (Std. qty. - Revised Std. qty.) × Std. Price
Material A = (800 – 808) × 4 = 32 (A)

Material B = (1,200 – 1,212) ×3 = 36 (A)

` 68 (A)

(iv) Material mix variance

= (Revised std. qty. – Actual qty.) × Std. Price
Material A = (808 – 830) × 4 = 88 (A)

Material B = (1,212 – 1,190) × 3= 66 (F)

` 22 (A)

Check
MUV = MMV + MYV
90 (A) = 22 (A) + 68 (A)
(v) Total material cost variance

= Std. cost for actual output – Actual cost = 6,800 – 6,513.75 = 286.25 (F)
Check
MCV = MPV + MUV
286.25 (F) = 376.25 (F) + 90 (A)
Working Notes:
1. Standard quantity for actual output
The standard loss being 15%. It means to produce, 1,700 kg. of the article,
standard quantity of material required is:
100
= ×1, 700 kgs. = 2,000 kg.
85
 Out of 2,000 kg. of material used, 40% is of type A and 60% is of type B, i.e.,

Standard quantity for actual output for:

40
Material A = 2, 000× = 800 kg.
100
60
Material B = 2, 000× = 1,200 kg.
100

2. Actual quantity of material

= Opening stock + Purchases – Closing stock
Material A = 35 + 800 – 5 = 830 kg.

Material B = 40 + 1,200 – 50 = 1,190 kg.

3. Standard cost per unit

Total standard cost
=
Total standard output of std. mix
` 6, 800
= = ` 4 per kg.
1, 700 kg.

4. Revised Standard Quantity

2, 020
Material A = × 800 = 808 kg.
2, 000
 2, 020
Material B = ×1, 200 = 1,212 kg.
2, 000

ILLUSTRATION 5
The standard and actual figures of a firm are as under
Standard time for the job 1,000 hours
Standard rate per hour ` 50
Actual time taken 900 hours
Actual wages paid ` 36,000
CALCULATE variances.

SOLUTION
(a) Std. labour cost (`)

(1,000 hours × `50) 50,000

(b) Actual wages paid 36,000

(a) Actual rate per hour: ` 36,000/900 hours = `40

Variances
(i) Labour Rate variance = Actual time (Std. rate – Actual rate)
= 900 hours (`50 – `40) = `9,000 (F)
(ii) Efficiency variance = Std. rate per hr. (Std. time – Actual time)
= `50 (1,000 hrs. – 900 hrs.) = `5,000 (F)
(iii) Total labour cost variance = Std. labour cost – Actual labour cost
= {(`50 × 1,000 hours) – `36,000}
= (`50,000 – `36,000) = `14,000 (F)
 ILLUSTRATION 6
The standard output of product ‘EXE’ is 25 units per hour in manufacturing
department of a company employing 100 workers. The standard wage rate per labour
hour is ` 6.
In a 42 hours week, the department produced 1,040 units of ‘EXE’ despite 5% of the
time paid being lost due to an abnormal reason. The hourly wages actually paid were
` 6.20, ` 6 and ` 5.70 respectively to 10, 30 and 60 of the workers.
CALCULATE relevant labour variances.

SOLUTION
Working Notes:
1. Calculation of standard man hours
When 100 worker works for 1 hr., then the std. output is 25 units.

Std. man hour per unit = 100 hrs. = 4 hrs.

25 units

2. Calculation of std. man hours for actual output

Total std. man hours = 1,040 units × 4 hrs. = 4,160 hrs.

Standard for actual Actual

Hours Rate Amount No. of Actual Idle Production Rate Amount

(`) (`) workers hours time hours (`) paid
paid hrs. (`)
4,160 6 24,960 10 420 21 399 6.20 2,604

30 1,260 63 1,197 6.00 7,560

60 2,520 126 2,394 5.70 14,364

4,160 6 24,960 100 4,200 210 3,990 24,528

1. Labour cost variance

= Std. labour cost – Actual labour cost

= 24,960 – 24,528 = ` 432 (F)
2. Labour rate variance
= (SR – AR) × AHPaid
= (6 – 6.20) × 420 = 84 (A)
= (6 - 6) × 1260 = NIL
= (6 - 5.70) × 2,520 = 756 (F)
= 672 (F)
3. Labour efficiency variance
= (SH – AH) × SR
= (4,160 – 3,990) × 6 = 1,020 (F)
4. Labour Idle time variance
= Idle Hours × SR
= 210 × 6 = 1,260 (A)
ILLUSTRATION 7
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, 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

Unskilled: 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.

SOLUTION

Working Notes:

Budget Standard for actual Actual

Hours Rate Amount Hours Rate Amount Hours Rate Amount

(`) (`) (`) (`) (`) (`)
Skilled 2 6 12 20,000 6 1,20,000 18,000 7 1,26,000
Semi- 3 4 12 30,000 4 1,20,000 33,000 3.5 1,15,500
skilled
Unskilled 5 3 15 50,000 3 1,50,000 58,000 4 2,32,000
10 39 1,00,000 3,90,000 1,09,000 4,73,500

Idle Hours Hours worked

Skilled 500 17,500
Semi-skilled 700 32,300
Unskilled 800 57,200
2,000 1,07,000

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

Skilled 20,000 × 6 – 18,000× 7 = ` 6,000 (A)
Semi-Skilled 30,000 ×4 – 33,000 × 3.5 = ` 4,500 (F)
 Unskilled 50,000× 3 – 58,000 × 4 = ` 82,000 (A)

Total ` 83,500 (A)

(ii) Labour Rate Variance = (SR – AR )×AHPaid
Skilled (6 – 7) × 18,000 = ` 18,000 (A)

Semi-Skilled (4 – 3.5) × 33,000 = ` 16,500 (F)

Unskilled (3 – 4) × 58,000 = ` 58,000 (A)
Total ` 59,500 (A)

(iii) Labour Efficiency Variance = (SH – AH) × SR

Skilled (20,000 –17,500) ×6 = ` 15,000 (F)
Semi- Skilled (30,000 –32,300) ×4 = ` 9,200 (A)

Unskilled (50,000 –57,200)×3 = ` 21,600 (A)

Total ` 15,800 (A)

(iv) Labour Idle Time Variance = (Idle Hours × SR)

Skilled 500 × 6 = ` 3,000 (A)

Semi- Skilled 700 × 4 = ` 2,800 (A)
Unskilled 800 × 3 = ` 2,400 (A)
Total ` 8,200 (A)
(v) Labour Mix Variance = (RSH – AHWorked )×SR
Std.Hours
Revised Std. hours (RSH) = ×TotalActual Hours
TotalStd.hours
20,000
Skilled ( ×1,07,000 – 17,500) × 6 = ` 23,400 (F)
1,00,000
30,000
Semi- Skilled ( ×1,07,000 – 32,300) × 4 = ` 800 (A)
1,00,000
50,000
Unskilled ( ×1,07,000 - 57,200) × 3 = ` 11,100 (A)
1,00,000

