5.14.

VARIANCE ANALYSIS
5.14.1. Meaning and Detinition of
Variance is the difference between actual costs and Variance Analysis
standard costs
variation actual results with planned results, Variance
of during an accounting period. t refers to
analysis is a systematic process which analyses and
interprets the variances. It refers to the break-down of the total
variances into different components.
According to
and actual costsTerminology of CIMA, Variance is The difference
(similarly in respect of revenue)". between planned, budgeted or standard cost
Sometimes actual results are just equal to planned results, the
situation is known as Zero Variance.
According to C.I.M.A. London, Terminology, Variance analysis is "The
variance and isolating the causes of variance between actual and process of computing the arnount of
standard".
Asystematic analysis of variances would help
managers to improve performance by continuing activities that
result in favourable variances and modifying other
activities to eliminate or reduce unfavourable variances.
Thus, it helps in monitoring and improving performance. In
employs the principles of exception. making the variance evaluation, management ofen
Management pays less attention on such variances that indicate insignificant deviations and concentrate unon
those that demand detailed investigation and corrective action.

S.14.2. Use/Applications of Variance Analysis

t must be remembered that mere calculation of variances is not sufficient but their proper analysis and
Out the reasons for the variances is the ultimate object to control costs. The following are the important fnding
uses of
variance analysis:
) tisa main tool of cost control and cost reduction.
Management by exception is possible by this analysis.
thelps in making the future planning programmes.
Acostconsciousness is created within the organisation.
helps the management to maximise profits by analysing the variances into controllable and uncontrollable.
) Through variances analysis, inefficiency is analysed and immediate action is taken by management. Thus, it
Can be said that variance works like a barometer.
 5.14.3. Forms of Variances
Normally, variance can take two forns, namely: standard costs. The varine
I) Adverse/Negative/Unfavourable Aduereedetunl costs excecds the
Is saidt be r negative (-)or
to e (Adv) or Unfavourable (Unf) ifit indicates a loss.
) le to costs, we would incur a loss if the actual cost is greater than the standard cost.
or income is less than the
) n relation to profits or incomes, we would incur a loss if the actual profit
stndard

hn type of variance is indicated by either a neative sign (placed before the value of the variance or by
writing the letters UF or Unf or Adv after the value.

2) PositiveFavourable Variance: When actual costs are less than the standard costs. The variance is said to
be eithet Positive (+/Pos) or Favourable (Fav) if it indicates a gain position or beneficial position.
) In relation to costs, we would gain if the actual cost is less than the standard cost.
) In relation to profits or incomes, we would gain if the actual profit or income is greater than the
standard

5.14.4. Classifieation of Variances

Ihe computation and analysis of variances is the main objective of Standard Costing. The variance is the
dilference between the standard performance and the actual performance. Where variances recorded are
unfavourable, the concerned departmental head is held responsible for it. and he is asked to take corrective
action nto the matter.

For adverse Material Price Variance, the Purchase Manajger is sounded; and similarly, for Material Usage
Variance, thc Protuction Manager is asked for a control over the same.

For the purpse of classification and coniputation variances can be explained under the following headings as
shown i figure be low:
Total Ct Varianees

Matcral cont
artanE
Labour cost
variance

Material Malerial Labour Labsiut

rate ctticiency
vatiace ariance variance variance

taterial Mterial Labour Labour Labour

Yicld
mii dle time
eiace riaxe
VArince Variance Variance

Matrial Hb
uNae variance

5.14.5. Material Cost Variance

Morisl cost variance (MCV)s The ditlerence between the standard coss of materials
t of euterials uscd t is tie otal variance causeo by he specified and the achual
dothet catses
variatons in prices of materials usave ce mix
yicld and
odins to Terminology ofCIIA defiucs Matcral Cost Variance as "Ihe difference between he Ad
is cost ef the actual prdactkon volume and the actual cost of direet materiai"
 Material Cost Variance

