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CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis

A firm uses a standard of 4 kg of material per unit at ₹30 per kg. For 5,000 units of actual output, 21,000 kg were purchased at ₹31 and 20,500 kg were used. The standard cost of material for actual output is to be used as the base for variance analysis. Which statement is correct?

Standard cost for actual output is ₹6,00,000 (5,000 units x 4 kg x ₹30), and the price variance, computed on quantity purchased, is ₹21,000 adverse because 21,000 kg cost ₹1 per kg more than standard.

  1. AStandard cost for actual output is ₹6,30,000, and the material price variance is ₹20,500 adverse
  2. BStandard cost for actual output is ₹6,00,000, and the material price variance is ₹21,000 adverseCorrect
  3. CStandard cost for actual output is ₹6,00,000, and the material price variance is ₹20,500 adverse
  4. DStandard cost for actual output is ₹6,15,000, and the material price variance is ₹21,000 adverse

Explanation

Standard cost for actual output = 5,000 x 4 x 30 = ₹6,00,000. Price variance on purchase basis = (31 - 30) x 21,000 = ₹21,000 adverse. Using usage of 20,500 kg gives ₹20,500, which is the price variance only if variance is computed at the point of issue. Standard cost is not 20,500 x 30 = ₹6,15,000.

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