Total ` 11,500 (F)

 (vi) Labour Yield Variance = (SH – RSH) × SR
20,000
Skilled (20,000 – ×1,07,000 ) × 6 =` 8,400 (A)
1,00,000
30,000
Semi- Skilled (30,000 – ×1,07,000 ) × 4 = ` 8,400 (A)
1,00,000
50,000
Unskilled (50,000 - ×1,07,000 ) × 3 = ` 10,500 (A)
1,00,000

Total ` 27,300 (A)

(b) Labour Rate Variance = (SR – AR) ×AHPaid

Skilled (6 – 5.5) ×5,000
(6 – 7) ×13,000 = ` 10,500 (A)

Semi- Skilled (4 – 3.5) ×33,000 = ` 16,500 (F)

Unskilled (3 – 4) × 58,000 = ` 58,000 (A)

Total ` 52,000 (A)

ILLUSTRATION 8

The standard labour employment and the actual labour engaged in a week for a job
are as under:

Skilled Semi-skilled Unskilled

workers workers workers

Standard no. of workers in the gang 32 12 6

Actual no. of workers employed 28 18 4
Standard wage rate per hour 3 2 1
Actual wage rate per hour 4 3 2

During the 40 hours working week, the gang produced 1,800 standard labour hours
of work. CALCULATE:

(a) Labour Cost Variance (b) Labour Rate Variance

(c) Labour Efficiency Variance (d) Labour Mix Variance
(e) Labour Yield Variance
SOLUTION
Workings:
1. Standard hours (SH)for actual hours produced are calculated as below:
1,800
Skilled = × 1,280 = 1,152 hrs.
2,000
1,800
Semi-skilled = × 480 = 432 hrs.
2,000
1,800
Unskilled = × 240 = 216 hrs.
2,000
2. Actual hours (AH) paid are calculated as below:

Category No. of Worker Hours in a week Total Hours

Skilled 28 40 1,120
Semi-skilled 18 40 720
Unskilled 4 40 160
2,000

3. For 40 hours week total Revised standard hours (RSH) will be calculated as
below:

Category No. of Worker Hours in a week Total Hours

Skilled 32 40 1,280
Semi-skilled 12 40 480
Unskilled 6 40 240
2,000

Calculations

Category SH × SR AH × SR AH × AR RSH × SR
of workers
Skilled 1,152 × 3 1,120 × 3 1,120 × 4 1,280 × 3
= 3,456 = 3,360 = 4,480 = 3,840
Semi-skilled 432 × 2 = 864 720 × 2 = 1,440 720 × 3 = 2,160 480 × 2 = 960
Unskilled 216 × 1 = 216 160 × 1 = 160 160 × 2 = 320 240 × 1 = 240
Total ` 4,536 ` 4,960 ` 6,960 ` 5,040
(i) Labour Cost Variance = Std. Cost for hours worked – Actual cost paid
= (SH × SR) – (AH × AR)
= `4,536 – 6,960 = `2,424 (A)

(ii) Labour Rate Variance = AH (SR – AR) or (AH × SR) – (AH × AR)
Skilled = 3,360 – 4,480 = `1,120 (A)
Semi-skilled = 1,440 – 2,160 = `720 (A)
Unskilled = 160 - 320 = `160 (A) 2,000 (A)

(iii) Labour Efficiency Variance= SR (SH – AH) or (SR × SH) – (SR × AH)
Skilled = 3,456 – 3,360 = `96 (F)
Semi-skilled = 864 – 1,440 = `576 (A)
Unskilled = 216 – 160 = `56 (F) `424 (A)
(iv) Labour Mix Variance = SR (RSH – AH) or (SR × RSH) – (SR × AH)

Skilled = 3,840 – 3,360 = `480 (F)

Semi-skilled = 960 – 1,440 = `480 (A)
Unskilled = 240 - 160 = ` 80 (F) `80 (F)

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

Skilled = 3,456 - 3,840 = `384 (A)
Semi-skilled = 864 - 960 = `96 (A)
Unskilled = 216 - 240 = ` 24 (A) `504 (A)

Check

(i) LCV = LRV + LEV

`2,424 (A) = `2,000 (A) + `424 (A)
(ii) LEV = LMV + LYV

`424 (A) = `80 (F) + `504 (A)

ILLUSTRATION 9
From the following information of G Ltd., calculate (i) Variable Overhead Cost
Variance; (ii) Variable Overhead Expenditure Variance and (iii) Variable Overhead
Efficiency Variance:

Budgeted Production 6,000 units

Budgeted Variable Overhead ` 1,20,000
Standard time for one Unit of output 2 hours
Actual Production 5,900 units
Actual Overhead Incurred ` 1,22,000
Actual Hours Worked 11,600 hours

SOLUTION
Workings:
`1,20,000
1. Standard cost per unit = = `20
6,000units
`1,20,000
2. Standard cost per hour = = `10
6,000units×2hours

(i) Variable Overhead Cost Variance:

= Std. Overhead for actual production – Actual overhead incurred
= `20 × 5,900 units – `1,22,000 = `4,000 (A)
(ii) Variable Overhead Expenditure Variance:
= Std. overhead for Actual hours – Actual Overhead
= `10 ×11,600 hours - `1,22,000 = `6,000 (A)
(iii) Variable Overhead Efficiency Variance:

= Std.rate per hour × (Std. hours for actual production – Actual hours)

= `10 (2 hours × 5,900 units – 11,600 hours) = `2,000 (F)

ILLUSTRATION 10
The cost detail of J&G Ltd. for the month of September is as follows:

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.

SOLUTION
(i) Fixed Overhead Cost Variance:
= Overhead absorbed for actual production – Actual overhead incurred
 `15,00,000 
=  ×7,800 -`15,60,000 = 0
7,500 
 
(ii) Fixed Overhead Expenditure Variance:
= Budgeted overhead – Actual overhead
= `15,00,000 - `15,60,000 = `60,000 (A)
(iii) Fixed Overhead Volume Variance:

= Absorbed overhead – Budgeted overhead

 `15,00,000 
=  ×7,800 - `15,00,000 = `60,000 (F)
7,500 
 

(iv) Fixed Overhead Efficiency Variance:

= Std. Rate (Std. hours for actual production - Actual hours)
`15,00,000
= × {(2 hours × 7,800 hours) -16,000 hours}
7,500×2
= `100 (15,600 -16,000) = `40,000 (A)
(v) Fixed Overhead Capacity Variance:

= Std. Rate (Actual hours - Budgeted hours)

