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ANALYSIS

1
MATERIAL VARIANCES
MATERIAL QUANTITY VARIANCE (MQV)
Standard quantity xxx
Less: Actual quantity xxx
Difference in quantity xxx
* Standard price xxx
= MQV xxx
OR
MQV = Difference in quantity * Standard price
OR
MQV = (Standard quantity * Standard price) – (actual quantity * Standard price)

Standard cost of material


OR
MQV = standard cost of material – (actual quantity * standard price)
OR
Standard quantity = (MQV/Standard price) + Actual quantity (If MQV is favorable)
Standard quantity = (MQV/Standard price) – Actual quantity (If MQV is unfavorable)
OR
Actual quantity = (MQV/Standard price) – Standard quantity (If MQV is favorable)
Actual quantity = (MQV/Standard price) + Standard quantity (If MQV is unfavorable)
NOTE:
Favorable variance = Actual quantity < Standard quantity
Unfavorable variance = Actual quantity > Standard quantity
MATERIAL PRICE VARIANCE (MPV)
Standard price XXX
Less: Actual price XXX
Difference in price XXX
* Actual quantity PURCHASED / Used XXX
= MPV XXX
OR
MPV= Difference in price * Actual quantity PURCHASED/Used
OR
MPV = (Standard price * Actual quantity) – (Actual price * Actual quantity)

Actual cost of material


OR
MPV = (Standard price * Actual quantity) – Actual cost of material
OR
Standard price = (MPV/Actual quantity) + Actual quantity (If MPV is favorable)
Standard price = (MPV/Actual quantity) – Actual quantity (If MPV is unfavorable)
OR
Actual price = (MPV/Actual quantity) – Standard quantity (If MPV is favorable)
Actual price = (MPV/Actual quantity) + Standard quantity (If MPV is unfavorable)
NOTE:

2
Favorable variance = Actual price < Standard price
Unfavorable variance = Actual price > Standard price

LABOUR VARIANCES
LABOUR EFFICIENCY VARIANCE (LEV)
Standard hours allowed (SHA) XXX
Less: Actual hours worked (AHW) XXX
Difference in hours XXX
* Standard rate XXX
= LEV XXX

OR
LEV= Difference in hours * Standard rate
OR
LEV = (Standard hours * Standard rate) – (actual hours * Standard rate)

Standard direct labour cost


OR
LEV = standard direct labour cost – (actual hours * standard rate)
OR
Standard hours = (LEV/Standard rate) + Actual hours (If LEV is favorable)
Standard hours = (LEV/Standard rate) – Actual hours (If LEV is unfavorable)
OR
Actual hours = (LEV/Standard rate) – Standard hours (If LEV is favorable)
Actual hours = (LEV/Standard rate) + Standard hours (If LEV is unfavorable)

LABOUR IDLE TIME PAY (ITP)


ITP = (Actual Labour hours paid – Actual Hours Worked ) * Standard Labour Rate
OR
ITP = Idle time ( in hours ) * Standard Labour Rate

NOTE:
Favorable variance = Actual hours < Standard hours
Unfavorable variance = Actual hours > Standard hours

LABOUR RATE VARIANCE (LRV)


Standard rate
Less: Actual rate
Difference in rate
* Actual hours PAID/worked
= LRV
OR
LRV = Difference in rate * Actual hours PAID/worked
OR
3
LRV = (Standard rate * Actual hours) – (Actual rate * Actual hours)

Actual direct labour cost


OR

LRV = (Standard rate * Actual hours) – Actual direct labour cost


OR

Standard rate = (LRV/Actual hours) + Actual rate (If LRV is favorable)


Standard rate = (LRV/ Actual hours) – Actual rate (If LRV is unfavorable)

OR
Actual rate = (LRV/ Actual hours) – Standard rate (If LRV is favorable)
Actual rate = (LRV/ Actual hours) + Standard rate (If LRV is unfavorable)

LABOUR RATE VARIANCE (LRV) and OVER TIME PREMIUM


LRV = (Standard rate * Actual hours) –( Actual direct labour cost – Over time premium)
OVER TIME PREMIUM (OTP):
OTP = Overtime hours worked * Standard D/L Rate * OTP %

NOTE:
Favorable variance = Actual rate < Standard rate
Unfavorable variance = Actual rate > Standard rate

FACTORY OVERHEAD VARIANCES


VARIABLE FOH VARIANCES
⦁ VARIABLE SPENDING VARIANCE/ (EXPENDITURE)
Actual variable cost
Less: Budgeted variable cost
= Variable spending variance

Budgeted variable cost = (Actual hours worked * variable FOH rate per hour)

⦁ VARIABLE EFFICIENCY VARIANCE

Variable efficiency variance = (AHW – SHA)* variable FOH rate per hour
OR
= (AHW * variable FOH rate per hour) – (Units produced * V. FOH
per unit)

AHW = Actual hours worked


SHA = Standard hours allowed

4
FIXED FOH VARIANCES
⦁ FIXED SPENDING VARIANCE/(EXPENDITURE)
Actual fixed FOH
Less: Budgeted fixed FOH
(Budgeted Hours * Fixed FOH Rate per Hour) or (Budgeted Output * Fixed FOH Rate per
unit)
= fixed spending variance

⦁ CAPACITY VARIANCE
Budgeted fixed FOH
Less: (AHW* Fixed FOH rate)
= Capacity variance

⦁ FEXED EFFICIENCY VARIANCE


Fixed efficiency variance = (AHW – SHA)* Fixed FOH rate
OR
= (AHW * Fixed FOH rate per hour) – (Units produced * F. FOH per
unit)

