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Test Questions-Standard Costing

 

  1. What is meant by standard costing ?
  2. Define standard costing.
  3. What is meant by historical costing ?
  4. What are the limitations of historical costing ?
  5. Difference between standard costing and budgetary control.
  6. What are the advantages of standard costing ?
  7. List out the limitations of standard costing ?
  8. What is standard costing ? Bring out clearly the relationship between standard costs and budgetary control.
  9. Cost standards indicate what cost should be incurred under desirable operating conditions while budgeted costs indicate what costs are expected to be recognizing limitations posed by less than optimal operating conditions. Explain.
  10. Define standard cost. At what level standards should be set ? Do standard cost represent a separate type of cost system ?

 

PROBLEMS AND SOLUTIONS

Material Variances

Problem 1. From the following information compute material variances :

Solution :

 

(i) MCV : (SQ X SP) – (AQ X AP)

Material             A (10 X 2) – (5 X 3)

B (20 X 3) – (10 X 6)

c (20 X 6) – (15 X 5)

 

(ii) Material Price Variance : (SP – AP) x AQ

A ( 2 – 3) X 5

B (3 -6) X 10

c (6 – 5) X 15

 

(iii) Material Usage Variances : (SQ – AQ) x SP

A (10 – 5) X 2

B (20 – 10) X 3

c (20- 15) X 6

 

(iv) Material Mix Variance

A (6 – 5) X 2

B (12 – 10) X 3

c (12 – 15) X 6

 

(v) Material Yield Variances

(SQ – RSQ) X SP

A (10 – 6) X 2

B (20 – 1 2 ) X 3

c (20 – 12) X 6

 

 

= 5 (F)

= 0

= 45 (F)

50 (F)

 

 

= 5 (A)

= 30 (A)

= 15 (F)

20 (A)

 

= 10

= 30

= 30

70 (F)

 

= 2 (F)

= 6 (F)

= 1 8 (A)

10 (A)

 

= 8 (F)

= 24 (F)

= 4 8 (F)

80 (F)

NOTE: RSQ = Individual of SQ * Total of AQ / Total of SQ

A =10/ 50 *30 =6

B = 20/50 *30 = 12

C = 20 /80 * 30 = 12

 

B. Labour Variances 

Problem 1. The standard labour component and the actual labour component engaged in a week for a job are as follows. 

During the 40 hour working week, the gang produced 1800 standard labour hours of work.

Calculate the different labour variances.

Solution:

 

Loss

Total Hours

2000

Nil

2000

 

 

Hours Produced

2000

200

1800

(i)                 1280/2000 X 1800 = 1152

(ii)               480/2000 X 1800 = 432

(iii)             240/2000 X 1800 = 216

1800                                        2000

Loss                                                                 Nil (-)                                      200

1800                                        1800

Labour Variance 

(i) Labour Cost Variance: (SH * SR) (AH * AR)

Skilled (1152 * 3.00) – (1120 * 4.00)                          = 1,024 (A)

Semiskilled (432 * 2.00) – (720 * 3.00)                      = 1,296 (A)

Unskilled (216 * 1.00) – (160 * 2.00)                         = 104 (A)

Total labour cost variances                                          = 2,424 (A)

 

(ii) Labour Rate Variance: (SR AR) * AH

Skilled (3.00 – 4.00) * 1120                                        = 1,120 (A)

Semiskilled (2.00 – 3.00) * 720                                   = 720 (A)

Unskilled (1.00 – 2.00) * 160                                      = 160 (A)

Total labour rate variance                                            = 2,000 (A)

 

(iii) Labour Efficiency Variance : (SH AH) * SR

Skilled (1152 – 1120) * 3.00                                       = 96 (F)

Semiskilled (432 – 720)                                               = 576 (A)

Unskilled (216 – 160)                                                  = 56 (F)

Total labour efficiency variance                                  = 424 (A)

 

(iv) Labour Mix Variance: (RSH AH)* SR

Skilled (1280 – 1120) * 3.00                                       = 480 (F)

Semiskilled (432 – 720) * 2                                         = 576 (A)

Unskilled (240 – 160) * 1.00                                       = 80 (F)

Total labour mix variance                                            = 16 (A)

NOTE : RSH (Individual of std Hrstrotal of std Hrs * Total of Actual Hrs

Skilled : 1152/1800 * 2000 1,280

Semiskilled : 43211800 * 2000 480

Unskilled : 216/1800 * 2000 240

C. Overhead Variances

 

Problem 1.  In department A the following data is submitted for the week ended on 31st December.

Standard output for 40 hours per week          1400units

Standard fixed overhead                                1400units

Actual output                                                  200 units

Actual hours worked                                      32 hours

Actual fixed overhead                                                1500

Calculate overhead variances.

 

NOTE : Before attempting to apply formula better we have to prepare following type of table for all the overhead problems.

 

Solution:

 

Budget                                                Actual

Output (units)                                     1400                                        1200

Cost/Overhead ($)                              1400                                        1500

Hours                                                  40                                             32

Overhead Variances

 

(i) Overhead Cost Variance

standard cost of actual output – Actual cost

1200- 1500                                                                   =         300(A)

[SCAC = SC x AO/SO, i.e., 1400 x 1200/1400         =          1200)

 

(ii) Overhead Budget Variance

SC- AC

1400- 1500                                                                  =          100(A)

 

(iii) Overhead Volume Variance

(Actual output –Std output) x Std rate per unit

(1200-1400)x1.00                                                       =          200(A)

Std Rate per unit = SC/So

[i.e., 1400/1400                                                           = $ 1.00

 

(iv) Overhead Efficiency Variance

(Actual Output – Std output in actual hours worked) x SR per unit

(1200 – 1120) * 1                                                                    = 80 (F)

SO in A.Hrs worked = SO x A.Hrs/SHrs = 1400 x 32/40     = 1120

 

(v) Overhead Capacity Variances

(Std output in actual hrs worked – Std output) x Std rate per unit

(1120 – 1400) X*1                                                      = 280 (A)

 

NOTE : If number of days are given in the problem only we have to apply the calendar variance, otherwise there is no need to calculate calendar variance.

 

Problem 2. Calculate overhead variances from the following data :

Particulars                                           Budget                                   Actual

Fixed overhead for July                      $ 5000                                    $. 6000

Production in July (Units)                   1000                                        1050

Standard time for 1 unit                     10 hours

Actual hours worked                                                                          11,000 hrs

 

Solution

Budget                                                            Actual

 

Cost/Overhead ($)

Production in units i.e., output

Hours (1000 x 10)

Budget

5000

1000

10,000

Actual

6000

1050

11000

 

Overhead Variances

 

(i) Overhead Cost Variances

Std cost of actual output – Actual cost

5250 – 5000 = 750 (A)

[SC of AO = SC x A0/80 = 5000/1050/1000 = 5250]

 

(ii) Overhead Budget Variance

= (Std cost – Actual cost)

(5000 – 6000) = 1000 (A)

 

(iii) Overhead Volume Variance

(Actual output – Std output) x Std rate per unit

= (1050 – 1000) X 5 = 250 (F)

[Std Rate per unit = SC/80 = 5000/1000 = $ 5]

 

(iv) Overhead Efficiency Variances

(Act output – Std output in actual hours worked ) x SR per unit

= (1050 – 1100) X 5 = 250 (A)

[Std output in actual hours worked : SO x AHRS/SHRS = 1000 x 11000/10,000

= 1100}

 

(v) Overhead Capacity Variance

(Std output in actual hrs worked – Std output) x SR per unit

(1100 – 1000) X 5 = 500 (F)