Skip to content

CA Intermediate · Cost and Management Accounting · Standard Costing

Sundaram Fabricators set a standard of 4 kg of material per unit at ₹50 per kg. In a month it produced 2,000 units and consumed 8,400 kg, purchasing and using all of it at ₹48 per kg. What are the material price variance and material usage variance?

The material price variance is ₹16,800 favourable, being ₹2 saved per kg on 8,400 kg actually used. The usage variance is ₹20,000 adverse, being 400 kg excess over the 8,000 kg allowed, valued at ₹50. Net adverse variance is ₹3,200.

  1. APrice ₹16,800 Favourable; Usage ₹20,000 AdverseCorrect
  2. BPrice ₹16,800 Favourable; Usage ₹16,800 Adverse
  3. CPrice ₹16,000 Favourable; Usage ₹20,000 Adverse
  4. DPrice ₹16,800 Adverse; Usage ₹20,000 Favourable

Explanation

Price variance = (50 − 48) × 8,400 = ₹16,800 F. Standard quantity = 2,000 × 4 = 8,000 kg; usage variance = (8,000 − 8,400) × 50 = ₹20,000 A. Check: standard cost 8,000 × 50 = 4,00,000; actual cost 8,400 × 48 = 4,03,200; total variance 3,200 A = 20,000 A − 16,800 F. Option 3 applies the price difference to standard quantity (8,000), a wrong base.

Did you get it right without looking?

One question tells you little. A timed set on Standard Costing shows your real accuracy, how long you take and where you lose marks.

Practise Standard CostingFree diagnostic mock

More Standard Costing questions