⦁ VOLUME VARIANCE
Budgeted fixed FOH
Less: (SHA* Fixed FOH rate) OR (Units produced * F. FOH per unit)
= Volume variance

SALES VARIANCES
SALES MARGIN PRICE VARIANCE (SMPV)
Standard profit
Less: Actual profit
Difference in profit
* Actual quantity
= SMPV
OR
Difference in profit * Actual quantity
= SMPV
OR
SMPV = (Standard profit * Actual quantity) – (Actual profit * Actual quantity)
OR

5
Standard profit = (SMPV/Actual quantity) – Actual quantity (If SMPV is favorable)
Standard profit = (SMPV/Actual quantity) + Actual quantity (If SMPV is unfavorable)
OR
Actual profit = (SMPV/Actual quantity) + Standard quantity (If SMPV is favorable)
Actual profit = (SMPV/Actual quantity) – Standard quantity (If SMPV is unfavorable)
NOTE:
Favorable variance = Actual profit > Standard profit
Unfavorable variance = Actual profit < Standard profit

SALES MARGIN VOLUME VARIANCE (SMVV)


Standard quantity
Less: Actual quantity
Difference in quantity
* Standard profit
= SMVV
OR
Difference in quantity
* Standard profit
= SMVV
OR

SMVV = (Standard quantity * Standard profit) – (actual quantity * Standard profit)


OR
Standard quantity = (SMVV/Standard profit) – Actual quantity (If MQV is favorable)
Standard quantity = (SMVV/Standard profit) + Actual quantity (If MQV is unfavorable)
OR
Actual quantity = (SMVV/Standard profit) + Standard quantity (If MQV is favorable)
Actual quantity = (SMVV/Standard profit) – Standard quantity (If MQV is unfavorable)
NOTE:
Favorable variance = Actual quantity > Standard quantity
Unfavorable variance = Actual quantity < Standard quantity

MARKET SIZE AND MARKET SHARE VARIANCES


Market Size Variance
= (Actual Industry Sales –Budgeted Industry Sales)* Budgeted Market Share*
B.C/M
Market Share Variance:
= (Actual Market Share –Budgeted M. Share) * Actual Industry Sales * B. C/M
` OR
= Actual Sales – (Budgeted M. Share * Actual Industry Sales) * B. C/M

6
MIX & YIELD/PRODUCTIVITY/QUANTITY VARIANCES
SALES MARGIN VOLUME VARIANCE (SMVV) = (A.S.V/AM –B.S.V/BM) * Standard C/M or Price
Sales Mix Variance = (A.S.V/A.M –A.S.V/BM) * Standard C/M or Price
Sales Quantity Variance = (A.S.V/BM –B.S.V/BM) * Standard C/M or Price

LABOUR EFFICIENCY VARIANCE (LEV) = (AHW/AM- SHA/BM) * Standard Labour Rate


Labour Mix Variance = (AHW/AM – AHW/BM) * Standard Labour Rate
Labour Productivity Variance = (AHW/BM- SHA/BM) * Standard Labour Rate
Material Usage Variance = (AQ/AM – SQA/SM) * Standard Price
Material Mix Variance = (AQ/AM – AQ/SM) * Standard Price
Material Yield Variance = ( AQ/SM – SQA/SM) * Standard Price

VARIANCE ANALYSIS
CONCEPT BUILDING QUESTIONS (CBQs)

CBQ#1(A) Adapted from Matz & Uzry


The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at $.80 per meter as
standard for the production of its Type A lawn chair. During one month’s operations, 100 000
meters of the pipe were purchased at $.78 a meter, and 7,200 chairs were produced using
87 300 meter of pipe. The materials price variance is recognized when materials are
purchased.

Required:
The materials and quantity variances.

CBQ#1(B)
‘T’ plc uses a standard costing system, which is material stock account being maintained at
standard costs. The following details have been extracted from the standard cost card in respect
of direct materials:
Accounts Payable (Beginning) Rs. 95,000
Accounts Payable (Ending) Rs. 75,000
Payment to Suppliers Rs.360,000
Cash Purchases Rs.110,000
Budgeted production in April was 1,500 unit.

7
Each unit requires 6 kg at Rs.52.5 per kg
The following details relate to actual materials purchased and issued to
production during April,when actual production was 1,400 units.
Materials purchased 9,000 Kgs
Materials issued to production 8,750 kg
Required:
Compute Material Purchase Price and Material Quantity Variance

CBQ#1(C)
Raw Material Opening: 40,000 kgs.
Raw Material Ending: 55,000 kgs.
Finished Goods Opening 90,000 Units
Finished Goods Ending 65,000 Units
Sales 175,000 units.
⦁ Standard Quantity Allowed : 5 kgs per unit.

⦁ Standard Price of Raw Material: Rs 10 per kg.

⦁ Actual Price: Rs 9.50 per kg.

⦁ Actual Quantity Used: 715,000 kgs

Required: Compute Material variances.

CBQ#2(A)
Each Unit of product requires 5 Hours @ $5 per Hour. Units produced 294,
budget Output 300 Units, Hours Worked (Included 40 Hours O.T) 1520, O.T
Premium 50% above normal pay rates. Actual Direct Labour cost $7,854.
Compute the followings:
⦁ Labour Efficiency Variance c. Labour Rate Variance
⦁ Labour O.T Premium Variance d. Labour Overall Variance

8
CBQ#2(B)
Standard Rate of Direct labour $7 per Hour. Product A requires 2 Hours, Product
B requires 1 Hour, and Product C Requires 0.5 Hour.
Output/Unit Produced:
⦁ 3,300 units
⦁ 1,000 units
⦁ 1,200 units
Direct labour hours paid (9140 Hours) $ 67,980; Actual Direct Labour Hours Worked
(AHW) 8350 (Direct labour included 300 overtime Hours). O.T Premium @ 50% above
normal pay rate.