` 15,00,000
= × (16,000 hours -15,000 hours}
7,500×2
= `100 (16,000- 15,000) = `1,00,000 (F)

ILLUSTRATION 11
A company has a normal capacity of 120 machines, working 8 hours per day of 25
days in a month. The fixed overheads are budgeted at ` 1,44,000 per month. The
standard time required to manufacture one unit of product is 4 hours.
In April 2021, the company worked 24 days of 840 machine hours per day and
produced 5,305 units of output. The actual fixed overheads were ` 1,42,000.
COMPUTE the following Fixed Overhead variance:
1. Efficiency variance

2. Capacity variance

3. Calendar variance
4. Expenditure variance

5. Volume variance
6. Total Fixed overhead variance
SOLUTION
Working Notes:
Budget Actual
(1) Fixed overheads for the month 1,44,000 1,42,000
(2) Working days per month 25 24
(3) Working hours per month (120 machines × 8 (840 machines
hrs. × 25 days) hours × 24 days)
= 24,000 = 20,160

(4) Production units per month 24,000 hrs. = 6,000 5,305

4 hrs.

(5) Standard hours for actual production

= Actual production units × Std. hours per unit
= 5,305 × 4 = 21,220 hrs.
`1, 44, 000
(6) Standard fixed overhead rate per unit = = ` 24
6000 units
`1, 44, 000
(7) Standard fixed overhead rate per hour = = `6
24, 000 hrs.

(8) Standard fixed overhead per day = `1, 44,000 = ` 5,760

25 days

1. Efficiency variance
= Std. rate per hr. (Std. hrs. for actual production – Actual hrs.)
= 6 × (21,220 – 20,160) = ` 6,360 (F)
2. Capacity variance
= Std. Rate (Actual hours - Budgeted hours)
= 6 × {20,160 – (24 days × 120 machine × 8 hrs.)} = ` 17,280 (A)
3. Calendar variance
= (Actual No. of days – Budgeted No. of days) × Std. rate per day
= (24 – 25) × 5,760 = ` 5,760 (A)
4. Expenditure variance
= Budgeted overhead – Actual overhead
= 1,44,000 – 1,42,000 = ` 2,000 (F)
5. Volume variance
= Absorbed overhead – Budgeted overhead
= (5,305 × 24) – 1,44,000 = ` 16,680 (A)
6. Total fixed overhead Variance
= Absorbed overhead – Actual overhead incurred
= (5,305 × 24) – 1,42,000 = ` 14,680 (A)
ILLUSTRATION 12
The overhead expense budget for a factory producing to a capacity of 200 units per
month is as follows:

Description of overhead Fixed cost Variable cost per Total cost

per unit in ` unit in ` per unit in `
Power and fuel 1,000 500 1,500
Repair and maintenance 500 250 750
Printing and stationary 500 250 750
Other overheads 1,000 500 1,500
` 3,000 ` 1,500 4,500

The factory has actually produced only 100 units in a particular month. Details of
overheads actually incurred have been provided by the accounts department and are
as follows:

Description of overhead Actual cost

Power and fuel ` 4,00,000
Repair and maintenance ` 2,00,000
Printing and stationary ` 1,75,000
Other overheads ` 3,75,000

You are required to CALCULATE the Overhead volume variance and the overhead
expense variances.
SOLUTION
Overheads volume variance (in case of fixed overhead):
Standard fixed overheads per unit (SR): `3,000 (Given)
Actual production : 100 units

Standard production (capacity) : 200 units

Fixed Overhead Volume Variance:
= Absorbed overhead – Budgeted Overhead
= (`3,000× 100 units) – (`3,000× 200 units)
= `3,00,000 - `6,00,000 = `3,00,000 (Adverse)
Overhead expense variances
= Budgeted Overhead – Actual Overhead
= (`3,000 × 200 units) – (Total overhead – Variable overhead)
= (`3,000 × 200 units) – (`11,50,000 - `1,500×100 units)

= `6,00,000 – (`11,50,000 - `1,50,000)

= `6,00,000 –`10,00,000 = `4,00,000 (Adverse)

ILLUSTRATION 13

The following information was obtained from the records of a manufacturing unit
using standard costing system.
Standard Actual
Production 4,000 units 3,800 units
Working days 20 21
Machine hours 8,000 hours 7,800 hours
Fixed Overhead ` 4,00,000 ` 3,90,000
Variable Overhead `1,20,000 `1,20,000

You are required to CALCULATE the following overhead variance:

(a) Variable overhead variances

(b) Fixed overhead variances

SOLUTION
(a) Variable Overhead Variances
(i) Variable Overhead Variance:
= Std. overhead for actual production – Actual overhead
`1,20,000
= �4,000 units×3,800 units�- `1,20,000
= `1,14,000 – `1,20,000 = `6,000 (A)
(ii) Variable Overhead Expenditure Variance:
= Std. overhead for actual hours – Actual overhead
` 1,20,000
= �8,000 hours ×7,800 hours�- `1,20,000
= `15 × 7,800 hours - `1,20,000 = `3,000 (A)
(iii) Variable Overhead Efficiency Variance:
= Std. Rate per hour (Std. hours for actual production – Actual hours)
 8,000hours  
`1,20,000
= 8,000 hours ×  4,000units ×3,800units -7,800hours 
  

= `15 × (7,600 hours – 7,800 hours) = `3,000 (A)

(b) Fixed Overhead Variance:

(i) Fixed Overhead Variance:

= Absorbed overhead – Actual overhead

 ` 4,00,000 
=  ×3,800units   - `3,90,000
4,000units 
 

= `3,80,000 - `3,90,000 = 10,000 (A)

(ii) Fixed Overhead Expenditure Variance:

= Budgeted Overhead – Actual Overhead

= `4,00,000 - `3,90,000 = `10,000 (F)
(iii) Fixed Overhead Volume Variance:
= Absorbed overhead – Budgeted Overhead
 ` 4,00,000 
= ×3,800 units  - `4,00,000
  
4,000 units 
 

= ` 3,80,000 - `4,00,000 = `20,000 (A)

(iv) Fixed Overhead Efficiency Variance:

= SR × (Std. hours for actual production – Actual hours)

= `50 × {(2 hours × 3,800 units) – 7,800 hours}

= `3,80,000 - `3,90,000 = `10,000 (A)

(v) Fixed Overhead Capacity Variance:

= SR × (Actual hours – Revised budgeted hours)
 8,000 
= `50 ×  7,800 hours- ×21 days 
20 days 
 

= `50 × (7,800 hours – 8,400 hours) = `30,000 (A)

(vi) Fixed Overhead Calendar Variance:

= Rate per day (Budgeted days – Actual days)
`4,00,000
= ×(20 days – 21 days) = 20,000 (F)
20 days

