Standard Costing

Material Quantity Variance Formula: Difference between Standard and Actual Quantity x Standard Rate 1 Standard quantity allowed for production (per unit consumption x actual units) 2 Actual quantity used in production Difference Standard Rate Material quantity variance

-

-

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity purchased or issued Standard rate for purchases Actual rate on purchases Difference Actual Quantity purchase / issue Material price variance

-

-

Labour hour/ efficency Variance Formula: Difference between Standard and Actual hours x Standard Rate Standard hours allowed for production (per unit hour consumption x actual units) Actual hours used in production Difference Standard Rate Labour hour/ efficency Variance

-

Labour Wage Variance Formula: Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance

Fatory over head Variance Important: Controllable variance = Spending variance + Variable portion of efficiency variance Volume variance = Idle capacity + Fixed portion of efficiency variance.

2 - Variance method 1 Controllable Variance a) Actual factory overhead I) Fixed FOH

20,000

II) Variable FOH

19,250

b) Budgeted Factory overhead I) Fixed budgeted overhead II) Variable budgeted OH (Standard hours allowed x Variable per unit rate)

39,250

20,000 11,000 1.50

16,500

CONTROLLABLE VARIANCE

UF

36,500 2,750

2 Volume Variance a) Budget FOH

36,500

b) Standand Factory Overhead Standard hours allowed x Total Standard Factory overhead rate VOLUME VARIANCE

11,000 3.50 Fav

38,500 2,000

OR a) Budget FOH I) Fixed budgeted overhead II) Variable budgeted OH (Standard hours allowed x Variable per unit rate) b) Standand Factory Overhead I) Fixed budgeted overhead

II) Variable budgeted OH

20,000

4,500 1.50

6,750

4,500 0.90

4,050

4,500 1.50

6,750

26,750

10,800

Uf

15,950

OR VolumeVariance = 500 hours x 0.90 = 450 UF VolumeVariance = Difference b/w STd. Hours and normal capacity x F.FOH rate

3 - Variance method 1 Spending Variance a) Actual amount of factory overhead I) Fixed FOH II) Variable FOH b) Budget FOH allowance based in actual hours I) Fixed budgeted overhead II) Variable budgeted OH (Actual hours x Variable per unit rate) Spending Variance

20,000 19,250

20,000 13,750 1.50

20,625 Fav

2 Idle Capacity Variance a) Budget FOH based in Actual hours b) Standard Overhead charged to production Actual hours x Total Standard Factory overhead rate Idle Capacity Variance

39,250

40,625 1,375

40,625

13,750 3.50 Fav

48,125 7,500

3 Efficiency Variance a) Overhead charged to production (Based on Actual hours) Actual hours allowed x 13,750 Total Standard Factory overhead rate 3.50

b) Overhead charged to production (Based on Standard hours) Standard hours allowed x 11,000 Total Standard Factory overhead rate 3.50 Efficiency Variance UF

48,125

38,500 9,625

4 - Variance method 1 Spending Variance a) Actual amount of factory overhead I) Fixed FOH II) Variable FOH b) Budget allowance based on actual hours I) Fixed budgeted overhead II) Variable budgeted OH (Actual hours x Variable per unit rate) Spending Variance

-

-

-

2 Variable Efficiency Variance: Budget allowance based on actual hours

-

Budget allowance based on Standard hours allowed

-

Variable Efficiency Variance:

-

3 Fixed Efficiency Variance: Actual hours x Fixed FOH rate

-

Standard hours allowed x Fixed FOH rate

-

Fixed Efficiency Variance:

-

4 Idle Capacity Variance Normal Capacity hours x Fixed FOH rate

-

Actual hours worked x Fixed FOH rate

-

Idle Capacity Variance

-

Expected Yeild or Input ratio = Output / Input x 100

Material Price Variance - at different materials: Calculate the material price variance for each material by same procedure. Material A

(Difference b/w std and actual rate) x actual qty purchase or used for Material A

Material B

(Difference b/w std and actual rate) x actual qty purchase or used for Material B

Material C

(Difference b/w std and actual rate) x actual qty purchase or used for Material C MATERIAL PRICE VARIANCE

Material Mix Variance Formula (Difference b/w actual qty used and actual qty at std mix) x Standard price

Material

Actual Quantity used

Standard Mix %

Actual Qty at Std. mix

Variance

Gum Base

157,000

66.67

154,000

3,000 unfav

Corn Syrup

38,000

16.67

38,500

500 fav

36,000 231,000

16.67 100

38,500 231,000

Sugar

2,500 fav MATERIAL MIX VARIANCE

Expected Yeild = Output / Input Expected Yeild =

1000 = 0.8333 1200

or Output = Input x Expected yeild 1200 x 0.8333

Therefore; Normal loss = 1 - Expected yeild Normal loss = 1 - 0.8333 Normal loss = 0.17 Abnormal loss - when loss is more 0.1667

Output = 1000 lbs Abnormal gain - when loss is less than 0.1667 or

Input = Output / Expected yeild 1000 / 0.8333 Input = 1200 lbs

Material Yeild Variance Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std average materia Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price Material Gum Base

Actual Qty Standard Std. Qty at Variance at Std. mix Mix % Std. Mix 154,000 66.67 160,000 6,000 Fav

Corn Syrup Sugar

Std. QTY

38,500

16.67

40,000

38,500 231,000

16.67 100

40,000 240,000

1,500 Fav 1,500 Fav MATERIAL yeild VARIANCE

Actual production / Expected yeild =200,000 lbs / 0.83333 240,000

Material Quantity Variance: Material mix variance Material yeild variance MQV

300 U 2250 Fav 1950 Fav

OR Material Quantity Variance:

Material

Gum Base

Actual QTY at actual mix 157,000

Std. Qty at Std. mix 160,000

Variance

Std. rate 3,000 Fav

0.25

Corn Syrup Sugar

38,000

40,000

2,000 Fav

0.40

36,000 231,000

40,000 240,000

4,000 Fav

0.10 MQV

Labour Efficiency Variance Std. Hours allowed for Expected Output (20 / 1000 units = 0.02 hours per units x 192,500 Expected Output) Actual hours used Difference Std. Rate Labor Efficiency Variance Labour Rate Variance: Standard rate Actual rate

(23,104 / 3,800 hours) Difference Actual hours Labor Rate Variance

Labour Yeild Variance: Standard hours allowed for Expected Output (20 / 1000 units = 0.02 hours per units x 192,500 Expected Output) Standard hours allowed for Actual output (20 / 1000 units = 0.02 hours per units x 200,000 Actual Output) Difference Std. Rate Labour Yeild Variance: LYV

(Difference b/w Expected output and actual output x per unit hour cons.) x Std. Rate

FACTORY OVERHEAD VARIANCE:

3 - Variance method 1 Spending Variance a) Actual amount of factory overhead Fixed FOH Variable FOH

b) Budget allowance based in actual hours Fixed budgeted overhead Variable budgeted OH (Actual hours x Variable per unit rate)

Fixed FOH

3800 2 Spending Variance

= 4,000 hours x 3 = 12,000

2 Idle Capacity Variance a) Budget allowance based in Actual hours b) Overhead charged to production Actual hours x Total Standard Factory overhead rate

3800 5 Idle Capacity Variance

3 Efficiency Variance (TOTAL) a) Overhead charged to production (Based on Actual hours) Actual hours worked x 3800 Total Standard Factory overhead rate 5

b) Overhead charged to production (Based on Standard hours) Standard hours allowed x 4000 Total Standard Factory overhead rate 5 Efficiency Variance

FOH EFFICIENCY VARIANCE: Overhead charged to production - Based on Actual hours: Actual hours allowed x 3800 Total Standard Factory overhead rate 5 Overhead charged to production - Based on Std. Hours on Expected output: Std. hours allowed on expected output x 3850 Total Standard Factory overhead rate 5 FOH EFFICIENCY VARIANCE:

FOH YEILD VARIANCE: Overhead charged to production - Based on Std. Hours on Expected output: Std. hours allowed on expected output x 3850 Total Standard Factory overhead rate 5 Overhead charged to production - Based on Std. Hours on Actual output: Std. hours allowed on Actual output x 4000 Total Standard Factory overhead rate 5 FOH YEILD VARIANCE:

used for Material A

xxx

used for Material B

xxxx

used for Material C AL PRICE VARIANCE

xxx xxxx

Standard price

Material Mix Variance

0.25

750 unfav

0.40

200 fav

0.10 MATERIAL MIX VARIANCE

ss is more 0.1667

ss is less than 0.1667

250 fav 300 unfav

d actual output) x std average material rate

Standard price

Material yeild variance 0.25 1,500 Fav 0.40

0.10 MATERIAL yeild VARIANCE

Material Qty Variance 750

600 Fav 150 Fav 2,250 Fav

800 400 1,950

3,850 3800 50 Fav 6 300 Fav 6 6.08 0.08 U 3800 304 U

3,850

4,000 150 6 900 Fav

hour cons.) x Std. Rate

12,000 10,000

22,000

12,000

acity Variance

7,600

19,600 2,400 UNFAV.