Materials Price Materials Usage Variance

Variance
Materials Yicld
Materials Mix
Variance Variance

Material cost variance is ascertained as such:

aterials Cost Variance = Standard Material Cost - Actual Material Cost
Sandard Material Cost = Standard Price per unit x Standard quantity of materals
Actual Material Cost =Actual price per unit x Actual quantity of materials
favourable, and on the other hand, if the
If the standard cost is more than the actual cost, the variance will be
adverse.
sctual cost is more than the standard cost, the variance will be unfavourable or
5.14.5.1. Material Price Variance
standard price and the actual price of the material is the Material Price Variance. This varnance
Diflerence between
arises due to various factors, such as:
|) Change in market price.
2) Uneconomical size of purchase order.
facilities.
3) Not availing of discount
4) Payment of more/less freight, cartage charges ctc.
S) Transit loss, if borne by the purchaser.
6) Change in duties and taxes, etc.

Material price variance is stated as:

Actual Quantity (Standard Price - Actual Price)
Materials Price Variance =
Variance the Material Usage Variance.
This
S.14.5.2. Material Usage material and actual quantity used is
Difference between standard quantity of
variance arises due to:
Economic/ineflicient use of materials,
I)
2) Use of substitutes,
of materials,
3) High/less wastage specifications of product,
or
4) Changes in designs and tools,
5) Defective equipments
materials,
6) Use of inferior material mixture,
composition of
) Change in material more/less, etc.
8) Yield from usage may be
but may not always be advantageous. For example, would increase
advantageous slow. This
variance is purpose the labour may start working
Afavourable usage wastage and for that
improved by reducing
labour cost.
calculated as follows:
vaariance is Price (Standard Quantity -Actual
Quantity)
Materials usage Variance =
Standard
Materials Usage
 be sub-divided into:
The material usage variance may further
Material Mix Variance
between standard price of standard mix and standard price of actual
Materials mix variance is the difference
variance.
mix. The standard price is used in calculating this
The variance is calculated under two situations:
Equal
1) Whea Actual Weight and Standard Weight of Mix are
In this case the formula for calculating mix variance is:
=Standard cost of standard mix Standard cost actual mix.
=(Standard Price x Standard Quantity)-(Standard
Pricex Actual Quantity)

or, Standard unit cost (Standard Quantity-Actual Quantity)

material, the formula will be:
In case standard quantity is revised due to shortage of one
=Standard unit cost (Revised Standard Quantity - Actual Quantity).
2) When Actual Weight and Standard Weight of Mix are Different
When quantities of actual material mix and standard material mix are different, the formula will be:
Total Weight of
Actual mix (Standard cost
x Standard cost ofStandard mix
Total Weight of (of actual mix
Standard mix

In case the standard is revised due to the shortage of one material then revised standard will be used instead
of standard, and hence the formula will become:
Total Weight of
Actual mix Standard cost of Standard cost
Total Weight of Revised Standard mix
of actual mix
Revised Standard mix
Materials Yield Variance
This is the sub-variance of material usage variance. It results from the difference between
standard yield. A standard output is expected from the raw actual yield and
less than the specified standard. materials put in. The actual yield may be more or
Materials yield variance is defined as "that portions of the direct
standard yield specified and the actual yield obtained". materials usage variance which is due to the
Material Yield Variance =Standard Rate (Actual
Standard Rate is calculated as follows:
Yield-Standard Yield)
Standard Rate = Standard Cost of Standard mix
Net standard output i.e., Gross
output -
Standard loss
There may be a situation where standard mix
revised in relation to actual mix añd may be different from the actual
mfx. In this case the standaro
standard. The standard rate will be the question is solved with the
revised standard and1 not with the origína!
calculated as follows:
Standard Rate=ndard Costof Revised Standard mix
Net standard output
In the earlier varinnces if the stnndard W* more
will
materialyicld Variance the case is difleent When ual yeld i me han he tantal
yild, e vaian
be favourable

Relationship
Material Pricc Varinnce +Material Usaye Vaianve -Material Cot Varian
) Material Mix Variance Material Sulh pe or yleld VariaceMateial Usage Vrine
3) Materinl Price Variance +Material Mix Vaiae Malial l unaga VarinMalelal Cot Variae
Malerial Usage Varinnce- Material Mix Variene- Material Nul unnge (o, Yiell) Varine
Abbreviations Used
SQ Standard Quantity or Usnge
SP Standard Price
Actual Usnge
AQ
AP ctual b y or
SH Standard Hours
SR Standard Rate
AH Actual Hours
AR Actual Rnte
F Favouratble
U
or A Unfavouable or Adverse
material variances:
Example 58: From the following data calculate various
Aetual
Sandard
Quantity (unita) Prke per unit
Materials Quantity (units) Priee per unlt 1.50
8 00 00
80
L00
4.00
B
170
150

