UNIT-IV

STANDARD COSTING & VARIANCE ANALYSIS

Meaning of Standard Cost and Standard Costing: Advantages, limitations
and applications; Variance Analysis-Material and Labour Variances only; Control
ratios

INTRODUCTION
Standard costing is one of the most important techniques of
management accounting and control. In this era of competition every
manufacturer wants that whereas on the one hand the quality of product
should be as per standards specified, on the other hand cost of production
should be well within control. Standard costing proves a useful tool in
achieving both these objectives.
MEANING OF STANDARD
The term 'Standard' refers to 'a specific measurement' or 'pre-
determined scale or measurement’. In the context of management
accounting 'standard' may be defined as measurable quantity of material,
labour and other elements of cost required in the production of pre-
determined quality, level or technical characteristics.
STANDARD COST: MEANING AND DEFINITIONS
Standard cost is a pre-determined cost, which is determined for the
production of goods on the basis of certain specified standards under
certain specific conditions. Some of its definitions are as follows:
"The standard cost is a pre-determined cost, which determines what
each product or service should cost under given circumstances."
-Brown and Howard
"Standard cost is defined as a pre-determined cost, which is
calculated from management's standards of efficient operation and the
relevant necessary expenditure. It may be used as a basis for price fixing
and for cost control through variance analysis”- C. M. A., London
STANDARD COSTING: MEANING AND DEFINITIONS
Standard costing is a process and technique of accounting in which
actual costs incurred are compared with pre-determined costs. On the basis
of comparison efficiency of operation is Standard costing is a process and
technique of accounting in which actual costs incurred determined and
necessary corrective measures are taken if there are some variances. Some
important definitions of standard costing are as follows:
"Standard costing is a technique of accounting which compares the
standard cost of each product or service with the actual costs, to determine
the efficiency of the operations so that any remedial action may be taken
immediately." -Brown and Howard
"Standard costing is the preparation and use of standard costs, their
comparison with actual costs and analysis of variances to show their cause
and points of incidence." -I. C. M. A., London

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ADVANTAGES OF STANDARD COSTING
The following are important merits of Standard Costing system
a) Simplification of Accounts: Standard Costing is very simple and
less complicated than Historical Costing. Once the standards are
established, the records can be simplified.
b) Facilitating Comparison: Standard Costing helps to compare the
cost of different products. It provides a basis for comparison between
one period and another period.
c) Economical: Standard Costing is an economical and simple means
of cost accounting and it saves the lot of expenses.
d) Helpful in Budgeting: Standard Costing are a kind of link which are
useful in budgeting.
e) Promoting Cost Efficiency: Standard costing makes all employees
cost conscious. Further analysis of variance helps to judge
manufacturing efficiency. It brings improvements in efficiency and
productivity in the organisation.
f) Delegation of Authority: Cost centres are established for which a
particular person is made responsible. Therefore, a manager can
easily delegate his authority to his subordinates.
g) Incentive Schemes: Standard costing provides the incentive
schemes, if actual result is contained within the standard.
h) Measuring operating performance: Standards set provide an
yardsticks against which actual costs are compared to efficiency or
inefficiency of actual performance.
i) Cost Reduction: Standard costing provides information, which is
helpful in cost reduction.
j) Faster Reporting: Standard costing permits faster reporting of
operating data. It also simplifies and improves the reporting of facts.
k) Formation of Price Policies: Standard costing helps the
management in the formulation of ideal production and price policy.
Cost and price can be fixed on a basis.
LIMITATIONS OF STANDARD COSTING
The following are important drawbacks of standard costing long-term
a) Complicated and Difficult: Setting Standard is not an easy task. At
the time of setting standards, personal liking also plays an important
role. There is a problem of keeping standards upto date. Exact
division of variances into controllable and uncontrollable variances is
also a difficult task.
b) Unsuitability: This system is not suitable for industries which
produce non-standardised products and which are likely to be
changed as per customer's requirements.
c) Expensive: Operation Standard Costing requires technical expertise.
It involves a lot of expenses. Small concerns may not be in a position
to bear the expenses involved in it.
d) Necessity of Budgetary control: Budgetary control is necessary
for the success of this system, which in itself is quite expensive.
e) Adverse effects: If Standard are fixed at a high level, it may
discourage the employees and may have adverse effects.

