CA Intermediate · Cost and Management Accounting · Standard Costing
Sundaram Foods Ltd. set a standard of 4 kg of raw material per unit at Rs 50 per kg. In March it made 1,500 units using 6,300 kg of material bought at Rs 48 per kg. Material usage (quantity) variance is:
The material usage variance is Rs 15,000 Adverse. Standard quantity for actual output is 6,000 kg, but 6,300 kg were used, an excess of 300 kg, valued at the standard price of Rs 50 per kg.
- ARs 15,000 AdverseCorrect
- BRs 15,000 Favourable
- CRs 12,600 Favourable
- DRs 14,400 Adverse
Explanation
Standard quantity = 1,500 x 4 = 6,000 kg. Usage variance = (6,000 - 6,300) x Rs 50 = Rs 15,000 Adverse. Using the actual price of Rs 48 would give Rs 14,400, which is wrong because usage variance is valued at standard price.
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