(Quantity Actual Prlce)

Solution:
Variance: (Standard Quantity x Standurd Priee)-(Aetual
i) Material Cost -(80 ) (00 7.50)- 640 675-Us(A)
Material A
-(703)(80 4(00) - 210 320-I10(A)
Material B -145 (A)
Material Cot Variance
Price)
Variance: Actual Quantity (Standard PrHee-Atual
ii) Material Price -90 (800 7,50) -0 (050)- 5 )
MaterialA
-8O 0.00400)- 80 (1.00)-80 (A)
MaterialB
Material Price Variance
-OS(A)

Priee (Standard Quantity- Atual Quantity)

Usage Variance: Standard (A)
i) Material -8 (80 90) -W 10)-K0 10(A)
MaterialA -3(70- HO)-3(10) -
Material B -i10 (A)
Material Usnge Variance
varianco
calculnte (n) Materinl cost vnrlance, (b) Malerial usnge
following infornmation
the X and Y.
Example 59: From
variance, separately for Atusl Quantity Actual Prtee
(c)Material price
Material
Standard Prlee
Standard Quantity ()
(Ky)
12 375
(Kg). 450
10
X 15 30
Y 25
 Material C$4002S-030)-$40(-0 0S) -4(A)
Marvial i e VariaNe -26 (A)
n) Material Mii Variance
There is a diterene bween standard quantity (240) and actual quantity (2,440), so the standarde
eVisad first.

Revisnd staniard quantity willbe:

A 2440-6l0; B= -x2,440 =$13(4pprox
240

2,440 - 1,017 (apprr)

40

Material Mit Variance- Standard Price (Reised Standard Quantity- Actual Quantity)
Material A: 1SP. (610-640) -0.15(-30) - 4.50 (A)
Matcrial B 20 P.(313- 960) -0.20-147) -N40 (A)
Matcrial C 25 P. (1017-$40) -0.2S (177) -4425(E)
Matrial Mix Varianoe -t1035 (F)

in) Materil Yid Variance Standard Rate (Actual Yield - Standard Yicld)
Standard Cost of Standard mix
S and Rate =
Stan dard output
Stantand Yick l0 2440- 101.67 units
240
Yickd Variance S(90 101.67)-5S.35 (A)
Verification:
a) Material CostVariance Material Price Variance+ Material Usage Variance
or,-74=-26-48 74 (A)
b) Material U'sage Variance -Material Mix Variance + Material Yield Variance
, - 48 - 10.35- SS.35 = 4S (A)
Eumple : From the following infomation, compute (a) mix, (b) Price and (c) usage variance
Standard Actual
Materials Quantity Uait Prie Total Quantity Uait Price Total
(Kiks) (Kiks)
Material A 10 2 20 3
Material B 20 3 10
Material C 20 60
120 1S
75
Total S0 200 30
1s0
Solution:
) Material Cost Variance (Standard Quantity for Actual Production x
Quantity x Actual Price) Staadard Price) -(Actual
Material A (10 x2)-(5 3)
Material B
s (F)
-(20x3)-(10 x6) Nil
Matcrial C -(20 x6)-((5 x S)
Total Material Cost Variance 45 (F)
{S0 (F)
 x Actual Price)
Standard Price) - (Actual Quantity
Selution: Quantity
Matrial Cost Variance (Standard 4)-(123.75)- 740-45 5(A)
) (10 5 - 1 6(A)
fMaterial X 5)-(18 450)
-15
Material Y |1A)
Variance
Total Material Cost
Actual Quantity) Standard Price
Variance (Standard Quantity-
i) Material Usage (10- 2) * 4
28 (A)
Material X
(15- 18) 5 15 (A)
Material Y 23 (A)
Total Material Usage Variance
Quantity
Material Price Variance - (Standard Price - Actual Price) Actual
i) 3.00 (F)
Material X -(4-3.75) 12
Material Y -(5-450) 18 29.00 (F)
12.00(F)
Total Material Usage Variance
variance, the material usage variance and
Example 60: From the data given below, calculate the material price
material mix variance.