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APPLICATION OF THE TECHNIQUE OF STANDARD COSTING
Standard costing is not a method of costing just as process or job or
unit costing. It is a system or technique of cost accounting which can be
used in conjunction with process, job or operating costing without any
difficulty, whatsoever. Industries where standard costing is more suitable
can be categorised as under:
1. Process Industries: Where the method of production and nature of
output are the same. The examples of such industries are chemical
industries, distilleries, paper-making and metal processing etc.
2. Repetitive production: Industries where the methods of
manufacture are repetitive and products are more or less
homogeneous ex: agricultural and food products.
3. Service industries: Where operation costing is also applicable like
transport, gas and water, electricity etc.
4. Engineering and Textile Industries: Where large range of
products are manufactured.
5. Extraction Industries: Such as coal, oil and timber.
Where the work is not repetitive, e.g., construction work, contract
work, ship-building and erection work etc., it is difficult to set standards
and, therefore, standard costing would not be suitable. But in certain cases,
it can be applied partially though not fully, at least to some advantage of
the concerns.
VARIANCE ANALYSIS
Cost Variance-Difference between standard and actual is known as
variance. Cost variance is the "difference between a standard cost and the
comparable actual cost incurred during a period." C.I.M.A., London.
Variance analysis is the process of analysing variances by sub-dividing
the total variance in such a way that management can assign responsibility
for any off standard performance. According to C.I.M.A., London,
Terminology, variance analysis is "the process of computing the amount of
variance and isolating the causes of variance between actual and standard”.
An important aspect of variance analysis is the need to separate
controllable from uncontrollable variances. A detailed analysis of
controllable variances will help the management to identify the persons
responsible
FAVOURABLE AND UNFAVORABLE VARIANCES
Where the actual cost is less than standard cost, it is known as
'favourable' or 'credit' variance. On the other hand, where the actual cost
is more than standard cost, the difference is referred to as 'unfavourable',
'adverse' or 'debit' variance.
In other words, any variance that has a favourable effect on profit is
favourable variance and any variance which has an adverse or unfavourable
effect on profit is unfavourable variance.
Many students experience difficulty in ascertaining whether a
variance is favourable or adverse. In the formulae given, positive (+)
variance will indicate favourable variance and negative (-) variance will
indicate adverse variance. Favourable variances will be designated by (F)
and Adverse by (A).

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CONTROLLABLE AND UNCONTROLLABLE VARIANCES
If a variance can be regarded as the responsibility of a particular
person, with the result that his degree of efficiency can be reflected in its
size, then it is said to be a controllable variance. For example, excess usage
of material is usually the responsibility of the foreman concerned. However,
if the excessive usage is due to material being defective, the responsibility
may rest with the Inspection Department for non-detection of the defects.
If a variance arises due to certain factors beyond the control of
management, it is known as uncontrollable variance. For example, change
in the market prices of materials, general increase in the labour rates,
increase in the rates of power or insurance premium, etc. are not within
the control of the management of the company. Responsibility for
uncontrollable variances cannot be assigned to any person or department.
The division of variances into controllable and uncontrollable is
extremely important. The management should place more emphasis on
controllable variance as it is these variances which require investigation and
possibly corrective action. The uncontrollable variances, on the other hand,
may be ignored. This follows the well-known "principle of exception"
whereby those matters which are going right are ignored and any
deviations from efficient performance are investigated.
MATERIAL COST VARIANCE (MCV)
This is the difference between the standard cost of direct materials
specified for the output achieved and the actual cost of direct materials
used. The standard cost of materials is computed by multiplying the
standard price with the standard quantity and the actual cost is computed
by multiplying actual price with the actual quantity. It is calculated as;

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 Material Cost Variance (MCV)= Standard Cost for actual output-Actual Cost
Or
= (Standard Price X Standard Quantity) – (Actual Price X Actual Quantity)
The material cost variance may be further divided into price variance
and usage variance.
MATERIAL PRICE VARIANCE (MPV)
This is “that portion of the material cost variance which is due to the
difference between the standard price specified and the actual price paid”.
It is calculated by the following formula:
Material Price Variance (MPV)= (SP – AP) X AQ

