518_61__ch-22.pdf

CH 22: Standard Costing:

1. A company manufactures and sells two products. The budget and actual data for a quarter is as

follows:

Budget:

Product Sales Price/unit (Rs) Cost/unit (Rs) Market size (units)

A 8,000 40 30 64,000

B 16,000 25 16 96,000

Actual:

Product Sales Cost/unit (Rs) Market size (units)

A 9,500 32 80,000

B 17,500 14 108,000

The actual price remained the same as budgeted price.

Required:

(i) Analyse the variances in to market share variance, market size variance, sales quantity

variance and cost variance.

(ii) Explain the reasons for variation in profit.

Answer:

(i)

Market Size variance: 224,000 – 262,000 = Rs. 38,000 F.

Market share variance: 262,000 – 252,000 = Rs. 10,000 A.

Sales Quantity variance: 224,000 – 252,000 = Rs. 28,000 F

Sales Mix Variance: 252,000 – 252,500 = Rs. 500 F

Sales Volume variance: 224,000 – 252,500 = Rs. 28,500 F

Product BQ RBQ AQ in BR AQ SGM BQ x SGM RBQ x SGM AQBR x SGM AQ x SGM AGM AQ x AGM

A 8000 10,000 9,000 9,500 10 80,000 100,000 90,000 95,000 8 76,000

B 16,000 18,000 18,000 17,500 9 144,000 162,000 162,000 157,500 11 192,500

24,000 28,000 27,000 27,000 224,000 262,000 252,000 252,500 268,500

Accounting for Management, 1/e Subramania Ramanathan

© Oxford University Press 2014. All rights reserved

Cost variance; 252,000 – 268,500 = Rs. 16,500 F

(ii) The company has not been able to capture the budgeted level of market share in respect of

both the products. Otherwise the mix variance and cost variance are favourable.

2. A single product company has set the budgeted production per month at 2,400 units. The standard

material requirement is 2 kg per unit at a standard price of Rs. 50 per kg.

In June 2013, the company produced 2,200 units. The actual consumption per unit of material is

1.9 kg even though the buyers have set a higher quality standards which demands 5% increase in the

raw material consumption. The economy that is prevalent all over the world has raised the prices of the

raw materials y 20% but the departmental manager has been able to buy them at Rs. 61 per kg.

You are required to analyse the variances into (a) operating variances, (b) planning variances

and (c) total variances. The variances under each category are required to be further analysed in to

price variance and usage variance.

Answer:

Actual output 2,200 units

Standard quantity: 2,200 x 2 = 4,400 kg

Increase in standard 5%

Revised standard quantity: 2,200 x 2 x 1.05 = 4,620 kg

Revised standard Price: Rs. 50 x 1.20 = Rs. 60 per kg

Actual Quantity consumed: 2,200 x 1.9 = 4,180 kg

Planning Variances:

Planning Usage Variance: Rs. 220,000 – 231,000 = Rs. 11,000 A

Planning Price variance: Rs. 231,000 – 277,200 = Rs. 46,200 A

Operating Variances:

Operating Usage Variance: Rs. 277,200 – 250,800 = Rs. 26,400 F

SQ RSQ SP SQ X SP RSQ X SP RSP RSQ X RSP

4,400 4,620 50 220,000 231,000 60 277,200

RSQ AQ RSP RSQ x RSP AQ x RSP AP AQ x AP

4,620 4,180 60 277,200 250,800 61 254,980



Operating Price Variance: Rs. 250,800 – 254,980 = Rs. 4,180 A

Total Variances:

Total Usage Variance: Rs. 220,000 – 209,000 = Rs. 11,000 F

Total Price Variance: Rs. 209,000 – 254,980 = Rs. 45,980 A

3. A company using standard costing has prepared the following cost sheet for its product based

on a budgeted output of 1,200 units per month:

Rs

Direct Materials 6 kg @ Rs. 20 per kg 120

Direct Labour 8 hours @ Rs. 25 per hour 200

Variable overheds 8 hours @ Rs. 20 per hour 160

Fixed overheads 8 hours @ Rs. 30 per hour 240

Selling Price 800

In June 2012, the company produced 1,100 units of the product and furnished the following

details of costs incurred and selling price realized:

Direct Materials 7,000 kg @ Rs. 19 per kg

Direct Labour 9,500 hours @ Rs. 24 per hour

Variable overheads Rs. 175,000

Fixed overheads Rs. 300,000

Selling price Rs. 820

The company has sold all the units and carried no opening or closing WIP or finished goods

inventories.

