Astra Components Pvt. Ltd. is a Tier-2 supplier to the electrical vehicle (EV) industry. The company manufactures a single machined housing…
CA Intermediate · Cost and Management Accounting · MTP · September 2026
Astra Components Pvt. Ltd. is a Tier-2 supplier to the electrical vehicle (EV) industry. The company manufactures a single machined housing component in a single cost centre. Management uses standard costing for control and performance measurement. The Standard Cost Card for the component is as follows: Standard — Unit cost (₹) Direct material: 6.00 kg @ 5.00 per kg = 30.00 Direct labour: 2.50 hours @ 4.50 per hour = 11.25 Factory overhead: 2.00 per labour hour = 5.00 Total standard manufacturing cost per unit = ₹46.25 Budget & actual production activity for the month of June 2025: Production scheduled (required completion) for the month: 50,000 units. Actual completed units during the month: 51,200 units (no opening or closing WIP). Purchases of direct material during the month: 3,20,000 kg at ₹5.20 per kg. Actual material used in production: 2,96,000 kg. Actual direct labour hours worked: 125,000 hours; total labour cost incurred: ₹6,40,000. Actual total factory overhead incurred during the month: ₹2,80,000. Sales during the month: 50,000 units. Selling price policy: Selling price is to be fixed so as to allow a mark-up of 25% on the selling price (i.e., profit = 25% of selling price and standard manufacturing cost per unit should be considered for the same.) Incentive scheme: The company operates a labour bonus scheme — employees are paid a bonus equal to 60% of the standard direct labour rate for each standard direct labour hour saved (i.e., for hours saved compared to standard hours allowed for actual output). Required: Using the above data, prepare calculations and reports for June 2025 as follows: (i) CALCULATE all material variances based on actual material consumption. (ii) CALCULATE the labour variances (rate and efficiency) and compute the total factory overhead variance. (iii) PREPARE an Income Statement for June 2025 showing the actual gross margin (iv) COMPUTE if any bonus is payable under the incentive scheme.
Suggested Answer and Working Notes:
4(i) Material variances: (a) Direct Material Cost Variance = Standard Cost - Actual Cost = (Actual output × Std qty per unit × Std price) – (Actual qty used × Actual price) = (51,200 units × 6 kg × ₹5.00) – (2,96,000 kg × ₹5.20) = ₹15,36,000 – ₹15,39,200 = ₹3,200 (A) (b) Material Price Variance = Actual Qty used × (Std Price – Actual Price) = 2,96,000 kg × (₹5.00 – ₹5.20) = 2,96,000 × (−0.20) = ₹59,200 (A) (Material variances are calculated on the basis of consumption) (c) Material Usage (Quantity) Variance = Std Price × (Std Qty for actual output - Actual Qty used) = ₹5.00 × (51,200 × 6 – 2,96,000) = ₹5.00 × (3,07,200 – 2,96,000) = ₹5.00 × 11,200 = ₹56,000 (F) (ii) Labour variances and Factory Overhead variance: (a) Labour Cost Variance = Standard Cost - Actual Cost = (Std hrs allowed for actual output × Std rate) – Actual labour cost Std hrs allowed = 51,200 units × 2.5 hrs = 1,28,000 hrs = (1,28,000 × ₹4.50) – ₹6,40,000 = ₹5,76,000 – ₹6,40,000 = ₹64,000 (A) (b) Labour Rate Variance = Actual Hours × (Std Rate – Actual Rate) Actual rate = Actual labour cost / Actual hours = 6,40,000 / 1,25,000 = ₹5.12 / hr = 1,25,000 × (₹4.50 – ₹5.12) = 1,25,000 × (−0.62) = ₹77,500 (A) (c) Labour Efficiency Variance = Std Rate × (Std Hours – Actual Hours) = ₹4.50 × (128,000 – 125,000) = ₹4.50 × 3,000 = ₹13,500 (F) (d) Total Factory Overhead Variance = Factory Overhead Absorbed – Actual Factory Overhead Factory overhead absorbed = Actual hours × Std FOH rate = 1,25,000 × ₹2.00 = ₹2,50,000 Actual FOH incurred = ₹2,80,000 FOH variance = ₹2,50,000 – ₹2,80,000 = ₹30,000 (A) (iii) Preparation of Income Statement Calculation of unit selling price (markup 25% on selling price ⇒ Selling price = Cost ÷ 0.75) Standard manufacturing cost per unit = ₹46.25 (given) Selling price per unit = ₹46.25 ÷ 0.75 = ₹61.67 Income Statement Particulars Amount (₹) Sales (50,000 units × ₹61.6667) 30,83,333 Less: Standard cost of goods sold (50,000 × ₹46.25) 23,12,500 Standard gross margin 7,70,833 Less: Adverse variances: Material Price variance 59,200 Labour Rate variance 77,500 Factory Overhead variance 30,000 Total Adverse variances 1,66,700 Add: Favourable variances: Material Usage variance 56,000 Labour Efficiency variance 13,500 Total Favourable variances 69,500 Actual gross margin = 7,70,833 – 1,66,700 + 69,500 6,73,633 (iv) Bonus under incentive scheme Standard labour hours for actual output = 51,200 × 2.5 = 128,000 hrs Actual labour hours worked = 125,000 hrs Labour hours saved = 128,000 - 125,000 = 3,000 hrs Bonus rate = 60% of standard direct labour rate per hour = 60% × ₹4.50 = ₹2.70 / hr Bonus payable = Hours saved × ₹2.70 = 3,000 × 2.70 = ₹8,100
Topics: Standard Costing
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