Here; SP= Standard Price; AP= Actual Price; AQ= Actual Quantity
Thus, this is the difference between standard price and actual price
multiplied by actual quantity.
MATERIAL USAGE VARIANCE (MUV)
This is “that portion of the material cost variance which is due to the
difference between the standard quantity specified and the actual quantity
used”. It is calculated by the following formula:
Material Usage Variance (MUV)= (Standard Quantity for actual output-Actual
Quantity) X Standard Price
Or
= (SQ- AQ) X Standard Price (SP)
Thus, this is the difference between standard quantity and actual
quantity multiplied by the standard price.
Illustration 1
The standard cost card shows the following details relating to material
needed to produce 1 kg. of groundnut oil;
Quantity of groundnut required 3kg.
Price of groundnut Rs.2.50 per kg.
Actual production data:
Production during the month 1,000 kg.
Quantity of material used 3,500 kg.
Price of groundnut Rs.3 per kg.
Calculate; a. Material Cost Variance b. Material Price Variance and c.
Material Usage Variance.
(Ans. a. Rs.3,000 (A), b. Rs.1,750 (A) & c. Rs.1,250 (A))
Classification of Material Usage Variance
Material usage variance is further sub-divided into;
a. Material Mix Variance
b. Material Yield Variance (or Material Sub-Usage Variance)

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MATERIAL MIX VARIANCE (MMV)
This is sub-variance of material usage variance. It arises only where
more than one type of material is used for producing the finished product.
The material mix variance is defined as that portion of the material usage
variance which is due to the difference between standard and actual
composition of materials. It may arise in industries like chemicals, rubber,
etc., where a number of raw materials are mixed to produce a final product.
Change from the standard mix may be due to non-availability of one or
more components of the mix or due to non-purchase of materials at proper
time. Increase in the proportion of cheaper materials results in favourable
mix variance and vice versa, the use of more expensive materials in larger
proportion results in adverse variance. This variance is calculated with the
help of the following formula;

Material Mix Variance (MMV)= (Revised Standard Quantity-Actual

Quantity) X Standard Price
Or
= (RSQ- AQ) X SP
The revised standard quantity is nothing but the standard proportion
of total of actual quantities of all the materials. This is calculated as under;

RSQ= Standard Quantity of one material X Total of SQ of all materials

Total of Standard Quantities of all materials
MATERIAL SUB-USAGE (or Material Revised Usage) VARIANCE
This is a sub-variance of the material usage variance and represents
that portion of the material usage variance which is attributed to reasons
other than those which give rise to material mix variance. Thus, the
algebraic sum of this revised usage variance and material mix variance is
equal to material usage variance. Its formula is;

MRUV= (Standard Quantity- Revised Standard Quantity) X Standard Price

Or
= (SQ- RSQ) X SP
MATERIAL YIELD VARIANCE (MYV)
This is also a sub-usage variance of material usage variance. It arises
in process industries like chemicals, where loss of materials in production
is inevitable. While setting standards, the normal or standard loss is taken
into account. But actual loss may differ from normal or standard loss. This
results in actual yield or output being different from standard yield. Thus,
material yield variance is that portion of the material usage variance which
is due to the difference between standard yield specified and actual yield
obtained. The standard yield is the output expected to be obtained from
the actual usage of raw materials. It should be noted that yield variance
are used in standard costing is the same thing as abnormal loss or abnormal
gain in the other costing systems. Its formula is as follows;

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 Material Yield Variance (MYV)= (Actual Yield-Standard Yield) X Standard
Output Price
Or
= (AY- SY) X SOP
Standard Output Price (SOP) is the standard material cost per unit of
output.
Illustration 2
The standard mix to produce one unit of product is as follows;
Material A 60 units @ Rs.15 per unit = 900
Material B 80 units @ Rs.20 per unit = 1,600
Material C 100 units @ Rs.25 per unit = 2,500
240 units 5,000
During the month of July, 10 units were actually produced and consumption
was as follows;
Material A 640 units @ Rs.17.50 per unit = 11,200
Material B 950 units @ Rs.18.00 per unit = 17,100
Material C 870 units @ Rs.27.50 per unit = 23,925
2460 units 52,225
Calculate all material variances
(Ans. a. MCV-Rs.2,225 (A); b. MPV-Rs.1,875 (A); c. MUV-Rs.350(A); d.
MMV-Rs.900 (F); e. MYV-Rs.1,250 (A))

LABOUR VARIANCES
The analysis and computation of labour variances is quite similar to
material variances.
LABOUR COST VARIANCE (LCV)
This is the difference between the standard direct labour cost
specified for the activity achieved and the actual direct labour cost incurred.
It is calculated as under;

