Skip to content

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

Nair Auto standard cost per unit: 3 kg material at Rs 70 per kg. Actual output 1,000 units; material purchased 3,600 kg at Rs 72 per kg, of which 3,100 kg were used. Price variance is computed at the time of purchase. What are the price and usage variances?

Price variance is Rs 7,200 Adverse and usage variance is Rs 7,000 Adverse. Price is measured on the 3,600 kg purchased: 2 x 3,600. Usage compares standard 3,000 kg with 3,100 kg actually used, 100 kg excess at Rs 70.

  1. APrice Rs 7,200 Adverse; Usage Rs 7,000 AdverseCorrect
  2. BPrice Rs 7,200 Adverse; Usage Rs 7,000 Favourable
  3. CPrice Rs 6,200 Adverse; Usage Rs 7,000 Adverse
  4. DPrice Rs 7,200 Adverse; Usage Rs 6,000 Adverse

Explanation

Price variance on purchase = (72-70) x 3,600 = Rs 7,200 A. Usage variance = (3,000 - 3,100) x 70 = Rs 7,000 A. Using 3,100 kg for price gives Rs 6,200, the wrong base.

Did you get it right without looking?

One question tells you little. A timed set on Standard Costing and Variance Analysis (Management Accounting) shows your real accuracy, how long you take and where you lose marks.

Practise Standard Costing and Variance Analysis (Management Accounting)Free diagnostic mock

More Standard Costing and Variance Analysis (Management Accounting) questions