Test 5: Standard Costing: answer key

Question 1 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. Vikram Industrial Components Ltd. manufactures precision-engineered transmission assemblies for commercial automobile manufacturers. The factory operates three shifts and has a normal monthly production capacity of 5,000 assemblies. During October 2026, the company completed 1,000 units of Product A and 800 units of Product B. Its cost accountant has prepared an integrated standard-cost statement to evaluate the factory's actual manufacturing expenditure. The standard specifications are: Cost element | Product A | Product B Material M1 | 2 kg @ ₹20 | 1 kg @ ₹20 Material M2 | 1 kg @ ₹30 | 2 kg @ ₹30 Direct labour | 3 hours @ ₹50 | 2 hours @ ₹50 Variable overhead | ₹15 per direct labour-hour | ₹15 per direct labour-hour Machine-hours for fixed overhead | 2 hours | 1.5 hours Budgeted production was 1,000 units of each product, requiring 3,500 machine-hours and 5,000 labour-hours. Budgeted fixed overhead was ₹70,000, and budgeted variable overhead was ₹75,000. Fixed overhead is absorbed on machine-hours, while variable overhead is absorbed on productive direct labour-hours. During October, 3,100 kg of M1 were purchased and consumed at ₹22 per kg, and 2,700 kg of M2 were purchased and consumed at ₹28 per kg. No inventory movement or scrap recovery occurred. Workers were paid for 4,800 hours at an average rate of ₹52 per hour; 200 paid hours were idle due to stoppages, so productive hours were 4,600. Actual variable overhead was ₹72,000. Actual fixed overhead was ₹72,000, and actual machine-hours worked were 3,200. The maintenance report records a machine breakdown that reduced available capacity during the month; recorded machine-hours exclude the breakdown downtime. The finance controller requires separate material, labour and overhead variance calculations and an overall standard-to-actual manufacturing cost reconciliation. All actual costs relate to this period and all quantities are precise.

Calculate the aggregate Material Price Variance for materials M1 and M2 during October 2026.

1. ₹800 (F)
2. ₹800 (A) (correct answer)
3. ₹9,800 (A)
4. ₹9,000 (A)

Answer: B — ₹800 (A)

Explanation. MPV = Actual quantity purchased × (Standard price − Actual price). M1: 3,100 × (₹20 − ₹22) = ₹6,200 A. M2: 2,700 × (₹30 − ₹28) = ₹5,400 F. Net MPV = ₹6,200 A − ₹5,400 F = ₹800 A. Option c is total material cost variance, while option d is material usage variance. The two price effects must be offset rather than added as absolute amounts.

Where it goes wrong. Adding adverse and favourable price variances instead of netting the two material-wise effects.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 2 · 2 marks · Chapter 13: Standard Costing · hard

What is the Labour Cost Variance for October 2026, including the effect of paid idle time?

1. ₹19,600 (A) (correct answer)
2. ₹9,600 (A)
3. ₹13,000 (A)
4. ₹29,600 (A)

Answer: A — ₹19,600 (A)

Explanation. Standard hours for actual output = (1,000 × 3) + (800 × 2) = 4,600 hours. Standard labour cost = 4,600 × ₹50 = ₹2,30,000. Actual wages = 4,800 × ₹52 = ₹2,49,600. LCV = ₹2,30,000 − ₹2,49,600 = ₹19,600 adverse. The result reconciles to LRV ₹9,600 A and idle-time variance ₹10,000 A; efficiency variance is nil.

Where it goes wrong. Calculating labour efficiency using paid hours while overlooking the separate idle-time component in total labour cost variance.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 3 · 2 marks · Chapter 13: Standard Costing · medium

Calculate the Fixed Overhead Volume Variance for October 2026.

1. ₹8,000 (A)
2. ₹6,000 (F)
3. ₹6,000 (A) (correct answer)
4. ₹8,000 (F)

Answer: C — ₹6,000 (A)

Explanation. Standard fixed overhead rate = ₹70,000 ÷ 3,500 budgeted machine-hours = ₹20 per hour. Standard hours for actual production = (1,000 × 2) + (800 × 1.5) = 3,200 hours. Absorbed fixed overhead = 3,200 × ₹20 = ₹64,000. Volume variance = ₹64,000 − ₹70,000 = ₹6,000 adverse. The breakdown reduced actual capacity utilisation, and the difference from budget is adverse.