19,600

19,000 600 UnFav.

19,000

20,000 1,000 Fav

19,000

Expected output:

FICIENCY VARIANCE:

19,250 250 Fav

Expected output: 19,250

Actual output:

LD VARIANCE:

20,000 750 Fav

Sol of Ex - 1

Material Quantity Variance Formula: Difference between Standard and Actual Quantity x Standard Rate Standard quantity allowed for production (7,200 Chairs x 12 m per chair)

86,400 meters

Actual quantity used in production

87,300 meters

Difference Standard Rate Material quantity variance

900 UF 0.80 720 UF

Material Price Variance

Formula: Difference between Standard and Actual rate x Actual quantity purchas Standard rate for purchases Actual rate on purchases Difference Actual Quantity purchased Material price variance

0.80 0.78 0.02 F 100,000 2,000 F

ity x Standard Rate

Actual quantity purchased

Solution of Ex-2

Material Price Variance (At the time of purchases) Difference between Standard and Actual rate x Actual quantity purchased Standard rate for purchases

3.65

Actual rate on purchases

3.60

Difference Actual Quantity purchase Material price variance

0.05 F 2,000 100 F

Material Price Variance (at the time of issue) Difference between Standard and Actual rate x Actual quantity ISSUE Standard rate for purchases Actual rate on purchases Difference Actual Quantity issued Material price variance

3.65 3.60 0.05 F 1,775 89 F

antity purchased

antity ISSUE

Solution of Ex -3

Labour hour/ efficency Variance Difference between Standard and Actual hours x Standard Rate Standard hours allowed for production (2,000 units x 0.80 hours) Actual hours used in production Difference Standard Rate Labour hour/ efficency Variance

1,600 1,580 20 F 6.75 135 F

Labour Price Variance Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance

6.75 6.90 0.15 u 1,580 237 u

dard Rate

l hours used

Solution of Ex -4

Fatory over head Variance 2 - Variance method 1 Controllable

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH

Rs. 11,000 4,500 6,500

b) Budget allowance based in standard hours allowed Fixed budgeted overhead 4,500 Variable budgeted OH (Standard hours allowed x 4,500 Variable per unit rate) 1.50 6,750 CONTROLLABLE VARIANCE

2 Volume

Variance

a) Budget allowance based in standard hours allowed b) Standard Overhead charged to production Standard hours allowed x 4,500 Total Standard Factory overhead rate 2.40 VOLUME VARIANCE

3 - Variance method 1 Spending

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in actual hours worked Fixed budgeted overhead Variable budgeted OH (Actual hours worked x 4,400

4,500 6,500

4,500

Variable per unit rate) 1.50 Spending Variance

2 Idle

6,600

Capacity Variance

a) Budget allowance based in Actual hours allowed b) Overhead charged to production (Based on Actual hours) Actual hours allowed x 4,400 Total Standard Factory overhead rate 2.40 Idle Capacity Variance

3 Efficiency

Variance

a) Overhead charged to production (Based on Actual hours) Actual hours allowed x Total Standard Factory overhead rate

b) Overhead charged to production (Based on Standard hours) Standard hours allowed x Total Standard Factory overhead rate Efficiency Variance

4,500 2.40

4 - Variance method 1 Spending

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based on actual hours Fixed budgeted overhead Variable budgeted OH (Actual hours x Variable per unit rate) Spending Variance

4,500 4,400 1.50

6,600

2 Variable Efficiency Variance: Budget allowance based on actual hours Budget allowance based on Standard hours allowed

Variable Efficiency Variance:

OR

Proof

Difference between actual hours and Standard hours x variable FOH rate (4500 hours std. - 4400 hours actual) x 1.50 (100 hours Fav x 1.50) Rs. 150 Fav.

3 Fixed Efficiency Variance: Actual hours x Fixed FOH rate

(4,400 hours x 0.90)

Standard hours allowed x Fixed FOH rate

(4,500 hours x 0.90)

Fixed Efficiency Variance: Proof

OR

Difference between actual hours and Standard hours x Fixed FOH rate (4500 hours std. - 4400 hours actual) x 0.90 (100 hours Fav x 0.90) Rs. 90 Fav.

4 Idle Capacity Variance Normal Capacity hours x Fixed FOH rate

(5,000 hours x 0.90)

Actual hours worked x Fixed FOH rate

(4,400 hours x 0.90)

Idle Capacity Variance

OR

Proof

Difference between actual hours and Normal capacity hours x Fixed FOH rate (5000 hours std. - 4400 hours actual) x 0.90 (600 hours Unfav x 0.90) Rs. 540 Unfav.

Example

2 - Variance method 1 Controllable

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH

4,500 6,500

b) Budget allowance based in standard hours allowed Fixed budgeted overhead 4,500 Variable budgeted OH (Standard hours allowed x 4,500 Variable per unit rate) 1.50 6,750 CONTROLLABLE VARIANCE

2 Volume

Variance

a) Budget allowance based in standard hours allowed Fixed budgeted overhead 4,500 Variable budgeted OH (Standard hours allowed x 4,500 Variable per unit rate) 1.50 6,750 b) Standard Factory overhead Fixed FOH (4,500 x 0.90) Variable FOH (4,500 x 1.50) VOLUME VARIANCE

1 Spending

Variance

a) Actual factory overhead Fixed FOH Variable FOH

4,500 6,500

b) Budgeted FOH Fixed budgeted overhead Variable budgeted OH (Actual hours worked x 4,400 Variable per unit rate) 1.50 Spending Variance

2 Idle

4,050 6,750

11,000

4,500

6,600

11,100 100

Capacity Variance

a) Budgeted FOH Fixed budgeted overhead Variable budgeted OH (Actual hours worked x Variable per unit rate)

b)Standard FOH Fixed FOH Variable FOH

4,500 4,400 1.50

(4,400 hours x 0.90) (4,400 hours x 1.50) Idle Capacity Variance

6,600

3,960 6,600

11,100

10,560 540

3 Efficiency

Variance

a) Overhead charged to production (Based on Actual hours) Actual hours allowed x 4,400 Total Standard Factory overhead rate 2.40

10,560

b) Overhead charged to production (Based on Standard hours) Standard hours allowed x 4,500 Total Standard Factory overhead rate 2.40 Efficiency Variance

10,800 240

4 - Variance method 1 Spending

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based on actual hours Fixed budgeted overhead Variable budgeted OH

11,000

4,500

(Actual hours x Variable per unit rate) Spending Variance

4,600 1.50

6,900

11,400 400

2 Variable Efficiency Variance: Proof

OR

Difference between actual hours and Standard hours x variable FOH rate (4500 hours std. - 4600 hours actual) x 1.50 (100 hours UF x 1.50) Rs. 150 Fav. UF

3 Fixed Efficiency Variance: Actual hours x Fixed FOH rate

(4,400 hours x 0.90)

Standard hours allowed x Fixed FOH rate

(4,500 hours x 0.90)

Fixed Efficiency Variance: Proof

OR

Difference between actual hours and Standard hours x Fixed FOH rate (4500 hours std. - 4400 hours actual) x 0.90 (100 hours Fav x 0.90) Rs. 90 Fav.

4 Idle Capacity Variance

4,140 4,050 (90)

Normal Capacity hours x Fixed FOH rate (5,000 hours x 0.90)

4,500

Actual hours worked x Fixed FOH rate (4,400 hours x 0.90)

3,960

Idle Capacity Variance Proof

540

OR

Difference between actual hours and Normal capacity hours x Fixed FOH rate (5000 hours std. - 4400 hours actual) x 0.90 (600 hours Unfav x 0.90) Rs. 540 Unfav.

