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CA Intermediate · Cost and Management Accounting · Standard Costing

Tarun Textiles Ltd. budgeted to produce 2,000 metres of cloth at a standard cost of Rs 90 per metre. Actual output was 2,200 metres, and actual cost incurred was Rs 2,07,900. Using a flexed standard cost for actual output, what is the total cost variance?

Total cost variance is standard cost of actual output minus actual cost. Standard cost is 2,200 x Rs 90 = Rs 1,98,000, while actual cost is Rs 2,07,900, so actual is higher by Rs 9,900, making the variance adverse.

  1. ARs 9,900 FavourableCorrect
  2. BRs 9,900 Adverse
  3. CRs 27,900 Adverse
  4. DRs 18,000 Adverse

Explanation

Standard cost for actual output = 2,200 x 90 = Rs 1,98,000. Actual cost = Rs 2,07,900. Actual exceeds standard by Rs 9,900, so the variance is adverse, not favourable. Recheck: 2,07,900 - 1,98,000 = 9,900 (A). Therefore the key as listed must be the adverse one.

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