Where it goes wrong. Comparing actual fixed overhead expenditure with budgeted expenditure instead of comparing absorbed overhead with the budget.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 4 · 2 marks · Chapter 13: Standard Costing · hard

Determine the overall manufacturing Cost Variance by combining material, labour, variable overhead and fixed overhead cost variances.

1. ₹36,400 (A)
2. ₹40,400 (F)
3. ₹48,400 (A)
4. ₹40,400 (A) (correct answer)

Answer: D — ₹40,400 (A)

Explanation. Material cost variance = ₹9,800 A; labour cost variance = ₹19,600 A; variable overhead cost variance = ₹3,000 A; fixed overhead cost variance = ₹8,000 A. Total = ₹9,800 + ₹19,600 + ₹3,000 + ₹8,000 = ₹40,400 adverse. This also reconciles standard cost ₹4,97,000 to actual cost ₹5,37,400. Option c overstates the result by ₹8,000.

Where it goes wrong. Using fixed overhead volume variance instead of fixed overhead cost variance, thereby omitting the expenditure component.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 5 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. Meridian Auto Components Ltd. manufactures two product lines, P and Q, using a common blended alloy and a shared labour team. The factory's monthly capacity is 1,000 units of P and 600 units of Q. In November 2026, accepted production was 500 units of P and 300 units of Q. The standard alloy formulation is specified as a proportion of total material input, and no process loss or recoverable scrap is expected. Standard production data: Particulars | Product P | Product Q Alloy input per unit | 4 kg | 5 kg Direct labour hours per unit | 2 hours | 3 hours Standard alloy mix and prices: Material A: 60% at ₹40 per kg Material B: 40% at ₹30 per kg Standard labour rate is ₹100 per hour. Variable overhead is absorbed at ₹10 per productive labour-hour. Budgeted activity for the month is 2,000 labour-hours, with budgeted variable overhead of ₹20,000. Actual material consumption was 2,300 kg of A and 1,300 kg of B. Both materials were purchased and consumed in the same period, with no opening or closing stock. Actual purchase prices were ₹42 per kg for A and ₹28 per kg for B. Actual wages amounted to ₹2,04,000 for 2,000 paid hours, including 100 paid idle hours caused by a temporary line stoppage. Therefore, actual productive labour-hours were 1,900. Actual variable overhead expenditure was ₹19,800. The production manager states that the revised alloy mix resulted from a temporary substitution approved by quality control. The cost accountant must calculate the material cost, price, usage and mix effects, as well as labour and variable overhead variances. Revised standard quantities must be based on total actual input in the original standard 60:40 proportions. Labour and variable overhead efficiency calculations must use actual productive hours, not paid hours. All figures are precise.

Calculate the Material Cost Variance for the actual production of Products P and Q.

1. ₹7,000 (A) (correct answer)
2. ₹2,000 (A)
3. ₹5,000 (A)
4. ₹7,000 (F)

Answer: A — ₹7,000 (A)

Explanation. Standard input = (500 × 4) + (300 × 5) = 3,500 kg. Standard quantities are A 2,100 kg and B 1,400 kg. Standard cost = (2,100 × ₹40) + (1,400 × ₹30) = ₹1,26,000. Actual cost = (2,300 × ₹42) + (1,300 × ₹28) = ₹1,33,000. MCV = ₹1,26,000 − ₹1,33,000 = ₹7,000 adverse.

Where it goes wrong. Applying standard prices to actual quantities and incorrectly reporting that figure as the standard cost for actual production.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 6 · 2 marks · Chapter 13: Standard Costing · hard

Calculate the aggregate Material Mix Variance arising from the change in the actual alloy composition.

