Produced 10000 unit

St.material 1.5 cbm/unit

St.price 2 $/cbm
St.hour 5 hour/unit
St.hour cost 2 $/hour
St.OH 5 $/unit
WIP 40% of product 4000 equal FGs

Act.material 16200 cbm

Act.worker 250 head
St.hour day 8 h/day 26 month
Act hour 52000 hours
Act.material price 2.2 $/cbm
Act.hour cost 2.3 $/hour
Act.OH 4.5 $/unit

Solution
St.material Act.material
St.hour St.LB cost St.OH cost
cost cost
FGs 30,000 50,000 100,000 50,000 35,640
WIP 12,000 20,000 40,000 20,000 14,256
Total 42,000 70,000 140,000 70,000 49,896

FGs WIP Dr.

i) Material variance (5,640) (2,256) (A) COS
COS
ii) LB variance 28,240 11,296 (F) FGs
WIP
iii) OH variance 5,000 2,000 (F) FGs
WIP
 Accountin
Act.hour Act.LB cost Act.OH cost Total cost g book
entry
52,000 71,760 45,000 152,400 Act.material cost
20,800 28,704 18,000 60,960 (1) Dr.WIP/Cr.RM 49,896
72,800 100,464 63,000 213,360 (2) Dr.Fgs/Cr.WIP 35,640
Closing WIP RM 14,256
Cr. Adjust Act.LB cost
FGs (5,640) (3) Dr.WIP/Cr.LB 100,464
WIP (2,256) (4)Dr.FGs/Cr.WIP 71,760
COS 28,240 Closing WIP LB 28,704
COS 11,296 Act.OH cost
COS 5,000 (5) Dr.WIP/Cr.OH 63,000
COS 2,000 (6) Dr.FGs/Cr.WIP 45,000
Closing OH 18,000

Total FGs 152,400 180,000

Total WIP 60,960 72,000
Total Cost 213,360 252,000
27,600
11,040
38,640
Illustration -1

The relevant figures are as under:

Material A B C D
Standard mix % 30% 40% 20% 10%
Price per kg. (Rs.) 1.25 1.5 3.5 3
Actual qty. used (Kg.) 1,180 1,580 830 440
Actual price per kg. (Rs) 1.3 1.8 3.4 3
Actual output: units 1000
The standard quantity of material (kg) per unit of actual output. 4
Calculate price variance, mix variance, sub-usage variance and total material
Solution
1) Standard quantity of materials required for the actual output 1,000 units 4,000

Std Cost Act cost Standard Total Std

Material Std Qty Act Qty
(per Kg) (per Kg) mix % Cost

Rs Rs Kg Kg Rs
A B C D E = A×C
A 1.25 1.3 30% 1,200 1,180 1,500
B 1.5 1.8 40% 1,600 1,580 2,400
C 3.5 3.4 20% 800 830 2,800
D 3 3 10% 400 440 1,200
4,000 4,030 7,900

2) Standard cost per unit of the standard mix

(E/C) = Rs. 7,900/4000 1.975
3) Standard cost per unit of the actual mix
(F/D) = Rs. 8,070/4030 2.002
Variances: Amount %
i) Cost Variance = Std. cost – Actual cost -620 (A) (0)
ii) Price Variance = Actual Qty. (Std. price – Actual price) -450 (A) (0)
iii) Mix Variance = Actual Qty (Std cost per unit of std.mix – Std cost per unit of actual mix)
= 4,030 Kg (Rs 1.975 – Rs 2.002) -111 (A) (0)
iv) Sub Usage Variance = Std price per unit of std mix (Std Qty – Actual Qty)
= 1.975 * (4000 – 4030) -59 (A) (0)
=> Total variance (i+ii+iii) -620 (A)
Book entry: Dr. FGs 7,900 <=> how to determind the actual RM us
Dr. COS adj (A) 620 => Actual RM for FGs = Total RM issue
Cr. WIP 8,520

RM book entry Dr. WIP 14,000 (Portion)

(assumption) Cr. RM 9,800 70%
Cr. LB+OH 4,200 30%
Closing WIP 5,480

Illustration 11
The following information is available in respect of Y Ltd. for a week :
(a) Raw material were actually used in producing product ‘EXE’. 400
The purchase cost thereof being Rs. 24,800
The standard price per kg of raw material is Rs. 60
The expected output is 12 units of product ‘EXE’ from each kg of raw material. 12
Raw material price variance (adverse) (800)
Usage variance (adverse) (600)
(b) The week is of hours. 40
The standard time to produce one unit of ‘EXE’ minutes. 30
The standard wage rate is Rs. 5 per labour hour. 5
The company employs 60 workers who have been paid hourly wage rate as under :
Total
Number of workers : 6 8 46 60
Actual hour : 240 320 1,840 2,400
Hourly wage rate (Rs.) : 4.8 5.2 5 300
Total cost 1,152 1,664 9,200 12,016