Example

11,000

11,250 (250) F

11,250

10,800 (450) U

11,000

11,100 (100) F

11,100

10,560 (540) U

10,560

10,800 (240) F

11,000

11,100 100 Fav

11,100 11,250 150 Fav

e FOH rate

3,960 4,050 90 Fav

4,500 3,960 540 Unfav

Fixed FOH rate

11,000

11,250 250 F

11,250

10,800 450 UF

Fav

UF

Fav

UF

UF

Unfav

Material Quantity Variance Formula:Difference between Standard and Actual Quantity x Standard Rate Standard quantity allowed for production (per unit consumption x actual units) (2 kgs x 7000 units) 14,000 Actual quantity used in production

14,400

Difference Standard Rate

400 U 0.50

Material quantity variance

200 U

Material Price Variance

Formula:Difference between Standard and Actual rate x Actual quantity purchased or issu Standard rate for purchases Actual rate on purchases Difference Actual Quantity used

0.50 0.51 0.01 U 14,400

Material price variance

144 U

Labour hour/ efficency Variance Formula:Difference between Standard and Actual hours x Standard Rate Standard hours allowed for production (per unit hour consumption x actual units) (10,000 hours / 8,000 units = 1.25 x 7000) Actual hours used in production Difference Standard Rate

8,750 9,000 250 U 9

Labour hour/ efficency Variance

2,250 U

Labour Price Variance Formula:Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour (76,500 / 9,000 hours) Difference Actual hours used

9.00 8.50 0.50 F 9,000

Labour Price Variance

4,500 F

Fatory over head Variance 2 - Variance method 1 Controllable Variance a) Actual amount of factory overhead Fixed FOH Variable FOH

5,000 12,550

b) Budget allowance based in standard hours allowed Fixed budgeted overhead Variable budgeted OH (Standard hours allowed x Variable per unit rate) (1.25 hours x 7000 units = 8750 hours x 1.50)

5,000

13,125

CONTROLLABLE VARIANCE

2 Volume Variance a) Budget allowance based in standard hours allowed

OR

b) Overhead charged to production Standard hours allowed x Total Standard Factory overhead rate (1.25 hours x 7000 units x 2) VOLUME VARIANCE (Difference b/w Std time and Normal Capacity) x Fixed cost rate

(1,250 hours x 0.50) = Rs. 625

3 - Variance method 1 Spending Variance a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in actual hours Fixed budgeted overhead Variable budgeted OH (Actual hours x Variable per unit rate) (9,000 hours x 1.50)

5,000 12,550

5,000

13,500

Spending Variance 2 Idle Capacity Variance a) Budget allowance based in Actual hours b) Overhead charged to production Actual hours x Total Standard Factory overhead rate (9,000 hours x 2)

OR

Idle Capacity Variance (Difference b/w Actual time and Normal Capacity) x Fixed cost rate (1,000 hours x 0.50) = Rs.500 3 Efficiency Variance a) Overhead charged to production (Based on Actual hours) Actual hours worked x Total Standard Factory overhead rate (9,000 hours x 2) b) Overhead charged to production (Based on Standard hours) Standard hours allowed x Total Standard Factory overhead rate (1.25 hours x 7000 units = 8,750 hours x 2) Efficiency Variance

4 - Variance method 1 Spending Variance a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in actual hours Fixed budgeted overhead Variable budgeted OH (Actual hours x Variable per unit rate) (9,000 hours x 1.50)

5,000 12,550

5,000

13,500

Spending Variance 2 Idle Capacity Variance a) Budget allowance based in Actual hours b) Overhead charged to production Actual hours x Total Standard Factory overhead rate (9,000 hours x 2)

OR

Idle Capacity Variance (Difference b/w Actual time and Normal Capacity) x Fixed cost rate (1,000 hours x 0.50) = Rs.500 2 Variable Efficiency Variance: Budget allowance based on actual hours Actual hours x Variable FOH rate

Budget allowance based on Standard hours allowed Standard hours allowed x Variable FOH rate

Variable Efficiency Variance:

3 Fixed Efficiency Variance:

Budget allowance based on actual hours Actual hours x Fixed FOH rate Budget allowance based on Standard hours allowed Standard hours allowed x Fixed FOH rate Fixed Efficiency Variance:

ndard Rate

quantity purchased or issued

hours used

cost rate

17,550

18,125 575 F

18,125

17,500 (625) U

17,550

18,500 950 F

18,500

18,000 500 U ed cost rate

18,000

17,500 500 U

17,550

18,500 950

-

18,000 (18,000) ed cost rate

-

-

-

-

Quantity Schedule: Units in process (at start) Units put in to process Total

80 units (all material, 50% conversion) 7,850 units 7,930 units

Units completed & tansferred out Units in process (at end)

7,830 units 100 units (all material, 50% conversion) 7,930 units

Equivalent Production Unit Units completed & transferred out Less: Opening stock

Material Conversion 7,830 7,830 (80) (80)

Unit started & completed Add: Opening stock - work this period Add: Closing stock - work this period EPU

7,750 100 7,850

7,750 40 50 7,840

Material Quantity Variance Formula: Difference between Standard and Actual Quantity x Standard Rate Standard quantity allowed for production (7,850 units x 24 kgs per unit)

188,400

Actual quantity used in production

192,410

Difference Standard Rate

4,010 UF 3

Material quantity variance

12,030 UF

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity used Standard rate for purchases Actual rate on purchases

3 3.04

Difference Actual Quantity

0.04 UF 192,410

Material price variance

7,696.40 UF

Labour hour/ efficency Variance Formula: Difference between Standard and Actual hours x Standard Rate Standard hours allowed for production (7,840 units x 6 hours per unit consumption)

47,040

Actual hours used in production

46,830

Difference Standard Rate

210 F 6.50

Labour hour/ efficency Variance

1,365 F

Labour Price Variance Formula: Difference between Standard and Actual rate x Actual hours used Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used Labour Price Variance

6.50 6.60 0.10 UF 46,830 4,683 UF

Fatory over head Variance 2 - Variance method 1 Controllable Variance a) Actual amount of factory overhead Fixed FOH Variable FOH

11,250 25,090

b) Budget allowance based in standard hours allowed Fixed budgeted overhead 11,250 Variable budgeted OH (Standard hours allowed x 47,040 Variable per unit rate) 0.50 23,520 CONTROLLABLE VARIANCE Note: Standard hours allowed = 7,840 units x 6 =47,040 hours Standard variable rate = Rs. 22,500 / 45,000 hours = 0.50 2 Volume Variance a) Budget allowance based in standard hours allowed b) Overhead charged to production Standard hours allowed x 47,040 Total Standard Factory overhead rate 0.75 VOLUME VARIANCE Note: Total FOH rate = Rs. 33,750 / 45,000 hours = 0.75 3 VARIANCE: 1 Spending

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in actual hours worked Fixed budgeted overhead Variable budgeted OH (Actual hours worked x 46,830 Variable per unit rate) 0.50

11,250 25,090

11,250

23,415

Spending Variance

2 Idle

Capacity Variance

a) Budget allowance based in Actual hours allowed b) Overhead charged to production (Based on Actual hours) Actual hours allowed x 46,830 Total Standard Factory overhead rate 0.75 Idle Capacity Variance

3 Efficiency

Variance

a) Overhead charged to production (Based on Actual hours) Actual hours allowed x Total Standard Factory overhead rate

b) Overhead charged to production (Based on Standard hours) Standard hours allowed x Total Standard Factory overhead rate Efficiency Variance

4,500 2.40

4 - Variance method

2 Variable Efficiency Variance: Proof

Difference between actual hours and Standard hours x variable FOH rate (47,040 hours std. - 46,830 hours actual) x 0.50 (210 hours F x 0.50) 105 Fav

3 Fixed Efficiency Variance:

OR

Proof

Difference between actual hours and Standard hours x Fixed FOH rate (47,040 hours std. - 46,830 hours actual) x 0.25 (210 hours F x 0.25) 52.5 Fav Controllable variance = Spending variance + Variable portion of efficiency variance =1,675 UF + 105 F = 1570 UF

Volume variance = Idle capacity + Fixed portion of efficiency variance. = 457.5 F + 52.5 F = 510 F

erial, 50% conversion)

erial, 50% conversion)

antity used

36,340

34,770 1,570 U

hours = 0.50

34,770

35,280 510 F

36,340

34,665

1,675 UF

34,665

35,123 458 FAV

35,123

35,280 (158) Fav

Expected Yeild or Input ratio = Output / Input x 100

Material Price Variance - at different materials: Calculate the material price variance for each material by same procedure. Material A