1. ₹1,400 (F)
2. ₹1,400 (A) (correct answer)
3. ₹3,600 (A)
4. ₹5,000 (A)

Answer: B — ₹1,400 (A)

Explanation. Actual total input = 2,300 + 1,300 = 3,600 kg. RSQ in the standard 60:40 ratio is A 2,160 kg and B 1,440 kg. MMV: A = (2,160 − 2,300) × ₹40 = ₹5,600 A; B = (1,440 − 1,300) × ₹30 = ₹4,200 F. Net MMV = ₹1,400 adverse. Option c is total yield variance.

Where it goes wrong. Using standard quantity for actual output instead of revised standard quantity based on total actual input.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 7 · 2 marks · Chapter 13: Standard Costing · medium

What is the overall Labour Cost Variance, considering both the rate and idle-time effects?

1. ₹10,000 (A)
2. ₹4,000 (A)
3. ₹14,000 (A) (correct answer)
4. ₹14,000 (F)

Answer: C — ₹14,000 (A)

Explanation. Standard labour hours = (500 × 2) + (300 × 3) = 1,900 hours. Standard cost = 1,900 × ₹100 = ₹1,90,000. Actual wages = ₹2,04,000. LCV = ₹1,90,000 − ₹2,04,000 = ₹14,000 adverse. Verification: LRV = 2,000 × (₹100 − ₹102) = ₹4,000 A; idle-time variance = 100 × ₹100 = ₹10,000 A; efficiency variance is nil.

Where it goes wrong. Using actual productive hours alone as the basis for labour cost variance when the wages also include paid idle hours.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 8 · 2 marks · Chapter 13: Standard Costing · hard

What is the combined net Cost Variance for materials, labour and variable overheads for November 2026?

1. ₹20,800 (A)
2. ₹14,000 (A)
3. ₹21,000 (F)
4. ₹21,800 (A) (correct answer)

Answer: D — ₹21,800 (A)

Explanation. Material Cost Variance = ₹7,000 A. Labour Cost Variance = ₹14,000 A. Standard variable overhead for actual output = 1,900 × ₹10 = ₹19,000, whereas actual expenditure is ₹19,800, giving ₹800 A. Aggregate variance = ₹7,000 + ₹14,000 + ₹800 = ₹21,800 adverse. Option b omits material and variable overhead variances.

Where it goes wrong. Reconciliating only direct material and labour costs while omitting the indirect variable overhead component.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 9 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. Zenith Packaging Machinery Ltd. manufactures two types of automated filling machines, Model P and Model Q. Its plant has 50 identical production machines, each available for eight hours per scheduled working day. The budget for November 2026 was based on 25 working days. Actual production was 1,040 units of Model P and 1,200 units of Model Q. Standard machine time is five hours per P and three hours per Q. The factory's fixed overhead is absorbed on machine-hours. Budget data: Machines available: 50 Hours per machine per day: 8 Budgeted working days: 25 Budgeted machine-hours: 10,000 Budgeted fixed overhead: ₹2,00,000 Actual data: Working days: 24 Actual combined machine-hours per day: 360 Actual machine-hours: 8,640 Actual fixed overhead: ₹2,04,000 During the month, five machines were unavailable because of a breakdown. This reduced the number of hours available for production, but the 8,640 actual machine-hours are the actual hours recorded by operating machines. Revised budgeted machine-hours for the actual calendar are to be calculated using all 50 machines, eight hours per day and 24 working days. Standard fixed overhead per day is based on the original budget of ₹2,00,000 over 25 days. The production-cost report has separately established the following cost variances for the same output: Material Cost Variance ₹12,000 adverse; Labour Cost Variance ₹8,000 favourable; and Variable Overhead Cost Variance ₹4,000 adverse. These are final net variances and should not be recalculated. Management requires calculation of absorbed fixed overhead, fixed overhead volume variance and revised capacity and calendar effects, followed by an overall reconciliation of the four cost elements. There are no opening or closing production balances, and all amounts relate to the same month.

Determine the fixed overhead absorbed for the actual production of Models P and Q.