Labour Cost Variance (LCV)= Standard Labour cost of actual output-Actual

labour Cost
Or
= (SHXSR)-(AHXAR)
The labour cost variance may be further divided into rate variance and
time variance.
Here;
SH= Standard Hours for Actual output; SR= Standard Rate per hour;
AH= Actual Hours; AR= Actual Rate per hour
LABOUR RATE VARIANCE (LRV)
This is “that portion of the labour cost variance which is due to the
difference between the standard rate specified and the actual rate paid”. It
is calculated by the following formula:
Labour Rate Variance (LRV)= (SR-AR) X AH

Thus, this is the difference between standard and actual rates of

wages, multiplied by actual hours.
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LABOUR TIME OR EFFICIENCY VARIANCE (LTV)
This is “that portion of the labour cost variance which is due to the
difference between the standard labour hours specified for actual output
and the actual labour hours expended”. This variance is calculated as
follows:
Labour Efficiency Variance (LEV)= (Standard Hours for actual output-Actual
Hours) X Standard Rate
Or
= (SH- AH) X Standard Rate (SR)
Thus, this is the difference between standard and actual time valued
at standard rate.
Illustration 3
The following information is given:
Standard hours per unit 15
Standard rate Rs.4 per hour
Actual data:
Actual production 1,000 units
Actual hours 15,300 hours
Actual rate Rs.3.90 per hour
Calculate labour cost variance.
(Ans. a. Rs.330 (F); b. Rs.1,530 (F); c. Rs.1,200 (A))
Classification of labour Efficiency Variance
Labour efficiency variance is further divided into the following sub-
variances.
a. Idle Time Variance
b. Labour Mix Variance
c. Labour Yield Variance (or Labour Revised-Efficiency Variance)
IDLE TIME VARIANCE (ITV)
This variance represents that portion of the labour efficiency variance
which is due to abnormal idle time, such as time lost due to machine break-
down, power failure, strike etc. it is calculated by valuing idle hours at
standard rate. Thus:

Idle Time Variance (ITV)= Idle Hours X Standard Rate

Or
= IH X SR
As Idle hours represent a loss, idle time variance is always unfavourable.
Some accountants do not treat Idle Time Variance as a part of labour
efficiency variance but treat it as a part of labour cost variance.
LABOUR MIX VARIANCE (GANG COMPOSITION VARIANCE)
This variance is similar to material mix variance. It arises only when
more than one grade of workers are employed and the composition of

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actual grade of workers differ from those specified. It is calculated with the
help of following formula;

Labour Mix Variance= (Revised Standard Hours-Actual Hours) X Standard

Rate
Or
= (RSH-AH) X SR
Illustration 4
Manu India Ltd., manufactures a particular product, the standard
direct labour cost of which is Rs.120 per unit whose manufacture involves
the following:

Grade of Workers Hours Rate Amount

(Rs.) (Rs.)
A 30 2 60
B 20 3 60
50 120
During a period, 100 units of the product were produced, the actual
labour cost of which was as follows:

Grade of Workers Hours Rate Amount

(Rs.) (Rs.)
A 3,200 1.50 4,800
B 1,900 4.00 7,600
5,100 12,400
Calculate (a) Labour Cost Variance; (b) Labour Rate Variance; (c) Labour
Efficiency Variance; (d) Labour Mix Variance
(Ans. a. Rs.400 (A); b. Rs.300 (A); c. Rs.100 (A); d. Rs.140 (F))
LABOUR REVISED EFFICIENCY VARIANCE (LREV)
This is also known as Labour Sub-efficiency Variance. This is similar
to material revised usage variance and is a sub-variance of labour efficiency
variance. It arises due to factors other than those which give rise to idle
time variance and labour mix variance. Thus, this is a residue of labour
efficiency variance left after idle time and mix variance have been
separated. Its formula is;

LREV= (Standard hours for actual output-Revised Standard hours) X

Standard Rate
Or
LREV = (SH -RSH) X SR
LABOUR YIELD VARIANCE (LYV)
This is quite similar to Material Yield Variance. This variance reveals
the effect on labour cost of actual output or yield being more or less than
the standard yield. Its formula is;

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Labour Yield Variance= (Actual Yield-Standard Yield from actual input) X
Standard Labour cost per unit of output