Raw Material Standard Actual

A 40 units a (50 per unit 50 units @50 per unit
B 60 units a 140 per unit 60 units @ 4S per unit

Solution:
i) Material Price Variance = (Standard Price- Actual Price) x Actual Quantity
Raw Material A (50 - 50)º 50 Nil
Raw Material B (40-45) x 60 -300 (A)
Total Material Price Variance -300(A)
ii) Material Mix Variance = (Revised Standard Proportion of Actual
Standard Price
Input- Actual Proportion ) x
(See working notes for revised standard proportion of actual
Raw Material A(44-50) x S0 input)
Raw Material B (66 60) x 40 =300 (A)
- 240 (F)
Total Material Mix Variance
ii) Z60 (A)
Material Usage Variance = (Standard
Quantity- Actual Quantity) x Standard Price
Material A(40-50) ×50
Material B- (60- 60) x40 500 (A)
Total Material Usage Variance Nil

Note: In this question material usage Z500(A)

from material sub-usage variance. variance, as required by problem, has been calculated which is difteren
Working Notes:
Revised standard proportion of actual
Standard mix input
Total Standard input.-xTotal actual input
40
Material A= -x110 =44 units
100
60
Material B -x1 10 66 units
100
 Matertal Free Variace (Sadd re Actsal FrkAl
MaraiA
MateriatB A

Maleriai C
Tal Meerial Prxe Vei
Material Mis Vartance (Reitd Staedard Frscartse f Ae le A Fg
Stendard Price

To calkulate material mi variace, kis necevary eompe rewd a t

input

Revised Standard Propertion will be cakulsted the tasis of b f a

Standard Proportion Actual Inpt
Total StandardQuantity
Material A
50 30-6 kg
Material B30-
50
12 kg
Material C 20 30- 12 kg
50

The following formula is used to calcutate mix variance

Material A (6-5) 2
Material B -(12- 10))
Material C -(12-15)6Is(A)
Total Material Mix Variance
Staaderd
iv) Material Sub-usage Variance (Standard Quantity - Revised Standard Prupurtiaa)
Price
Material A (10-6)2
Material B -(20- 12)3 - 24()
Material C -(20- 12)*6
Total Material Sub-uuge Variance
Sasdard Pke
(or Quantity) Variance =(Standard Quantity - Actwal Otput)
) Material Usage
MaterialA (10-5)* 2
MaterialB -(20-10) )
Material C -(20-15) 6
(70()
Total Material Usage Variance
the sum of material mi varias e and natwial
u sge
Quantity variance is
Note: Material Usage or

Therefore, Material Sub-Usge Vwiane- Malerial uge Viane

Variance +
Material I Mix 70 (F)
Tio(A)+ t80( F)
Euople 61: CaBculate material mix variance from the data given as such:
Standard Actual
Materials Ouantity (units) Price per unit Quantity (units) Price per unit
A 50 2.00 60 2.25
100 1.20 90 1.75

Due to the shortage of material A, the use of material Awas reduced by 10% and that of material Bincreased
by 5%.
Solution: In this question the standards will be revised. Revised standards yill be:
MaterialA=50-(50 x 10/100) =45
MaterialB= 100 + (100 x 5/100) = 105
Material Mix Variance -Standard Price (Revised Standard
Quantity - Actual Quantity)
Material A -2(45- 60) =2(-15) -30 (A)
MaterialB - 1.20(105-90) 1.20(15) =|8 (F)
Material Mix Variance = 12 (A)

Example 62: The standard mix of a product is as under:

79
A 60 units at 15 P. per unit
B 80 units at 20 P. per unit R16
25
C 100 units at 25 P. per unit
50
|240 Units
mix.
Ten units of finished product should be obtained from the above nmentioncd
completed and the consumption was as follows:
During the month of January, 2012 ten mixes were
640 units at 20 P. per unit R128
A R144
960 units at15 P. per unit
252
840 units at 30 P. per unit
2440 Units 524

The actual output was 90 units.

