Problems On Standard Costing - Jackson



VARIANCE ANALYSIS

1. Direct Material Variances

Direct material variance is related with the variance in cost of actual material with cost of standard materials. This variance is created due to change into rate of material or change into consumption units of materials. Material consumption unit variance is created due to change into the ratio of two or more than two materials and change into output of final product. The material variance can be shown on the following chart as below:

[pic]

For calculating the above material variances, the following formulas have to be applied:

a. Material Cost Variance = SQ ( SP – AQ ( AP

b. Material Price Variance = AQ (SP–AP)

c. Material Usage Variance = SP (SQ – AQ)

d. Material Mix Variance = ( (SC of SM)– SC of AM

e. Material Yield Variance = SR (Actual Yield – Standard Yield)

Where,

SQ = Standard Quantity AQ = Actual Quantity SP = Standard Price AP = Actual Price

AM = Actual Mix SM = Standard Mix SC of SM = Standard cost of Standard Mix SC of AM = Standard cost of Actual Mix

2. Direct Labour Variance

Direct labour variance is related with the variance in the cost of actual labour with cost of standard labour. This variance is create due to change into rate of labour or change into consumption time of labour. Due to cost on time of labour the cost of labour also be high. Labour efficiency variance is concerned with the variance of labour mix and labour yield variance. Labour variance can be shown the following chart as below.

[pic]

The following are applied for finding out the above variance.

a. Labour Cost Variance = ST ( SR – AT ( AR

b. Labour Rate Variance = AT (SR – AR)

c. Labour Efficiency Variance = SR (ST – AT)

d. Labour Idle Time Variance = Idle Time ( SR

e. Labour Mix Variance = – SC of AM

f. Labour Yield Variance = SR (Actual Yield – Std. Yield)

Where,

ST = Standard Time SR = Standard Rate AT = Actual Time AR = Actual Rate

AM = Actual Mix SM = Standard Mix SC of SM = Standard cost of Standard Mix

SC of AM = Standard cost of Actual Mix

PROBLEMS ON STANDARD COSTING

P – 1. Bello chemical Industries provide the following information from their records: For making 10 kg. of OMO, the standard material requirement is:

|Material |Quantity (kgs.) |Rate per kg. (Rs.) |

|X |8 |6.00 |

|Y |4 |4.00 |

During December 1995, 100 kgs. of OMO were produced. The actual consumption of materials is as under:

|Material |Quantity (kgs.) |Rate per kg. (Rs.) |

|X |75 |7.00 |

|Y |50 |5.00 |

Calculate:

a. Material Cost Variance

b. Material Price Variance

c. Material Usage Variance

P – 2. From the following data, calculate material variances.

|Material |Standard Quantity |Standard Rate |Actual Quantity |Actual Rate |

|X |8,000 kg. |Rs. 1.05 |7,500 kg. |Rs. 1.20 |

|Y |3,000 kg. |Rs. 2.15 |3,300 kg. |Rs. 2.30 |

|Z |2,000 kg. |Rs. 3.30 |2,400 kg. |Rs. 3.50 |

Also write a note on the relationship of various variances that you compute.

P – 3. Sarkar & Co. Ltd. manufactures product P and uses a standard cost system. Standard product and cost specification for 1000 kg. of product are as follows:

|Material |Quantity in kg. |Price (Rs.) |Cost /kg. (Rs.) |

|A |800 |2.50 |2,000 |

|B |200 |4.00 |800 |

|C |200 |1.00 |200 |

|Input |1,200 | |3,000 |

|Output |1,000 | |3,000 |

Material records indicate:

Consumption in April

A 157,000 kg. @ Rs. 2.40

B 38,000 kg. @ Rs. 4.20

C 36,000 kg. @ Rs. 1.10

Actual finished production for the month of January is 2,00,000 kg. Calculate material variances.

P – 4. Following are the particulars in respect of a product where two types of materials A and B are used:

|Material input |Standard |Actual |

| |Tons |Rate |Tons |Rate |

|A |120 |10.00 |140 |9.50 |

|B |80 |7.50 |60 |9.00 |

| |200 | |200 | |

|Less: Loss |20 | |18 | |

|Net production |180 | |182 | |

You are required to calculate:

(a) Material price variance (b) Material mix variance

(c) Material Yield variance (d) Material usage variance

P – 5. Pieco Ltd. is producing a ‘standard mix’ by using 60 kg. of material X and 40 kg. of material Y. The standard loss of production is 30%. The standard price of X is Rs. 5 per kg. and that of Y Rs. 10 per kg.

