CA Intermediate · Cost and Management Accounting · Standard Costing
Standard Costing: Rajlaxmi Textiles has a standard of 4 kg of yarn per unit at Rs 50 per kg. In March it produced 2,500 units and used 10,400 kg of yarn, bought at Rs 48 per kg. What is the material usage variance?
The material usage variance is Rs 20,000 adverse. Standard quantity for 2,500 units is 10,000 kg, while 10,400 kg was actually used. The excess 400 kg is valued at the standard price of Rs 50, giving Rs 20,000, and extra usage is adverse.
- ARs 20,000 AdverseCorrect
- BRs 20,800 Favourable
- CRs 20,000 Favourable
- DRs 20,800 Adverse
Explanation
Standard quantity for actual output = 2,500 x 4 = 10,000 kg. Usage variance = (SQ - AQ) x SP = (10,000 - 10,400) x 50 = Rs 20,000 Adverse. Option D wrongly uses the actual price of Rs 48 (10,400-10,000 = 400 x 48 = 19,200 is not even that), and option B/C reverse the sign.
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