1. ₹1,76,000 (correct answer)
2. ₹1,92,000
3. ₹2,00,000
4. ₹2,04,000

Answer: A — ₹1,76,000

Explanation. Budgeted machine-hours = 50 × 8 × 25 = 10,000 hours. Standard fixed overhead rate = ₹2,00,000 ÷ 10,000 = ₹20 per hour. Standard hours for actual production = (1,040 × 5) + (1,200 × 3) = 8,800 hours. Absorbed fixed overhead = 8,800 × ₹20 = ₹1,76,000. Actual expenditure and budgeted overhead are not absorbed overhead.

Where it goes wrong. Using actual machine-hours or actual fixed expenditure instead of standard hours for actual output.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 10 · 2 marks · Chapter 13: Standard Costing · hard

Calculate the revised Fixed Overhead Capacity Variance after accounting for the actual working calendar.

1. ₹27,200 (A)
2. ₹19,200 (A) (correct answer)
3. ₹19,200 (F)
4. ₹8,000 (A)

Answer: B — ₹19,200 (A)

Explanation. Revised budgeted machine-hours = 50 × 8 × 24 = 9,600 hours. Actual machine-hours = 360 × 24 = 8,640 hours. Standard fixed overhead rate = ₹20 per hour. Revised capacity variance = (Actual hours − Revised budgeted hours) × Standard rate = (8,640 − 9,600) × ₹20 = ₹19,200 adverse. The original 10,000-hour budget must not be used after calendar adjustment.

Where it goes wrong. Using original budgeted machine-hours rather than revised budgeted hours for the actual working days.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 11 · 2 marks · Chapter 13: Standard Costing · medium

What is the Fixed Overhead Volume Variance for November 2026?

1. ₹28,000 (A)
2. ₹16,000 (A)
3. ₹24,000 (A) (correct answer)
4. ₹24,000 (F)

Answer: C — ₹24,000 (A)

Explanation. Absorbed fixed overhead = 8,800 standard hours × ₹20 = ₹1,76,000. Budgeted fixed overhead = ₹2,00,000. Volume variance = ₹1,76,000 − ₹2,00,000 = ₹24,000 adverse. Verification: Efficiency variance = ₹3,200 F; revised capacity variance = ₹19,200 A; calendar variance = ₹8,000 A. Their net effect is ₹24,000 adverse. Option a represents total fixed overhead cost variance.

Where it goes wrong. Confusing fixed overhead cost variance, which includes expenditure, with fixed overhead volume variance.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 12 · 2 marks · Chapter 13: Standard Costing · hard

Calculate the combined manufacturing Cost Variance for the four cost elements reported by Zenith Packaging Machinery Ltd.

1. ₹44,000 (A)
2. ₹36,000 (F)
3. ₹28,000 (A)
4. ₹36,000 (A) (correct answer)

Answer: D — ₹36,000 (A)

Explanation. Material Cost Variance = ₹12,000 A; Labour Cost Variance = ₹8,000 F; Variable Overhead Cost Variance = ₹4,000 A; Fixed Overhead Cost Variance = ₹28,000 A. Net variance = ₹12,000 + ₹4,000 + ₹28,000 − ₹8,000 = ₹36,000 adverse. Option a adds the labour favourable variance as though it increased costs, while option c omits the variable overhead effect.

Where it goes wrong. Failing to offset the favourable labour variance against the three adverse cost variances.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 13 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. A company manufactures two products, P and Q. Their standard cost specifications are as follows: Product P: Material 2 kg at ₹40 per kg; Labour 2 hours at ₹50 per hour; Variable overhead ₹15 per labour-hour; Fixed overhead ₹20 per labour-hour. Product Q: Material 3 kg at ₹30 per kg; Labour 3 hours at ₹50 per hour; Variable overhead ₹15 per labour-hour; Fixed overhead ₹20 per labour-hour. Actual production is 600 units of P and 400 units of Q. What is the total standard manufacturing cost for actual production?

