You are required to compute all possible Variances from the information that is being provided for XYZ Ltd.

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)

Calculate different types of varience

We have been given

                        Actual material  -           3600 units

                        Direct wages                -           Rs22000

                        Actual output                -           3500 units

                        Standard output            -           4800 units

                        Actual time                   -           6400 hrs + 400 (break up hours)

                        Standard time               -           9600 hours

                        Standard wage rate       -           Rs3

                        Actual wages                -           Rs3.25 really overall wages but paid Rs6 as                                                                  break up wages

(a)                Direct Material Cost Variance

DMCV            = Total standard cost for- Total Actual cost

                            Actual output

                        = 1x 50 x 3500 – 3600 x 52.50

                        = 1,75,000 –1,89,000

                                                = Rs14,000 (adverse)

(b)               Material Price Variance

DMPV             = Actual Quality x [Standard price-Actual price]

                        = 3500 x [50-52.50]

                        = Rs34975.50 (adverse)

(c)                Material usage Variance

DMUV = Standard Rate x (standard Qlty for actual output-Actual quality)

            =50 x (3500-3600)

            =Rs500 (Adverse)

(d)               Direct Labour Cost Variance

DLCV = (Standard Rate x Standard time for actual output)-

                                        Actual Rate x Actual Time

                                    = 3 x 9600 – 22000

                                    = 28800-22000

                                    =Rs6800

(e)                Labour Rate Variance

Labour Rate Variance = Actual Time x (Standard Rate – Actual Rate

                                    = 6800 x (3-6)

                                    = Rs20400 (Adverse)

(f)                 Labour efficiency Variance

Labour efficiency variance = Standard Rates x Standard Time-Actual                                                    Time

                                            = 3x 9600- 6800

                                            = Rs22000

(g)                Variable expenses variance

Variable expenses variance = Recovered-Actual variable

                                                 overheads        heads

                                             = 3500 x 20 – 6200

                                             = Rs8000

(h)        Fixed expenses expenditure variance

FOCV = Recovered Fixed-Actual Fixed

                Overheads                Overheads

                        = 3500 X 40 – 1,88,000

                        = Rs48000 (Adverse)

(i)            Fixed expenditure Volume Variance

FOVV = Recovered Fixed- Budgeted

                           Expenses                Expenses

                        = 1,88,000 – 1,40,000

= Rs48000

(j)          Fixed expenses efficiency variance

     Fixed Expenses efficiency variance = Standard Rate x

(Standard – Output x Actual Output)

                                                                                 = 40 x (4800-3500)

                                                                                 = Rs5200