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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 39,250

b) Budgeted Factory overhead


I) Fixed budgeted overhead 20,000

II) Variable budgeted OH


(Standard hours allowed x 11,000
Variable per unit rate) 1.50 16,500 36,500

CONTROLLABLE VARIANCE UF 2,750

2 Volume Variance
a) Budget FOH 36,500

b) Standand Factory Overhead


Standard hours allowed x 11,000
Total Standard Factory overhead rate 3.50 38,500
VOLUME VARIANCE Fav 2,000

OR
a) Budget FOH
I) Fixed budgeted overhead 20,000

II) Variable budgeted OH


(Standard hours allowed x 4,500
Variable per unit rate) 1.50 6,750 26,750

b) Standand Factory Overhead


I) Fixed budgeted overhead 4,500
0.90 4,050

II) Variable budgeted OH 4,500


1.50 6,750 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 20,000
II) Variable FOH 19,250 39,250

b) Budget FOH allowance based in actual hours


I) Fixed budgeted overhead
II) Variable budgeted OH 20,000
(Actual hours x 13,750
Variable per unit rate) 1.50 20,625 40,625
Spending Variance Fav 1,375

2 Idle Capacity Variance


a) Budget FOH based in Actual hours 40,625

b) Standard Overhead charged to production


Actual hours x 13,750
Total Standard Factory overhead rate 3.50 48,125
Idle Capacity Variance Fav 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 48,125

b) Overhead charged to production (Based on Standard hours)


Standard hours allowed x 11,000
Total Standard Factory overhead rate 3.50 38,500
Efficiency Variance UF 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 Standard Actual Qty Variance


Quantity used Mix % at Std. mix

Gum Base 157,000 66.67 154,000 3,000 unfav

Corn Syrup 38,000 16.67 38,500 500 fav

Sugar 36,000 16.67 38,500 2,500 fav


231,000 100 231,000 MATERIAL MIX VARIANCE

Expected Yeild = Output / Input

Expected Yeild = 1000 = 0.8333 Therefore;


1200 Normal loss = 1 - Expected yeild
or Normal loss = 1 - 0.8333
Output = Input x Expected yeild Normal loss = 0.17
1200 x 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


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 Standard Std. Qty at Variance


at Std. mix Mix % Std. Mix
Gum Base 154,000 66.67 160,000 6,000 Fav

Corn Syrup 38,500 16.67 40,000 1,500 Fav

Sugar 38,500 16.67 40,000 1,500 Fav


231,000 100 240,000 MATERIAL yeild VARIANCE

Actual production / Expected yeild


=200,000 lbs / 0.83333
Std. QTY 240,000

Material Quantity Variance:

Material mix variance 300 U


Material yeild variance 2250 Fav
MQV 1950 Fav
OR
Material Quantity Variance:

Material Actual QTY Std. Qty Variance Std.


at actual mix at Std. mix rate

Gum Base 157,000 160,000 3,000 Fav 0.25


Corn Syrup 38,000 40,000 2,000 Fav 0.40

Sugar 36,000 40,000 4,000 Fav 0.10


231,000 240,000 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 3800
Variable per unit rate) 2
Spending Variance

Fixed FOH = 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 3800
Total Standard Factory overhead rate 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 xxx


AL PRICE VARIANCE xxxx

Standard price Material Mix


Variance

0.25 750 unfav

0.40 200 fav

0.10 250 fav


MATERIAL MIX VARIANCE 300 unfav

ss is more 0.1667

ss is less than 0.1667


d actual output) x std average material rate

Standard price Material yeild


variance
0.25 1,500 Fav

0.40 600 Fav

0.10 150 Fav


MATERIAL yeild VARIANCE 2,250 Fav

Material Qty
Variance

750
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

7,600 19,600
2,400 UNFAV.

19,600

19,000
acity Variance 600 UnFav.

