Skip to content

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

Sundaram Foods Ltd sets the standard cost of a packet of spice mix. Standard material: 2 kg per packet at ₹60 per kg. Standard labour: 0.5 hour per packet at ₹120 per hour. Variable overhead is absorbed at ₹40 per labour hour. Fixed overhead is ₹10 per packet. What is the standard marginal cost per packet?

The standard marginal cost is ₹200 per packet: material ₹120, labour ₹60 and variable overhead ₹20. Fixed overhead of ₹10 is excluded because marginal cost includes only variable items; adding it would give the absorption cost of ₹210.

  1. A₹200Correct
  2. B₹210
  3. C₹180
  4. D₹220

Explanation

Marginal cost excludes fixed overhead. Material = 2 x 60 = 120. Labour = 0.5 x 120 = 60. Variable overhead = 0.5 x 40 = 20. Total = 200. Including fixed overhead of ₹10 gives ₹210, which is the absorption standard cost, not the marginal one.

Did you get it right without looking?

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

Practise Standard Costing and Variance Analysis (Management Accounting)Free diagnostic mock

More Standard Costing and Variance Analysis (Management Accounting) questions