The actual mixture and yield were as follows:

X 80 kg. @ Rs. 4.50 per kg.

Y 70 kg. @ Rs. 8 per kg.

Actual yield is 115 kg.

Calculate material variances.

P – 6. The standard cost of a certain chemical mixture is:

35% material A at Rs. 25 per kg.

65% material B at Rs. 36 per kg.

A standard loss of 5% is expected in production. During a period there is used:

125 kg. of material A at Rs. 27 per kg. and

275 kg. of material B at Rs. 34 per kg.

The actual output was 365 kg.

Calculate:

(a) Material cost variance (b) Material price variance

(c) Material mix variance (d) Material yield variance

P –7 B. K. Chemical Ltd. manufactures BXE by mixing three raw materials. For each batch of 100 kg. of BXE, 125 kg. of raw materials are used. In June, 60 batches were produced whereas expected output was 5,600 kg. of BXE. The standard and actual particulars for June are as follows:

|Raw material |Standard |Actual |Material |

| | | |purchased (kg.) |

| |Mix % |Price/kg. (Rs.) |Mix % |Price/ kg. (Rs.) | |

|A |50 |20 |60 |21 |5,000 |

|B |30 |10 |20 |8 |2,000 |

|C |20 |5 |20 |6 |1,200 |

Calculate all variances.

P –8. Vinak Ltd. produces an article by blending two basic raw materials. It operates a standard costing system and the following standards have been set for raw materials.

|Materials |Standard mix |Standard price per |

|A |40% |Rs. 4.00 |

|B |60% |Rs. 3.00 |

The standard loss in processing is 15%.

During April, 1990, the company produced 1,700 kg. of finished output. The position of stock and purchases for the month of April, 1980 is as under:

|Material |Stock on 1–4–90 |Stock on 30–4–90 |Purchases during April 1990 |

| |kg. |kg. |kg. |Cost Rs. |

|A |35 |5 |500 |3,400 |

|B |40 |50 |1,200 |3,000 |

Calculate the following variances:

i) Material price variances ii) Material usage variances

iii) Material yield variances iv) Material mix variances

v) Total material cost variances

P – 9. A company manufacturing ‘distempers’ operates a costing system. The standard cost of one of the products of the company shows the following standards:

|Materials |Quantity (kg.) |Standard price per (kg.) |Amount (Rs.) |

|A |40 |75 |3,000 |

|B |10 |50 |500 |

|C |50 |20 |1,000 |

|Material cost per unit (Total) |4,500 |

The standard input mix is 100 kg. and the standard output of the finished product is 90 kg. The actual results for period are:

Materials used

A 240,000 kg. @ Rs. 80 per kg.

B 40,000 kg. @ Rs. 52 per kg.

C 220,000 kg. @ Rs. 21 per kg.

Actual cost of the finished product = 4,20,000 kg.

You are required to calculate the material price, mix and yield variances.

P –10. From the following particulars compute (a) material cost variance (b) material price variance and (c) material usage variance.

Quantity of material purchased – 3,000 units

Value of materials purchase – Rs. 9,000

Standard quantity of materials required per tonne of output - 30 units

Standard rate of material – Rs. 2.5 per unit

Opening stock of materials – Nil

Closing stock of materials – 500 units

Output during the period – 80 tonnes

P – 11. Standard set for materials consumption was 100 kg @ Rs. 2.25 per kg. in a cost period:

Opening stock was 100 kg @ 2.25 per kg.

Purchase made 500 kg @ Rs. 2.15 per kg.

Consumption 110 kg

Calculate:

Usage variance (b) Price variance (i) When variance is calculated at point of purchase (ii) When variance is calculated at point of issue on FIFO basis (iii) When variance is calculated at point of issue on LIFO basis.

What is the effect on closing stock valuation when materials are charged out to cost on basis (ii) and (iii) above?

