CA Intermediate · Cost and Management Accounting · Standard Costing
Sharma Textiles fixes a standard of 4 metres of cloth per shirt at Rs 150 per metre. In March it produced 2,000 shirts, using 8,400 metres of cloth purchased and consumed at Rs 148 per metre. What is the material usage (quantity) variance?
The material usage variance is Rs 60,000 Adverse. Standard quantity for 2,000 shirts is 8,000 metres, but 8,400 metres were used, so 400 metres extra valued at the standard price of Rs 150 gives an adverse usage variance.
- ARs 60,000 AdverseCorrect
- BRs 60,000 Favourable
- CRs 16,800 Favourable
- DRs 76,800 Adverse
Explanation
Standard quantity for actual output = 2,000 x 4 = 8,000 metres. Usage variance = (SQ - AQ) x SP = (8,000 - 8,400) x 150 = Rs 60,000 Adverse. Rs 16,800 Favourable is the price variance (150-148) x 8,400 and is a different variance.
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