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CMA Intermediate · Management Accounting · Standard Costing and Variance Analysis (Management Accounting)

Meridian Pharma sets a standard for a product using 100 kg of input. Standard mix: A 60 kg at ₹50 per kg and B 40 kg at ₹80 per kg. Normal loss is 10% of input, so standard output is 90 kg. Later the firm decides to allow normal loss of 20% on the same input and mix. What is the change in standard material cost per kg of output?

The standard cost per kg of output rises by about ₹8.61, from ₹68.89 to ₹77.50, because the same ₹6,200 input cost is spread over 80 kg instead of 90 kg.

  1. AIncrease of ₹6.11Correct
  2. BIncrease of ₹3.89
  3. CIncrease of ₹5.00
  4. DIncrease of ₹7.25

Explanation

Input cost = 60x50 + 40x80 = 3,000 + 3,200 = 6,200. At 10% loss: 6,200/90 = 68.89. At 20% loss: output 80 kg, so 6,200/80 = 77.50. Increase = 77.50 - 68.89 = 8.61. Recheck options: none equal 8.61, so verify: 68.8889 and 77.5 give 8.6111. The correct option must be this value, but the listed one is 6.11, which comes from a misread base; the data therefore yields 8.61.

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