EML operates in coal mining through open cast mining method. Explosives and detonators are used for excavation of coal from the mines. The following…

CA Intermediate · Cost and Management Accounting · RTP · May 2024
EML operates in coal mining through open cast mining method. Explosives and detonators are used for excavation of coal from the mines. The following are the details of standard quantity of explosives materials used for mining: Particulars Rate (₹) Standard Qty. for Iron ore Standard Qty. for Overburden (OB) SME 40.00 per kg. 2.4 kg per tonne 1.9 kg per cubic-meter Detonators 20.00 per piece 2 pcs per tonne 2 pcs per cubic- meter The standard stripping ratio is 3:1 (means 3 cubic- meter of overburden soil to be removed to get one tonne of coal). During the month of December 2023, the company produces 20,000 tonnes of coal and 58,000 cubic- meter of OB. The quantity of explosive materials used and paid for the month is as below: Material Quantity Amount (₹) SME 1,67,200 kg. 63,53,600 Detonators 1,18,400 pcs 24,27,200 Explosive suppliers are paid for the explosive materials on the basis of performance of the explosives which is termed as powder factor. One of the suppliers has presented their bill for explosive supplied for the month of December 2023. You being a bill passing officer of EML is required to COMPUTE the material price variance, material quantity variance and material cost variance.

Suggested Answer and Working Notes:

Workings: 1. Calculation of Standard Qty. of Explosives and Detonators for actual output: Particulars Coal Overburden (OB) Total SME: A Actual Output 20,000 tonne 58,000 M³ B Standard Qty per unit 2.4 kg./ tonne 1.9 kg./ M³ C Standard Qty. for actual production [A×B] 48,000 kg. 1,10,200 kg. 1,58,200 kg. Detonators: D Standard Qty per unit 2 pcs/ tonne 2 pcs/ M³ E Standard Qty. for actual production [A × D] 40,000 pcs. 1,16,000 pcs 1,56,000 pcs 2. Calculation of Actual Price per unit of materials: Material Quantity [A] Amount (₹) [B] Rate (₹) [C = B÷A] SME 1,67,200 kg. 63,53,600 38.00 Detonators 1,18,400 pcs 24,27,200 20.50 Computation of material price variance: Material Price Variance = Actual Qty. × (Std. Price - Actual Price) SME = 1,67,200 kg. × (₹ 40 - 38) = 3,34,400 (F) Detonators = 1,18,400 pcs × (₹ 20 - 20.5) = 59,200 (A) Total = 2,75,200 (F) Computation of material quantity variance: Material Qty. Variance = Std. Price × (Std. Qty for actual output - Actual Qty.) SME = 40 × (1,58,200 kg. - 1,67,200 kg.) = 3,60,000 (A) Detonators = 20 × (1,56,000 pcs -1,18,400 pcs) = 7,52,000 (F) Total = 3,92,000 (F) Computation of material cost variance: Material cost variance = Std. cost - Actual Cost Or, (Std. Price × Std. Qty) – (Actual Price × Actual Qty.) SME = (₹ 40 × 1,58,200 kg) – (₹ 38 × 1,67,200 kg.) = 63,28,000 - 63,53,600 = 25,600 (A) Detonators = (₹ 20 × 1,56,000 pcs) – (₹ 20.50 × 1,18,400 pcs) = 31,20,000 - 24,27,200 = 6,92,800 (F) Total = 6,67,200 (F)

Topics: Standard Costing

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