TEST YOUR KNOWLEDGE

Multiple Choice Questions (MCQs)
1. Under standard cost system the cost of the product determined at the beginning
of production is its:
(a) Direct cost

(b) Pre-determined cost

(c) Historical cost

(d) Actual cost
2. The deviations between actual and standard cost is known as:

(a) Multiple analysis

(b) Variable cost analysis
 (c) Variance analysis
(d) Linear trend analysis
3. The standard which is attainable under favourable conditions is:

(a) Theoretical standard

(b) Expected standard
(c) Normal standard

(d) Basic standard

4. The standard most suitable from cost control point of view is:
(a) Normal standard

(b) Theoretical standard

(c) Expected standard
(d) Basic standard

5. Overhead cost variances is:

(a) The difference between overheads recovered on actual output - actual

overhead incurred.
(b) The difference between budgeted overhead cost and actual overhead cost.
(c) Obtained by multiplying standard overhead absorption rate with the
difference between standard hours for actual output and actual hours
worked.
(d) None of the above
6. Which of the following variance arises when more than one material is used
in the manufacture of a product:

(a) Material price variance

(b) Material usage variance

(c) Material yield variance

(d) Material mix variance
7. If standard hours for 100 units of output are 400 @ ` 2 per hour and actual
hours take are 380 @ ` 2.25 per, then the labour rate variance is:
(a) ` 95 (adverse)
(b) ` 100 (adverse)
(c) ` 25 (favourable)
(d) ` 120 (adverse)
8. Controllable variances are best disposed-off by transferring to:

(a) Cost of goods sold

(b) Cost of goods sold and inventories
(c) Inventories of work–in–progress and finished goods

(d) Costing profit and loss account

9. Idle time variance is obtained by multiplying:
(a) The difference between standard and actual hours by the actual rate of
labour per hour

(b) The difference between actual labour hours paid and actual labour hours
worked by the standard rate

(c) The difference between standard and actual hours by the standard rate of
labour per hour
(d) None of the above.
10. Basic standards are:
(a) Those standards, which require high degree of efficiency and performance.

(b) Average standards and are useful in long term planning.

(c) Standards, which can be attained or achieved
(d) Assuming to remain unchanged for a long time.
Theoretical Questions
1. DISCUSS the process of setting standards.

2. DISCUSS the types of standards.

3. HOW material usage standard is set

4. DISCUSS the various types of fixed overhead variances.

Practical Problems
1. For making 10 kg. of CEMCO, the standard material requirements is:

Material Quantity Rate per kg. (`)

A 8 kg 6.00
B 4 kg 4.00

During April, 1,000 kg of CEMCO were produced. The actual consumption of

materials is as under:

Material Quantity (Kg.) Rate per kg. (`)

A 750 7.00
B 500 5.00

CALCULATE (A) Material Cost Variance; (b) Material Price Variance; (c)
Material usage Variance.
2. The standard mix to produce one unit of a product is as follows:
Material X 60 units @ ` 15 per unit = 900
Material Y 80 units @ ` 20 per unit = 1,600

Material Z 100 units @ ` 25 per unit = 2,500

240 units 5,000

During the month of April, 10 units were actually produced and consumption
was as follows:
Material X 640 units @ ` 17.50 per unit = 11,200
Material Y 950 units @ ` 18.00 per unit = 17,100
 Material Z 870 units @ ` 27.50 per unit = 23,925

2,460 units 52,225

CALCULATE all material variances.
3. GAP Limited operates a system of standard costing in respect of one of its
products which is manufactured within a single cost centre. Following are
the details.
Budgeted data:

Material Qty Price (`) Amount (`)

A 60 20 1200
B 40 30 1200

Inputs 100 2400

Normal loss 20
Output 80 2400

Actual data:
Actual output 80 units.
Material Qty Price (`) Amount (`)
A 70 ? ?
B ? 30 ?

Material Price Variance (A) ` 105A

Material cost variance ` 275A

You are required to CALCULATE:
(i) Actual Price of material A
(ii) Actual Quantity of material B

(iii) Material Price Variance

(iv) Material Usage Variance
 (v) Material Mix Variance
(vi) Material Sub Usage Variance
4. One kilogram of product K requires two chemicals A and B. The following were
the details of product K for the month of June 2023:
(a) Standard mix for chemical A is 50% and chemical B is 50%.
(b) Standard price kilogram of chemical A is ` 12 and chemical B is ` 15.
(c) Actual input of chemical B is 70 kilograms.
(d) Actual price per kilogram of chemical A is ` 15

(c) Standard normal loss is 10% of total input

(d) Total Material cost variance is ` 650 adverse.

(e) Total Material yield variance is ` 135 adverse.

You are required to CALCULATE:
(i) Total Material mix variance
(ii) Total Material usage variance
(iii) Total Material price variance

(iv) Actual loss of actual input

(v) Actual input of chemical A

(vi) Actual price per kg. of chemical B

5. The following standards have been set to manufacture a product:

Direct Material: (`)

2 units of A @ ` 4 per unit 8.00
3 units of B @ ` 3 per unit 9.00
15 units of C @ ` 1 per unit 15.00
32.00
Direct Labour: 3 hours @ ` 8 per hour 24.00
Total standard prime cost 56.00
 The company manufactured and sold 6,000 units of the product during the
year. Direct material costs were as follows:

12,500 units of A at ` 4.40 per unit

18,000 units of B at ` 2.80 per unit
88,500 units of C at ` 1.20 per unit
The company worked 17,500 direct labour hours during the year. For 2,500 of these
hours, the company paid at ` 12 per hour while for the remaining, the wages were
paid at standard rate.
CALCULATE
(i) Materials price variance & Usage variance

(ii) Labour rate &Efficiency variances.

6. The following information is available from the cost records of Novell & Co. for
the month of March 2021:

Materials purchased 20,000 units @ ` 88,000

Materials consumed 19,000 units
Actual wages paid for 4,950 hrs. ` 24,750
Units produced 1,800 units
Standard rates and pieces are:
Direct material ` 4 per unit
Standard output 10 number for one unit
Direct labour rate ` 4.00 per hour
Standard requirement 2.5 hours per unit

You are required to CALCULATE relevant material and labour variance for the
month.
7. XYZ Company has established the following standards for factory overheads.
Variable overhead per unit: ` 10/-
Fixed overheads per month ` 1,00,000
 Capacity of the plant 20,000 units per month.
The actual data for the month are as follows:
Actual overheads incurred ` 3,00,000
Actual output (units) 15,000 units

Required:
CALCULATE overhead variances viz:
(i) Production volume variance

(ii) Overhead expense variance

8. Following information is available from the records of a factory:

Budget Actual
Fixed overhead for the month of June ` 10,000 ` 12,000
Production in June (units) 2,000 2,100
Standard time per unit (hours) 10 –
Actual hours worked in June – 21,000

CALCULATE:

(i) Fixed overhead cost variance,

(ii) Expenditure variance,
(iii) Volume variance.
9. XYZ Ltd. has furnished you the following information for the month of
August:

Budget Actual
Output (units) 30,000 32,500
Hours 30,000 33,000
Fixed overhead ` 45,000 50,000
Variable overhead ` 60,000 68,000
Working days 25 26

CALCULATE overhead variances.

