---
title: "Standard costing variances for a building company"
subject: "Engineering Economics"
chapter: 1
key: "semester_6/engineering_economics:variances-cement-mason-standard-costing"
source: https://www.bctengineer.com/q/semester_6/engineering_economics/variances-cement-mason-standard-costing
site: BCT Engineering
---

# Standard costing variances for a building company

Engineering Economics · Chapter 1: Introduction

- Asked in: 2067 Mangsir, 8 marks
- Video: [Standard Costs and Variance Analysis](https://www.youtube.com/watch?v=yWOdzhjHNSM) — Edspira
- Answer checked by Claude Opus 5.5 (high effort) on 2026-10-14
- Page: https://www.bctengineer.com/q/semester_6/engineering_economics/variances-cement-mason-standard-costing
- Whole chapter: https://www.bctengineer.com/md/semester_6/engineering_economics/chapter-1

## Question

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).

## 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).

## Answer

#### 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).**

## Check yourself

The answer's key points as multiple-choice questions, with the correct option and why.

1. Standard cement for 600 units is:
   A. 3,600 bags
   B. 5 bags
   C. 1,200 bags
   D. 600 x 5 = 3,000 bags costing Rs 900,000
   Answer: D. Standard is per unit times actual output. (Key point: Standard for actual output)

2. Material usage variance = (SQ - AQ) x SP:
   A. (3,000 - 3,600) x 300 = Rs 180,000 A
   B. (3,600 - 3,000) x 60 = 36,000 F
   C. (300 - 60) x 3,600 = 864,000 F
   D. 900,000 - 216,000
   Answer: A. More bags used than standard is adverse. (Key point: Material usage)

3. Labour rate variance:
   A. (1,200 - 900) x 300 = 90,000 F
   B. (300 - 325) x 900 = Rs 22,500 A
   C. 0
   D. (325 - 300) x 1,200 = 30,000 F
   Answer: B. Paid more per day than standard. (Key point: Labour rate)

4. Fixed overhead variance here is only expenditure because:
   A. Volume variance always equals expenditure
   B. Fixed overhead has no standard
   C. Budgeted output is taken equal to actual so volume variance is nil
   D. Actual overhead equals budget
   Answer: C. Rs 10,000 absorbed vs 15,000 actual gives 5,000 A. (Key point: Fixed overhead)

## Related in Engineering Economics

- [Standard costing variances, 3000 vs 2500 units](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Avariances-3000-units-27-days) — Engineering Economics, chapter 1
- [Cost variance analysis from standard and actual](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Acost-variance-analysis-9000-units) — Engineering Economics, chapter 1
- [Variance analysis, 9,300 vs 10,500 units](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Avariance-production-9300-units) — Engineering Economics, chapter 1
- [Fixed overhead cost variance from standard card](https://www.bctengineer.com/question.md?key=semester_6%2Fengineering_economics%3Afixed-overhead-variance-standard-card) — Engineering Economics, chapter 1

## Related in other subjects

- [Estimated cost is never the actual cost](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Aest-cost-never-equal-actual) — Estimating and Costing, chapter 1
- [Compare estimated cost and actual cost](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Acompare-estimated-actual-cost) — Estimating and Costing, chapter 1
- [Estimated cost never actual; data required](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Aest-cost-never-actual-data) — Estimating and Costing, chapter 1
- [Estimate, quantity survey, estimated vs actual](https://www.bctengineer.com/question.md?key=semester_7%2Festimating_and_costing%3Aestimate-quantity-survey-actual) — Estimating and Costing, chapter 1