Standard Costing is a crucial topic in cost accounting and is used by almost every company as a yardstick to compare its performance by matching actual versus budgeted.
Standard Costing Problems and Solutions
In the exam, Standard Variance analysis questions come up using various types of variances such as material, labor, and FOH. Below we are sharing a standard costing question with the solution to make your concept crystal clear.
Material
Standard
Actual
10,000 Kgs @9/-
8,500 Kgs @ 12/-
Direct Labour
800 hours@4/
FOH
1,100 hours @3/-
Rs.66,000
Rs.60,000
Required:
Calculate the following variances:
Material Price Variance 2. Material Quantity Variance 3. Total Material Variance 4. Labour Rate Variance 5. Labour Efficiency Variance 6. Total Labour Variance 7. FON Variance
Solution
1. Material Price Variance (MPV)
= (Standard Price – Actual Price) X Actual Quantity = (SP – AP) X AQ = (9 – 12) X 8,500 = Rs25,500 Unfavorable
2. Material Quantity Variance (MQV)
= (Standard Quantity – Actual Quantity) x Standard Price = (SQ – AQ) x SP = (10,000 – 8,500) x 9 MQV = Rs13,500 Favorable
3. Total Material Variance (TMV)
= (Standard Qty x Standard Price) – (Actual Qty x Actual Price) = (SQ x SP) – (AQ x AP) = (10,000 x 9) – (8,500 x 12) = (90,000 – 102,000) = Rs12,000 Unfavorable
4. Labour Rate Variance (LRV)
= (standard Rate – Actual Rate) x Actual Hours = (SR – AR) x AH = (4 – 3) x 1,100 – Rs 1,100 Favorable
5. Labour Efficiency Variance (LEV)
= (Standard Hours – Actual Hours) x Standard Rate = (SH – AH) x SR = (800 – 1,100) x 4 LEV = Rs1,200 Unfavorable
6. Total Labour Variance (TLV)
= (Standard Hrs x Standard Rate) – (Actual Hrs x Actual Rate) = (SH x SR) – (AH x AR) = (800 x 4) – (1,100 x 3) = 3,200 – 3,300 = Rs100 Unfavorable
7. Factory Overhead Variance (FOH Variance)
= Standard Cost – Actual Cost = 66,000 – 60,000 DHV = Rs6,000 Favorable