10. S.V. Ltd. has furnished the following data:

Budget Actual (for the month of July)

No. of working days 25 27
Production in units 20,000 22,000
Fixed overheads ` 30,000 ` 31,000

Budgeted fixed overhead rate is ` 1.00 per hour. In July, the actual hours
worked were 31,500.
CALCULATE the following variances:
(i) Expenditure variance.
(ii) Volume variance.

(iii) Total overhead variance.

11. The following data for Pijee Ltd. is given:

Budget Actual
Production (in units) 400 360
Man hours to produce above 8,000 7,000
Variable overheads (in `) 10,000 9,150

CALCULATE relevant Variable overhead variances.

12. The following data has been collected from the cost records of a unit for
computing the various fixed overhead variances for a period:

Number of budgeted working days 25

Budgeted man-hours per day 6,000
Output (budgeted) per man-hour (in units) 1
Fixed overhead cost as budgeted ` 1,50,000
Actual number of working days 27
Actual man-hours per day 6,300
Actual output per man-hour (in-units) 0.9
Actual fixed overhead incurred ` 1,56,000
 CALCULATE fixed overhead variances:
(i) Expenditure Variance
(ii) Volume Variance,

(iii) Fixed Cost Variance.

13. 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 the month of April,
60 batches were prepared to produce an output of 5,600 kg. of NXE. The
standard and actual particulars for the month of April, are as follows:

Raw Standard Actual Quantity of

Materials Mix Price per kg. Mix Price per Kg. Raw Materials
Purchased
(%) (`) (%) (`) (Kg.)
A 50 20 60 21 5,000
B 30 10 20 8 2,000
C 20 5 20 6 1,200

You are required to CALCULATE:

(i) Material Price variance

(ii) Material Usage Variance

14. Following data is extracted from the books of XYZ Ltd. for the month of January:
(i) 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.
 (ii) Actuals-

1480 kg of output produced.

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

Material-A 900 ? --
Material-B ? 32.50 --
59,825
(iii) Other Information-

Material Cost Variance = ` 3,625 (F)

Material Price Variance = ` 175 (F)

You are required to CALCULATE:
(i) Standard Price of Material-A;
(ii) Actual Quantity of Material-B;
(iii) Actual Price of Material-A;

(iv) Revised standard quantity of Material-A and Material-B; and

(v) Material Mix Variance.

15. Paras Synthetics uses Standard costing system in manufacturing of its product
‘Star 95 Mask’. The details are as follows;

Direct Material 0.50 Meter @ ` 60 per meter ` 30

Direct Labour 1 hour @ ` 20 per hour ` 20
Variable overhead 1 hour @ ` 10 per hour ` 10
Total ` 60
During the month of August, 10,000 units of ‘Star 95 Mask’ were manufactured.
Details are as follows:

Direct material consumed 5700 meters @ ` 58 per meter

Direct labour Hours ? @ ? ` 2,24,400

Variable overhead incurred ` 1,12,200
 Variable overhead efficiency variance is ` 2,000 A. Variable overheads are based
on Direct Labour Hours.
You are required to calculate the missing data and all the relevant Variances.

ANSWERS/ SOLUTIONS
Answers to the MCQs
1. (b) 2. (c) 3. (a) 4. (c) 5. (a) 6. (d)

7. (a) 8. (d) 9. (b) 10. (d)

Answers to the Theoretical Questions

1. Please refer paragraph 4
2. Please refer paragraph 2
3. Please refer paragraph 7.1
4. Please refer paragraph 7.4

Answers to the Practical Problems

1. Basic Calculations

Standard for 1,000 kg. Actual for 1,000 kg.

Qty. Rate Amount Qty. Rate Amount
Kg. (`) (`) Kg. (`) (`)
A 800* 6 4,800 750 7 5,250
B 400* 4 1,600 500 5 2,500
Total 1,200 6,400 1,250 7,750

(* A- 8÷10 ×1000 = 800 B- 4÷10 × 1000 = 400)

Calculation of Variances:
(a) Material Cost Variance = Std. cost for actual output – Actual cost
MCV = 6,400 – 7,750 = `1, 350 (A)
 (b) Material Price Variance = (SP – AP) × AQ

A = (6 – 7) × 750 = ` 750 (A)

B = (4 – 5) × 500 = ` 500 (A)

MPV = `1,250 (A)

(c) Material Usages Variance = (SQ – AQ) × SP

A = (800 – 750) × 6 = ` 300 (F)
B = (400 – 500) × 4 = ` 400 (A)

MUV = ` 100 (A)

Check
MCV = MPV + MUV

1,350 (A) = 1,250 (A) + 100 (A)

2.
Material Standard for 10 units Actual for 10 units
Qty. Rate Amount Qty. Rate Amount
Units (`) (`) units (`) (`)
X 600 15 9,000 640 17.50 11,200
Y 800 20 16,000 950 18.00 17,100
Z 1,000 25 25,000 870 27.50 23,925
Total 2,400 50,000 2,460 52,225

1. Material Cost Variance = Standard cost – Actual cost

= ` 50,000 – ` 52,225

MCV = ` 2,225 (A)

2. Material Price Variance = (Std. Price – Actual Price) × Actual Qty.

Material X = (15 – 17.50) × 640 = ` 1,600 (A)

Material Y = (20 – 18) × 950 = ` 1,900 (F)

Material Z = (25 – 27.50) × 870 = ` 2,175 (A)
MPV = ` 1,875 (A)
3. Material Usage Variance= (Std. Qty. – Actual Qty.) × Std. Price
Material X = (600 – 640) × 15 =` 600 (A)
Material Y = (800 – 950) × 20 = ` 3,000 (A)

Material Z = (1,000 – 870) × 25 = ` 3,250 (F)

MUV = ` 350 (A)
Check MCV = MPV + MUV
` 2,225 (A) = ` 1,875 (A) + ` 350 (A)
4. Material Mix Variance = (Revised Std. Qty. – Actual Qty.) × Std. Price

Material X = (615* – 640) × 15 = ` 375 (A)

Material Y = (820* – 950) × 20 = `2,600 (A)
Material Z = (1,025 – 870) × 25 = `3,875 (F)
MMV = ` 900 (F)

*Revised Standard Quantity (RSQ) is calculated as follows:

2460
Material X = × 600 = 615 units
2400
2460
Material Y = × 800 = 820 units
2400
2460
Material Z = × 1,000 = 1,025 units
2400
5. Material Yield Variance = (Std. Qty - Revised Std. Qty.) × Std. Price
Material X = (600 - 615) × 15 = `225 (A)

Material Y = (800 - 820) × 20 = `400 (A)

Material Z = (1,000 - 1,025) × 25 = `625 (A)

MYV = `1,250 (A)

Check
MUV = MMV + MYV (Or MRUV)
`350 (A) = `900 (F) + `1,250 (A)
 or

MCV = MPV + MMV + MYV (Or MRUV)

` 2,225 (A) = ` 1,875 (A) + `900 (F) + ` 1,250 (A)
3. (i) Actual Price of Material A

Let Actual Price of Material A be ‘X’

Material Price Variance (A) = ` 105 (A)
Material Price Variance = (SP – AP) × AQ
(20 – X) × 70 = 105 (A)
1,400 – 70X = -105
X = 1,505 ÷ 70 = 21.5

Therefore X (Actual Price) = ` 21.5

(ii) Actual Quantity of Material B
Let Actual Quantity of Material B be ‘X ‘
Material Cost Variance = (SQ× SP) – (AQ× AP)
Material Cost Variance = 275 (A)
{(60 × 20) – (70 × 21.5)} + {(40 × 30) – (‘X’ × 30)} = 275 (A)

{(1,200 – 1,505) + (1,200 – 30X)} = -275

(895 – 30X) = -275
X = 1,170 ÷ 30 = 39 units
(iii) Material Price Variance = (SP – AP) × AQ

Material A = (20 – 21.5) × 70 = ` 105 (A)

Material B = (30 – 30) × 39 =`0
Total = ` 105 (A)
 (iv) Material Usage Variance = (SQ– AQ) × SP
Material A = (60 – 70) × 20 = ` 200 (A)
Material B = (40 – 39) × 30 = ` 30 (F)

Total = ` 170 (A)

(v) Material Mix Variance = (RSQ– AQ) × SP
109
Material A = ( ×60 – 70) × 20 = ` 92 (A)
100
109
Material B = ( ×40 – 39) × 30 = ` 138 (F)
100
Total = ` 46 (F)

(vi) Material Yield Variance = (SQ – RSQ) × SP

109
Material A = (60 - ×60 ) × 20 = ` 108 (A)
100
109
Material B = (40 – ×40 ) × 30 = ` 108 (A)
100
Total = ` 216 (A)
4. Working Notes:
(1) Calculation of standard mix of input (assuming Standard input
as 100 kg)

Qty. (Kg) Price (`) Amount (`)

Chemical A 50 12 600
Chemical B 50 15 750
100 13.50 1,350
Normal Loss (10%) (10)
90 1,350
(2) Let the actual input of chemical A be X kg. and the actual price of
chemical B be ` Y.
Given,
Material yield variance = (Total standard input – Total Actual input) x
Standard cost per unit of input
= [100 – (70 + X)] x 13.5 = 135 (A)
Therefore, X = 40 kg.
Also, Material cost variance= (Standard quantity x Standard price) –
(Actual quantity x Actual price)
= 1,350 – {(40 x 15) + (70 x Y)} = 650 (A)
= 1,350 – 600 – 70Y = 650A
Therefore, Y = ` 20
(i) Material mix variance
= (Revised Std. Quantity* – Actual quantity) x Standard Price
Chemical A = (55 – 40) x 12 = 180 (F)

Chemical B = (55 - 70) x 15 = 225 (A)

= ` 45 (A)
*Revised Std. Quantity:

Chemical A = (70 + 40) x 50% = 55

Chemical B = (70 + 40) x 50% = 55
(ii) Material usage variance
= (Std. qty. – Actual qty.) × Std. price
Chemical A = (50 – 40) × 12 = 120 (F)
Chemical B = (50 – 70) × 15 = 300 (A)
= ` 180 (A)
 (iii) Material price variance
= (Std. price – Actual price) × Actual qty.
Chemical A = (12 – 15) × 40 = 120 (A)
Chemical B = (15 – 20) × 70 = 350 (A)

= ` 470 (A)

(iv) Actual loss of actual input

Actual total input = 110 kg.
Less: Actual output = 90 kg.
Actual loss = 20 kg.
(v) Actual input of chemical A = 40 kg. [As calculated in Working note (2)].

(vi) Actual price per kg. of chemical B = ` 20 [As calculated in

Working note (2)].
5. For Material Cost Variances

SQ × SP AQ × AP AQ × SP
A 12,000 × 4 = 48,000 12,500 × 4.40 12,500 × 4 = 50,000
= 55,000
B 18,000 × 3 = 54,000 18,000 × 2.80 18,000 × 3 = 54,000
= 50,400
C 90,000 × 1 = 90,000 88,500 × 1.20 88,500 × 1 = 88,500
= 1,06,200
Total ` 1,92,000 ` 2,11,600 `1,92,500

Variances:

Material Price Variance = Actual quantity (Std. price – Actual price)

Or, = (AQ × SP) – (AQ × AP)

Or, = ` 1,92,500 – `2,11,600

= ` 19,100 (A)
 Material Usage Variance = Standard Price (Std. Quantity – Actual Quantity)

Or, = (SP × SQ) – (SP × AQ)

Or, = ` 1,92,000 – ` 1,92,500 = ` 500 (A)
For Labour Cost Variance :

SH × SR AH × AR AH × SR
Labour (6,000 × 3) ×` 8 2,500 × 12 = 30,000 17,500 × 8 =
= 1,44,000 15,000 × 8 = 1,20,000 1,40,000
Total ` 1,44,000 ` 1,50,000 ` 1,40,000

Variances:
Labour Rate Variance: Actual Hours (Std. Rate – Actual Rate)

Or, = (AH × SR) – (AH × AR)

Or, = `1,40,000 – `1,50,000
= `10,000 (A)

Labour Efficiency Variance: Standard Rate (Std. Hours – Actual Hours)

Or, = (SR × SH) – (SR × AH)
Or, = `1,44,000 – `1,40,000

= `4,000 (F)

6. Material variances
1. Material cost variance
= (Std. qty for actual output* × Std. price) – (Actual qty. × Actual price)

= (18,000 × 4) – (19,000 × 4.40)

= 72,000 – 83,600 = ` 11,600 (A)

* Std. qty. for actual output = 1,800 × 10 = 18,000 units

2. Material price variance

= (Std. price – Actual price) × Actual qty.
= (4 - 4.40) × 19,000 = 0.40 × 19,000 = ` 7,600 (A)
 3. Material usage variance
= (Std. qty. – Actual qty.) × Std. price
= (18,000 – 19,000) × 4 = 1,000 × 4 = ` 4,000 (A)

Labour variances
1. Labour cost variance
= (Std. hours for actual output* × Std. price) – Actual cost

= (4,500 × 4) – 24,750
= 18,000 – 24,750 = ` 6,750 (A)
*Std. hours for actual output = 1,800 × 2.5 = 4,500 hrs.