P – 12. From the following information, compute (i) Mix variance (ii) Price variance (iii) Usage variance (iv) Sub-usage variance and (v) Cost variance

|Materials |Standard |Actual |

| |Quantity (kg) |Rate |Amount |Quantity (kg) |Rate |Amount |

|Material A |10 |2 |Rs.20 |5 |3 |Rs.15 |

|Material B |20 |3 |60 |10 |6 |60 |

|Material C |20 |6 |120 |15 |5 |75 |

|Total |50 |4 |200 |30 |5 |150 |

P – 13. The standard material cost for100 kg chemical D is made up of

Chemical A – 30 kgs @ Rs. 4 per kg Chemical B – 40 kgs @ Rs. 5 per kg

Chemical C – 80 kgs @ Rs. 6 per kg

In a batch, 500 kg of chemical D were produced from a mix of

Chemical A – 140 kg at a cost of Rs. 588 Chemical B – 220 kg at a cost of Rs. 1056

Chemical C – 440 kg at a cost of Rs. 2860

How do the yield, mix and the price factors contribute to the variance in the actual cost per 100 kgs of chemical D over the standard cost?

P – 14. Modern Tiles Ltd. makes plastic tiles of standard size of 6"×6"×1/8". From the following information, you are required to calculate for direct materials:

i) The cost variance in total

ii) The cost variance sub divided in to (a) price (b) usage

iii) The usage variance analysed to show (a) mixture (b) yield

A standard mix of the compound required to produce an output of 20,000 square feet of tiles 1/8" thick is as follows:

|Direct materials |Quantity (kg) |Price per kg |

|A |600 |Rs. 0.9 |

|B |400 |0.65 |

|C |500 |0.40 |

During December 2002, 8 mixes were processed and actual materials consumed were:

|Direct materials |Quantity (kg) |Price per kg |

|A |5,000 |Rs. 0.85 |

|B |2,900 |0.60 |

|C |4,400 |0.45 |

Actual production for December was 620,000 tiles.

P –15. One kilogram of product requires two chemicals A and B. The following were the details of product K for the month of June.

(a) Standard mix chemical A – 50% and chemical B 50%.

(b) Standard price per kilogram of chemical A Rs. 12, chemical B Rs. 15

(c) Actual input of chemical B 70 kilogram

(d) Actual price per kilogram if chemical A Rs. 15

(e) Standard normal loss 10% of total input.

(f) Material cost variance total Rs. 650 adverse.

(g) Material yield variance total Rs. 135 adverse.

You are required to calculate:

Material mix variance

Material usage variance

Material price variance

Actual loss of actual input

Actual input of chemical A

Actual price per kg of chemical B.

Labour Variances

P – 16. The standard cost card for one unit of product shows the following costs for material and labour:

Material 4 pieces @ Rs. 5.00

Labour 10 hours @ Rs. 1.50

5,700 units of the product were manufactured during the month of March, 1992 with the following material and labour costs:

Material – 23,000 pieces @ Rs. 4.95

Labour – 56,800 hours @ Rs. 1.52

Calculate appropriate material and labour variances.

P – 17. For a unit of product A, the standard data is given below:

|Material |5 kg. @ Rs. 40 per kg. |Rs. 200 |

|Labour |40 hrs. @ Re. 1.00 per hour |Rs. 40 |

| | |Rs. 240 |

Actual data:

|Actual production 100 units |

|Materials |490 kg. @ Rs. 42 each |Rs. 20,580 |

|Labour |3960 hrs. @ Rs. 1.10 per unit |4356 |

| | |24,936 |

Calculate:

1. Material cost variance

2. Material price variance

3. Material usage variance

4. Labour cost variance

5. Labour rate variance

6. Labour efficiency variance

P – 18. The standard cost card for a product shows as thus:

| | |Per unit Rs. |

|Material cost |2 kg. @ Rs. 2.50 each |5.00 |

|Wages |2 hours @ 50 p. each |1.00 |

The actuals which have emerged from business operation are as follows:

Production 8,000 units

Materials consumed – 16,500 kg. @ Rs. 2.40 each Rs. 39,600

Wages paid – 18,000 hours @ 40 p. each Rs. 7,200

P – 19. The standard cost on ‘material’ and ‘labour’ for the making of a unit of a certain product are estimated as under:

Material 80 kg. at 1.50 per kg.

Labour 18 hrs. at Rs. 1.25 per hr.

On completion of the production of a units, it was found that 75 kg. of material costing Rs. 1.75 per kg. has been consumed and that the time taken was 16 hours, the wage rate being 1.50 per hour.

You are required to calculate material and labour variances.