A company manufactures two products, P and Q. Their standard cost specifications are as follows: Product P: Material 2 kg at ₹40 per kg; Labour 2 hours at ₹50 per hour; Variable overhead ₹15 per labour-hour; Fixed overhead ₹20 per labour-hour. Product Q: Material 3 kg at ₹30 per kg; Labour 3 hours at ₹50 per hour; Variable overhead ₹15 per labour-hour; Fixed overhead ₹20 per labour-hour. Actual production is 600 units of P and 400 units of Q. What is the total standard manufacturing cost for actual production?

1. ₹2,88,000 (correct answer)
2. ₹3,00,000
3. ₹2,75,000
4. ₹3,24,000

Answer: A — ₹2,88,000

Explanation. Standard cost of P = (2 × ₹40) + (2 × ₹50) + (2 × ₹15) + (2 × ₹20) = ₹250 per unit. Standard cost of Q = (3 × ₹30) + (3 × ₹50) + (3 × ₹15) + (3 × ₹20) = ₹345 per unit. Total standard cost = (600 × ₹250) + (400 × ₹345) = ₹1,50,000 + ₹1,38,000 = ₹2,88,000.

Where it goes wrong. Applying one product's standard cost to the entire combined output instead of separately calculating each product's cost.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 14 · 2 marks · Chapter 13: Standard Costing · hard

Scenario. A chemical company produces a blended compound using Material A and Material B. Standard input for actual output is 1,600 kg, comprising 60% A at ₹30 per kg and 40% B at ₹20 per kg. Actual consumption is 1,100 kg of A at ₹32 per kg and 700 kg of B at ₹18 per kg. Calculate the aggregate Material Cost Variance.

A chemical company produces a blended compound using Material A and Material B. Standard input for actual output is 1,600 kg, comprising 60% A at ₹30 per kg and 40% B at ₹20 per kg. Actual consumption is 1,100 kg of A at ₹32 per kg and 700 kg of B at ₹18 per kg. Calculate the aggregate Material Cost Variance.

1. ₹5,400 (A)
2. ₹6,200 (A) (correct answer)
3. ₹800 (A)
4. ₹6,200 (F)

Answer: B — ₹6,200 (A)

Explanation. Standard cost = (960 × ₹30) + (640 × ₹20) = ₹41,600. Actual cost = (1,100 × ₹32) + (700 × ₹18) = ₹47,800. MCV = ₹41,600 − ₹47,800 = ₹6,200 adverse. The price variance is ₹800 adverse and usage variance is ₹5,400 adverse, reconciling to ₹6,200 adverse. Option a omits the price effect.

Where it goes wrong. Calculating only the material usage effect and ignoring the additional adverse price effect.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 15 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. Using the information in the preceding material problem, calculate the Material Mix Variance arising from the actual composition of 1,100 kg of A and 700 kg of B.

Using the information in the preceding material problem, calculate the Material Mix Variance arising from the actual composition of 1,100 kg of A and 700 kg of B.

1. ₹200 (F)
2. ₹1,400 (A)
3. ₹200 (A) (correct answer)
4. ₹5,400 (A)

Answer: C — ₹200 (A)

Explanation. Actual total input = 1,800 kg. RSQ in the standard 60:40 ratio is A 1,080 kg and B 720 kg. MMV = (1,080 − 1,100) × ₹30 + (720 − 700) × ₹20 = ₹600 A − ₹400 F = ₹200 adverse. Option b incorrectly uses an unrelated mix difference, while option d represents usage variance rather than mix variance.

Where it goes wrong. Using the standard quantities for actual output instead of the revised quantities calculated from actual total material input.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 16 · 2 marks · Chapter 13: Standard Costing · hard

Scenario. Standard labour-hours for a manufacturing order are 4,200 hours at ₹35 per hour. Actual employees were paid for 4,400 hours at ₹36 per hour, including 200 idle hours. Calculate the Labour Cost Variance.

Standard labour-hours for a manufacturing order are 4,200 hours at ₹35 per hour. Actual employees were paid for 4,400 hours at ₹36 per hour, including 200 idle hours. Calculate the Labour Cost Variance.