(Difference b/w std and actual rate) x actual qty purchase or used for Material A

Material B

(Difference b/w std and actual rate) x actual qty purchase or used for Material B

Material C

(Difference b/w std and actual rate) x actual qty purchase or used for Material C MATERIAL PRICE VARIANCE

Material Mix Variance

Formula (Difference b/w actual qty used and actual qty at std mix) x Standard price

Material

Actual Standard Quantity usedMix %

Actual Qty at Std. mix

Variance

Standard Price

Material A

1,500

33.33

1,600

100 Fav

0.10

Material B

3,300

66.67

3,200

100 Unfav

0.40

4,800

100

4,800

Expected Yeild = Output / Input Expected Yeild =

8000 3000

or Output = Input x Expected yeild 3000 x 2.667 Output = 8001 or

2.67

MATERIAL MIX VARIANCE

Input = Output / Expected yeild 8000/2.667 Input = 3000

10,000 / 2.667 3750 Input 4800 Actual Input 1,050 x 0.30 315

Material Yeild Variance

Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std average materia

Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard pri Material

Actual Qty at Std. mix

Standard Mix %

Std. Qty at Std. Mix

Variance

Standard Price

A

1,600

33.33

1,250

(350) Unfav

0.10

B

3,200

66.67

2,500

(700) Unfav

0.40

4,800

100

3,750

Std. Qty allowed Std. Qty allowed

= Actual production / Expected yeild 10,000 / 2.667 3750

MATERIAL yeild VARIANCE

xxx xxxx xxx xxxx

) x Standard price

Material Mix Variance 10.00 Fav 40.00 Unfav 30.00 unfav

ut) x std average material rate

ix) x Standard price Material yeild variance (35) Unfav (280) Unfav (315) Unfav

Actual consumption

Standard consumption for 12,500 FG: Kgs

A B C

Rate 8,750 3,750 6,250 18,750

0.056 A 0.380 B 0.280 C 0.716

1,500 625 1,000 3,125

0.0600 0.4000 0.2500 0.710

Input rate = Output rate = Expected Yeild = Output / Input Expected Yeild =

12,500 3,125

4 tubes per kg

or Output = Input x Expected yeild 3125 x 4 Output = 12,500 or Input = Output / Expected yeild 12500 / 4 Input = 3,125

For actual output (77,500 tubes), Standard input as per expected yeild Input = Output / Expected yeild Input = 77,500 / 4 Input = Actual input = Variance Material Yeild variance = Material Yeild variance =

19,375 Standard input allowed for actual production 18,750 625 Fav 625 fav input x input rate 0.1888 118 Fav

METHOD NO.2: Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std material rate (O Expected output as per expected yeild:

Output = Input x Expected yeild Output = 18,750 kgs x 4 tubes per kg Output =

75,000 Expected output as per expected yeild Actual output Difference Std. material output average rate MATERIAL YEILD VARAINCE

Material Mix Variance

Formula (Difference b/w actual qty used and actual qty at std mix) x Standard price Material

Actual Qty used

Standard Mix %

Actual Qty at Std. mix

Material A

8,750

48

9,000

Material B

3,750

20

3,750

Material C

6,250 18,750

32 100

Variance

250 Fav -

6,000 250 Unfav 18,750 MATERIAL MIX VARIANCE

Material Yeild Variance

Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std average materia

Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price Material

Actual Qty at Std. mix

Standard Mix %

Std. Qty at Std. Mix

Variance

A

9,000

48

9,300

300 Fav

B

3,750

20

3,875

125 Fav

C

6,000 18,750

32 100

Std. Qty allowed Std. Qty allowed

= Actual production / Expected yeild 77,500 / 4 19,375

6,200 200 Fav 19,375 MATERIAL yeild VARIANCE

90 250 250 590

Std. mixing ratio 0.48 0.20 0.32 1

0.1888 per kg 0.0472 per tube

d and actual output) x std material rate (Output rate)

75,000 77,500 2,500 Fav 0.05 118 Fav

mix) x Standard price Standard Price

Material Mix Variance

0.060

15 Fav

0.400

-

0.250

63 unfav 48 unfav

MIX VARIANCE

ctual output) x std average material rate

d mix) x Standard price Standard Price

yeild VARIANCE

Material yeild variance

0.06

18 Fav

0.40

50 Fav

0.25

50 Fav 118 Fav

Required no.1: Standard quantity allowed of material: Actual production Per unit standard consumption of material Standard quantity allowed

4,000 units 6 lbs 24,000 lbs

Required no.2: Actual quantity used of material: Standard quantity allowed add: unfavourable quantity variance

24,000 lbs 1,000 lbs

Actual quantity used

25,000 lbs

Required no. 3: Standard hours allowed: Actual production Per unit standard consumption of labour

4,000 units 1 hour

Standard hours allowed

4,000 hours

Required no. 4: Actual hours worked: Standard hours allowed Less: Favourable labour efficiency variance

4,000 hours (200) hours

Actual hours allowed

3,800 hours

Note: Favourable hours = Rs. 800 efficiency variance / Rs. 4 per hour = 200 hours Required no. 5: Actual direct labour rate: Standard direct labor rate Add: unfavourable labor rate variance

4 0.20

Actual direct labour rate

4.20

Note: Unfavourable rate = Rs. 760 labor rate variance / 3,800 actual hours worked

= 0.20 Required no. 6: Actual Factory overhead Standard factory overhead (4,000 units actual production x Rs. 3 per unit FOH rate) Add: unfavourable FOH variance Actual Factory overhead

ual hours worked

12,000 500 12,500

FORMULA: Material Price Variance - at different materials: Calculate the material price variance for each material by same procedure. Material A

(Difference b/w std and actual rate) x actual qty purchase or used for Material A

Material B

(Difference b/w std and actual rate) x actual qty purchase or used for Material B

Material C

(Difference b/w std and actual rate) x actual qty purchase or used for Material C MATERIAL PRICE VARIANCE

e0 Recognized at the time of purchases: Material

Standard Rate

Gum base Corn syrup Sugar

Actual Rate 0.25 0.40 0.10

Variance

0.24 0.42 0.11

Actual Qty Purchase 0.01 Fav 0.02 Unfav 0.01 Unfav

162,000 30,000 32,000 MPV

Recognized at the time of used Material

Gum base Corn syrup Sugar

Standard Rate

Actual Rate 0.25 0.40 0.10

Variance

0.24 0.42 0.11

Actual Qty Used 0.01 Fav 0.02 Unfav 0.01 Unfav

157,000 38,000 36,000 MPV

Material Mix Variance Formula (Difference b/w actual qty used at actual mix and actual qty at std mix) x Std. Rate Step # 1: Actual quantity used - in the production for 200,000 lbs of chewing gum (F.G) during Jan Material

Opening Stock

Purchases

Closing Stock

Gum base 10,000 162,000 15,000 Corn syrup 12,000 30,000 4,000 Sugar 15,000 32,000 11,000 Actual quantity used - in the production of 200,000 lbs of chewing gum Step # 2:

Material

Gum Base Corn Syrup Sugar

Actual Qty Standard at actual mix Mix % 157,000 38,000 36,000 231,000

0.6667 0.1667 0.1667 1.0000

Working:

Standard Ratio:

Material

Standard Standard Consumption Ratio

Gum Base Corn syrup Sugar

800 200 200 1,200

0.6667 0.1667 0.1667

Actual Qty at Std. mix

Variance

154,000 3,000 unfav 38,500 500 fav 38,500 2,500 fav 231,000 MATERIAL MIX VARIANCE

Expected Yeild = Output / Input Expected Yeild =

1,000 1,200

= 0.8333

or Output = Input x Expected yeild 1200 x 0.8333

Therefore; Normal loss = Normal loss = Normal loss =

1 - Expected yeild 1 - 0.8333 ###

Abnormal loss - when loss is more 0.1667 Output = 1000 lbs Abnormal gain - when loss is less than 0.1667 or Input = Output / Expected yeild 1000 / 0.8333 Input = 1200 lbs

Material Yeild Variance METHOD NO.1: Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price Material Gum Base Corn Syrup Sugar

