Following standards have been set for manufacturing a product 'XYZ': Direct Material: (₹) 4 units of X @8 per unit 32.00 6 units of Y @6 per unit…

CA Intermediate · Cost and Management Accounting · MTP · September 2025
Following standards have been set for manufacturing a product 'XYZ': Direct Material: (₹) 4 units of X @8 per unit 32.00 6 units of Y @6 per unit 36.00 30 units of Z @2 per unit 60.00 128.00 Direct Labour: 6 hrs @16 per hour 96.00 Total standard prime cost 224.00 The company actually manufactured and sold 12,000 units of the product ‘XYZ' during the year. Direct material costs were as follows: 50,000 units of X at 8.80 per unit72,000 units of Y at 5.60 per unit354,000 units of Z at 2.40 per unit The company worked 70,000 direct labour hours during the year. For 10,000 of these hours, the company paid at 24 per hour while for the remaining, the wages were paid at standard rate. You are required to CALCULATE the following: (i) Material Price Variance (ii) Material Usage Variance (iii) Labour Rate Variance (iv) Labour Efficiency Variance

Suggested Answer and Working Notes:

For Material Cost Variances: SQ × SP AQ × AP AQ × SP X 12,000 x 4 x 8 = 3,84,000 50,000 x 8.80 = 4,40,000 50,000 x 8 = 4,00,000 Y 12,000 x 6 x 6 = 4,32,000 72,000 x 5.60 = 4,03,200 72,000 x 6 = 4,32,000 Z 12,000 x 30 x 2 = 7,20,000 3,54,000 x 2.40 = 8,49,600 3,54,000 x 2 = 7,08,000 Total 15,36,000 16,92,800 15,40,000 Material Price Variance = Actual quantity (Std. price – Actual price) = (AQ x SP) – (AQ x AP) = 15,40,000 - 16,92,800 = 1,52,800 (A) Material Usage Variance = Standard Price (Std. Quantity – Actual Quantity) = (SP x SQ) – (SP x AQ) = 15,36,000 - 15,40,000 = 4,000 (A) For Labour Cost Variance: SH × SR AH × AR AH × SR Labour (12,000 x 6) x 16 = 11,52,000 10,000 x 24 = 2,40,000 60,000 x 16 = 9,60,000 70,000 x 16 = 11,20,000 Total 11,52,000 12,00,000 11,20,000 Labour Rate Variance = Actual Hours (Std. Rate – Actual Rate) = (AH x SR) – (AH x AR) = 11,20,000 - 12,00,000 = 80,000 (A) Labour Efficiency Variance = Standard Rate (Std. Hours – Actual Hours) = (SR x SH) – (SR x AH) = 11,52,000 - 11,20,000 = 32,000 (F)

Topics: Standard Costing

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