Standard is defined as a criterion or measure of acceptable cost performance.

There are several ways to advise standards:

a. Engineering estimates
b. Observed estimates
c. Predicted estimates
d. Desired behavior
The standard cost may be defined as costs that should be reasonably incurred in the
manufacture of a product. The main components of standard costs are:
1. Standard direct material
2. Standard direct labour cost
3. Manufacturing overheads
Basic differences between Standard Costing and Budgetary control are as follows :
i. Standard costs are ascertained for material labour and overhead. Here the control of
each element of cost is effected by comparing actual costs with standard costs of actual
output. Whereas budgets are prepared for different functions like sales, production,
capital assets etc. of business. Budgetary control here is concerned with the overall
profitability and financial position of the business.
ii. Range of standard costing is narrow as it is mainly confined to the control of
production costs. But the range of budgeting is wider than that of standard costing. It in
fact cover sales, capital and financial expenses as well.
iii. Standard costing is confined to the projection of cost accounts only whereas budgetary
control includes projection of financial accounts as well.
iv. For exercising control, variances are computed in standard costing as well as
budgetary control. But these variances are normally recorded in different cost accounts
under standard costing whereas they are not revealed under budgets.
v. Under standard various causes of variances in respect of each cost element can be
analysed in minute detail and corrective action taken accordingly. Whereas budgetary
control system deals with total expenses and revenues based on estimates.

Formulation:
SQ, Standard usage of material per unit
SP, Standard price of material per unit
AO, Actual output
AQ, Actual usage of material per unit
AP, Actual price of material per unit

MCV (material cost variance) = SQ*SP – AQ*AP

MPV (material price variance) = AQ*(SP – AP)
MUV (material usage variance) = SP*(SQ – AQ)
MMV (material mixed variance) = SP*(RSQ – AQ), where RSQ = TAQ*SQ/TSQ
MYV (material yield variance) = ASP*(SY – AY) where,
SY=TAQ*TO/TSQ
AY= Actual yield
Avg Std Price = TSC/TO

Q.1 The standard material cost for 100 kgs of chemical ‘X’ is made up of:
Component A 30 kg @ Rs. 4 per kg;
Component B 40 kg @ Rs. 5 per kg; and
Component C 80 kg @ Rs. 6 per kg.
In a batch, 500 kgs of chemical ‘X’ were produced from a mix of
Component A 140 kgs (cost Rs. 688); 588
 Component B 220 kgs (Rs. 1156); and 1056
Component C 440 kgs. (Rs. 2660). 2860
Calculate material variances.
Solution:
X SP AP SQ AQ MCV MPV MUV RSQ MMV MYV
(SP.SQ- (SP- (SQ- TAQ.SQ (RSQ- (SY-
AP.AQ) AP).AQ AQ).SP /TSQ AQ).SP AY).ASP
A 4 4.2 30 28 2.4 -5.6 8 32 16 10.6
B 5 4.8 40 44 -11.2 8.8 -20 42.67 -6.65 -21.2
C 6 6.5 80 88 -92 -44 -48 85.34 -15.96 -42.4
T 5.3 150 160 -100.8 -40.8 -60 -6.67 53.3*
*

*Average Standard Price = 4*30+5*40+6*80/30+40+80 = 800/150 = 5.33

Q.2 A Co. Ltd., manufactures a particular product the standard cost of which is as under:
(Calculate variances).
Material Units Price Amount
M1 100 2.00 Rs. 200
M2 200 1.70 Rs. 340
300
Less Normal wastage - 30
Production 270 Rs. 540
Actual result in a period were as follows:
Material Units Price Amount
M1 215 1.80 Rs. 387
M2 385 2.00 Rs. 770
600
Less wastage -70
Production 530 Rs. 1157

Solution:

X SP AP SQ SQ* AQ MCV MPV MUV RSQ MMV MYV

(530.SQ (SP.SQ* (SP- (SQ* TAQ.SQ (SQ- (SY-
/270) - AP).AQ -AQ).SP /TSQ AQ).SP AY).A
AP.AQ) SP
1 2 1.8 100 196.3 215 5.6 43 -37.4 -30
2 1.7 2 200 392.6 385 -102.58 -115.5 12.92 25.5
T 1.8 300 588.9 600 -96.98 -72.5 -24.48 -4.5
*
L -30 -58.8 -70
T 270 530 530 1.8*
(588.
9-
600)=
19.98

*Average Standard Price = 2*200+1.7*400/200+400 = 1080/600 = 1.8

Q.3 The standard set for a chemical mixture of a firm is:

Material Standard Mix. St. price per tonne
A 40% Rs. 20
B 60% Rs. 30
The standard loss is 10 per cent. During a period 182 tonnes of output were produced
from A 90 tonnes (Rs. 18 per tonne) and B 110 tonnes (Rs. 34 per tonne). Calculate
variance.
Solution:

X SP AP SQ SQ* AQ MCV MPV MUV RSQ MMV MYV

(182.SQ (SP.SQ* (SP- (SQ* TAQ.SQ (SQ- (SY-
/90) - AP).AQ -AQ).SP /TSQ AQ).SP AY).A
AP.AQ) SP
A 20 18 80 80.89 90 -2.2 180 -182.2 -200
B 30 34 120 121.33 110 -101.1 -440 339.9 300
T 26 200 202.22 200 -102 -260 157.7 100
L 20 20.22 18 26*(2
02.2-
200)=
57.72
T 180 182 182

*Average Standard Price = 20*80+30*120/200 = 26

Q.4 A Co. manufactures a special tile of 12”×8”×½” size. The standard mix of material
used is as follows:
1200 kgs A @ 30 paise per kg
500 kg B @ 60 paise per kg and
800 kg C @ 70 paise per kg.
The mix should produce 12,000 square feet of tiles of ½’’thickness. During a period,
1,00,000 tiles were produced from a mix of the following:
7000 kg A (paise 32 per kg);
3000 kg B (paise 65 per kg); and
5000 kg. C (paise 75 per kg). Compute variances.
Solution:
Area of tile = 12/12*8/12 = 96*144 = 2/3
Number of tiles for 12000 sq ft of area = 12000/2/3 = 18000 tiles

X SP AP SQ SQ* 1 AQ MCV MPV MUV RSQ MMV MYV

lakh/18 (SP.SQ* (SP- (SQ* TAQ.SQ (RSQ- (SY-
 000 - AP).AQ -AQ).SP /TSQ AQ).SP AY).A
AP.AQ) SP
A .30 .32 1200 6666.67 7000 -240 -140 -99.99 7200 200
B .60 .65 500 2777.77 3000 -283.338 -150 -133.38 3000 0
C .70 .75 800 4444.44 5000 -638.892 -250 -388.89 4800 200
T . 2500 13888.8 1500 -1162 -540 -622 -80 0.488
48 9 0 (15000
8* -
13888.
89)
# 1
lakh

*Average Standard Price = 0.3*1200+0.6*500+0.7*800/2500 = .488

Q.5 The standard set for output of a company is as under:

Material Standard Mix Standard price per kg.
A 40% Rs. 4
B 60% Rs. 3
The standard loss is 15 per cent of input. During April 2007, the company produced
1,700 kgs of finished output. The materials details are given below:
Material Opening Stock Closing Stock Purchase in April
A 35 kg. 5 kg. 800 kg. Rs. 3,400
B 40 kg. 50 kg. 1,200 kg. Rs. 3,000
Solution:

X SP AP SQ AQ MCV MPV MUV RSQ MMV MYV

(SP.SQ- (SP- (SQ- TAQ.SQ (RSQ- (SY-
AP.AQ) AP).AQ AQ).SP /TSQ AQ).SP AY).ASP
A 4 4.2 800 830 -327.5 -207.5 -120 808 -88
5 (35+
795)
B 3 2.5 1200 1190 625 595 30 1212 66
(40+
1150
)
L 3.4 300 320 297.5 387.5 -90 2020 -22
T 2000 2020 3.4*(300
-320) =
68

Net Actual Product = 1700 kgs

It is extent to 85%
100 % Actual Output = 1700*100/85 = 2000
Material used = Opening Stock + Purchase - Closing Stock
Actual Material for A = 35 + 800 – 5 = 830 kg
 Actual Material for B = 40 + 1200 – 50 = 1190 kg
Standard Quantity for A = 2000*40/100 = 800 kg
Standard Quantity for B = 2000*60/100 = 1200 kg

Cost of Actual Material for A = 3400/800 = 4.25

Cost of Actual Material for B = 3000/1200 = 2.5

Q.6 A gang of workers normally consists of 30 men, 15 women and 10 boys. The
standard hourly labour rates are – Men: 80 paise, Women: 60 paise, and boys: 40 paise.
In a normal week of 40 hours, the gang is expected to produce 2000 unit of output.
During the week ended December 31, 2007, the gang consisted of 40 men, 10 women and
5 boys. The actual wage rates were 70 paise, 65 paise, and 30 paise respectively. 4 hours
were lost due to power breakdown, Actual output 1600 units. Compute labour variances.
Solution:
ATW = 40*36+10*36+5*36 = 1980
SM for Men = 30*1980/(40+10+5) = 30*1980/55 =1080
SM for Women = 15*1980/(40+10+5) = 15*1980/55 = 540
SM for Boy = 10*1980/(40+10+5) = 10*1980/55 =360
STAP = 40*1600/2000 = 32
Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATP
Men 0.80*30*32 0.80*1080 0.80*40*36 0.80*40*40 0.70*40*40
Women 0.60*15*32 0.60*540 0.60*10*36 0.60*10*40 0.65*10*40
Boys 0.40*10*32 0.40*360 0.40*5*36 0.40*5*40 0.30*5*40
Total 1184 1332 1440 1600 1440
LEV = A-B = -148
LMV = B-C = -108
LITV = C-D = -160
LRV = D-E = 160
LCV = A-E = -256