19,000

20,000
1,000 Fav

19,000

Expected output:

19,250
FICIENCY VARIANCE: 250 Fav
Expected output:

19,250

Actual output:

20,000
LD VARIANCE: 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 900 UF
Standard Rate 0.80

Material quantity variance 720 UF

Material Price Variance


Formula: Difference between Standard and Actual rate x Actual quantity purchas

Standard rate for purchases 0.80


Actual rate on purchases 0.78

Difference 0.02 F
Actual Quantity purchased 100,000

Material price variance 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 0.05 F
Actual Quantity purchase 2,000

Material price variance 100 F

Material Price Variance (at the time of issue)

Difference between Standard and Actual rate x Actual quantity ISSUE

Standard rate for purchases 3.65


Actual rate on purchases 3.60

Difference 0.05 F
Actual Quantity issued 1,775

Material price variance 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) 1,600
Actual hours used in production 1,580

Difference 20 F
Standard Rate 6.75

Labour hour/ efficency Variance 135 F

Labour Price Variance


Difference between Standard and Actual rate x Actual hours used

Standard rate for payment of labour 6.75


Actual rate paid to labour 6.90

Difference 0.15 u
Actual hours used 1,580

Labour Price Variance 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 Rs. 11,000
Fixed FOH 4,500
Variable FOH 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 4,500
Variable FOH 6,500

b) Budget allowance based in actual hours worked


Fixed budgeted overhead 4,500
Variable budgeted OH
(Actual hours worked x 4,400
Variable per unit rate) 1.50 6,600
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 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 4,500
Total Standard Factory overhead rate 2.40
Efficiency Variance

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 4,500
Variable budgeted OH
(Actual hours x 4,400
Variable per unit rate) 1.50 6,600
Spending Variance
2 Variable Efficiency Variance:

Budget allowance based on actual hours

Budget allowance based on Standard hours allowed

Variable Efficiency Variance:

Proof OR
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

Proof 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
2 - Variance method

1 Controllable Variance
a) Actual amount of factory overhead
Fixed FOH 4,500
Variable FOH 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) 4,050
Variable FOH (4,500 x 1.50) 6,750
VOLUME VARIANCE

1 Spending Variance
a) Actual factory overhead
Fixed FOH 4,500
Variable FOH 6,500 11,000

b) Budgeted FOH
Fixed budgeted overhead 4,500
Variable budgeted OH
(Actual hours worked x 4,400
Variable per unit rate) 1.50 6,600 11,100
Spending Variance 100

2 Idle Capacity Variance


a) Budgeted FOH
Fixed budgeted overhead 4,500
Variable budgeted OH
(Actual hours worked x 4,400
Variable per unit rate) 1.50 6,600 11,100

b)Standard FOH
Fixed FOH (4,400 hours x 0.90) 3,960
Variable FOH (4,400 hours x 1.50) 6,600 10,560
Idle Capacity Variance 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 10,800
Efficiency Variance 240

4 - Variance method

1 Spending Variance
a) Actual amount of factory overhead
Fixed FOH
Variable FOH 11,000

b) Budget allowance based on actual hours


Fixed budgeted overhead 4,500
Variable budgeted OH
(Actual hours x 4,600
Variable per unit rate) 1.50 6,900 11,400
Spending Variance 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) 4,140

Standard hours allowed x Fixed FOH rate (4,500 hours x 0.90) 4,050

Fixed Efficiency Variance: (90)

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) 4,500

Actual hours worked x Fixed FOH rate (4,400 hours x 0.90) 3,960

Idle Capacity Variance 540

Proof 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 400 U
Standard Rate 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 0.50


Actual rate on purchases 0.51

Difference 0.01 U
Actual Quantity used 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) 8,750
Actual hours used in production 9,000

Difference 250 U
Standard Rate 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 9.00


Actual rate paid to labour
(76,500 / 9,000 hours) 8.50
Difference 0.50 F
Actual hours used 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 5,000
Variable FOH 12,550

b) Budget allowance based in standard hours allowed


Fixed budgeted overhead 5,000
Variable budgeted OH
(Standard hours allowed x
Variable per unit rate)
(1.25 hours x 7000 units = 8750 hours x 1.50) 13,125

CONTROLLABLE VARIANCE

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
(1.25 hours x 7000 units x 2)
VOLUME VARIANCE
OR (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 5,000
Variable FOH 12,550

b) Budget allowance based in actual hours


Fixed budgeted overhead 5,000
Variable budgeted OH
(Actual hours x
Variable per unit rate)
(9,000 hours x 1.50) 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)

