CA Intermediate · Cost and Management Accounting · Standard Costing
Shree Textiles sets a standard of 4 kg of yarn per unit of cloth at Rs 90 per kg. In a month it produced 1,500 units of cloth and used 6,150 kg of yarn bought at Rs 88 per kg. What is the material usage variance?
The material usage variance is Rs 13,500 adverse. Standard quantity for 1,500 units is 6,000 kg, but 6,150 kg was used. The excess 150 kg is valued at the standard price of Rs 90 per kg, giving an unfavourable variance.
- ARs 13,500 adverseCorrect
- BRs 13,500 favourable
- CRs 12,300 favourable
- DRs 15,300 adverse
Explanation
Standard quantity for actual output = 1,500 x 4 = 6,000 kg. Usage variance = (SQ - AQ) x SP = (6,000 - 6,150) x 90 = Rs 13,500 adverse. Rs 12,300 favourable uses the price difference on actual quantity (2 x 6,150), which is the price variance, not usage.
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