CA Intermediate · Cost and Management Accounting · Standard Costing
Standard for one unit of product: 4 kg of material at Rs 50 per kg. In April, 1,000 units were produced using 4,200 kg of material purchased and used at Rs 48 per kg. What are the material price variance and material usage variance?
Price variance is (50 - 48) x 4,200 kg = Rs 8,400 favourable. Usage variance is (4,000 - 4,200) x Rs 50 = Rs 10,000 adverse. Together they give Rs 1,600 adverse, matching standard cost Rs 2,00,000 against actual Rs 2,01,600.
- APrice Rs 8,400 F; Usage Rs 10,000 ACorrect
- BPrice Rs 8,400 A; Usage Rs 10,000 F
- CPrice Rs 8,000 F; Usage Rs 10,000 A
- DPrice Rs 8,400 F; Usage Rs 9,600 A
Explanation
Price variance = (SP - AP) x AQ = (50 - 48) x 4,200 = Rs 8,400 F. Usage variance = (SQ - AQ) x SP = (4,000 - 4,200) x 50 = Rs 10,000 A. Check: total = 2,00,000 - 2,01,600 = 1,600 A, equal to 10,000 A + 8,400 F. Using 4,000 kg for price gives 8,000, which is wrong.
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