2. Labour rate variance

= (Std. rate – Actual rate) × Actual hrs.
= ( 4 – 5 ) × 4,950 = ` 4,950 (A)

3. Labour efficiency variance

= (Std. hrs. for actual output – Actual hrs.) × Std. rate
= ( 4,500 – 4,950)× 4 = ` 1,800 (A)

7. Production/ Overhead volume variance (only for fixed overhead)

Fixed Overhead Volume Variance:
= Absorbed overhead – Budgeted Overhead

= (`5 × 15,000 units) – (`5 × 20,000 units)

= `75,000 -`1,00,000 =`25,000 (Adverse)

Overhead expense variances

= Budgeted Overhead – Actual Overhead

= (`5× 20,000 units) – (Total overhead – Variable overhead)

= (`5× 20,000 units) – (`3,00,000 - `10×15,000 units)

= `1,00,000 – (`3,00,000 - `1,50,000)
= `1,00,000 –`1,50,000 = ` 50,000 (Adverse)
8. For fixed overhead variances:

Actual F.O. incurred (given) `12,000

Budgeted F.O. for the period `10,000
Standard F.O. for production
2,100 units × {`10,000 ÷ 2,000 units} `10,500

(i) Fixed Overhead Variance = Standard F.O. – Actual F.O.

= ` 10,500 – `12,000

= `1,500 (A)
(ii) F.O. Expenditure Variance = Budgeted F.O – Actual F.O.
= `10,000 – `12,000
= `2,000 (A)
(iii) F.O. Volume Variance = Standard F.O – Budgeted F.O.
= `10,500 – ` 10,000 = ` 500 (F)
9. Basic Calculations:
Budgeted hours 30,000
Standard hours per unit = = = 1 hour
Budgeted units 30,000

Std. hrs. for actual output = 32,500 units × 1 hr = 32,500

Budgeted overhead
Standard overhead rate per hour =
Budgeted hours
45,000
For fixed overhead = = `1.50 per hour
30,000
60,000
For variable overhead = = `2 per hour
30,000

Std. F.O. rate per day = `45,000 ÷ 25 days = `1,800

Recovered overhead = Std. hrs. for actual output × St. rate

For fixed overhead = 32,500 hrs. × `1.50 = `48,750

For variable overhead = 32,500 hrs. × `2 = `65,000

Standard overhead = Actual hours × Std. rate

For fixed overhead = 33,000 × 1.50 = `49,500

For variable overhead = 33,000 × 2 = `66,000

Revised budget hours = Budgeted hours × Actual days
Budgeted days
30,000
= × 26 = 31,200 hours
25

Revised budgeted overhead (for fixed overhead) = 31,200 × 1.50 = `46,800

Calculation of variances
Fixed Overhead Variances:

(i) F.O. cost Variance = Recovered Overhead – Actual Overhead

= 48,750 – 50,000
= `1,250 (A)

(ii) F.O. Expenditure Variance = Budgeted Overhead – Actual Overhead

= 45,000 – 50,000
= ` 5,000 (A)

(iii) F.O. Volume Variance = Recovered Overhead – Budgeted Overhead

= 48,750 – 45,000
= ` 3,750 (F)

(iv) F.O. Efficiency Variance = Recovered Overhead – Standard Overhead

= 48,750 – 49,500 = `750 (A)

(v) F.O. Capacity Variance = Standard Overhead- Revised Budgeted

Overhead
= 49,500-46800 =` 2,700 (F)
(v) Calendar Variance = (Actual Days - Budget Days) × St. rate per day.

= (26 – 25) × 1,800 = `1,800 (F)

 Variable Overhead Variances

(i) V.O. Cost variance = Recovered Overhead – Actual Overhead

= 65,000 – 68,000 = ` 3,000 (A)

(ii) V.O.Expenditure Variance= Standard Overhead – Actual Overhead

= 66,000 – 68,000 = ` 2,000 (A)

(iii) V.O. Efficiency Variance = Recovered Overhead – Standard Overhead

= 65,000 – 66,000 = `1,000 (A)

Check

(i) F.O. Cost Variance = Expenditure variance + Volume variance

1,250 (A) = 5,000 (A) + 3,750 (F)

(ii) Efficiency Capacity Calendar
F.O. Volume Variance = + +
Variance Variance Variance

3,750 (F) = 750 (A) + 2,700 (F) + 1,800 (F)

(iii) V.O. Cost Variance = Expenditure Variance + Efficiency Variance

3,000 (A) = 2,000 (A) + 1,000 (A).

10. For Fixed Overhead Variances

Actual fixed overhead incurred ` 31,000

Budgeted fixed overhead for the period `30,000

Standard fixed overhead for production

(` 30,000 ÷ 20,000 units) × 22,000
`33,000

Computation of Variances:

(i) Fixed overhead expenditure variance:

= Budgeted fixed overhead – Actual fixed overhead
= ` 30,000 – ` 31,000 = ` 1,000 (A)
 (ii) Fixed overhead volume variance:

= Standard fixed overhead – Budgeted fixed

overhead

= ` 33,000 – ` 30,000 = ` 3,000 (F)

(iii) Fixed overhead variance:

= Standard fixed overhead – Actual fixed overhead

= ` 33,000 – ` 31,000 = ` 2,000 (F)
11. Working Notes:

1. Calculation of standard variable overhead per unit

Budgeted variable overhead 10, 000
= = = ` 25 per unit
Budgeted production 400

2. Calculation of standard variable overhead per hour

Budgeted variable overhead 10, 000
= = = ` 1.25 per hour
Budgeted man hours 8, 000

3. Calculation of Std. variable overhead for actual output

= Actual output × Std. variable overhead per unit
= 360 units × ` 25 = ` 9,000
4. Calculation of Budgeted variable overhead based on actual hours
worked

= Actual hours worked × Std. variable overhead per hour

= 7,000 × 1.25 = ` 8,750

5. Calculation of standard hours for actual output

= Actual output × Std. hours per unit

= 360 units × 20 hours = 7,200 hours
(i) Variable overhead cost variance
= Std. variable overhead for actual output – Actual Variable Overheads
= 9,000 – 9,150 = ` 150 (A)
 (ii) Variable overhead expenditure variance

= Std. overhead for Actual hours – Actual Overhead

= 8,750 – 9,150 = ` 400 (A)
(iii) Variable overhead efficiency variance

= (Std. hours for actual output – Actual hours) × Std. rate per hour
= (7,200 – 7,000) × 1.25 = ` 250 (F)
12. For Fixed overheads Variances:

