CA Intermediate · Cost and Management Accounting · Standard Costing
Sundaram Textiles budgets production of 2,000 metres of cloth at a standard of 2.5 kg of yarn per metre at Rs 120 per kg. Actual output was 2,000 metres, using 5,200 kg of yarn bought and used at Rs 118 per kg. What is the material usage (quantity) variance?
The material usage variance is Rs 24,000 Adverse. Standard quantity for 2,000 metres is 5,000 kg, but 5,200 kg was used. The excess 200 kg is valued at the standard price of Rs 120, giving Rs 24,000, and it is adverse because actual usage exceeded standard.
- ARs 24,000 AdverseCorrect
- BRs 24,000 Favourable
- CRs 10,400 Adverse
- DRs 12,000 Adverse
Explanation
Standard quantity for actual output = 2,000 x 2.5 = 5,000 kg. Usage variance = (SQ - AQ) x SP = (5,000 - 5,200) x 120 = Rs 24,000 Adverse. Option 3 wrongly uses the actual price of 118 (200 x 118 = 23,600) and is not even that; option 2 has the sign reversed because more material was used than allowed.
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