Idle Capacity Variance


OR (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 5,000
Variable FOH 12,550

b) Budget allowance based in actual hours


Fixed budgeted overhead 5,000
Variable budgeted OH
(Actual hours x
Variable per unit rate)
(9,000 hours x 1.50) 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)

Idle Capacity Variance


OR (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

17,550

18,125

575 F

18,125

17,500
(625) U
cost rate
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) 80 units (all material, 50% conversion)


Units put in to process 7,850 units
Total 7,930 units

Units completed &


tansferred out 7,830 units
Units in process (at end) 100 units (all material, 50% conversion)
7,930 units

Equivalent Production Unit


Material Conversion
Units completed & transferred out 7,830 7,830
Less: Opening stock (80) (80)

Unit started & completed 7,750 7,750


Add: Opening stock - work this period - 40
Add: Closing stock - work this period 100 50
EPU 7,850 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 4,010 UF
Standard Rate 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 3


Actual rate on purchases 3.04

Difference 0.04 UF
Actual Quantity 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 210 F
Standard Rate 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 6.50


Actual rate paid to labour 6.60

Difference 0.10 UF
Actual hours used 46,830

Labour Price Variance 4,683 UF


Fatory over head Variance
2 - Variance method

1 Controllable Variance
a) Actual amount of factory overhead
Fixed FOH 11,250
Variable FOH 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 11,250
Variable FOH 25,090

b) Budget allowance based in actual hours worked


Fixed budgeted overhead 11,250
Variable budgeted OH
(Actual hours worked x 46,830
Variable per unit rate) 0.50 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 4,500
Total Standard Factory overhead rate 2.40
Efficiency Variance

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:

Proof OR
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 Actual Qty Variance Standard


Quantity usedMix % at Std. mix 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 MATERIAL MIX VARIANCE

Expected Yeild = Output / Input

Expected Yeild = 8000 2.67


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

or
Input = Output / Expected yeild 10,000 / 2.667
8000/2.667 3750 Input
Input = 3000 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 Standard Std. Qty at Variance Standard


at Std. mix Mix % Std. Mix 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 MATERIAL yeild VARIANCE

Std. Qty allowed = Actual production / Expected yeild


10,000 / 2.667
Std. Qty allowed 3750
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 Rate
A 8,750 0.056 A 1,500 0.0600
B 3,750 0.380 B 625 0.4000
C 6,250 0.280 C 1,000 0.2500
18,750 0.716 3,125 0.710

Input rate =
Output rate =

Expected Yeild = Output / Input

Expected Yeild = 12,500 4 tubes per kg


3,125
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 = 19,375 Standard input allowed for actual production

Actual input = 18,750


Variance 625 Fav

Material Yeild variance = 625 fav input x input rate 0.1888


Material Yeild variance = 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 Standard Actual Qty Variance


Qty used Mix % at Std. mix

Material A 8,750 48 9,000 250 Fav

Material B 3,750 20 3,750 -

Material C 6,250 32 6,000 250 Unfav


18,750 100 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 Standard Std. Qty at Variance


at Std. mix Mix % Std. Mix

A 9,000 48 9,300 300 Fav

B 3,750 20 3,875 125 Fav

C 6,000 32 6,200 200 Fav


18,750 100 19,375 MATERIAL yeild VARIANCE

Std. Qty allowed = Actual production / Expected yeild


77,500 / 4
Std. Qty allowed 19,375
Std. mixing ratio
90 0.48
250 0.20
250 0.32
590 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 Material Mix


Price Variance

0.060 15 Fav

0.400 -

0.250 63 unfav
MIX VARIANCE 48 unfav

ctual output) x std average material rate

d mix) x Standard price

Standard Material yeild


Price variance

0.06 18 Fav

0.40 50 Fav

0.25 50 Fav
yeild VARIANCE 118 Fav
Required no.1: Standard quantity allowed of material:

Actual production 4,000 units


Per unit standard consumption of material 6 lbs

Standard quantity allowed 24,000 lbs

Required no.2: Actual quantity used of material:

Standard quantity allowed 24,000 lbs


add: unfavourable quantity variance 1,000 lbs

Actual quantity used 25,000 lbs

Required no. 3: Standard hours allowed:

Actual production 4,000 units


Per unit standard consumption of labour 1 hour

Standard hours allowed 4,000 hours

Required no. 4: Actual hours worked:

Standard hours allowed 4,000 hours


Less: Favourable labour efficiency variance (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 4


Add: unfavourable labor rate variance 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 Actual Variance Actual


Rate Rate Qty Purchase

Gum base 0.25 0.24 0.01 Fav 162,000


Corn syrup 0.40 0.42 0.02 Unfav 30,000
Sugar 0.10 0.11 0.01 Unfav 32,000
MPV

Recognized at the time of used

Material Standard Actual Variance Actual


Rate Rate Qty Used

Gum base 0.25 0.24 0.01 Fav 157,000


Corn syrup 0.40 0.42 0.02 Unfav 38,000
Sugar 0.10 0.11 0.01 Unfav 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 Purchases Closing


Stock 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 Actual Qty Standard Actual Qty Variance


at actual mix Mix % at Std. mix

Gum Base 157,000 0.6667 154,000 3,000 unfav


Corn Syrup 38,000 0.1667 38,500 500 fav
Sugar 36,000 0.1667 38,500 2,500 fav
231,000 1.0000 231,000 MATERIAL MIX VARIANCE

Working: Standard Ratio:

Material Standard Standard


Consumption Ratio

Gum Base 800 0.6667


Corn syrup 200 0.1667
Sugar 200 0.1667
1,200
Expected Yeild = Output / Input

Expected Yeild = 1,000 = 0.8333 Therefore;


1,200 Normal loss = 1 - Expected yeild
or Normal loss = 1 - 0.8333
Output = Input x Expected yeild Normal loss = ###
1200 x 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 Actual Qty Standard Std. Qty at Variance


at Std. mix Mix % Std. Mix
Gum Base 154,000 0.6667 160,000 6,000 Fav
Corn Syrup 38,500 0.1667 40,000 1,500 Fav
Sugar 38,500 0.1667 40,000 1,500 Fav
231,000 1.0000 240,000 MATERIAL YEILD VARIANCE

Input = Actual production (Output) / Expected yeild


=200,000 lbs / 0.83333
Std. QTY 240,000
allowed
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 = 240,000 Standard input allowed for actual production

Actual input = 231,000


Variance 9,000 Fav

Material Yeild variance = 9,000 fav input x input rate 0.25


Material Yeild variance = 2,250 Fav

Summary:
Input Expected Output
Yeild

Actual 231,000 0.8333 192,500

Standard 240,000 0.8333 200,000


Difference 9,000 Fav 7,500 Fav

Rate 0.25 0.30

MYV 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 300 U


Material yeild variance 2,250 Fav
MQV 1,950 Fav
OR
Material Quantity Variance:

Material Actual QTY Std. Qty Variance Std.


at actual mix at Std. mix rate

Gum Base 157,000 160,000 3,000 Fav 0.25

Corn Syrup 38,000 40,000 2,000 Fav 0.40

Sugar 36,000 40,000 4,000 Fav 0.10


231,000 240,000 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
Yeild 7,500
Std. hours allowed for one unit 0.02

Hours
Total hours saved 150
Std. rate per hour 6

Labor yeild variance 900 Fav

LYV (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 Fav
600 Unfav
320 Unfav
700 Fav

MPV

1,570 Fav
760 Unfav
360 Unfav
450 Fav
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. Material Mix


Rate Variance

0.25 750 unfav


0.40 200 fav
0.10 250 fav
L MIX VARIANCE 300 unfav
s more 0.1667

s less than 0.1667

ndard price

Std. MYV
Price
0.25 1,500 Fav
0.40 600 Fav
0.10 150 Fav
L YEILD VARIANCE 2,250 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 Beeta

Actual Sales 120 million @ Rs. 1.10 40 million @ Rs. 2.20


Actual COGS 120 million @ Rs. 0.90 40 million @ Rs. 1.80

Budgeted Sales 110 million @ Rs. 1.35 70 million @ Rs. 2.70


Budgeted COGS 110 million @ Rs. 1.10 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 Current yr Variance Current


Rate Rate Qty sold

X 5.00 6.60 1.60 Fav 10,000


Y 4.00 3.50 0.50 Unfav 4,000
Z 2.60 3.00 0.40 Fav 20,000
Sales price variance

Sales volume variance:

Product Base yr Current yr Variance Base yr


Qty Qty rate

X 8,000 10,000 2,000 Fav 5.00


Y 7,000 4,000 3,000 Unfav 4.00
Z 20,000 20,000 - 2.60
Sales Volume variance

Cost price Variance

Product Base yr Current yr Variance Current


Rate Rate Qty sold

X 4.000 4.000 - 10,000


Y 3.500 3.500 - 4,000
Z 2.175 2.800 0.625 Unfav 20,000
Cost price variance

Cost volume variance:

Product Base yr Current yr Variance Base yr


Qty Qty rate

X 8,000 10,000 2,000 Unfav 4.000


Y 7,000 4,000 3,000 Fav 3.500
Z 20,000 20,000 - 2.175
Cost Volume variance

Sales Mix Variance

Product Current Qty Base yr Base yr Sales Current yr Qty Variance


Sold Qty Mixing ratio at base yr mix ratio

X 10,000 8,000 0.2286 7,771 2,229


Y 4,000 7,000 0.2000 6,800 2,800
Z 20,000 20,000 0.5714 19,429 571
34,000 35,000 1

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) 35,000


Current year sales (in units) 34,000

Difference in volume 1,000 Unfav

x Average Gross profit 0.5714

FINAL SALES VOLUME VARIANCE 571


SPV

16,000 Fav
2,000 Unfav
8,000 Fav
22,000 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 SMV
G.P

Fav 1.000 2,229 Fav


Unfav 0.500 1,400 Unfav
Fav 0.425 243 Fav
1,071 Fav

Unfav
Aplha Beeta Total

Actual Sales 120 million @ Rs. 1.10 40 million @ Rs. 2.20 Rs. 220 million
Actual COGS 120 million @ Rs. 0.90 40 million @ Rs. 1.80 Rs. 180 million

Budgeted Sales 110 million @ Rs. 1.35 70 million @ Rs. 2.70 Rs. 337.50 million
Budgeted COGS 110 million @ Rs. 1.10 70 million @ Rs. 2.20 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 270

Less: Actual quantity x actual mix x standard COGS rate (220)

50
Less: Actual sales (both) x budgeted average gross profit
(120 m + 40 m) x 0.347 (55.52)

SALES MIX VARIANCE (5.52)

FINAL SALES VOLUME VARIANCE

Budget sales 337.50


Less: Budgeted COGS (275.00)
Budgeted Gross Profit 62.50
Less: Actual sales (both) x budgeted average gross profit
(120 m + 40 m) x 0.347 (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 Total WIP

Material Price variance W-1 9,600 3,600


Labour efficiency variance W-2 6,000 1,200
FOH Controllable W-3 7,200 2,880
FOH Volume W-3 12,000 4,800
34,800 12,480

Note: Total material purchase price variance = 12,000


Less: MPV charged to R/M (at end)
(12,000 / 200,000 x 40,000) (2,400) MPV on R/ m (at end)

MPV-Recognized at the time of purchases


(12,000 / 200,000 x 160,000) 9,600 MPV on used material

W-1 Material Price variance allocation

Material Allocation MPV


Inventory Percentage
WIP 60,000 37.50 3,600
FG 20,000 12.50 1,200
COGS 80,000 50.00 4,800
160,000 100.00 9,600

W-2 Labour Efficiency variance allocation

Labour Allocation Variance


Cost Percentage
WIP 20,000 20.00 1,200
FG 20,000 20.00 1,200
COGS 60,000 60.00 3,600
100,000 100.00 6,000

W-3 FOH Controllable & Volume variance allocation

FOH Allocation Controllable


Cost Percentage Variance
WIP 80,000 40.00 2,880
FG 20,000 10.00 720
COGS 100,000 50.00 3,600
200,000 100.00 7,200

Required no.2: COMPARATIVE COGS

Standard Variance Actual

Material purchased 200,000 12,000 212,000


Less: Ending R/Material (40,000) (2,400) (42,400)
Raw material used 160,000 9,600 169,600

Direct labor 100,000 6,000 106,000

Prime Cost 260,000 15,600 275,600


Factory overhead 200,000 19,200 219,200

Manufacturing cost 460,000 34,800 494,800


Less: WIP (at end) (160,000) (12,480) (172,480)