(c) Budgeted fixed overheads for a four-weekely period is Rs. 81,600

The actual fixed overheads spent during the said week are Rs. 19,800
The actual output of EXE unit 4,680
(d) Entire output of ‘EXE’ has been sold at its standard selling price per unit. 15
You are required to :
(i) Compute the variances relating to labour and overheads.
(ii) Prepare a statement showing total standard costs, standard profit and actual profit for the week

Solution
1. Standard quantity and cost of raw material required for actual output :
Standard quantity of raw materials required for actual output (kgs.) 390
Standard cost of 390 kgs. of raw material at Rs. 60 per kg* (Rs.) 23,400

2. Basic data for the computation of labour variances :

Standard labour data for actual output:
Std time Std for
hour Std amount actual hour
2,340 11,700 12,000
3. Basic data for the computation of fixed overhead variances :
Budget output of EXE unit 4,800
Std rate per hour 8.50
Std rate per unit 4.25

(i) Labour and overhead (variances) :

Labour cost variance : (316) adv
Labour rate variance : (16) adv
Labour efficiency variance :
= Standard rate per hr. (Std. hours – Actual hours paid)
(300) adv
Total fixed overhead cost variance :
= (Fixed overhead absorbed – Actual fixed overhead) 90
Fixed overhead volume variance :
= Std. fixed overhead rate per unit {Actual output – Budgeted output)
= Rs. 4.25 {4,680 units – 4,800 units} (510) adv
Fixed overhead expenditure variance :
= {Budgeted fixed overhead – Actual fixed overhead} 600

(ii) Statement showing total standard cost, standard profit and actual profit for the week
Sales 70200
Less standard cost of :
Material cost 23,400
Direct labor 11,700
Overhead 19,890
54,990
Standard profit 15,210

Less Adjust for variance

Price variance (800)
Usage variance (600)
(1,400)
Less labor variance
Rate Variance : (16)
Efficiency variance (300)
(316)
OH variance
Expenditure variance 600
Fixed overhead volume variance (510)
Fixed overhead cost variance 90

Actual profit 13,584

 Std. Cost
Actual
of Actual
Cost
Qty

Rs Rs
F = A×D G = B×D
1,475 1,534
2,370 2,844
2,905 2,822
1320 1,320
8,070 8,520

determind the actual RM using for FGs?

M for FGs = Total RM issued minus (-) WIP
 2400

Week
20,400
 Skilled Semi-Skilled Unskilled
Number of workers in standard section 16 6 3
Standard rate per hour 3 2 1
Actual number of workers in the section 14 9 2
Actual rate of pay per hour (Rs.) 4 3 2

In a 40- hour week, the section as a whole produced 900 standard hours

Solution
In a 40 hour week, the standard section should have produced 1,000 std. hours
40 Standard
Workers Hours (BOM) St.hour (900)
Skilled 16 640 576
Semi-Skilled 6 240 216
Unskilled 3 120 108
Total standard hours 25 1000 900

Variances:
i) Rate Variance = Actual hour (Std. rate – Actual rate)
= (Standard cost of Actual hour – Actual cost) -1000 (A)

ii) Section Variance= Total Actual hour ( Std. rate of Std. section– Std. rate of Actual section)
40 (F)

iv) Cost Variance= Std. labour cost – Actual labour cost -960 (A)

iii) Sub-efficiency Variance = Std rate (Total Std. time – Total Actual time)
-252 (A)

v) Efficiency variance = Std. rate (Std. time – Actual time)

= Standard cost – Std. cost of Actual time -212 (A)

Illustration -4
A firm gives you the following data: Hour
Standard time per unit 2.5
Actual hours worked 2000
Standard rate of pay (per hour) 2
Actual hours lost as idle time 25%
Actual output unit 1000
Actual wages 4500

Calculate the idle time variance.

Solution
Standard cost charged to production Rs
(1,000 units× 2.5 hours × Rs.2) 5000
Actual wages paid 4500
Actual wage rate per hour
(Rs. 4,500 ÷ 2,000 hours) 2.25
Abnormal idle time (25% of 2,000 hours) 500

Variances :
i) Rate Variance = Actual time (Std.rate – Actual rate) -500
ii) Efficiency Variance = Std. rate (Std.time – Actual time*)
= Rs.2 (2,500 hrs. –1500 hrs.) 2000
iii) Idle time Variance = Idle time × Std.rate 1000
iv) Total Variance = Std.labour cost – Actual labour cost
500