Input = Std. QTY allowed

Actual Qty Standard Std. Qty at Variance at Std. mix Mix % Std. Mix 154,000 0.6667 160,000 6,000 Fav 38,500 0.1667 40,000 1,500 Fav 38,500 0.1667 40,000 1,500 Fav 231,000 1.0000 240,000 MATERIAL YEILD VARIANCE

Actual production (Output) / Expected yeild =200,000 lbs / 0.83333 240,000

METHOD NO.2 (As per output rate): Material Yeild variance = (Diff. B/w Expected output as per expected yeild and actual output) x std material rate (O Expected output as per expected yeild: Output = Input x Expected yeild Output = 231,000 x 0.83333 Output =

192,500 Expected output as per expected yeild Actual output Difference Std. material output average rate MATERIAL YEILD VARAINCE

METHOD #3: (AS per INPUT rate) For actual output (200,000 lbs), Standard input as per expected yeild Input = Output / Expected yeild Input = 200,000 / 0.8333 Input = Actual input = Variance

240,000 Standard input allowed for actual production 231,000 9,000 Fav

Material Yeild variance = Material Yeild variance =

9,000 fav input x input rate 0.25 2,250 Fav

Input

Output

Summary: Expected Yeild

Actual

231,000

0.8333

192,500

Standard

240,000

0.8333

200,000

Difference Rate MYV

9,000 Fav

7,500 Fav

0.25

0.30

2,250 Fav

2,250 Fav

METHOD NO.4: Material yeild variance = Difference between (Actual input x input material rate) and (Actual output x outp Actual input at std. input rate: (231,000 units x 0.25)

57,750

Actual output at std. output rate: (200,000 units x 0.30)

60,000

MATERIAL YEILD VARAINCE

2,250 Fav

Material Quantity Variance: Material mix variance Material yeild variance MQV

300 U 2,250 Fav 1,950 Fav

OR Material Quantity Variance:

Material

Actual QTY Std. Qty at actual mix at Std. mix

Variance

Std. rate

Gum Base

157,000

160,000

3,000 Fav

0.25

Corn Syrup

38,000

40,000

2,000 Fav

0.40

36,000 231,000

40,000 240,000

4,000 Fav

0.10

Sugar

MQV

Labour Efficiency Variance

Labor Efficience Variance(2) = Diff b/w std. hours allowed for expected output and actual hours used x St Actual input = 231,000 lbs and Actual Output 200,000lbs Actual input = 231,000 lbs and Expected output as per Expected yeild 192,500 lbs Std. Hours allowed for Expected Output (192,500 units x 0.02 hours) Actual hours used Difference Std. Rate Labor Efficiency Variance Working: Std. hour used for one unit of output: Std. hour used / output 20 hours / 1000 units 0.02 std. hours allowed for one unit. Labour Rate Variance: Standard rate Actual rate (23,104 / 3,800 hours) Difference Actual hours Labor Rate Variance Labour Yeild Variance: Expected output

192,500

Actual output

200,000

Units 7,500 0.02

Yeild Std. hours allowed for one unit Hours

LYV

Total hours saved Std. rate per hour

150 6

Labor yeild variance

900 Fav

(Difference b/w Expected output and actual output x per unit hour cons.) x Std. Rate

xxx xxxx xxx xxxx

MPV y Purchase 1,620 600 320 700

Fav Unfav Unfav Fav

1,570 760 360 450

Fav Unfav Unfav Fav

MPV

at std mix) x Std. Rate

um (F.G) during Jan Actual material Used 157,000 38,000 36,000 231,000 Actual Input

Std. Rate

L MIX VARIANCE

Material Mix Variance 0.25 0.40 0.10

750 200 250 300

unfav fav fav unfav

s more 0.1667

s less than 0.1667

ndard price Std. Price

0.25 0.40 0.10 L YEILD VARIANCE

MYV 1,500 600 150 2,250

Fav Fav Fav Fav

and actual output) x std material rate (Output rate)

192,500 200,000 7,500 Fav 0.30 2,250 Fav

ctual production

rate) and (Actual output x output rate)

Material Qty Variance 750 800 400 1,950

tput and actual hours used x Std rate

3,850 3,800 50 Fav 6 300 Fav

6.00 6.08 0.08 U 3,800 304 U

r unit hour cons.) x Std. Rate

Aplha Actual Sales Actual COGS

Beeta

120 million @ Rs. 1.10 120 million @ Rs. 0.90

40 million @ Rs. 2.20 40 million @ Rs. 1.80

Budgeted Sales 110 million @ Rs. 1.35 Budgeted COGS 110 million @ Rs. 1.10

70 million @ Rs. 2.70 70 million @ Rs. 2.20

Required (1): Calculate a) Sales Price variance b) Sales volume variance c) Cost price variance d) Cost volume variance Required (2) Sales mix and the final sales volume variance

Solution

Sales Price Variance: (Actual quantity x Actual mix x Actual rate) - (Actual quantity x Actual mix x Std.

[(Actual qty x actual rate) + (actual qty x actual rate)] - [(Actual qty x std rate) + ( [(6,000 x 10) + (2,000 x 20)] - [(6,000 x 12.5) + (2,000 x 25)] Rs. 25,000 (Un-Favourable)

Sales Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std

[(Actual Qty x std rate) + (Actual Qty x std. rate)] - [(Budgeted Qty x std rate) + (B [(6,000 x 12.5) + (2,000 x 25)] - [(5,000 x 12.5) + (3,500 x 25)] Rs. 25,000 (Un-Favourable) Req no. 3:

Cost Price variance

[(Actual qty x actual COGS rate) + (actual qty x actual COGSrate)] - [(Actual qty x

Cost Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std [(Actual Qty x std COGsrate) + (Actual Qty x std. COGSrate)] - [(Budgeted Qty x

SALES MIX VARIANCE Actual quantity x actual mix x standard rate Less: Actual quantity x actual mix x standard COGS rate

Less: Actual sales (both) x budgeted average gross profit (6,000 + 2000) x 3.5294 SALES MIX VARIANCE

Total Rs. 220 million Rs. 180 million Rs. 337.50 million Rs. 275.00 million

(Actual quantity x Actual mix x Std. rate)

al rate)] - [(Actual qty x std rate) + (actual qty x std rate)]

(2,000 x 25)]

udgeted quantity x actual mix x std rate)

te)] - [(Budgeted Qty x std rate) + (Budgeted qty x std rate)]

+ (3,500 x 25)]

x actual COGSrate)] - [(Actual qty x std COGSrate) + (actual qty x std COGSrate)]

udgeted quantity x actual mix x std rate)

std. COGSrate)] - [(Budgeted Qty x std COGS rate) + (Budgeted qty x std COGS rate)]

125,000 (100,000) 25,000 gross profit (28,235.20) (3,235.20) Unfav.

Pg 614, Illustration 1 of Standard costing: Sales price Variance Product

Base yr Rate

Current yr Rate

X Y Z

5.00 4.00 2.60

Variance

6.60 3.50 3.00

Current Qty sold 1.60 Fav 0.50 Unfav 0.40 Fav Sales price variance

10,000 4,000 20,000

Sales volume variance: Product

Base yr Qty

X Y Z

Current yr Qty 8,000 7,000 20,000

Variance

10,000 4,000 20,000

Base yr rate 2,000 Fav 3,000 Unfav Sales Volume variance

5.00 4.00 2.60

Cost price Variance Product

Base yr Rate

X Y Z

Current yr Rate 4.000 3.500 2.175

Variance

4.000 3.500 2.800

Current Qty sold 0.625 Unfav Cost price variance

10,000 4,000 20,000

Cost volume variance: Product

X Y Z

Base yr Qty

Current yr Qty 8,000 7,000 20,000

10,000 4,000 20,000

Variance

Base yr rate 2,000 Unfav 3,000 Fav -

4.000 3.500 2.175

Cost Volume variance

Sales Mix Variance Product

X Y Z

Current Qty Sold

Base yr Qty

10,000 4,000 20,000 34,000

8,000 7,000 20,000 35,000

Base yr Sales Mixing ratio

Current yr Qty at base yr mix ratio

0.2286 0.2000 0.5714 1

7,771 6,800 19,429

Variance

2,229 2,800 571

Final Sales volume variance: a) Calculate the amount of average gross profit (Base year) Average G.P =