Required:
Compute the followings:
⦁ Labour Efficiency Variance
⦁ Idle Time Variance
⦁ O.T.P Variance
⦁ Labour Rate Variance
⦁ Labour Overall Variance

CBQ#3A (i)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed 15,000 25,000 22,000 30,000
Actual Hours Worked 14,300 25,800 23,200 28,200
Variable FOH Rate per hour Rs. 15 Rs. 20 Rs. 10 Rs. 40
Fixed FOH Rate per hour Rs. 10 Rs. 30 Rs. 25 Rs. 25
FOH Rate per hour Rs. 25 Rs. 50 Rs. 35 Rs. 65

REQUIRED:
Factory Overhead Efficiency Variance _______ _______ _______
________
Variable Efficiency Variance _______ _______ _______
________
Fixed Efficiency Variance _______ _______ _______
________

CBQ#3A (ii)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed per unit 5 2 1/2 1/4
Actual Hours Worked 90,000 80,000 25,200 26,200
9
Variable FOH Rate per hour Rs. 25 Rs. 35 Rs. 30 Rs. 40
Fixed FOH Rate per hour Rs. 10 Rs. 25 Rs. 25 Rs. 25
FOH Rate per hour Rs.35 Rs. 60 Rs. 55 Rs. 65

Budgeted Output 20,000 40,000 60,000 90,000


Actual Output 18,200 42,000 55,000 92,500

REQUIRED:
Factory Overhead Efficiency Variance _______ _______ _______
________
Variable Efficiency Variance _______ _______ _______
________
Fixed Efficiency Variance _______ _______ _______
________

CBQ#3B (i)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Actual Hours Worked 14,300 25,800 23,200 28,200
Budgeted Fixed Factory Overhead (Rs.) 80,000 90,000 75,000 60,000
Budgeted Variable Overhead (Rs.) 70,000 70,000 50,000 40,000
Actual Fixed Factory Overhead (Rs.) 82,000 88,500 75,000 63,800
Actual Variable Factory Overhead (Rs.) 78,000 65,500 55,000 43,800
Variable FOH Rate per hour Rs. 5 Rs. 3 Rs. 2.25 Rs. 1.5

REQUIRED:
Fixed SPENDING Variance _______ _______ _______
________
Variable SPENDING Variance _______ _______ _______
________
Factory Overhead SPENDING Variance _______ _______ _______
________

CBQ#3B (ii)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed per unit 5 2 3 1/4
Actual Hours Worked 60,000 26,000 24,300 14,200
Variable FOH Rate per hour Rs. 4 Rs. 3.5 Rs. 8 Rs. 5.5

10
Fixed FOH Rate per hour Rs. 2 Rs. 2.5 Rs. 2 Rs. 7.5
FOH Rate per hour Rs.6 Rs. 6.0 Rs. 10 Rs.
13.00

Budgeted Output 10,000 15,000 9,000 50,000


Actual Output 12,200 12,000 8,500 52,000
Actual Fixed Factory Overhead (Rs.) 96,000 78,500 60,000
73,750
Actual Variable Factory Overhead (Rs.) 250,000 80,000 200,000
43,800

REQUIRED:
Fixed SPENDING Variance _______ _______ _______
________
Variable SPENDING Variance _______ _______ _______
________
Factory Overhead SPENDING Variance _______ _______ _______
________

CBQ#3B (iii)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed per unit 5 2 3 1/4
Actual Hours Worked 60,000 26,000 24,300 14,200
Variable FOH Rate per unit Rs. 10 Rs. 3.5 Rs. 18 Rs. 1.5
Fixed FOH Rate per unit Rs. 6 Rs. 2.5 Rs. 6 Rs. 3.5
FOH Rate per unit Rs.6 Rs. 6.0 Rs. 24 Rs. 5.0

Budgeted Output 11,000 16,000 9,000 54,000


Actual Output 13,200 14,000 9,500 60,000
Actual Fixed Factory Overhead (Rs.) 70,000 42,500 60,000
200,000
Actual Variable Factory Overhead (Rs.) 125,000 44,000 155,000
85,200

REQUIRED:
Fixed SPENDING Variance _______ _______ _______
________
Variable SPENDING Variance _______ _______ _______

11
________
Factory Overhead SPENDING Variance _______ _______ _______
________

CBQ#3C (i)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Actual Hours Worked 63,000 24,000 25,300 14,700
Budgeted Hours 60,000 26,000 24,300 14,200
Fixed FOH Rate per hour Rs.6 Rs. 2.5 Rs. 9 Rs. 8

REQUIRED:
CAPACITY Variance _______ _______ _______
________

CBQ#3C (ii)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Actual Hours Worked 60,000 26,000 24,300 14,200
Budgeted Fixed Factory Overhead (Rs.) 80,000 90,000 75,000 60,000
Fixed FOH Rate per hour Rs. 2 Rs. 2.5 Rs. 2 Rs. 7.5

REQUIRED:
CAPACITY Variance _______ _______ _______
________

CBQ#3C (iii)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed per unit 5 2 3 1/4
Budgeted Output 11,000 16,000 9,000 54,000
Actual Output 13,200 14,000 9,500 50,000
Actual Hours Worked 60,000 26,000 24,300 14,200
Fixed FOH Rate per hour Rs. 5 Rs. 12.5 Rs. 10 Rs. 7.5