Illustration 5
The standard labour employment and the actual labour engaged in a
week for a job are as under:
Skilled Semi-skilled Unskilled
workers workers workers
Standard no. of workers in the gang 32 12 6
Actual no. of workers employed 28 18 4
Standard wage rate per hour 3 2 1
Actual wage rate per hour 4 3 2
During the 40 hours working week, the gang produced 1,800 standard
labour hours of work. Calculate:
a. Labour Cost Variance
b. Labour Rate Variance
c. Labour Efficiency Variance
d. Labour Mix Variance
e. Labour Yield Variance
(Ans. a. Rs.2,424 (A); b. Rs.2,000 (A); c. Rs.424 (A); d. Rs.80 (F); e.
Rs.504 (A))

CONTROL RATIOS

In addition to variances, certain control ratios are commonly used by

management for use in controlling operations. These ratios are generally
expressed in terms of percentage. If the ratio is 100% or more, it indicates
a favourable position and versa, if the ratio is less than 100%, it indicates
unfavourable position. Three important control ratios are given below;
1. Efficiency Ratio
It is defined as “the standard hours equivalent to the work produced
expressed as a percentage of actual hours spent in production”. Thus, this
ratio shows whether actual time taken in production is more or less than
the time allowed by the standard. Its method of calculation is:

Efficiency Ratio= Standard hours for actual output X 100

Actual hours worked
2. Activity Ratio
It is defined as “the standard hours equivalent to the work produced,
expressed as percentage of budgeted standard hours”. This ratio shows the
extent to which the production facilities have been utilized as compared
with that contemplated in budgets. Its formula is:

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 Activity Ratio= Standard hours for actual output X 100
Budgetary hours

3. Capacity Ratio
It shows the relationship between actual hours worked and the
budgeted hours. Its formula is:

Capacity Ratio= Actual hours for worked X 100

Budgetary hours

4. Calendar Ratio
Sometimes calendar ratio is also calculated. This ratio indicates the
extent of actual working days availed during the budget period. It is
calculated by using the following formula:

Calendar Ratio= Actual working days in the budget period X 100

Budgetary working days in the budget period

Illustration 6
Two articles A and B are manufactured in a department of XYZ Co.
Ltd. Their specifications show that 2 units of A and 8 units of B can be
produced in one hour. The budgeted production for a month is 400 units of
A and 1,600 units of B. Actual production during the month is 600 units of
A and 2,000 units of B. Actual hours spent in production were 480. There
were 25 working days specified in the budget. However, actually worked
days were 26 during the month. You are required to calculate the following
ratios:
a. Activity Ratio b. Capacity Ratio; c. Efficiency Ratio and d. Calendar
Ratio
(Ans. a. 137.50%; b.120%; c.114.58%; d.104%)

PRACTICAL PROBLEMS

Problem 1
The standard cost of a chemical mixture is as follows:
40% material A at Rs.20/- per kg
60% material B at Rs.30/- per kg
A standard loss of 10% of input is expected in production. The cost records
for a period showed the following usage:
90 kg material A at a cost of Rs.18/- per kg
110 kg material B at a cost of Rs.34/- per kg
The quantity produced was 182 kg of good product. Calculate all material
variances.
(Ans. a. Rs.102.22 (A); b. Rs.260 (A); c. Rs. 157.78 (F); d. Rs. 100
(F); e. 57.78 (F))

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Problem 2
The standard material cost to produce one tonne of chemical X is:
300 kg. of material A @ Rs.10/- per kg.
400 kg. of material B @ Rs.5/- per kg.
500 kg. of material C @ Rs.6/- per kg.
During a period, 100 tonnes of chemical X were produced from the usage
of:
35 tonnes of material A at a cost of Rs.9,000/- per tonne
42 tonnes of material B at a cost of Rs.6,000/- per tonne
53 tonnes of material C at a cost of Rs.7,000/- per tonne
Calculate all material variances.
(Ans. a. Rs.1,38,000(A); b. Rs.60,000 (A); c. Rs. 78,000 (A); d.
Rs. 11,333 (A); e. 66,667 (A))
Problem 3
The standard material cost for production of 100 kg. of chemical D is
made up of:
Chemical A 30 kg. @ Rs.4.00/- per kg.
Chemical B 40 kg. @ Rs.5.00/- per kg.
Chemical C 80 kg. @ Rs.6.00/- per kg.
In a batch, 500 kg. of chemical D was produced from a mix of:
Chemical A 140 kg at a cost of Rs.588/-
Chemical B 220 kg at a cost of Rs.1,056/-
Chemical C 440 kg at a cost of Rs.2,860/-
How do the yield, mix and the price factors contribute to the variance in
the actual cost per 100 per kg. of Chemical D over the standard cost?
(Ans. a. Rs.100.80 (A); b. Rs.40.80 (A); c. Rs. 60 (A); d. Rs. 6.67
(A); e. 53.33 (A))
Problem 4
The standard material input required for 1,000 kgs of a finished product
are given below;
Material Quantity (Kg) St. rate per kg. (Rs.)
P 450 20
Q 400 40
R 250 60
1,100
Standard loss 100
Standard output 1,000