Total amount of G.P (Base yr) Total units sold in Base year 20,000 35,000

Average G.P =

0.5714

b) Calculate the difference in two years sales volume: Base year sales (in units) Current year sales (in units) Difference in volume x Average Gross profit

35,000 34,000 1,000 Unfav 0.5714

FINAL SALES VOLUME VARIANCE

571

SPV

16,000 2,000 8,000 22,000

Fav Unfav Fav Fav

SVV

10,000 Fav 12,000 Unfav 2,000 Unfav

CPV

12,500 Unfav 12,500 Unfav

CVV

8,000 Unfav 10,500 Fav -

2,500 Fav

Base yr G.P Fav Unfav Fav

Unfav

1.000 0.500 0.425

SMV

2,229 1,400 243 1,071

Fav Unfav Fav Fav

Aplha

Beeta

Total

Actual Sales Actual COGS

120 million @ Rs. 1.10 120 million @ Rs. 0.90

40 million @ Rs. 2.20 40 million @ Rs. 1.80

Rs. 220 million Rs. 180 million

Budgeted Sales Budgeted COGS

110 million @ Rs. 1.35 110 million @ Rs. 1.10

70 million @ Rs. 2.70 70 million @ Rs. 2.20

Rs. 337.50 million Rs. 275.00 million

Required (1): Calculate a) Sales Price variance b) Sales volume variance c) Cost price variance d) Cost volume variance Required (2) Sales mix and the final sales volume variance

Solution Sales Price Variance: (Actual quantity x Actual mix x Actual rate) - (Actual quantity x Actual mix x Std. rate) [(Actual qty x actual rate) + (actual qty x actual rate)] - [(Actual qty x std rate) + (actual qty x std [(120 m x 1.10) + (40 m x 2.20)] - [(120 m x 1.35) + (40 m x 2.70)] Rs. 220 - Rs. 270 Rs. 50 million (unfavourable) Sales Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate)

[(Actual Qty x std rate) + (Actual Qty x std. rate)] - [(Budgeted Qty x std rate) + (Budgeted qty x s [(120 m x 1.35) + (40 m x 2.70)] - [(110 m x 1.35) + (70 m x 2.70)] [162 + 108] - [ 148.50 + 189] 270 - 337.50 67.50 (Unfavourable) Req no. 3:

Cost Price variance

[(Actual qty x actual COGS rate) + (actual qty x actual COGSrate)] - [(Actual qty x std COGSrate) [(120 m x 0.90) + (40 m x 1.80)] - [(120 m x 1.10) + (40 m x 2.20)] [108 + 72] - [ 132 + 88]

180 - 220 40 Million (Favourable)

Cost Volume variance: (Actual quantity x Actual mix x Std. rate) - (Budgeted quantity x actual mix x std rate) [(Actual Qty x std COGsrate) + (Actual Qty x std. COGSrate)] - [(Budgeted Qty x std COGS rate) [(120 m x 1.10) + (40 m x 2.20)] - [(110 m x 1.10) + (70 m x 2.20)] [ 132 + 88] - [ 121 + 154] 220 - 275 Rs. 55 (Favourable)

SALES MIX VARIANCE Actual quantity x actual mix x standard rate Less: Actual quantity x actual mix x standard COGS rate

270 (220) 50

Less: Actual sales (both) x budgeted average gross profit (120 m + 40 m) x 0.347 SALES MIX VARIANCE

(55.52) (5.52)

FINAL SALES VOLUME VARIANCE Budget sales Less: Budgeted COGS Budgeted Gross Profit Less: Actual sales (both) x budgeted average gross profit (120 m + 40 m) x 0.347

337.50 (275.00) 62.50 (55.52) 6.98

mix x Std. rate) rate) + (actual qty x std rate)]

mix x std rate)

rate) + (Budgeted qty x std rate)]

tual qty x std COGSrate) + (actual qty x std COGSrate)]

mix x std rate)

ed Qty x std COGS rate) + (Budgeted qty x std COGS rate)]

unfavourable

unfavourable

Required no. 1: Schedule of allocation of variance: Variances Material Price variance Labour efficiency variance FOH Controllable FOH Volume

Note:

Total W-1 W-2 W-3 W-3

9,600 6,000 7,200 12,000 34,800

Total material purchase price variance = Less: MPV charged to R/M (at end) (12,000 / 200,000 x 40,000)

(2,400) MPV on R/ m (at end)

Material Allocation MPV Inventory Percentage 60,000 37.50 20,000 12.50 80,000 50.00 160,000 100.00

3,600 1,200 4,800 9,600

Labour Efficiency variance allocation

WIP FG COGS

W-3

9,600 MPV on used material

Material Price variance allocation

WIP FG COGS

W-2

3,600 1,200 2,880 4,800 12,480

12,000

MPV-Recognized at the time of purchases (12,000 / 200,000 x 160,000) W-1

WIP

Labour Allocation Variance Cost Percentage 20,000 20.00 1,200 20,000 20.00 1,200 60,000 60.00 3,600 100,000 100.00 6,000

FOH Controllable & Volume variance allocation FOH Cost

Allocation Percentage

Controllable Variance

WIP FG COGS

80,000 20,000 100,000 200,000

40.00 10.00 50.00 100.00

2,880 720 3,600 7,200

Required no.2: COMPARATIVE COGS Standard

Variance

Actual

Material purchased Less: Ending R/Material Raw material used

200,000 (40,000) 160,000

12,000 (2,400) 9,600

212,000 (42,400) 169,600

Direct labor

100,000

6,000

106,000

Prime Cost Factory overhead

260,000 200,000

15,600 19,200

275,600 219,200

460,000 (160,000)

34,800 (12,480)

494,800 (172,480)

Cost of Goods manufactured Less: Finished goods (at end)

300,000 (60,000)

22,320 (4,320)

322,320 (64,320)

Cost of Goods Sold

240,000

18,000

258,000

Manufacturing cost Less: WIP (at end)

Required no. 3: Income Statement (Actual Basis) Sales Less: Cost of goods sold

520,000 (258,000)

Gross Profit (actual) Less: Operating Expenses: Administrative Expenses Marketing Expenses

262,000

120,000 60,000

(180,000)

NET INCOME (Actual)

Required no. 4: Reconcilation of Standard and Actual Income:

82,000

NET INCOME (Actual)

82,000

Add: Variance allocated to COGS

18,000

Net Income (standard)

100,000

FG

COGS 1,200 1,200 720 1,200 4,320

V on R/ m (at end)

V on used material

Volume Variance

4,800 3,600 3,600 6,000 18,000

4,800 1,200 6,000 12,000

Requried no.1: Material Price, Mix and Yeild variance:

Material Price variance: Material Actual Price

Standard Price

Variance

Actual QTY Purchases

A

2,200

2,150

50 Unfav.

2,000

B

1,850

1,750

100 Unfav.

1,200

C

1,200

1,250

50 Fav 500 Material Price variance

Material Mix Variance

Formula (Difference b/w actual qty used and actual qty at std mix) x Standard p

Material Actual Qty. used

Standard Mix %

Actual Qty at Std. mix

Variance

A

1,870

50

1,705

165 unfav

B

1,100

40

1,364

264 fav

C

440 3,410

10 100

341 3,410

99 unfav MATERIAL MIX VARIANCE

Material Yeild Variance Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard Material Actual Qty at Std. mix

Standard Mix %

Std. Qty at Std. Mix

Variance

A

1,705

50

1,778.70

73.70 Fav

B

1,364

40

1,422.96

58.96 Fav

C

341 3,410

10 100

355.74 3,557.40

14.74 Fav MATERIAL yeild VARIANCE

Expected Yeild = Output / Input Expected Yeild =

100 110

0.91

or Output = Input x Expected yeild 3,557.4 x 0.9090909 Output =

3,234 tons

or Input = Output / Expected yeild 3,234 tons / 0.9090909 Input = 3,557.40 Labour Efficiency Variance 1 Std. Hours allowed for Expected Output (500 / 100 tons = 5 hours per ton x 3,100 expected output) 15,500 2 Actual hours used 15,800 300 Standard rate 37.50 11,250 Working: Expected output: Expected output = Actual Input x Expected yeild 3,410 tons x 0.909090 3100 Labour Rate Variance: Standard rate 37.50 Actual rate 39.75 2.25 Actual hours 15,800 35,550 Labour Yeild Variance: Std. Hours allowed for Expected Output