REQUIRED:
12
CAPACITY Variance _______ _______ _______
________

CBQ#3C (iv)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed per unit 5 2 3 1/4
Budgeted Hours 11,000 16,000 9,000 15,000
Actual Hours Worked 12,000 18,000 8,300 14,200
Fixed FOH Rate per unit Rs. 20 Rs. 15 Rs. 18 Rs. 4

REQUIRED:
CAPACITY Variance _______ _______ _______
________

CBQ#3D(i)
F limited has the following budget and actual data:
Budget Fixed overhead cost £300,000
Budget production (units) 20,000
Actual Overhead cost £480,000
Actual production(units) 19,500
Variable FOH Rate per unit £10

Required:
Compute CONTROLLABLE and VOLUME Variances

CBQ#3D (ii)
CASE ‘A’ CASE ‘B’ CASE ‘C’ CASE
‘D’
Standard Hours Allowed per unit 5 2 3 1/4
Actual Output 13,200 14,000 9,500 50,000
Actual Hours Worked 60,000 26,000 24,300 14,200
Fixed FOH Rate per hour Rs. 5 Rs. 12.5 Rs. 12 Rs. 8
Variable FOH Rate per hour Rs. 7 Rs. 7.5 Rs. 18 Rs. 10
Budgeted Fixed Factory Overhead (Rs.) 380,000 300,000 350,000
110,000
Actual Factory Overhead (Rs.) 835,000 530,000 955,000
238,200

13
REQUIRED:
CONTROLLABLE Variance _______ _______ _______
________
VOLUME Variance _______ _______ _______
________

CBQ#3E ICAP C.A.F 08 Autumn 2017


Following information has been extracted from the records of Silver Industries

Limited (SIL) for the month of June 2017:


PRODUCTION D.LABOUR VAR & FIXED
UNITS HOURS OVERHEAD
Available Capacity 10,000 30,000 ---
Budget 8,000 24,000 Rs.3600,000
Actual 8,600 25,000 Rs.3900,000
Fixed overheads were budgeted at Rs. 1,200,000. Applied fixed overheads exceeded
actual fixed overheads by Rs. 20,000.
SIL uses standard absorption costing. Over/under applied factory overheads are
charged to profit and loss account.

Required:
Analyse under/over applied overheads into expenditure, efficiency and capacity
variances {11}

ASSIGNMENT MATERIAL#1
CONCEPT ALLIGNING QUESTIONS (CAQs)

CAQ#1A ICAP Module ‘D, Autumn 2009


Excellent Limited makes and sells a single product. The standard cost card for the product,
based on normal capacity of 45,000 units per month is as under:
Rupees
Material 60 kgs at Rs.0.60 per kg 36.00
Labour ½ hour at Rs.50.00 per hour 25.00
Variable factory overheads, 30% of direct labour cost 7.50
Fixed factory overheads 6.50
Total 75.00
Actual data for the month of August 2009 is as under:
Work in process on August 1, 2009 (60% converted) Units 10,000

14
Started during the month Units 50,000
Transferred to finished goods Units 48,000
Work in process on August 31, 2009 (50% converted) Units 10,000
Material purchased at Rs.0.50 per kg Rs. 1,750,000
Material issued to production Kgs 3,100,000
Direct labour at Rs.52 per hour Rs. 1,300,000
Actual factory overheads (including fixed costs of Rs.290,000) Rs. 600,000

The company uses FIFO method for inventory valuation. All materials are added at the
beginning of the process. Conversion costs are incurred evenly throughout the process.
Inspection takes place when the units are 80% complete. Under normal conditions, no
spoilage should occur.
Required:
⦁ Quantity and equivalent production schedules for material and conversion costs.
⦁ Material, labour and overhead variances. (Use four variance method for overheads) (16)

CAQ#1A ICAP Module ‘D, Autumn 2009

Computation of E.P.U
MATERIAL CONVERSION
Units Completed 48,000 48,000
Less: UIP Beginning 10,000 10,000
Units Started and Completed 38,000 38,000
Add: UIP Ending 10,000 5,000
Add: UIP Beginning --- 4,000
Add: Abnormal loss 2,000 1,600
50,000 48,600

Standard Quantity Allowed = 50,000 * 60 = 3,000,000 K.G.s


Standard Hours Allowed =48,600 * 0.50 = 24,300 Hours

MQV = (3000,000 -3100,000) * 0.60 = Rs. 60,000 Adverse


MPV = (0.60 3500,000) – 1750,000 = Rs. 350,000 Favourable
LEV = (24,300 – 25,000) * 50 = Rs. 35,000 Adverse
LRV = (50 * 25,000) – 1300,000 = Rs. 50,000 Adverse

Spending Variance:
Actual FOH 600,000
Budget Allowance:
Budgeted Fixed FOH 292,500
Variable FOH
{25,000 * 15} 375,000 667,500

15
Favourable 67,500
VEV = (24,300 – 25,000) * 15 = Rs. 10,500 Adverse
FEV = (24,300 – 25,000) * 13 = Rs. 9,100 Adverse

Capacity Variance:
{ 22,500 – 25,000 } * 13 = Rs. 32,500 Favourable

CAQ#1B ICAP Module ‘D, Spring 2013


Hulk Limited (HL) produces and markets a single product. The company
uses standard costing system. Following is the standard cost card per unit
of the finished product:

Direct material 2.8 kg at Rs. 6.75 per kg

Direct labour Rs. 150 per hour

Variable production overheads Rs. 12 per direct labour hour

Fixed production overheads Rs. 18 per direct labour hour


The standard
labour hours required for producing one unit of finished product is 30 minutes
whereas HL’s standard operating capacity per month is 15,000 hours.
Actual results for the month of February 2013 were as under:

Direct material @ Rs. 6.25 per kg Rs. 504,000


Direct labour Rs. 160 per hour
Variable production overheads Rs. 175,000
Fixed production overheads Rs. 17 per direct labour hour
Actual labour hours consumed by HL for producing 27,000 units was 33 minutes per unit of
finished product.

