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CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis

Standard labour cost for output of a product at Indore Tools: 600 hours at ₹30 = ₹18,000. Actual: 640 hours paid at ₹29 = ₹18,560, of which 40 hours were idle. Which statement about the variances is correct?

Labour cost variance is ₹560 Adverse, made of a ₹640 Favourable rate variance, ₹1,200 Adverse idle time variance and nil efficiency variance, since 600 hours were actually worked against 600 standard hours. The components net to ₹560 Adverse.

  1. ALabour rate variance is ₹640 Favourable and efficiency variance is ₹0
  2. BLabour cost variance is ₹560 Adverse, rate variance ₹640 Favourable, idle time variance ₹1,200 Adverse, efficiency variance ₹0Correct
  3. CLabour cost variance is ₹560 Adverse, rate variance ₹640 Adverse, idle time variance ₹1,200 Adverse
  4. DLabour cost variance is ₹560 Adverse, rate variance ₹640 Favourable, idle time variance ₹1,160 Adverse, efficiency variance ₹0

Explanation

Cost variance = 18,000 - 18,560 = 560 Adverse. Rate variance = (30-29) x 640 = 640 Favourable. Idle time = 40 x 30 = 1,200 Adverse. Hours worked = 600 equal standard hours, so efficiency = 0. Check: 640 F - 1,200 A = 560 A.

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