You are required to compute all possible Variances from the information that is being provided for XYZ Ltd. The firm maintains its books of Cost Account under standard costing system in which the W.I.P. is debited actual costs and credited with standard costs.
The standard cost card for Product P shows:
Cost per Unit
Direct material 1 pc @ Rs. 1.50 1.50
Direct −labour 3 hrs. @Re. 1.00 3.00
Factory overhead 3 hrs. @Rs. 2.50 7.50
12.00
Based on Budgeted Factory overhead Rs. 7,500 and Budgeted Labour Hours 3,000.
The following cost and production data are available for the month of March, 1998 in respect of Product P.
Cost data
1. Actual material used in production 1,100 pcs @ Rs. 1.60
2. Analysis of pay Roll shows direct labour hrs. 2,700 @ Rs. 1.20
3. factory overhead as per Factory O.H. Control A/c (to be charged to Product P) Rs. 7,425
Product data
Units completed 950 units
Units of closing W.I.P. 100 units 50% completed
Cost of units remaining in W.I.P. A/c is transferred to W.I.P. Inventory A/c
Solution.
Direct Material
Units completed = 950
+ W.I.P. = 100
1050
Direct labour Labour Hours
2850 950 + 50 × 3 3000 Hrs.
Completed 950 × 3 × 1
150
W.I.P. 100 × 50% × 3 × 1 3000
Overheads 7125 (950 + 50) × 3 300 Hrs.
Completed 950 × 3 × 2.5
375
W.I.P. 100 × 50% × 3 × 2.5
7500
Actual Overhead Rate Per hour (2.50/1) × 1.20
Calculation & Variance
Direct Material Variance
(a) Material Cost Variance = Std. Cost − Actual Cost
= 1575 − 1760
185 (A)
(b) Material Price Variance = Actual Qty [Std. Price - Actual Price]
1100 (1.50 - 1.60)
110 (A)
(C) Material Usage Variance = Std Price [Std Qty - Actual Qty]
1.50 [1050 - 1100]
75 (A)
Varification
MCV = MPV + MUV
185 (A) = 110 (A) + 75 (A)
Direct Labour Variance
(a) Labour Cost Variance = Std. Cost - Actual Cost
= 3000 - 3240
= 240 (A)
(b) Labour Rate Variance = Actual Hour [Std. Rate - Actual Rate]
= 2700 [1-1.20]
= 540 (A)
(C) Labour Efficiency Variance = Std Rate [Std hour - Actual hour]
= 1 (3000 - 2700)
= 300 (F)
Verification
LCV = LRV + LEV
240 (A) = 540 (A) + 300 (F)
Overhead Variances
a) Cost Variance = Recovered OH - Actual OH
= 7500 - 7425
= 75 (F)
b) Expenditure Variance = Std OH - Actual OH
= 2.50 x 2475 - 7425
= 6187.5 - 7425
= 1237.50 (A)
c) Efficiency Variance = Recovered OH - Std OH
= 7500 - 6187.50
= 1312.50 (F)
Varification
Cost variance = Expenditure Variance + Efficiency Variance
75 (F) = 1237.50 (A) + 1312.50 (F)
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