Illustration - 5
XYZ Company has established the following standards for variable factory overhead.
Standard hours per unit : 6
Variable overhead per hour : Rs 2
The actual data for the month are as follows:
Actual variable overheads incurred 200,000
Actual output (units) 20,000
Actual hours worked 112,000
Calculate variable overhead variances viz
Solution
1) Standard variable overhead = Standard cost of actual output
= 20,000 units × 6 hours × Rs. 2 240,000
2) Budgeted variable overhead (for actual hours)
= 112,000 hours × Rs.2 = Rs.224,000 224,000
Variances :
i) Variable overhead variance = (Standard variable overhead – Actual variable overhead)
(refer Note 1 above)
= (Rs. 240,000 – Rs. 200,000) 40,000 (F) Accounting cost
ii) Variable overhead budget variance = (Budgeted variable overhead for actual hours – Actual variable overhead)
(refer Note 2 above)
= Rs. 224,000 – Rs. 200,000 24,000 (F)
iii) Variable overhead efficiency variance = Standard variable overhead rate per hour [Std.hours for actual output – Actual hours]
= Rs. 2 [120,000 hours – 112,000 hours] 16,000 (F)
 Standard 40 Actual Standard cost of Actual hour
Cost rate St.cost (BOM) Cost Workers Hours Cost rate Cost Hours Cost rate
3 1920 1728 14 560 4 2240 560 3
2 480 432 9 360 3 1080 360 2
1 120 108 2 80 2 160 80 1
2.52 2520 2268 25 1000 3.48 3480 1000 2.48

Actual section)

Book entry Dr.st LB 2520 (WIP)

Dr. adj (A) 960 (COS)
Cr. Act LB 3480
 Case (F) Case (A)
Book entry Dr.FGs (st.OH) 240,000 Dr.FGs (st.OH) 200,000
Cr.WIP (Act.OH) 200,000 Dr.COS adj (A) 40,000
Cr.COS adj (F) 40,000 Cr.WIP (Act.OH)
iable overhead)

r actual output – Actual hours]

d cost of Actual hour
Cost
1680
720
80
2480
240,000
 BOM
TECHNICAL (review BOM)
BOM setting-up WORK ORDER

PRODUCTION

Pre-cutting Raw cutting Finished PRODUCTION

Assembling
cutting

WORK IN PROGRESS

BOM
(Cost review)

- Raw materials
FINISHED GOOD

- Labor hour

- Over head
VARIANCE ANALY

STANDARD VS

BOOK ENTRY

ADJUSTMENT
(ADV/FAV)
 WORK ORDER

PRODUCTION

inished PRODUCTION
Assembling Sanding Painting Packing
cutting

WORK IN PROGRESS (WIP)

Actual cost

- RM consumed
(Inventory report)
FINISHED GOODS - Labor hour
(from HR report)

- Over head
(GL report)

- Wastage, idle,
VARIANCE ANALYSIS damaged, lose
DARD VS ACTUAL

BOOK ENTRY
GL
ADJUSTMENT
(ADV/FAV) Report

- Income statement
- Performance
 Pre- Raw Finished
ITEM CARD Assembling
cutting 10% cutting 10% cutting 20% 25%
Item quantity: 50 Completed 6% 4% 8% 11%
Item comp Comp qty
A-1 10 500 350 70% 155 31% 130 26% 130 26%
A-2 4 200 20 10% 15 8% 15 8% 15 8%
A-3 1 50 35 70% 20 40% 20 40% 20 40%
A-4 1 50 15 30% 8 16% 8 16% 8 16%
A-5 12 600 400 67% 240 40% 230 38% 230 38%
A-6 4 200 150 75% 130 65% 130 65% 130 65%
A-7 5 250 230 92% 220 88% 200 80% 200 80%
A-8 3 150 120 80% 100 67% 100 67% 100 67%

Costing method: costing is calculated by completed percentage multiply the standard cost at each section (cost center)
WIP is computed by the items with completed percentage is less than 100% and counted at each section
The item components are completed section by section and shift to next section (routine) the cost will move accordingly the
Analyse the utilities of RM, LB, OH of each section to identify the issues need to improve
To identify the main factor cause inaccuracy inventory report, reduce the gap of waste between custom declare and standa
Production must daily update the production output
Weekly check the performance section by section
Variance analysis:
+ FAV: adjust down cost of sales
+ ADV: adjust up cost of sales
these adjustment entries impact to P/L
 Sanding Painting Packing
15% 15% 5%
6% 5% 2%
20 18 15
200 40% 180 36% 150 30%
80 40% 72 36% 60 30%
20 40% 18 36% 15 30%
20 40% 18 36% 15 30%
240 40% 216 36% 180 30%
80 40% 72 36% 60 30%
100 40% 90 36% 75 30%
60 40% 54 36% 45 30%

ch section (cost center)

ost will move accordingly then plus processing cost at that section until its routine is completedly

n custom declare and standard