(500 / 100 tons = 5 hours per ton x 3,100 expected output) 15,500 Standard hours allowed for Actual output (500 / 100 tons = 5 hours per ton x 3,234 actual output) 16,170

Standard rate

670 37.50 25,125

FACTORY OVERHEAD VARIANCE:

3 - Variance method 1 Spending

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH

553,750 424,500

b) Budget allowance based on actual hours Fixed budgeted overhead Variable budgeted OH (Actual hours x Variable per unit rate)

618,750 15,800 25

395,000

Variable rate = Rs. 412,500 / 16,500 hours 25 2 Idle

Capacity Variance

a) Budget allowance based in Actual hours b) Overhead charged to production Actual hours x Total Standard Factory overhead rate

15,800 62.50

Total FOH rate = (Fixed cost + Variable cost) / 16,500 hour 62.5

3 Efficiency

Variance (TOTAL)

a) Overhead charged to production (Based on Actual hours) Actual hours worked x 15,800 Total Standard Factory overhead rate 62.50

b) Overhead charged to production (Based on Standard hours) Standard hours allowed on actual output x 16,170 Total Standard Factory overhead rate 62.50 3,234 tons x 5 hours per ton =16,170 hours

FOH EFFICIENCY VARIANCE:

Overhead charged to production - Based on Actual hours: Actual hours allowed x 15,800 Total Standard Factory overhead rate 62.50 Overhead charged to production - Based on Std. Hours on Expected output: Std. hours allowed on expected output x 15,500 Total Standard Factory overhead rate 62.50

FOH YEILD VARIANCE:

Overhead charged to production - Based on Std. Hours on Expected output: Std. hours allowed on expected output x 15,500 Total Standard Factory overhead rate 62.50 Overhead charged to production - Based on Std. Hours on Actual output: Std. hours allowed on Actual output x 16,170 Total Standard Factory overhead rate 62.50

Std. Hours allowed on actual output

= Actual output x std. Hour consumption = 3,234 x 5 hours 16,170 hours

1 Spending Variance a) Actual amount of factory overhead Fixed FOH Variable FOH

553,750 424,500

b) Budget allowance based in actual hours Fixed budgeted overhead 618,750 Variable budgeted OH (Actual hours x 15,800 Variable per unit rate) x Rs 25 395,000 Spending Variance

Standard Variable rate = 412,500 / 16,500 hours = Rs. 25 2 Idle Capacity Variance a) Budget allowance based in Actual hours b) Overhead charged to production

Actual hours x Total Standard Factory overhead rate

15,800 x Rs 62.50 Idle Capacity Variance

Standard Total FOH rate = (618,750 + 412,500) / 16,500 hours = Rs. 62.5 3 Efficiency Variance a) Overhead charged to production (Based on Actual hours) Actual hours worked x 15800 Total Standard Factory overhead rate 62.5 b) Overhead charged to production (Based on Standard hours) Standard hours allowed for actual input x 17,050 Total Standard Factory overhead rate x Rs 62.50 Efficiency Variance Working: Standard hours allowed for actual input: Actual input 3410 tons Per ton hour consumption 5 17050 hours 4 Factory overhead Yeild variance Std. hours allowed for actual input (Std. hours for actual input x Total std. FOH rate) (17,050 x Rs. 62.5) Std. hours allowed for actual Output (std. hours for actual Output x Total std. FOH rate) (3,234 tons x 5 hours = 16,170 hours x 62.5)

Material Price Variance 100,000 Unfav. 120,000 Unfav. 25,000 Fav 195,000 Unfav.

ty at std mix) x Standard price

Standard Price

Material Mix Variance

2,150

354,750 unfav

1,750

462,000 fav

1,250 AL MIX VARIANCE

123,750 unfav 16,500 unfav

d qty at std mix) x Standard price Standard Price

Material yeild variance

2,150

158,455 Fav

1,750

103,180 Fav

1,250 L yeild VARIANCE

18,425 Fav 280,060 Fav

Unfav Unfav

U U

Fav

978,250

1,013,750 35,500 Fav

1,013,750

987,500 26,250 UnFav.

987,500

1,010,625 23,125 Fav

987,500

n Expected output: 968,750 18,750 Unfav

n Expected output: 968,750

n Actual output: 1,010,625 41,875 Fav

consumption

978,250

1,013,750 35,500 Fav

1,013,750

987,500 26,250 Unfav

,500) / 16,500 hours = Rs. 62.50

987,500

1,065,625 78,125 Fav.

1,065,625

1,010,625 55,000 Unfav

-

1 Company is cement producing company. 2 2major component mixing - A (Lime) and B (Clay) + Water + 3rd component C(insignificant) 3 Data is for 100 output: Material A B C INPUT OUTPUT

Tns 55 44 11 110 100

Cost % of output 2,150 50 1,750 40 1,250 10 5,150 100

Amount 118,250 77,000 13,750 209,000

5 To convert 110 tons into 100 tons, 500 labor hours at Rs. 37.50 per ton. FOH is applied on D/L 6 In producing 3,234 tons, the following cost were incurred:

7

Direct labor Fixed FOH VariableFOH

15,800 hours at Rs. 39.75 553,750 424,500

Material

Purchases Qty Price 2,000 1,200 500

A B C

Consumed 2,200 1,850 1,200

1,870 1,100 440

8 No WIP at start and material price variance is recorded at the time of purchases.

Requried no.1: Material Price, Mix and Yeild variance:

Material Price variance: Material

Price

Variance

Actual

Actual QTY Purchases

Std.

A

2,200

2,150

50 Unfav.

2,000

B

1,850

1,750

100 Unfav.

1,200

C

1,200

1,250

50 Fav 500 Material Price variance

Material Mix Variance Formula (Difference b/w actual qty used and actual qty at std mix) x Standard price Material

Actual Qty. used

Standard Mix %

Actual Qty at Std. mix

Variance

A

1,870

50

1,705

165 unfav

B

1,100

40

1,364

264 fav

C

440 3,410

10 100

341 3,410

99 unfav MATERIAL MIX VARIANCE

Material Yeild Variance Formula (Difference b/w actual qty at std mix and std qty at std mix) x Standard price Material Actual Qty Standard Std. Qty at Variance at Std. mix Mix % Std. Mix A 1,705 50 1,779 74 Fav B

1,364

40

1,423

C

341 3,410

10 100

356 3,557

Expected Yeild = Output / Input Expected Yeild =

100

0.91

59 Fav 15 Fav MATERIAL yeild VARIANCE

110 or Output = Input x Expected yeild 3,557.4 x 0.9090909 Output =

3,234 tons

or Input = Output / Expected yeild 3,234 tons / 0.9090909 Input = 3,557.40 Material Quantity Variance: Material mix variance Material yeild variance MQV

16,500 U 280,060 Fav 263,560 Fav

OR Material Quantity Variance:

Material

Actual QTY at actual mix

Std. Qty at Std. mix

A

1,870

1,779

B

1,100

1,423

C

440 3,410

356 240,000

Labour Efficiency Variance

Variance

Std. rate 91 Unfav 323 Fav 84 Unfav

2,150.00 1,750.00 1,250.00 MQV

1 Std. Hours allowed for Expected Output (500 / 100 tons = 5 hours per ton x 3,100 expected 15,500output) 2 Actual hours used 15,800 300 Standard rate 37.50 11,250 Working: Expected output: Expected output = Actual Input x Expected yeild 3,410 tons x 0.909090 3100 Labour Rate Variance: Standard rate 37.50 Actual rate 39.75 2.25 Actual hours 15,800 35,550 Labour Yeild Variance: Std. Hours allowed for Expected Output (500 / 100 tons = 5 hours per ton x 3,100 expected 15,500output) Standard hours allowed for Actual output (500 / 100 tons = 5 hours per ton x 3,234 actual 16,170 output)

Standard rate

1 Spending Variance a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in actual hours Fixed budgeted overhead Variable budgeted OH (Actual hours x Variable per unit rate)

670 37.50 25,125

553,750 424,500

618,750 15,800 x Rs 25

395,000

Spending Variance

Standard Variable rate = 412,500 / 16,500 hours = Rs. 25 2 Idle Capacity Variance a) Budget allowance based in Actual hours b) Overhead charged to production Actual hours x Total Standard Factory overhead rate