Required:
(a) Compute material, labour and overhead variances. Use four variance method.
(b) List any four causes of unfavourable material price variance.

16
CAQ#1B ICAP Module ‘D, Spring 2013
SQA { 2.8 * 27,000 } 75,600 SHA { 27,000 * 0.50 } 13,500
AQU { 504,000 / 6.25 } 80,640 AHW { 27,000 * 33/60 } 14,850
Difference in Quantity 5,040 Difference in Hours 1,350

MQV = 5040 * 6.75 = Rs. 34,020 Adverse


MPV = (6.75 – 6.25 ) * 80,640 = Rs. 40,320 Favourable

LEV = 1,350 * 150 = Rs. 202,500 Adverse


LRV = (150 – 160) * 14,850 = Rs. 148,500 Adverse

Spending Variance:
Actual FOH {(17 * 14,850) + 175,000 } = 427,450
Budget Allowance:
Budgeted Fixed FOH (15,000 * 18 ) = 270,000
Variable FOH (14,850 * 12 ) = 178,200 = 448,200
Spending Variance (Favourable) = 20,750

VEV = 1,350 * 12 = 16,200 Adverse


FEV = 1,350 * 18 = 24,300 Adverse

Capacity Variance = ( 15,000 – 14,850 ) * 18 = 2,700 Adverse

17
CONCEPT BUILDING QUESTIONS (CBQs)

CBQ#4A
The following information has been extracted from standard cost card and budgets:
Budgeted Sales volume 5,000 units
Budgeted selling price $10 per unit
Standard Variable cost $5.60 per unit
Standard total cost per unit $7.5 per unit

CASE ‘A’
If it used a standard marginal cost accounting system and its actual sales were 4,500 units at a
selling price of $12 actual variable cost is $6 per unit.

CASE ‘B’
If it used a standard ABSORPTION cost accounting system and its actual sales were 4,500 units
at a selling price of $12 actual TOTAL COST is $8 per unit.

Required:
⦁ Compute Sales margin volume variance for each case above
⦁ Compute Sales margin price variance

CBQ#4B
The following information pertains to the quarter ended June 30th , 2016:

Budget Actual
------Rupees------
Sales Revenue 2,625,000 3,080,000
Sales Price 350/unit --
Sales Volume /month 2,500 ?

Standard cost to produce Rs.270 per unit.


Sales in April and May were made at the budgeted price. For the month of June, the company
allowed a 20% discount which was not budgeted. As a result, the number of units sold in June
exceeded the budget by 40%.
Required:
18
Compute Sales margin volume variance and Sales margin price variance.

CBQ#4C
The following sales variances have been calculated:
ABSORPTIION COSTING MARGIINAL COSTING
ALPHA BETA ALPHA BETA
$ $ $ $
Selling price 6,000 (A) 4,500(F) 6,000 (A) 4,500 (F)
Sales Volume 18,000 (F) 11,925 (A) 24,000 (F) 14,175 (A)

Budgeted Sales Volume ALPHA 2400 UNITS and BETA 1,800 UNITS
Actual Sales Volume ALPHA 3000 UNITS and BETA 1,500 UNITS

Required:
Compute the budgeted FIXED OVERHEAD.

CBQ#5
ABC Limited produces and markets a single product. The company operates a standard
costing system. The standard cost card for the product is as under:
Sales price Rs. 600 per unit
Direct material 2.5 kg per unit at Rs. 50 per kg
Direct labour 2.0 hours per unit at Rs.100 per hour
Variable overheads Rs. 25 per direct labour hour
Fixed overheads Rs. 10 per unit
Budgeted production and Sales 500,000 units per month
The company has a plan to maintain finished goods inventory at 25,000 units throughout
the year.
At the time of budget preparation, inflation was expected 10% as compared to last year.
Actual results for the month of August 2010 were as under:
Rupees in 000
Sales 460,000 units 294,400
Direct material 950,000 Kg 55,000
Direst labour 990,000 hours 105,000
Variable overheads 26,000
Fixed overheads 5,100

19
Finished Goods inventory at start were 25,000 but Finished Goods inventory at end were
45,000
Required: Reconcile budgeted profit with actual profit using the relevant variances

6A(i)
Material Quantity Variance (Adverse) Rs.30,000
Standard Price Rs.20 per unit
Standard Quantity Allowed 20,000 K.Gs
Actual Quantity Used ____________?

6A(ii)
Labour Efficiency Variance (Adverse) Rs.40,000
Standard Rate Rs.10 per hour
Actual Labour Rate Rs.12 per hour
Standard Hours Allowed 60,000 hours

Actual Hours Worked ____________?


Labour Rate Variance ____________?

6A(iii)
Labour Efficiency Variance (Favourable) Rs.60,000
Standard Rate Rs.20 per hour
Actual Labour Rate Rs.18 per hour
Standard Hours Allowed 2 hours per unit
Units Produced 20,000 units
Budgeted Production 25,000 units

Actual Hours Worked ____________?


Labour Rate Variance ____________?

6A(iv)
Capacity Variance (Adverse) Rs.90,000
Standard Fixed FOH Rate Rs.5 per hour
Actual Hours Worked 80,000 hours
Standard Hours Allowed 75,000 hours

Budgeted Hours ____________?