Calculate various material variances.
Solution: Cost- Actual Cost
Material Cost Variance = Standard
)
Units = 50 x 10=500
Standard cost for l00
so standard cost will be adjusted accordingly.
Actual yield is 90 units,
actual yield x 90 =450
Standard cost for 100

= Standard Cost- Actual Cost

Material Cost Variance =450 -524 =74 (A)
Quantity (Standard Price - Actual Price)
Variance= Actual =32 (A)
) Material Price (0.15 -0.20) =640 (-0.05) =48 (F)
Material A= 640 (0.20-0.15) =960(0.05)
Material B=960
 5.14.6. Labour Cost Variance
Lahour Cost Variance (LCV) is similar to those calculated in the case of Material Cost and thus these can casly
cakulated by apply ing the same fornulae and techniquCs as were used in the computation of material cost
be
Variances.

(units) of production, the difference betwcen Actual Lahour cost and Standard Labour Cos
For a gien quantity
is known as labour cost variance.

According to Terminology of CIMA defines Direct Labour Cost Variance as "The difference betwcen the
standard direct labour cost andactual direct labour cost incurred for the production achieved".
Labour Cost Variance

Labour Rate Labour Efciency

Variance Variance

Labour ldle Labour Mix Labour Yicld

Time Variance Variance Variance
In the form of formula:
LCV= Standard Cost- Actual Cost
i.e., (Standard hours x Standard rate) - (Actual hours x Actual rate)

When the actual output differs from standard output, standard labour cost of actual output is to be worked out
and then the following formula is applied:

LCV= Standard Cost of Actual Production - Actual Cost

5.14.6.1. Labour Rate of Pay or Wage Rate Variance
Labour Rate Variance is "that portion of the wages variance which is due to the difference between the
rate specified and the actual rate paid". It is the responsibility of the Personnel standard
similar to materials price variance. Both the material price and labour rate variancesDepartment. This variance is
measure price differences.
Labour Rate of Pay variance = Actual time (Standard Rate Actual Rate)
The variance will be favourable if actual rate is less than the
if actual rate is more than the standard rate. standard rate and it will be unfavourable or adverse
5.14.6.2. Labour Efficiency or Labour Time Variance
It is that part of labour cost variance which arises due to
the difference between standard labour hours
and the actual labour hours spent. specified
Labour efficiency variance is calculated as follows:
Labour Efficiency Variance = Standard Wage Rate
(Standard Time - Actual Time)
If actual time taken for doing a work is
On the other hand, if actual time taken formore than the specified standard time, the variance will be
a job is less than the standard time, unfavourable.
the variance will be favourable.
Idle Time Variance
This variance is a sub-variance of
labour efficiency variance. It is the standard cost of
workers for which they have not worked due to abnormal reasons. The reasons actual time paid to
failure, defect in machinery, non-supply of materials, for idle time may be power
etc. This variance is calculated as follows:
LITY= Standard Rate (Actual Hours Paid Actual Hours
worked)
LITV= Standard Rate x Actual Hours of Idle time
 iang

caleulated u wo w
ollows

vev0sed standad wil be l ottad i bma wil e:

MiN

as follows
Toal ae ot Aual
Labou Mi blanddnf
Iotal Tne of tilandad ant at M

then revised blaidard will b ed tead o tand mle nd he mna will erome
Total lune if Actual
labuur kMi (tandadttof

Standar |abou

Ialour Vleld Variance vtianea n derteeie per eontel

The e n E
e ofntlahle varisnees, propiste
taken avold helr in b e Avarinoe is ncntllable, future
sluld he
fticdial ieasure
reviaed Itis te dilereme btwenAtal ouput f worker anl standond tpt of wrker
andards should ha
yified. atual Wms Atunl outpl) t per nil,
Valane -(itd, uslput
Labour Yleld

WartmanA

WwtmaA
 Calkulate
i) Labour cost variance,
n) Labur etcicncy variance,
) Labur rate variance

Solution:
) Labour Cost Variance (Standard Hours x Standsrd Rate)-(Actual Hours Actual Rate)