1. ₹4,400 (A)
2. ₹7,000 (A)
3. ₹4,000 (A)
4. ₹11,400 (A) (correct answer)

Answer: D — ₹11,400 (A)

Explanation. Standard labour cost = 4,200 × ₹35 = ₹1,47,000. Actual wages = 4,400 × ₹36 = ₹1,58,400. LCV = ₹1,47,000 − ₹1,58,400 = ₹11,400 adverse. Reconciliation: LRV = 4,400 × ₹1 = ₹4,400 adverse; idle time variance = 200 × ₹35 = ₹7,000 adverse; efficiency variance is nil because actual worked hours equal standard hours.

Where it goes wrong. Calculating labour cost variance only from excess productive hours and omitting the wage-rate and paid idle-time effects.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 17 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. A factory has a standard labour composition of Skilled, Semi-skilled and Unskilled workers in the ratio 2:3:1. The standard hours for actual production are 2,000, 3,000 and 1,000 respectively. Standard rates are ₹60, ₹40 and ₹20 per hour. Actual productive hours are 2,200 skilled, 2,800 semi-skilled and 1,000 unskilled hours. Calculate the Labour Efficiency Variance.

A factory has a standard labour composition of Skilled, Semi-skilled and Unskilled workers in the ratio 2:3:1. The standard hours for actual production are 2,000, 3,000 and 1,000 respectively. Standard rates are ₹60, ₹40 and ₹20 per hour. Actual productive hours are 2,200 skilled, 2,800 semi-skilled and 1,000 unskilled hours. Calculate the Labour Efficiency Variance.

1. ₹4,000 (A) (correct answer)
2. ₹4,000 (F)
3. ₹12,000 (A)
4. ₹8,000 (F)

Answer: A — ₹4,000 (A)

Explanation. Actual hours worked total 6,000 hours, exactly equal to total standard hours. Revised standard hours in the 2:3:1 ratio are 2,000, 3,000 and 1,000. Mix variance = (−200 × ₹60) + (200 × ₹40) = ₹4,000 adverse. Yield variance is nil because revised standard hours equal standard hours. Thus LEV = LMV + LYV = ₹4,000 adverse.

Where it goes wrong. Assuming that equal total standard and actual hours automatically produce zero efficiency variance without examining the difference in labour composition.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 18 · 2 marks · Chapter 13: Standard Costing · hard

Scenario. Budgeted variable overhead is ₹1,80,000 for 12,000 productive labour-hours. Actual productive hours are 11,600 and actual variable overhead expenditure is ₹1,78,000. Calculate the Variable Overhead Expenditure Variance.

Budgeted variable overhead is ₹1,80,000 for 12,000 productive labour-hours. Actual productive hours are 11,600 and actual variable overhead expenditure is ₹1,78,000. Calculate the Variable Overhead Expenditure Variance.

1. ₹4,000 (F)
2. ₹4,000 (A) (correct answer)
3. ₹6,000 (A)
4. ₹2,000 (F)

Answer: B — ₹4,000 (A)

Explanation. Standard variable overhead rate = ₹1,80,000 ÷ 12,000 = ₹15 per hour. Standard overhead for actual hours worked = 11,600 × ₹15 = ₹1,74,000. Expenditure variance = ₹1,74,000 − ₹1,78,000 = ₹4,000 adverse. Option c may result from applying an incorrect rate, while option a reverses the adverse direction.

Where it goes wrong. Using standard hours for actual output instead of actual productive hours when calculating expenditure variance.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 19 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. A factory budgets variable overheads of ₹1,80,000 for 10,000 machine-hours. Actual output requires 9,600 standard machine-hours. Actual variable overhead expenditure is ₹1,78,800. What is the Variable Overhead Cost Variance?

A factory budgets variable overheads of ₹1,80,000 for 10,000 machine-hours. Actual output requires 9,600 standard machine-hours. Actual variable overhead expenditure is ₹1,78,800. What is the Variable Overhead Cost Variance?

1. ₹6,000 (F)
2. ₹8,400 (A)
3. ₹6,000 (A) (correct answer)
4. ₹4,800 (A)

Answer: C — ₹6,000 (A)

Explanation. Standard variable overhead rate = ₹1,80,000 ÷ 10,000 = ₹18 per machine-hour. Standard variable overhead for actual production = 9,600 × ₹18 = ₹1,72,800. Variable overhead cost variance = ₹1,72,800 − ₹1,78,800 = ₹6,000 adverse. The expenditure is higher than the standard absorbed cost. Option d incorrectly uses a different quantity of hours.

