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CA Intermediate · Cost and Management Accounting · Standard Costing

Standard data for a product of Kaveri Chemicals: 10 kg of material per unit at Rs 20 per kg. Actual output for the month was 500 units. Actual material used was 5,200 kg at a cost of Rs 1,09,200. Which statement about the variances is correct?

Material cost variance is Rs 9,200 Adverse, made up of a price variance of Rs 5,200 Adverse and a usage variance of Rs 4,000 Adverse. Standard cost is Rs 1,00,000, actual price is Rs 21 per kg, and 200 kg extra was used at the standard Rs 20.

  1. AMaterial cost variance Rs 9,200 Adverse; price variance Rs 5,200 Adverse; usage variance Rs 4,000 AdverseCorrect
  2. BMaterial cost variance Rs 9,200 Adverse; price variance Rs 4,000 Adverse; usage variance Rs 5,200 Adverse
  3. CMaterial cost variance Rs 9,200 Adverse; price variance Rs 5,200 Favourable; usage variance Rs 4,000 Adverse
  4. DMaterial cost variance Rs 5,200 Adverse; price variance Rs 5,200 Adverse; usage variance Rs 4,000 Adverse

Explanation

Standard quantity = 500 x 10 = 5,000 kg; standard cost = Rs 1,00,000. MCV = 1,00,000 - 1,09,200 = Rs 9,200 A. Actual price = 1,09,200/5,200 = Rs 21, so price variance = (20 - 21) x 5,200 = Rs 5,200 A. Usage variance = (5,000 - 5,200) x 20 = Rs 4,000 A. Check: 5,200 + 4,000 = 9,200.

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