Cost of Goods manufactured 300,000 22,320 322,320


Less: Finished goods (at end) (60,000) (4,320) (64,320)

Cost of Goods Sold 240,000 18,000 258,000

Required no. 3: Income Statement (Actual Basis)

Sales 520,000
Less: Cost of goods sold (258,000)

Gross Profit (actual) 262,000

Less: Operating Expenses:


Administrative Expenses 120,000
Marketing Expenses 60,000 (180,000)

NET INCOME (Actual) 82,000

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


NET INCOME (Actual) 82,000

Add: Variance allocated to COGS 18,000

Net Income (standard) 100,000


FG COGS

1,200 4,800
1,200 3,600
720 3,600
1,200 6,000
4,320 18,000

V on R/ m (at end)

V on used material

Volume
Variance
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 Standard Actual Qty Variance
Qty. used Mix % at Std. mix

A 1,870 50 1,705 165 unfav

B 1,100 40 1,364 264 fav

C 440 10 341 99 unfav


3,410 100 3,410 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 Standard Std. Qty at Variance
at Std. mix Mix % Std. Mix
A 1,705 50 1,778.70 73.70 Fav

B 1,364 40 1,422.96 58.96 Fav

C 341 10 355.74 14.74 Fav


3,410 100 3,557.40 MATERIAL yeild VARIANCE

Expected Yeild = Output / Input

Expected Yeild = 100 0.91


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

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

670
Standard rate 37.50
25,125
FACTORY OVERHEAD VARIANCE:

3 - Variance method

1 Spending Variance
a) Actual amount of factory overhead
Fixed FOH 553,750
Variable FOH 424,500

b) Budget allowance based on actual hours


Fixed budgeted overhead 618,750
Variable budgeted OH
(Actual hours x 15,800
Variable per unit rate) 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 15,800
Total Standard Factory overhead rate 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 553,750
Variable FOH 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 15,800
Total Standard Factory overhead rate 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 Material Mix


Price Variance

2,150 354,750 unfav

1,750 462,000 fav

1,250 123,750 unfav


AL MIX VARIANCE 16,500 unfav

d qty at std mix) x Standard price

Standard Material yeild


Price variance
2,150 158,455 Fav

1,750 103,180 Fav

1,250 18,425 Fav


L yeild VARIANCE 280,060 Fav

Unfav

Unfav

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 Tns Cost % of output Amount


A 55 2,150 50 118,250
B 44 1,750 40 77,000
C 11 1,250 10 13,750
INPUT 110 5,150 100 209,000
OUTPUT 100

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:

Direct labor 15,800 hours at Rs. 39.75


Fixed FOH 553,750
VariableFOH 424,500

7 Material Purchases Consumed


Qty Price
A 2,000 2,200 1,870
B 1,200 1,850 1,100
C 500 1,200 440

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 QTY


Actual Std. 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 price

Material Actual Standard Actual Qty Variance


Qty. used Mix % at Std. mix

A 1,870 50 1,705 165 unfav

B 1,100 40 1,364 264 fav

C 440 10 341 99 unfav


3,410 100 3,410 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 59 Fav

C 341 10 356 15 Fav


3,410 100 3,557 MATERIAL yeild VARIANCE

Expected Yeild = Output / Input

Expected Yeild = 100 0.91


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 16,500 U


Material yeild variance 280,060 Fav
MQV 263,560 Fav
OR
Material Quantity Variance:

Material Actual QTY Std. Qty Variance Std.


at actual mix at Std. mix rate

A 1,870 1,779 91 Unfav 2,150.00

B 1,100 1,423 323 Fav 1,750.00

C 440 356 84 Unfav 1,250.00


3,410 240,000 MQV

Labour Efficiency Variance


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)

670
Standard rate 37.50
25,125

1 Spending Variance
a) Actual amount of factory overhead
Fixed FOH 553,750
Variable FOH 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 15,800
Total Standard Factory overhead rate 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 MMV
Price