P –20. The standard cost of a product is: 10 hours per unit at Rs. 5 per hour. The actual data is:

Production 1,000 units

Hours taken:

|Production |10,400 hours |

|Idle time |400 hours |

|Total time |10,800 hours |

Payments made Rs. 56,160 at Rs. 5.20 per hour. Calculate:

(a) Labour cost variance

(b) Labour efficiency variance

(c) Labour rate variance

(d) Idle time variance

P – 21. For the following data, calculate:

(a) Labour cost variance

(b) Labour rate variance

(c) Labour efficiency variance

| |Dept. A |Dept. B |

|Actual direct wages |2,000 |1,800 |

|Standard hours |8,000 |6,000 |

|Standard rate per hour |30 paise |35 paise |

|Actual hours, worked |8,200 |5,800 |

P – 22. A gang of workers usually consists of 10 men, 5 women and 5 boys paid at standard hourly rates of Re. 1.25, Re. 0.80 and Re. 0.70 respectively. In a normal working week of 40 hours, the gang is expected to produce 1,000 units of output.

In a certain week, the gang consisted of 13 men, 4 women and 3 boys; actual hourly rates being Rs. 1.20, Re. 0.85 and Re. 0.65 respectively. Two hours were lost due to abnormal idle time and 960 units of output were produced.

Calculate appropriate labour variances.

P –23. A job is scheduled to be completed in 30 weeks with a labour employment of 100 skilled operatives, 40 semi–skilled operatives and 60 unskilled operatives. The standard weekly wages of each type of operatives are – skilled Rs. 60, semi–skilled Rs. 36 and unskilled Rs. 24. The work is actually completed in 32 weeks with a labour force of 80 skilled, 50 semi–skilled and 70 unskilled operatives and the actual weekly wage rates average Rs. 65 for skilled, Rs. 40 for semi–skilled and Rs. 20 for unskilled labour. Analyze the variance in the labour cost due to various reasons.

P –24. The standard labour composition and the actual labour composition engaged during the month are given below:

| |Skilled |Semi–skilled |Unskilled |

|(a) Standard number of workers in a group |30 |10 |10 |

|(b) Standard wage rate (rupees per hour) |5 |3 |2 |

|(c) Actual number of workers employed during the month in the group |24 |15 |12 |

|(d) Actual wage rate per hour (Rs.) |6 |2.5 |2 |

During the month of 200 working hours, the group produced 9,600 standard hours of work.

Required:

Calculations showing wage rate variance, labour efficiency variance, labour mix variance and total labour cost variance.

P – 25. From the following data, calculate (i) labour cost variance (ii) labour efficiency variance (iii) labour rate variance and others.

|Workmen |Standard |Actual for 620,000 tiles |

| |Hrs. |Rate |Total |Hrs. |Rate |Total |

|Workmen A |20 |3 |60 |30 |3 |90 |

|Workmen B |25 |4 |100 |15 |4.5 |67.5 |

| | | |160 | | |157.5 |

P – 26. The details regarding the composition and the weekly wages rates of labour force engaged on a job scheduled to completed in 30 weeks are as follows:

|Workers |Standard |Actual |

| |No. of labours |Wages/week |No. of labour |Wage/Week |

|Skilled |75 |60 |70 |70 |

|Semi-skilled |45 |40 |30 |50 |

|Unskilled |60 |30 |80 |20 |

The work is actually completed in 32 weeks. Calculate the various variances.

P – 27 The standard labour component and the actual labour component engaged in a week for a job is as under.

| |Skilled |Semi skilled |Unskilled |

| |workers |workers |workers |

|(a) Standard number of workers in the gang |32 |12 |6 |

|(b) Standard wage rate per hr. |3 |2 |1 |

|(c) Actual number of workers employed in the Gang |28 |18 |4 |

|(d) Actual wage rate per hr. |4 |3 |2 |

During the 40 hrs working week, the gang produced 1800 standard labour hours of work. Calculate the difference variances.

P – 28. A gang of workers normally consists of 30 men, 15 women and 10 boys. They are paid at standard hourly rates as under:

|Men |– |Rs. 0.8 |

|Women |– |Rs. 0.6 |

|Boys |– |Rs. 0.40 |

In a normal week of 40 hours, the gang is expected to produce 2000 units of output. During the week ended 31st December 2001, the gang consisted of 40 men, 10 women and 5 boys. The actual wages paid were @ Rs. 0.70, Rs. 0.65 and Rs. 0.30 respectively. 4 hours were lost due to abnormal idle time and 1600 units were produced. Calculate (i) wage variance (ii) wage rate variance (iii) labour efficiency variance (iv) gang composition variance (i.e. labour mix variance) (v) labour sub-efficiency variance (vi) labour idle time variance.

