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CMA Intermediate · Management Accounting · Standard Costing and Variance Analysis (Management Accounting)

Standard material for one unit of Vihaan Ltd is 5 kg at Rs 40 per kg. For actual output of 3,000 units, 15,900 kg were used. Material price variance was Rs 15,900 Favourable. What was the actual price per kg?

The actual price was Rs 39 per kg. A favourable price variance of Rs 15,900 on 15,900 kg means each kg cost Rs 1 less than the standard Rs 40, giving Rs 39. Rs 41 would produce an adverse variance.

  1. ARs 41
  2. BRs 39Correct
  3. CRs 39.50
  4. DRs 38

Explanation

Price variance = (SP - AP) x AQ used. 15,900 = (40 - AP) x 15,900, so 40 - AP = 1, AP = Rs 39. Rs 41 results from taking the wrong sign for a favourable variance.

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