6A(v)
Volume Variance (Adverse) Rs.90,000

20
Standard Fixed FOH Rate Rs.5 per hour
Actual Hours Worked 80,000 hours
Standard Hours Allowed 75,000 hours
Budgeted Hours ____________?

6A(vi)
Material Price Variance (Adverse) Rs.30,000
Actual Price Rs. 20 per K.G
Actual Quantity Purchased 60,000 K.Gs
Standard Price ____________?

CBQ#6B Adapted from Matz & Uzry


The following information relates to the Finishing Department of Bourne Company for the fourth
quarter:
Total actual overhead………………...$ 178,500
Budget allowance formula………..….$ 110,000 plus $ .50 per direct labor hour
Predetermined factory overhead rate...$ 1.50 per direct labor hour
Spending variance…………………….$ 8,000 unfavorable
Efficency variance……………………$ 9,000 unfavorable
The total factory overhead is divided into three variances is divided into three variances-
spending, idle capacity, and efficiency.

Required:
⦁ Actual direct labor hours worked in the Finishing Department during the fourth quarter.
(2) Standard direct labor hours allowed for production in the Finishing Department during the
fourth Quarter.

CBQ#6C ICAP Module ‘D, Autumn 2008


Hexa Limited uses a standard costing system. The following profit statement summarizes the
performance of the company for August 2008:
Rupees
Budgeted profit 3,500
Favorable variance:
Material price 16,000
Labour efficiency 11,040 27,040
Adverse variance:
Fixed overheads (16,000)
Material usage (6,000)
Labour rate (7,520) (29,520)
Actual profit 1,020

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The following information is also available:
Standard material price per unit (Rs.) 4.0
Actual material price per unit (Rs.) 3.9
Standard wage rate per hour (Rs.) 6.0
Standard wage hours per unit 10
Actual wages (Rs.) 308,480
Actual fixed overheads (Rs.) 316,000
Fixed overheads absorption rate 100% of direct wages

Required:

Calculate the following from the given data:


⦁ Budgeted output in units
⦁ Actual number of units purchased

⦁ Actual units produced

⦁ Actual hours worked

(e) Actual wage rate per hour (15)

CBQ#6D ICAP Module ‘D, Spring 2010


You have recently been appointed as the Financial Controller of Watool Limited.
Your immediate task is to prepare a presentation on the company’s performance for the
recently concluded year. You have noticed that the records related to cost of production
have not been maintained properly. However, while scrutinizing the files you have come
across certain details prepared by your predecessor which are as follows:

⦁ Annual production was 50,000 units which is equal to the designed capacity of the
plant.

⦁ The standard cost per unit of finished product is as follows:

Raw material X 6 kg at Rs. 50 per kg

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Raw material Y 3 kg at Rs. 30 per kg
Labour- skilled 1.5 hours at Rs. 150 per hour
Labour- unskilled 2 hours at Rs. 100 per hour
Factory overheads Variable overheads per hour are Rs. 100 for skilled labour and
Rs. 80 for unskilled labour. Fixed overheads are Rs. 4,000,000.

(iii) Data related to variation in cost of materials is as under:

Material X price variance Rs. 95,000 (Adverse)


Material Y actual price 6% below the standard price
Material X quantity variance Nil
Material Y quantity variance Rs. 150,000 (Adverse)
⦁ Opening raw material inventories comprised of 25 days of standard consumption
whereas closing inventories comprised of 20 days of standard consumption.

⦁ Actual labour rate for skilled and unskilled workers was 10% and 5% higher
respectively.

⦁ Actual hours worked by the workers were 168,000 and the ratio of skilled and
unskilled labour hours was 3:4 respectively.
⦁ Actual variable overheads during the year amounted to Rs. 16,680,000. Fixed
overheads were 6% more than the budgeted amount.

Required:
(a) Actual purchases of each type of raw materials. (20)
(b) Labour and overhead variances.

SOLUTIONS:

CBQ#6C ICAP Module ‘D, Autumn 2008

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Budgeted Fixed FOH = 316,000 – 16,000 = Rs. 300,000
Fixed FOH Rate = 6 * 10 = Rs. 60 per unit

Budgeted Output = Budgeted Fixed FOH / Fixed FOH Rate


= Rs.300,000 / 60 = 5,000 units

Actual Quantity Purchased = M.P.V / (St. Price – Actual Price)


= 16,000 / 0.10 = 160,000

Units Produced = St. Labour Costs / Labour Cost per unit


= Rs.312,000 / 60 = 5,200 units

Standard Labour Cost = 308,480 + 11,040 – 7,520 = Rs.312,000


Actual Hours Worked = (308480 – 7520) / 6 = 50,160
Actual Wage Rate = 308,480 / 50,160 = Rs. 6.15 per hour

CBQ#6D ICAP Module ‘D, Spring 2010

Standard Consumption 300,000 150,000


MQV / St Price 150,000 / 30 --- 5,000
Actual Quantity Used 300,000 155,000
Ending Stock {300,000/365 * 20} & {150,000/365 * 20} 16,438 8,219
Opening Stock {300,000/365 * 25} & {150,000/365 * 25} 20,548 10,274
Actual Quantity Purchased 295,890 152,945
Actual Price {50 + (95,000/295,890)} & {30 * 94%} 50.32 28.20
Actual Purchases (Cost) 14,889,185 4,313,049
LEV = (SHA – AHW) * Standard Rate
SHA AHW ST. RATE VARIANCE REMARKS
Skilled 75,000 72,000 150 450,000 FAV
Unskilled 100,000 96,000 100 400,000 FAV
LRV = (Standard Rate – Actual Rate) * AHW
St Rate Actual Rate AHW VARIANCE REMARKS
Skilled 165 150 72,000 1080,000 Adverse
Unskilled 105 100 96,000 480,000 Adverse

