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CA Final · Integrated Business Solutions (Multidisciplinary Case Study with Strategic Management) · Strategic Cost & Performance Management

Case: Tungabhadra Steels Ltd set a standard of 4 kg of raw material per unit at Rs 50 per kg. For 2,000 units produced, 8,400 kg were purchased and used at Rs 48 per kg. What are the material price variance and material usage variance?

The price variance is Rs 16,800 favourable, as Rs 2 per kg was saved on 8,400 kg actually used. The usage variance is Rs 20,000 adverse, since 400 kg above the standard 8,000 kg were consumed at the standard Rs 50.

  1. APrice Rs 16,800 favourable; usage Rs 20,000 adverseCorrect
  2. BPrice Rs 16,800 favourable; usage Rs 20,000 favourable
  3. CPrice Rs 16,000 favourable; usage Rs 20,000 adverse
  4. DPrice Rs 16,800 adverse; usage Rs 20,000 adverse

Explanation

Price variance = (50-48) x 8,400 = Rs 16,800 favourable. Standard usage = 2,000 x 4 = 8,000 kg; excess 400 kg x Rs 50 = Rs 20,000 adverse. Using 8,000 kg for price gives Rs 16,000, which is the wrong quantity base.

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