Actual fixed overhead incurred = ` 1,56,000

Budgeted fixed overhead for the period = 1,50,000
Standard fixed overhead for production (Standard output for actual time ×
Standard Fixed Overhead per unit)
(6,300 hrs × 27 days × 0.9) × (` 1,50,000 ÷ 1,50,000 units) = ` 1,53,090
(a) Fixed Overhead = Budgeted fixed overhead –
Expenditure Actual fixed overhead
Variance
= `1,50,000 – `1,56,000 = ` 6,000 (A)
(b) Fixed Overhead = Standard fixed overhead –
Volume Variance Budgeted fixed overhead
= `1,53,090 – ` 1,50,000 = ` 3,090 (F)
(c) Fixed Overhead = Standard fixed overhead –
Variance Actual fixed overhead
= `1,53,090 – ` 1,56,000 = ` 2,910 (A)

13. Actual material used = 125 kg × 60 = 7,500 kg.

Actual cost of actual material used (AQ × AR) (`)

A (60%) 4,500 kg × `21 = 94,500

B (20%) 1,500 kg × ` 8 = 12,000
C (20%) 1,500 kg × ` 6 = 9,000
7,500 1,15,500
Standard cost of actual material used (AQ × SR) (`)

A 4,500 kg × `20 = 90,000

B 1,500 kg × `10 = 15,000
C 1,500 kg × ` 5 = 7,500
7,500 1,12,500
Standard cost of material, if it had been used in standard proportion
(Standard Proportion  Standard Rate) (`)
A (50%) 3,750 kg × `20 = 75,000
B (30%) 2,250 kg × `10 = 22,500
C (20%) 1,500 kg × ` 5 = 7,500
7,500 1,05,000

Standard cost of production (SQ for actual production  SR)

Standard cost of output for 100 kg: (`)

A 62.50 kg × `20 = 1,250

B 37.50 kg × `10 = 375
C 25.00 kg × ` 5 = 125
125.00 1,750

Standard cost for output of 5,600 kg.

1,750
= kg × 5,600 kg. = ` 98,000
100
Material Price Variance = Standard cost of actual material used – Actual cost
of actual material used = ` 1,12,500 – ` 1,15,500 = ` 3,000 (A)
Material Usage Variance = Standard cost of production – Standard cost of
actual material used = ` 98,000 – `1,12,500 = ` 14,500 (A)
Note: Material Price Variance can be calculated at the time of purchase as well.
In that case, material variance will be as follows:
 Actual cost of material purchased

A 5,000 kg × ` 21 = ` 1,05,000
B 2,000 kg × ` 8 = ` 16,000
C 1,200 kg × ` 6 = ` 7,200
` 1,28,200

Standard cost of material purchased

A 5,000 kg × ` 20 = ` 1,00,000
B 2,000 kg × ` 10 = ` 20,000
C 1,200 kg × ` 5 = ` 6,000
` 1,26,000

Material Price variance (if calculated at the time of purchase)

= Standard cost of actual material used – Actual cost of actual material used

= ` 1,26,000 – ` 1,28,200 = ` 2,200 (A)

14. (i) Material Cost Variance (A + B) = {(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
` 42,300
SPA =
940kg

Standard Price of Material-A = ` 45

Working Note:
SQ i.e. quantity of inputs to be used to produce actual output
1, 480kg
= = 1,645 kg
90%
 800kg
SQA = ×1,645kg. = 940 kg
(800+600)
600kg
SQB = ×1,645kg. = 705 kg
(800+600)

(ii) 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 (from (i) above)]
+ (AQB × ` 30) = ` 60,000

` 40,500 + (AQB × ` 30) = ` 60,000

(AQB × ` 30) = ` 19,500

19,500
AQB = = 650 kg
30
Actual Quantity of Material B = 650 kg.
(iii) (AQ × AP) = ` 59,825
(AQA × APA) + (AQB × APB) = ` 59,825
(900 kg × APA) + (650 kg (from (ii)
above) × ` 32.5) = ` 59,825
(900 kg × APA) + ` 21,125 = ` 59,825

(900 kg × APA) = ` 38,700

38,700
APA = = 43
900
Actual Price of Material-A = ` 43
(iv) Total Actual Quantity of Material-A and Material-B

= AQA + AQB = 900 kg + 650 kg (from (ii) above)

= 1,550 kg
 Now,
800kg
Revised SQA = ×1,550kg. = 886 kg
(800+600)
600kg
Revised SQB = ×1,550kg. = 664 kg
(800+600)

(v) Material Mix Variance (A + B) = {(RSQ × SP) – (AQ × SP)}

= {(RSQA × SPA) + (RSQB × SPB) – 60,000}

= (886 kg (from (iv) above) × ` 45 (from

(i) above)) + (664 kg (from (iv) above)
× ` 30) - ` 60,000

= (39,870+19,920)–60,000= ` 210 (A)

15. (i) Material Variances
Budget Std. for actual Actual
Quantity Price Amount Quantity Price Amount Quantity Price Amount
(`) (`) (`) (`) (`) (`)
Material 0.5 60 30 5,000 60 3,00,000 5,700 58 3,30,600

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

3,00,000 – 3,30,600 = ` 30,600(A)

Material Price Variance = (SP – AP) AQ

(60 -58) 5,700 = ` 11,400 (F)

Material Usage Variance = (SQ – AQ) SP

(5,000 – 5,700) 60 = ` 42,000 (A)
(ii) Variable Overheads variances

Variable overhead cost Variance = (Standard variable overhead – Actual

Variable Overhead)
Standard Variable Overheads: 10,000 units × 10 = 1,00,000
(1,00,000 – 1,12,200) = ` 12,200(A)
 Variable overhead Efficiency Variance = (Standard Hours – Actual
Hours) × Standard Rate per Hour
Let Actual Hours be ‘X’

(10,000 – X) × 10 = 2,000 (A)

1,00,000 – 10X = -2,000

X = 1,02,000 ÷ 10
Therefore, Actual Hours (X) = 10,200

Variable overhead Expenditure Variance = (Variable Overhead at

Actual Hours - Actual Variable Overheads)

10,200 × 10 – 1,12,200 = ` 10,200 (A)

(iii) Labour variances

Budget Std. for actual Actual

Hours Rate Amount Hours Rate Amount Hours Rate Amount
(`) (`) (`) (`) (`) (`)

Labour 1 20 20 10,000 20 2,00,000 10,200 22 2,24,400

Actual Rate = ` 2,24,400÷10,200 hours = `22

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

10,000× 20 – 10,200 × 22 = ` 24,400 (A)
Labour Rate Variance = (SR – AR) × AH

(20 – 22) × 10,200 = ` 20,400 (A)

Labour Efficiency Variance = (SH – AH) × SR

(10,000 – 10,200) × 20 = ` 4,000 (A)