15,800 x Rs 62.50 Idle Capacity Variance

Standard Total FOH rate = (618,750 + 412,500) / 16,500 hours = Rs. 3 Efficiency Variance a) Overhead charged to production (Based on Actual hours) Actual hours worked x 15800 Total Standard Factory overhead rate 62.5 b) Overhead charged to production (Based on Standard hours) Standard hours allowed for actual input x 17,050 Total Standard Factory overhead rate x Rs 62.50 Efficiency Variance Working: Standard hours allowed for actual input: Actual input 3410 tons Per ton hour consumption 5 17050 hours 4 Factory overhead Yeild variance Std. hours allowed for actual input (Std. hours for actual input x Total std. FOH rate) (17,050 x Rs. 62.5) Std. hours allowed for actual Output (std. hours for actual Output x Total std. FOH rate) (3,234 tons x 5 hours = 16,170 hours x 62.5)

t C(insignificant)

H is applied on D/L

MPV

100,000 Unfav. 120,000 Unfav. 25,000 Fav 195,000 Unfav.

tandard price Standard Price

MMV

2,150

354,750 unfav

1,750

462,000 fav

1,250 L MIX VARIANCE

123,750 unfav 16,500 unfav

Standard price Standard MYV Price 2,150 158,455 Fav 1,750

103,180 Fav

1,250 L yeild VARIANCE

18,425 Fav 280,060 Fav

MQV

196,295 Unfav 565,180 Fav 105,325 Unfav 263,560 Fav

Unfav Unfav

U U

Fav

978,250

1,013,750

35,500 Fav

1,013,750

987,500 26,250 Unfav

00) / 16,500 hours = Rs. 62.50

987,500

1,065,625 78,125 Fav.

1,065,625

1,010,625

-

55,000 Unfav

W-1: Actual cost of material Items

Actual Qty used

Actual Rate

Actual Cost

Alpha

109,200

7.25

791,700

Beta

149,500

3.25

485,875

Gamma

27,300 286,000

13.50

368,550 1,646,125

W-2: Actual matererial used at Standard rate: Items

Actual Qty used

Standard Rate

Standard Cost

Alpha

109,200

6.50

709,800

Beta

149,500

4.00

598,000

Gamma

27,300 286,000

13.00

354,900 1,662,700

W-3: Actual material at Standard mix and Standard rate: Items

Actual Qty used

Standard Mix

Actual Qty at std. mix

Standard Rate

Alpha

109,200 5,200 / 13,000 = .40

114,400

6.50

Beta

149,500 6,500 / 13,000 = .50

143,000

4.00

Gamma

27,300 1,300 / 13000 = .10 286,000

28,600 286,000

13.00

W- 4: Standard material for actual production: Actual Production

253,300

`

Standard material for actual production Input ratio Output ratio

100 90

Actual production is 253,300 kgs which is 90% of Input Therefore Input kgs are 253,300 / 90% Proof: Input Less: 10% wastage Actual Production (output)

281,444 kgs

281,444 (28,144) 253,300

W-5: Standard material at Standard Mix and rate Items

Standard Ratio

Standard Material at Standard Mix

Standard Rate

Amount

Alpha

40%

112,578

6.50

731,756

Beta

50%

140,722

4.00

562,889

Gamma

10%

28,144 281,444

13.00

365,878 1,660,522

Required1: Direct Material Total Variance

Direct material total variance = Difference between Standard and Actual Cost of materia Actual Cost of Direct material (W-1)

1,646,125

Standard Cost of Direct material (W-5) Direct Material Total Variance

1,660,522 14,397 Fav

Required 2: Direct Material Price Variance Material

Actual Price

Standard Price

Variance

Actual QTY Purchases

Alpha

7.25

6.50

0.75 Unfav.

109,200

Beta

3.25

4.00

0.75 Fav

149,500

Gamma

13.50

13.00

0.50 Unfav. 27,300 Material Price variance

Required no 4: Direct Material Mix variance Material Mix Variance

Formula (Difference b/w actual qty used and actual qty at std mix) x Standard price

Material Actual Standard Quantity used Mix %

Actual Qty at Std. mix

Variance

Alpha

109,200

40

114,400

5,200 Fav

Beta

149,500

50

143,000

6,500 Unfav

Gamma

27,300 286,000

10 100

28,600 286,000

1,300 Fav MATERIAL MIX VARIANC

Amount

743,600 572,000 371,800 1,687,400

Actual Cost of material

Material Price Variance 81,900 Unfav. 112,125 Fav

13,650 Unfav. 16,575 Fav

x) x Standard price

Standard Rate

Material Mix Variance 6.50

33,800 Fav

4.00

26,000 Unfav

13.00

ATERIAL MIX VARIANCE

16,900 Fav 24,700 Fav

Comparative Income Statement Analyzing the Budgeted and Actual Operating Income Sales

(118,000 units x Rs 25)

Less: Cost of Goods sold Cost of Goods manufactured (110,000 units x 17.60) Add: Finished goods (at start) (20,000 units x 17.60) TOTAL FINISHED GOODS AVAILABLE Less: Finished goods (at end) (12,000 units x 17.60)

1,936,000 352,000 2,288,000 (211,200)

2,076,800

COST OF GOODS SOLD (STD.) Add: Unfavourable variance Material quantity variance (W-4) Labour price variance (W-7) FOH Controllable variance (W-8)

Less: Favourable variance Material Price Variance (W-5) Labour hour variance (W-6) FOH Volume variance (W-9)

24,000 25,760 16,500 66,260

66,260

3,750 32,000 7,000 42,750

(42,750)

COST OF GOODS SOLD (Actual)

GROSS PROFIT (ACTUAL) Less: Operating Expenses Administrative and marketing expenses NET INCOME (ACTUAL) W-1: Calculation of numbers of units sold: Units Finished goods (at start) Add: Production during the period Total FG available for sales Less: Finished goods (at end) UNITS SOLD

20,000 110,000 130,000 (12,000) 118,000

W-2: Per unit cost of Product: Direct material per unit

(2 units x 1.50)

3.00

Direct Labor per unit (1.50 hours x 8) Variable FOH per unit Fixed FOH per unit Per unit cost of Product

12.00 1.50 1.10 17.60

W-3: Equivalent Production Unit Unit in process (at start) Add: Units put into production Total Work in process Less: Unit in process (at end) Units completed Less: Unit in process (at start) - all units Add: Units in process (at start) - 3/5 completed Add: Units in process (at end) - 1/3 completed Actual Material used

W-4

Material 10,000 240,000 250,000 (15,000) 235,000 (10,000) 225,000 6,000 231,000 5,000 236,000

Material Quantity Variance Formula: Difference between Standard and Actual Quantity x Standard Rate

Standard quantity allowed for production (110,000 units x 2 lbs per unit)

220,000

Actual quantity used in production

236,000

Difference Standard Rate

16,000 1.50

Material quantity variance

W-5

24,000

Material Price Variance Formula: Difference between Standard and Actual rate x Actual quantity purchased

Standard rate for purchases Actual rate on purchases

1.500 1.485

Difference Actual Quantity

0.015 Fav 250,000 3,750 Fav

Material price variance

W-6

Labour hour/ efficency Variance Standard hours allowed for production (110,000 units x 1.5 hours per unit)

165,000

Actual hours used in production 161,000 (1,313,760 / 8.16) 4,000 Fav 8

Difference Standard Rate

32,000 Fav

Labour hour/ efficency Variance

W-7

Labour Price Variance Standard rate for payment of labour Actual rate paid to labour Difference Actual hours used

8.00 8.16 0.16 UnFav 161,000 25,760 UnFav

Labour Price Variance

Fatory over head Variance 2 - Variance method W-8

1 Controllable

Variance

a) Actual amount of factory overhead Fixed FOH Variable FOH b) Budget allowance based in standard hours allowed Fixed budgeted overhead

Variable budgeted OH (Standard hours allowed x 110,000 Variable per unit rate) 1.50 CONTROLLABLE VARIANCE

W-9

2 Volume

Variance

a) Budget allowance based in standard hours allowed b) Overhead charged to production Standard hours allowed x Total Standard Factory overhead rate VOLUME VARIANCE

110,000 2.60

2,950,000

(2,100,310) 849,690 (651,000) 198,690

Unfav per lbs Unfav

13,760 / 8.16)

nce

114,000 181,500

114,000

295,500

165,000

279,000 16,500 Unfav

279,000

286,000 7,000 Fav