Calculate all variances and prepare a statement of reconciliation of income.

Answer:

SQ AQ SP SQ x SP AQ x SP AP AQ x AP

4400 4180 50 220,000 209,000 61 254,980



Standard requirement:

Direct Materials: 1,100 units X 6 kg = 6,600 kg

Direct Labour: 1,100 units x 8 hours = 8,800 hours

Standard gross margin: 800 – 720 = Rs. 80

Actual gross margin: 820 – 720 = Rs. 100

Usage Variance: 132,000 – 140,000 = Rs. 8,000 A

Price Variance: 140,000 – 133,000 Rs. 7,000 F

Material Cost Variance: 132,000 – 133,000 = Rs. 1,000 A

Efficiency Variance: 220,000 – 237,500 = 17,500 A

Labour Rate Variance: 237,500 – 228,000 = 9,500 F

Labour Cost Variance: 220,000 – 228,000 = 8,000 A

Variable overheads:

A: Charged to production: 8,800 hours x 20 Rs. 176,000

B: Standard cost of actual hours : 9,500 hours x Rs. 20 190,000

C: Actual overheads 175,000

Efficiency Variance: 176,000 – 190,000 = Rs. 14,000 A

Expense Variance: 190,000 – 175,000 = Rs. 15,000 F

Total Variance: 176,000 – 175,000 = Rs. 1,000 F

Fixed overheads:

A: Charged to production: 8,800 hours x Rs. 30 Rs 264,000

B: Standard cost of actual hours: 9,500 hours x Rs. 30 285,000

Direct Materials:

SQ AQ SP SQ x SP AQ x SP AP AQ x AP

6,600 7,000 20 132,000 140,000 19 133,000

Direct Labour:

SH AH SR SH x SR AH x SR AR AH x AR

8,800 9,500 25 220,000 237,500 24 228,000



C: Budget: 9,600 hours x Rs. 30 288,000

Actual expense: 300,000

Efficiency Variance: 264,000 – 285,000 = Rs. 21,000 A

Capacity Variance: 285,000 – 288,000 = Rs. 3,000 A

Volume Variance: 264,000 – 288,000 = Rs. 24,000 A

Expense Variance; 288,000 – 300,000 = Rs. 12,000 A

Total variance: 264,000 – 300,000 = Rs. 36,000 A

Sales Volume variance: 96,000 – 88,000 = Rs. 8,000 A

Sales Price Variance: 88,000 – 110,000 = Rs. 22,000 F

Total sales gross margin Variance: 96,000 – 110,000 = Rs. 14,000 F

Actual Profit:

Sales gross margin variance:

BQ AQ SGM BQ x SGM AQ x SGM AGM AQ x AGM

1,200 1,100 80 96,000 88,000 100 110,000

Reconciliation:

Particulars Variances Rs

F A

Budgeted gross margin 96,000

Gross margin volume variance -8,000

Standard gross margin 88,000

Sales Price variance 22,000

Actual gross margin 110,000

Cost Variances:

Material usage varince 8,000

Material price variance 7,000

Labour efficiency variance 17,500

Labour rate variance 9,500

Variable overheads efficiency variance 14,000

Variable oveheads expense variance 15,000

Fixed oveheads efficiency variance 21,000

Fixed ovverheads capacity variance 3,000

Fixed overheads expense variance 12,000

Total variances 31,500 75,500 -44,000

Actual profit 66,000



Sales: 1,100 units @ Rs. 820 902,000

Direct materials: 7,000 kg X Rs. 19 133,000

Direct labour: 95,000 hours @ Rs. 24 228,000

Variable overheads 175,000

Fixed overheads 300,000 836,000

Actual Profit 66,000



518_61__ch-22.pdf

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