Q.7 A gang of workers normally consists of 10 skilled, 5 semi-skilled and 5 unskilled

workers paid at standard hourly rates 75p, 50p, and 40p respectively. In a normal
working week of 40 hours the gang is expected to produce 1,000 unit of output.
In a certain week, the gang consisted of 13 skilled, 4 semi-skilled and 3 unskilled workers
and produced 1,000 units. Actual wages Rs. 450. Actual hours worked 720. Assuming
that each worker worked the same hours, compute variances.
Solution:
ATW = 720; Each worker has worked for 710/20 = 36 hours
SM for skilled = 10*720/20 = 360
SM for semi-skilled = 5*720/20 = 180
SM for unskilled = 5*720/20 = 180
STAP = 40*1600/2000 = 32
Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATP
skilled 0.75*10*40 0.75*360 0.75*13*36 0.75*13*40
semi-skilled 0.50*5*40 0.50*180 0.50*4*36 0.50*4*40
unskilled 0.40*5*40 0.40*180 0.40*3*36 0.40*3*40
Total 480 432 466.2 518 450
LEV = A-B = 48
LMV = B-C = -34.2
LITV = C-D = -51.8
LRV = D-E = 68
LCV = A-E = 30

Q.8 The standard labour and actual labour engaged in a week for a job are as under:
Skilled Semi-skilled Unskilled
Standard No. of workers 32 12 6
Standard hourly Rate (Rs.) 3 2 1
Actual No. of workers 28 18 4
Actual Hourly Rate (Rs.) 4 3 2
During the 40 hour working week, the gang produced 1,800 standard labour hours of
work. Compute variances.
Solution:
ATW = 28*40+18*40+4*40 = 2000
SM for skilled = 32*2000/50 = 1280
SM for semi-skilled = 12*2000/50 = 480
SM for unskilled = 6*2000/50 = 240
STAP = 1800/2000 = 0.9
Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATP
Skilled 3*32*0.9*40 3*1280 3*28*40 3*28*40 4*28*40
semi-skilled 2*12*0.9*40 2*480 2*18*40 2*18*40 3*18*40
unskilled 1*6*0.9*40 1*240 1*4*40 1*4*40 2*4*40
Total 4536 5040 4960 4960 6960
LEV = A-B = -504
LMV = B-C = 80
LITV = C-D = 0
LRV = D-E = -2000
LCV = A-E = -2424

Q.9 In a factory, 100 workers are engaged and an average rate of wages is Rs. 5 per hour.
Standard working hours per week are 40 hours and the standard output is 10 units per
hour. During a week in February, wages were paid for 50 workers @ Rs. 5 per hour, 10
workers @ Rs. 7 per hour and 40 workers @ Rs. 4 per hour. Actual output was 380 units.
The factory did not work for 5 hours due to breakdown of machinery.
Calculate – (i) Labour cost variance; (ii) Labour rate variance; (iii) Labour efficiency
variance; and (iv) Idle time variance.
Solution:
ATW = 50*35+10*35+40*35 = 3500
STAP = 380/400 = 0.95
Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATP
Skilled 5*50*35 5*50*40 5*50*40
semi-skilled 5*10*35 5*10*40 7*10*40
Unskilled 5*40*35 5*40*40 4*40*40
Total 5*100*0.95*40=19000 5*3500 =17500 17500 20000 19200
LEV = A-B = 1500 (F)
LMV = B-C = 0
LITV = C-D = -2500 (A)
LRV = D-E = 800 (F)
LCV = A-E = -200 (A)

Q.10 The standard labour – mix for producing 100 units of product is:
4 skilled men @ Rs. 3 per hour for 20 hours
6 unskilled men @ Rs. 2 per hour for 20 hours
 But due to shortage of skilled men, more unskilled men were employed to produce 100
units. Actual hours paid for were:
2 skilled men @ Rs. 4 per hour for 25 hours
10 unskilled men @ Rs. 2.50 per hour for 25 hours. Calculate labour variances.
Solution:
ATW = 2*25+10*25 = 300
SM for skilled = 0.4*300/12 = 100
SM for unskilled = 0.6*300/12 = 150
STAP =
Labour SR*STAP SR*SM SR*ATW SR*ATP AR*ATP
Skilled 3*4*20 3*0.4*300 3*2*25 3*2*25 4*2*25
Unskilled 2*6*20 2*0.6*300 2*10*25 2*10*25 2.5*10*25
Total 480 720 650 650 825
LEV = A-B = 240 (A)
LMV = B-C = 70 (F)
LITV = C-D = 0
LRV = D-E = -175 (A)
LCV = A-E = -345 (A)