P – 29. Trishul Industries turns out only one article, the Prime Cost standard for which have been established as follows:

| | |Per completed piece |

|Material |5 Lbs @ Rs. 4.20 |Rs. 21 |

|Labour |3 hrs. @ Rs. 3 |Rs. 9 |

The production schedule for the month of July, 1998 required completion of 5000 pieces. However 5120 pieces were actually completed.

Purchases for the month July 1998 amounted 30,000 Lbs of materials at a total invoice price of Rs. 135,000

Production records for the month of July, 1998 showed the following actual results.

Materials requisitioned and used – 25,700 Lbs.

Direct labour – 15,150 hrs Rs. 48,480

Calculate appropriate material and labour variances

P – 30 From the following data of A & Co. Ltd. relating to budgeted and actual performance for the month of March, ------ compute the material and labour variances.

Budgeted data for March:

Units to be manufactured – 150,000

Units of direct material required (based on standard rates) – 495,000

Planned purchase of Raw material (units) – 540,000

Average unit cost of direct material – Rs. 8

Direct labour hour per unit of finished goods – 3/4 hrs.

Direct labour cost (total) – Rs. 2992,500

Actual data for March:

Units actually manufactured – 160,000

Direct material cost (purchase cost based on units actually issued) – Rs. 4341,900

Average units cost of direct material – Rs. 8.20

Total direct labour hours for March – 125,000

Total direct labour cost for March – Rs. 3375,000

P –31. The Hulas Metal Ltd. uses standard costing system to control its direct and indirect costs. The data relating to standard labour mix and per hour costs are presented below:

|Skilled labour |2 nos. |@ 5 per hr. |Rs. 10 |

|Semi-skilled labour |3 nos. |@ 4 per hr |Rs. 12 |

|Unskilled labour |5 nos. |@ 2 per hr |Rs. 10 |

| |10 nos. | |Rs. 32 |

Standard output per gang hour 0.25 Galvanised sheets.

Further more the company also defines its plant capacity informs of direct labour hours. The annual normal plant capacity is 120,000 DLH per year or 10,000 DLH per month. The budgeted fixed overhead per year to Rs. 360,000. All manufacturing overheads are applied to the production on the basis of DLH at Rs. 6 per hour.

The overall result of the company for the month of Chaitra are presented below:

DLH paid - 10,000 hrs.

Actual output 2,300 Galvanised sheets.

Actual labour mix

|Skilled |3 nos. |@ 5 per hr. |Rs. 15 |

|Semi-skilled |3 nos. |@ 3 per hr |Rs. 9 |

|Unskilled |4 nos. |@ 2.5 per hr |Rs. 10 |

| |10 nos. | |Rs. 34 |

Actual manufacturing overhead paid in total Rs. 65,000

Required:

i) Labour cost variance sharing labour efficiency, sub-efficiency (yield), labour mix variance and labour rate variance.

ii) Calculation of three overhead variance.

P –32. The standard regarding the labour cost and the actual have been presented below:

|Standard |Actual |

|Types of labour |Nos. |Rate |Cost |Types of labour |Nos. |Rate |Cost |

|Skilled |2 |5 |10 |Skilled |2 |5 |10 |

|Semi skilled |3 |3 |9 |Semi skilled |4 |2.75 |11 |

|Unskilled |5 |1 |5 |Unskilled |4 |1.5 |6 |

| |10 | |24 | |10 | |27 |

Standard output per gang hour

Actual output - 430 units

Weekly working hour - 40

Required: Labour efficiency sub (yield), mix, total efficiency, rate and cost variance.

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Labour Idle Time Variance (LITV)

Labour Yield Variance (LYV)

Labour Mix Variance (LMV)

Labour Efficiency Variance (LEV)

Labour Rate Variance (LRV)

Direct Labour Cost Variance (LCV)

Material Yield Variance (MYV)

Material Mix Variance (MMV)

Material Usage Variance (MUV)

Material Price Variance (MPV)

Material Cost Variance (MCV)

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