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Actual production in a period was 20,000 kg. of finished product for which
the actual quantities of material used and the prices paid thereof were as
under:
Material Quantity (Kg) St. rate per kg. (Rs.)
P 10,000 19
Q 8,500 42
R 4,500 65
Calculate (a) Material Cost Variance (b) Material Price Variance (c) Material
Usage Variance (d) Material Mix Variance (e) Material Yield Variance.
Present a reconciliation among the variances.
(Ans. a. Rs.39,500 (A); b. Rs.29,500 (A); c. Rs. 10,000 (A); d. Rs.
26,363 (F); e. 36,363 (A))
Problem 5
The standard cost of a certain chemical mixture is:
35% material A at Rs.25/- per kg.
65% material B at Rs.36/- per kg.
A standard loss of 5% is expected in production. During a period there
is used:
125 kg. of material A at Rs.27/- per kg., and
275 kg. of material B at Rs.34/- per kg.
The actual output was 365 kg.
Calculate (a) Material Cost Variance (b) Material Price Variance (c) Material
Mix Variance (d) Material Yield Variance.
(Ans. a. Rs.372.97 (A); b. Rs.300 (F); c. Rs.165 (A); d. Rs.507.97 (A))

Problem 6 (LABOUR VARIANCES)

From the following, calculate labour variances for department A and B.
Particulars Depart A Depart B
Actual direct wages 2,000 1,800
Standard hours produced 8,000 6,000
Standard rate per hour 0.30 0.35
Actual hours worked 8,200 5,800
(Ans. a. 700 (F); b. Rs.690 (F); c. Rs. 10 (F))

Problem 7
The details regarding the composition and the weekly wage rates of
labour force engaged on a job scheduled to be completed in 30 weeks are
as follows:

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 Category of workers Standard Standard
No. of Weekly wage No. of Weekly
workers rate per workers wage rate
worker (Rs.) per worker
Skilled 75 60 70 70
Semi-skilled 45 40 30 50
Unskilled 60 30 80 20
The work is actually completed in 32 weeks. Calculate the all labour
variances.
(Ans. a. Rs.13,000 (A); b. Rs.6,400 (A); c. Rs.6,600 (A); d. Rs. 9,600
(F); e. Rs.16,200 (A))
Problem 8
A group of 10 skilled and 20 unskilled workers were expected to
produce 400 kg of Chemical BXT in an 8 hour day. The standard hourly
wage rate was fixed at Rs. 25/- and Rs.15/- respectively. Actually, a group
of 15 skilled and 10 unskilled workers was deployed and paid for 8 hour
day at an hourly wage rate of Rs.22/- and Rs.18/- respectively. Two hours
were wasted for the entire group due to power failure and only 300 kg of
BXT was produced.
You are required to compute: (a) Labour Cost Variance (b) Labour Rate
Variance (c) Idle Time Variance (d) Labour Usage Variance (e) Labour Mix
Variance (f) Labour Yield Variance.
(Ans. a. Rs.780 (A); b. Rs.120 (F); c. Rs. 1,050 (A); d. Rs.900 (A);
e. Rs. 400 (A); e. Rs.550 (F))
Problem 9 (Control Ratios)
Insilco. Ltd. Produces two commodities, Good and Better, in one of
its departments. Each unit takes 5 hours and 10 hours as production time
respectively. 1,000 units of Good and 600 units of Better were produced
during March. Actual man-hours spent in this production were 10,000.
Yearly budgeted hours are 96,000. Compute the various control ratios.
(Ans. a. 110%; b. 137.50%; c. 125%)
Problem 10
Calculate (a) Efficiency Ratio; (b) Activity Ratio, and (c) Capacity Ratio
from the following figures:
Budgeted production 88 units
Standard hours per unit 10
Actual production 75 units
Actual working hours 600
(Ans. a. 125%; b. 85.23%; c. 68.18%)

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