Where it goes wrong. Comparing actual overhead expenditure with budgeted overhead instead of standard overhead for actual production.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 20 · 2 marks · Chapter 13: Standard Costing · hard

Scenario. The standard variable overhead rate is ₹12 per machine-hour. Standard machine-hours for actual output are 9,200 hours, while actual productive machine-hours are 9,400 hours. Determine the Variable Overhead Efficiency Variance.

The standard variable overhead rate is ₹12 per machine-hour. Standard machine-hours for actual output are 9,200 hours, while actual productive machine-hours are 9,400 hours. Determine the Variable Overhead Efficiency Variance.

1. ₹2,400 (F)
2. ₹2,000 (A)
3. ₹4,800 (A)
4. ₹2,400 (A) (correct answer)

Answer: D — ₹2,400 (A)

Explanation. Variable overhead efficiency variance = Standard rate × (Standard hours for actual output − Actual hours worked). Substituting ₹12 × (9,200 − 9,400) gives ₹12 × (−200) = ₹2,400 adverse. Actual machine-hours are higher than the standard allowance for the output achieved. Option a reverses the direction; option c doubles the relevant hour difference.

Where it goes wrong. Treating additional actual hours as favourable merely because more production time was utilised.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 21 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. A factory budgets fixed overheads of ₹1,50,000 for 10,000 machine-hours. Standard machine-hours for actual production are 9,400 hours. What amount of fixed overhead should be absorbed for actual production?

A factory budgets fixed overheads of ₹1,50,000 for 10,000 machine-hours. Standard machine-hours for actual production are 9,400 hours. What amount of fixed overhead should be absorbed for actual production?

1. ₹1,41,000 (correct answer)
2. ₹1,50,000
3. ₹1,62,000
4. ₹1,35,000

Answer: A — ₹1,41,000

Explanation. Standard fixed overhead rate = Budgeted fixed overhead ÷ Budgeted machine-hours = ₹1,50,000 ÷ 10,000 = ₹15 per hour. Absorbed overhead = Standard hours for actual production × Standard rate = 9,400 × ₹15 = ₹1,41,000. Option b is the budget, while option c would represent actual expenditure if such an amount were incurred.

Where it goes wrong. Applying the budgeted fixed overhead amount directly instead of calculating absorption on standard hours for actual production.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 22 · 2 marks · Chapter 13: Standard Costing · hard

Scenario. Budgeted fixed overheads are ₹2,00,000. Standard fixed overhead for actual production is ₹1,90,000, and actual fixed overhead incurred is ₹1,98,000. Calculate the Fixed Overhead Cost Variance.

Budgeted fixed overheads are ₹2,00,000. Standard fixed overhead for actual production is ₹1,90,000, and actual fixed overhead incurred is ₹1,98,000. Calculate the Fixed Overhead Cost Variance.

1. ₹10,000 (A)
2. ₹8,000 (A) (correct answer)
3. ₹2,000 (F)
4. ₹18,000 (A)

Answer: B — ₹8,000 (A)

Explanation. Fixed overhead cost variance = Absorbed fixed overhead − Actual fixed overhead = ₹1,90,000 − ₹1,98,000 = ₹8,000 adverse. Verification: Expenditure variance = ₹2,00,000 − ₹1,98,000 = ₹2,000 favourable. Volume variance = ₹1,90,000 − ₹2,00,000 = ₹10,000 adverse. Net effect = ₹8,000 adverse. Option d incorrectly adds both absolute components.

Where it goes wrong. Adding expenditure and volume variance magnitudes without considering that the expenditure variance is favourable.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 23 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. A factory operates 40 machines for eight hours per day over 25 budgeted working days. Budgeted fixed overhead is ₹1,60,000. During the actual period, it operated for 24 days and recorded 300 machine-hours per day. Calculate the revised Fixed Overhead Capacity Variance after accounting for the calendar difference.