2,150 354,750 unfav

1,750 462,000 fav

1,250 123,750 unfav


L MIX VARIANCE 16,500 unfav

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

1,750 103,180 Fav

1,250 18,425 Fav


L yeild VARIANCE 280,060 Fav
MQV

196,295 Unfav

565,180 Fav

105,325 Unfav
263,560 Fav
Unfav

Unfav

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 Actual Actual


Qty used Rate Cost

Alpha 109,200 7.25 791,700

Beta 149,500 3.25 485,875

Gamma 27,300 13.50 368,550


286,000 1,646,125

W-2: Actual matererial used at Standard rate:

Items Actual Standard Standard


Qty used Rate Cost

Alpha 109,200 6.50 709,800

Beta 149,500 4.00 598,000

Gamma 27,300 13.00 354,900


286,000 1,662,700

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

Items Actual Standard Mix Actual Qty Standard


Qty used at std. mix 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 28,600 13.00


286,000 286,000

W- 4: Standard material for actual production:

Actual Production 253,300


` Standard material for actual production
Input ratio 100
Output ratio 90

Actual production is 253,300 kgs which is 90% of Input


Therefore Input kgs are 253,300 / 90% 281,444 kgs

Proof:
Input 281,444
Less: 10% wastage (28,144)
Actual Production (output) 253,300

W-5: Standard material at Standard Mix and rate

Items Standard Standard Material Standard Amount


Ratio at Standard Mix Rate

Alpha 40% 112,578 6.50 731,756

Beta 50% 140,722 4.00 562,889

Gamma 10% 28,144 13.00 365,878


281,444 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) 1,660,522


Direct Material Total Variance 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 Actual Qty Variance


Quantity used
Mix % at Std. mix

Alpha 109,200 40 114,400 5,200 Fav

Beta 149,500 50 143,000 6,500 Unfav

Gamma 27,300 10 28,600 1,300 Fav


286,000 100 286,000 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 Material Mix


Rate Variance

6.50 33,800 Fav

4.00 26,000 Unfav

13.00 16,900 Fav


ATERIAL MIX VARIANCE 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) 1,936,000
Add: Finished goods (at start) (20,000 units x 17.60) 352,000
TOTAL FINISHED GOODS AVAILABLE 2,288,000
Less: Finished goods (at end) (12,000 units x 17.60) (211,200)

COST OF GOODS SOLD (STD.) 2,076,800

Add: Unfavourable variance


Material quantity variance (W-4) 24,000
Labour price variance (W-7) 25,760
FOH Controllable variance (W-8) 16,500
66,260 66,260

Less: Favourable variance


Material Price Variance (W-5) 3,750
Labour hour variance (W-6) 32,000
FOH Volume variance (W-9) 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) 20,000
Add: Production during the period 110,000
Total FG available for sales 130,000
Less: Finished goods (at end) (12,000)
UNITS SOLD 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) 12.00
Variable FOH per unit 1.50
Fixed FOH per unit 1.10
Per unit cost of Product 17.60

W-3: Equivalent Production Unit


Material
Unit in process (at start) 10,000
Add: Units put into production 240,000
Total Work in process 250,000
Less: Unit in process (at end) (15,000)
Units completed 235,000
Less: Unit in process (at start) - all units (10,000)
225,000
Add: Units in process (at start) - 3/5 completed 6,000
231,000
Add: Units in process (at end) - 1/3 completed 5,000
Actual Material used 236,000

W-4 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 16,000
Standard Rate 1.50

Material quantity variance 24,000

W-5 Material Price Variance

Formula: Difference between Standard and Actual rate x Actual quantity purchased

Standard rate for purchases 1.500


Actual rate on purchases 1.485
Difference 0.015 Fav
Actual Quantity 250,000

Material price variance 3,750 Fav

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)
Difference 4,000 Fav
Standard Rate 8

Labour hour/ efficency Variance 32,000 Fav

W-7 Labour Price Variance


Standard rate for payment of labour 8.00
Actual rate paid to labour 8.16

Difference 0.16 UnFav


Actual hours used 161,000

Labour Price Variance 25,760 UnFav

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 110,000
Total Standard Factory overhead rate 2.60
VOLUME VARIANCE
2,950,000

(2,100,310)

849,690

(651,000)
198,690
Unfav
per lbs

Unfav
13,760 / 8.16)

nce

114,000
181,500 295,500

114,000
165,000 279,000
16,500 Unfav

279,000

286,000
7,000 Fav