Page 230 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

(i) Material Cost Variance: Notes
MCV = Standard cost of material – Actual cost of material
= (10,000 Kg. × ` 2.50) – (11,500 Kg. × ` 2.40)
= ` 25,000 – ` 27,600
= ` 2,600 (Adverse)

(ii) Material Price Variance:
MPV = Actual quantity (Standard price – Actual price)
= 11,500 Kg. (` 2.50 – ` 2.40)
= 11,500 × 0.10

= ` 1,150 (Favourable)
(iii) Material Usage Variance:
MUV = Standard price (Standard quantity – Actual quantity)
= ` 2.50 (10,000 Kg. – 11,500 Kg.)
= 2.50 × 1,500

= ` 3,750 (Adverse)
Verification:
Material cost variance = Material price variance + Material usage variance
` 2,600 (Adverse) = ` 1,150 (Fav.) + 3,750 (Adverse)
` 2,600 (Adverse) = ` 2,600 (Adverse)

Labour Variances

The labour variances can be computed and analysed in the same way as material variances have
been carried out. Labour variances can be analysed in the following way:
(i) Labour Cost Variance,
(ii) Labour Rate Variance,

(iii) Labour Efficiency or Time Variance,
(iv) Labour Mix Variance,
(v) Labour Idle Time Variance, and
(vi) Labour Yield Variance.
The following figure shows the division and subdivision of labour variances:
(i) Labour Cost Variance: Labour cost variance represents the difference between the standard
labour costs and the actual labour costs. The terminology of ICMA defines labour cost
variance as, “the difference between the standard labour cost and actual labour cost incurred
for the production achieved”. Labour cost variance can be calculated with the help of the
following formula:

Labour Cost Variance = Standard cost of labour – Actual cost of labour
LCV = (Standard time × Standard rate) – (Actual time × Actual rate)
OR LCV = (ST × SR) – (AT × AR)

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