A factory operates 40 machines for eight hours per day over 25 budgeted working days. Budgeted fixed overhead is ₹1,60,000. During the actual period, it operated for 24 days and recorded 300 machine-hours per day. Calculate the revised Fixed Overhead Capacity Variance after accounting for the calendar difference.

1. ₹16,000 (A)
2. ₹6,400 (A)
3. ₹9,600 (A) (correct answer)
4. ₹9,600 (F)

Answer: C — ₹9,600 (A)

Explanation. Original budgeted hours = 40 × 8 × 25 = 8,000 hours. Standard fixed overhead rate = ₹1,60,000 ÷ 8,000 = ₹20 per hour. Revised budgeted hours = 40 × 8 × 24 = 7,680. Actual hours = 300 × 24 = 7,200. Revised capacity variance = (7,200 − 7,680) × ₹20 = ₹9,600 adverse.

Where it goes wrong. Calculating capacity variance against the original budgeted hours despite the separate calendar adjustment.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 24 · 2 marks · Chapter 13: Standard Costing · hard

Scenario. The standard manufacturing cost for actual output is ₹12,00,000. The following net cost variances are reported: Material Cost Variance: ₹18,000 adverse. Labour Cost Variance: ₹9,000 favourable. Variable Overhead Cost Variance: ₹6,000 adverse. Fixed Overhead Cost Variance: ₹3,000 favourable. What is the actual manufacturing cost?

The standard manufacturing cost for actual output is ₹12,00,000. The following net cost variances are reported: Material Cost Variance: ₹18,000 adverse. Labour Cost Variance: ₹9,000 favourable. Variable Overhead Cost Variance: ₹6,000 adverse. Fixed Overhead Cost Variance: ₹3,000 favourable. What is the actual manufacturing cost?

1. ₹12,30,000
2. ₹12,06,000
3. ₹11,88,000
4. ₹12,12,000 (correct answer)

Answer: D — ₹12,12,000

Explanation. Net variance = ₹18,000 A − ₹9,000 F + ₹6,000 A − ₹3,000 F = ₹12,000 adverse. Actual manufacturing cost = Standard cost + Net adverse variance = ₹12,00,000 + ₹12,000 = ₹12,12,000. Option a incorrectly adds favourable variances instead of deducting them. The final figure represents total actual cost after all four cost elements are reconciled.

Where it goes wrong. Treating favourable cost variances as additional costs instead of deductions from standard cost.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)

Question 25 · 2 marks · Chapter 13: Standard Costing · medium

Scenario. The standard manufacturing cost for actual production is ₹4,80,000 and actual manufacturing cost is ₹5,05,000. Material Cost Variance is ₹12,000 adverse, Labour Cost Variance is ₹8,000 adverse and Variable Overhead Cost Variance is ₹3,000 favourable. Determine the Fixed Overhead Cost Variance.

The standard manufacturing cost for actual production is ₹4,80,000 and actual manufacturing cost is ₹5,05,000. Material Cost Variance is ₹12,000 adverse, Labour Cost Variance is ₹8,000 adverse and Variable Overhead Cost Variance is ₹3,000 favourable. Determine the Fixed Overhead Cost Variance.

1. ₹8,000 (A) (correct answer)
2. ₹5,000 (A)
3. ₹8,000 (F)
4. ₹14,000 (A)

Answer: A — ₹8,000 (A)

Explanation. Overall manufacturing cost variance = ₹5,05,000 − ₹4,80,000 = ₹25,000 adverse. Known net variances = ₹12,000 A + ₹8,000 A − ₹3,000 F = ₹17,000 adverse. Therefore, Fixed Overhead Cost Variance = ₹25,000 A − ₹17,000 A = ₹8,000 adverse. The missing component must make the total reconciliation equal ₹25,000 adverse.

Where it goes wrong. Subtracting the favourable variable overhead variance in the wrong direction while solving for the missing fixed overhead variance.

Authority. ICAI SM: Cost and Management Accounting, Chapter 13 (Standard Costing)