VSV = 16,680,000 – {(100 *72) + (80 * 96,000)} = 1800,000 Adverse


VEV = (3,000 * 100) + (4,000 * 80) = 620,000
Favourable
FSV = 4000,000 * 6% = 240,000 Adverse
FEV = 7,000 * (4000,000 / 175,000 ) = 160,000
Favourable
F.C.V =( 175,000 – 168,000) * (4000,000/175,000) = 160,000 Adverse

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CBQ#7(A)
Budgeted :
Output 10,000 Units
Skilled Labour 4,500 hours @$3.00 $13,500
Semi-skilled Labour 2,600 hours @$2.5 6,500

Actual:
Production 12,000 Units
Skilled Labour 6,000 hours @$2.95 $17,700
Semi-skilled Labour 3,150 hours @$2.6 8,190

Required:
Calculate Labour mix, Labour productivity, Labour Hours Variances and also Labour Rate
Variance.

CBQ#7(B)
Budgeted :
Output 10,000 Units
Expert 10,000 hours @$50 per hour
Skilled Labour 20,000 hours @$30
Semi-skilled Labour 30,000 hours @$15
Un-skilled 40,000 hours @$5 per hour

Actual:
Production 12,000 Units
Expert 12,300 hours total cost $676,500
Skilled Labour 25,000 hours total cost $812,500
Semi-skilled Labour 33,000 hours total cost $471,900
Unskilled 46,000 hours total cost $250,700

Required:
Calculate Labour mix, Labour productivity, Labour Hours Variances and also Labour Rate
Variance.

25
CBQ#8A ICAP Module ‘F’ Winter 2014
Umair (Private) Limited manufactures a single product in batches. Relevant
details for the current financial year are as under:

Raw materials Standard usage per unit Actual input


Alpha 20 kg @ Rs. 29 5,933,750 kgs @ Rs. 25
Beta 15 kg @ Rs. 40 4,279,875 kgs @ Rs. 43
Gamma 12 kg @ Rs. 45 3,598,125 kgs @ Rs. 51

The actual output was 252,500 units.

Required:
Calculate the following material variances component
wise:
(a) Price (b) usage
(12
(c) Mix (d) yield )

CBQ#8B ICAP Module ‘D, Spring 2006


The standard raw material mix for 2200 kgs of finished product is as follows:
Materials Weight (Kgs) Price per Kg
(Rs.)

Salt 1,200 1.50


Ash 600 2.00
Coata 200 3.00
Fog 400 4.00
Materials used during an accounting period were as follows:
Materials Weight (Kg) Price per Kg
(Rs.)

Salt 6,000 1.6


Ash 4,800 1.8
Coata 1,600 2.6
Fog 2,500 4.1
Actual production was 12,100 kg.

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Calculate the following materials variances:
(i) Cost variance (ii) Price variance
(iii) Usage variance (iv) Mix variance
(v) Yield variance (13)

CBQ#8C ICAP ‘CAF 08, Autumn 2016


Zamil Industries (ZI) produces and markets an industrial product Zeta. ZI uses
standard absorption costing system. The break-up of Zeta’s standard cost
per unit is as under:

Rupees
Materials: Axe – 1 kg 160
Zee – 2 kg 210
Direct labour – 0.8 hours 200
Overheads – 0.8 hours 180

Production of Zeta for the month of August 2016 was budgeted at 15,000
units. Information pertaining to production of Zeta for August 2016 is as
under:

⦁ Raw material inventory is valued at lower of cost and net realizable


value. Cost is determined under FIFO method. Stock cards of
materials Axe and Zee are reproduced below:

Axe Zee
kg kg Cost
Date Description Cost per per
kg (Rs.) kg (Rs.)

1-Aug Opening balance 9,000 150 4,000 120


8,000 122
3-Aug Purchase returns - - (2,000) 122
4-Aug Purchases 17,000 148 35,000 125
6-Aug Issues to production (16,000) - (29,000) -

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⦁ Actual direct wages for the month were Rs. 3,298,400 consisting
of 11,780 direct labour hours.

⦁ Fixed overheads were estimated at Rs. 540,000 based on budgeted


direct labour hours.

⦁ The actual fixed overheads for the month were 583,000.

Actual sales of Zeta for the month of August 2016 was 12,000 units.
Opening and closing finished goods inventory of Zeta was 5,000 and
8,500 units respectively.

Required:

⦁ Compute following variances:

(i) Material price, mix and yield variances (07)


(ii) Labour rate and efficiency variances (04)
⦁ Compute applied fixed overheads and analyse ‘under/over applied fixed
factory

overheads’ into expenditure, efficiency and capacity variances. (08)

CBQ#9(A) Adapted from COLIN DRURY


(Modified)
Company P sells 3 products—R, S and T. sales information for April 2002 was as follows.
Budgeted Sales Budgeted Price Actual sales Actual price
Units per units Units per unit
R 100 £100 108 £104
S 150 £50 165 £47
T 250 £35 221 £37

Required: Calculate the Sales mix and quantity variances.


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CBQ#9B ICMA MA Spring 13 Q#3
Genuine Motors is an authorized dealer for a foreign-made automobile. Old cars
traded in with new models are resold by the company. In addition, Genuine Motors
purchases used cars that are not more than two years old models from the
employees of large domestic automobile manufacturing plant located in the area, for
resale to the general public as used vehicles.

