- 2067 Mangsir · 8 marks
Standard costing variances for a building company
Short answer
Standard for 600 units: cement 3,000 bags costing Rs 900,000, labour 1,200 days at Rs 360,000. Material total variance Rs 684,000 F (price Rs 864,000 F, usage Rs 180,000 A); labour total Rs 67,500 F (rate Rs 22,500 A, efficiency Rs 90,000 F); fixed overhead Rs 5,000 A (expenditure only).
The following information has been obtained from the records of a manufacturing company using standard costing system.
| Estimated | Actual | |
|---|---|---|
| Production Units | 1 | 600 |
| Cement (bags) | 5 | 3,600 |
| Cement Cost (Rs.) | 1,500 | 2,16,000 |
| Skilled Labour (mason) Days | 2 | 900 |
| Skilled Labour (mason) Cost Rs. | 300 per day | 325 per day |
| Fixed Overhead (Rs) | 10,000 | 15,000 |
| Find all the variances (including all its components). |
Assumptions
- The "Estimated" column is the standard for one unit: cement 5 bags costing Rs 1,500 (Rs 300/bag); mason 2 days at Rs 300/day; fixed overhead Rs 10,000 is the budget for the period.
- The cement cost is taken as printed: Rs 216,000 for 3,600 bags (Rs 60/bag). The large price variance follows from this figure.
- Fixed overhead: budgeted output is taken equal to actual output (600 units) since it is not given, so volume variance is nil.
Standard for actual output of 600 units
- Cement: 600 × 5 = 3,000 bags; cost = 3,000 × 300 = Rs 900,000
- Mason: 600 × 2 = 1,200 days; cost = 1,200 × 300 = Rs 360,000
1. Material (cement) variances
| Variance | Calculation | Rs |
|---|---|---|
| Price | (SP − AP) × AQ = (300 − 60) × 3,600 | 864,000 F |
| Usage | (SQ − AQ) × SP = (3,000 − 3,600) × 300 | 180,000 A |
| Total material cost | 900,000 − 216,000 | 684,000 F |
2. Labour (mason) variances
| Variance | Calculation | Rs |
|---|---|---|
| Rate | (SR − AR) × AH = (300 − 325) × 900 | 22,500 A |
| Efficiency | (SH − AH) × SR = (1,200 − 900) × 300 | 90,000 F |
| Total labour cost | 360,000 − 292,500 (900 × 325) | 67,500 F |
3. Fixed overhead variances
| Variance | Calculation | Rs |
|---|---|---|
| Expenditure | Budgeted 10,000 − actual 15,000 | 5,000 A |
| Volume (capacity + efficiency) | Absorbed 10,000 − budgeted 10,000 | nil |
| Total fixed overhead | 10,000 − 15,000 | 5,000 A |
Answer: Material 684,000 F (price 864,000 F, usage 180,000 A); labour 67,500 F (rate 22,500 A, efficiency 90,000 F); fixed overhead 5,000 A (expenditure variance only).
✓ Answer checked by Claude Opus 5.5 (high effort)
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