A report showing the actual contribution margin earned in 2012 compared with the
budgeted amount of Genuine Motors is summarized below:

Budgeted Actual
New Cars Used Cars Total New Cars Used Cars Total
Sales – No. of cars 200 300 500 190 320 510
Rs. in million
Sales 600 720 1,320 562.4 761.6 1,324.0
Cost of goods sold 480 600 1,080 467.4 640.0 1,107.4
Contribution margin 120 120 240 95.0 121.6 216.6

The cost of goods sold consists of variable costs only since this is a retail business.

Mr. Ahmed, President of the company, has concerned about the declining
profitability of the business and his initial reaction to the contribution margin report
was: “Something has been wrong because I have been following sales closely and I
knew we were selling more cars than expected when the budget was prepared. How
can our contribution margin possibly be reduced by Rs. 23.4 million from the
budgeted amount?”

Required:
Calculate the following variances for the firm’s 2012 financial performance for
new cars, used cars and total cars:

(a) Selling price variances. 02


(b) Sales volume variances. 03
(c) Sales mix variances. 03
(d) Cost of goods sold variances (variable cost variances). 02
(e) Calculate total variances showing that the sum of variances as computed in requirements
(a to d) is equal to the contribution margin variance for the year 2012. 03

CBQ#10(A) Adapted from COLIN DRURY


A year ago, Kenp Ltd entered the market for the manufacture and sale of a revolutionary
insulting material. The budgeted production and sales volumes were 1000 unit. The originally

29
estimated sales prices and standard costs for this new product were:
(£) (£)
Standard sales price (per unit) 100
Standard costs (per unit0
Raw material (Aye 10 kg at £5) 50
Labour (6 hours at £4) 24 74
Standard contribution (per unit) £ 26
Actual results were:
First year’s result
(£000) (£000)
Sales (1000 units) 158
Production costs (1000 units)
Raw material (Aye 10 800 kg) 97.2
Labour (5800 hours) 34.8 132
Actual contribution £26
“Throughout the year we attempted to operate as efficiently as possible, given the prevailing
conditions’ stated the managing director. ‘Although in total the performance agreed with budget,
in every detailed respect, expect volume, there were large differences. These were due, mainly, to
the tremendous success of the new insulating material which created increased demand both for
the product itself and all the manufacturing resources used in its production. This ten resulted in
price rises all round.
‘Sales were made at what was felt to be the highest feasible price but, it was later
discovered. our competitors sold for £165 per unit and we could have equaled this
price. Labour costs rose dramatically with increased demand for the specialist skills
required to produce the product and the general market rate was £6.25 per hour –
although Kenp always paid below the general market rate whenever possible.’

Raw material Aye was chosen as it appeared cheaper than the alternative material
Bee which could have been used. The costs which were expected at the time the
budget was prepared were (per kg): Aye, £5 and Bee, £6 However, the market prices
relating to efficient purchases of the materials during the year were:

Aye £8.50 per kg, and


Bee £7.00 per kg.
Therefore it would have been more appropriate to use Bee, but as production plans
were based on Aye it was Aye that was used.
‘It is not proposed to request a variance analysis for the first year’s results as most of the
deviations from budget were caused by the new products great success and this could not have
been fully anticipated and planned for. In any event final contribution was equal to that originally
budgeted so operations must have been fully efficient.
Required:
⦁ Compute the traditional variances for the first year’s operations.
⦁ Prepare an analysis of variances for the first year’s operations which will be useful in the
circumstances of Kenp Ltd. The analysis should indicate the extent to which the variances
were due to operational efficiency or planning causes.

30
CBQ#10(B) ICMP PA Winter 2010 Q#4
A company operates a standard costing system.The following information has been extracted
from the standard cost card of one of its products:
Material cost(5 Kg.@ Rs 20.50 per Kg) Rs.102.50 per unit
Budgeted production 1,200 units
Actual results for the month of October 2010 were as follows:
Material cost (purchased and used) 5,500 Kgs.@ Rs.22 per Kg.Rs.121,000
Actual production (units) 1,000
Market price of the material was Rs.22.50 per Kg.during the month.

Required:
Calculate the following:
⦁ Planning variance (consider quantity purchased as the standard quantity for actual
production).
⦁ Material usage variance.

CBQ#10(C) Adapted from COLIN DRURY


POV Ltd uses a standard costing system to control and report upon the production of its single product.
An abstract from the original standard cost card of the product is as follows:
(£) (£)
Selling price per units 200
Less: 4 kg materials @ 20 per kg 80
6 hours labour @ 7 per hour 42 122
Contribution per unit 78

2,500 units were budgeted to be produced and sold but the actual production
For period 3,
and sales were 2,850 units.

The following information was also available:


⦁ At the commencement of Period 3, the normal material became unobtainable and it was
necessary to use an alternative, Unfortunately, 0.5 kg per unit extra was required and it
was thought that the material would be more difficult to work with. The price of the
alternative was expected to be £16.50 per kg. During the period, actual usage was
12,450 kg at £18 per kg .
⦁ Weather condition unexpectedly improved for the period with the result that a £0.50
per hour bad weather bonus, which had been allowed for in the standard, did not have
to be paid. Because of the difficulties expected with the alternative material,
management agreed to pay the workers £8 per hour for period 3 only. During the
period 18,800 hours were paid for.
After using conventional variances for some time, POV Ltd is contemplating extending its
system to include planning and operational variances.
You are required:

31
⦁ To prepare a statement reconciling budgeted contribution for the period with actual
contribution, using conventional material and labour variances;
⦁ To prepare a similar reconciliation statement using planning and operational variances;

32