WorkmanA(203)-(30 3.00) 30 00 (A)

Workman B(25 4)-(15 45) 32 50(F)
Total Labour Cost Variance

ii) Labour Efficiency Variance- (Standard Hourns- Actual

Hours) x Standard Rate
Workman A(20-30) 3 30 (A)
WorkmanB (25- 15) x4 40 (F)
Total Labour Efficiency Variance t10(F)
iii) Labour Rate Variance = (Standard Rate -
Actual Rate) x Actual Hours
Workman A(3 -3) 30 Nil
Workman B-(4-4.50) 15 7.50 (A)
Total Labour Rate Variance
7 50 (A)
Verification:
Labour efficiency variance+ Labour rate variance = Labour cost
variance
10 (F) +7.50 (A) 2.50 (F)
Example 65: The standard time and rate for unit component A are given
Standard hours below:
15
Standard rate 4 per hour
The actual data and relatedinformation are as under
Actual production 1,000 units
Actual hours 15,300 hours
Actual rate 3.90 per hour
Calculate: (i) Labour cost variance, (ii) Labour efficiency variance (iii) Labour rate variance
Solution:
i) Labour Cost Variance = (Standard Hour for Actual
XActual Rate) Production x Standard Price)-(Actual Hour
(15,000 x 4)-(15,300 x 3.90)
-60,000- 59,670 =330(F)
ii) Labour Efficiency Variance (Standard Hous - Actual Hours) x
- (15,000- 15,300) x 4= 300 x 4 Standard Rate
=1,200 (A)
iii)) Labour Rate Variance
(Standard Rate - Actual Rate) x Actual Hours
= (4-3.90) x 15300=0.10
x1S,300
-1,530 (F)
Verifications:
Labour efficiency variance+ Labour rate variance = Labour cost variance
1,200 (A) +1,530 (-330 ()
Working Note:
crandard hours for actual prduction
For 1 unit standard hours = 15
1000 units standard hours = 15 x 1,000 = 15,000 hours

Example 66: Using the following infomation caleulate cach of three latour variances fon cach depatmert
Particulars Dept. N
Gross wages direct () 28,O80 19,120
Standard hours produced 8,040 6,015
Standard rate per hor () 3.00 J40
Actual hours worked 8,200 6,345

Solution:
) Labour Cost Variance =(Standard Hours xStandard Rate)- (Actual Hours Actual late)
2,160 (A)
Department X(8,640 3)- 28,0s0
Department Y-(6,015 x 3,40)-19,370 I,081 ()|

ii) Labour Rate Variance = (Standard Rate- Actual Rate) XActual lMours
Department X (3 -3.42 ) x 8,200 3,444 (A)
Department Y (3,40- 3.053) x6,345 2,202 (D)
ii)) Labour Efficiency Variance = (Standard Hours Actual Hours) Standard Rate
Department X= (8,640 - 8,200) × 3 I,320()
Department Y= (6,015-6,34S) x 3.40 1,122 (A)

Working Note:
Gross Wages
Calculation of actual rate: Actual Hour Worked
19,370
X=
28,080 =3.42 Y. =3.053
8,200 6,345

regarding the composition and the weekly wages rates of labourforce cngaged on a job
Example 67: The details as follows:
schedule to be completed in 30 weeks are
Actual
Standard
Category of Weekly Wage Rate per No. of Weekly Wage Rate per
No. of
Worker Labourers Labour () Labourers Labour()
60 70 70
75
Skilled 40 50
Semi-Skilled 45
30 80
60
Unskilled
Calculate various labour variances.
The work is actually completed in 32 weeks.

Solution: Caleulation of Standard Costs

Standard Rate
Standard Time (in weeks)
Category of Workers 75 x 30 2,250 60 1,J5,000
Skilled 45 x 30 = 1,350 40 54,000
SemiSkilled 60 30 =1,800 30 54,000
Unskilled 5,400 2,43,000
 abr Rate \Artanee (Standani Rete - Aetual Rate) XActual Hours
Men (0.40-0.45)x\,250 62.50 (A)
Women (0.30 -0.30) ×900 Nil
Boys(0 20-0.20) x 150 Nil
Total Labour Rate Variance 62.50 (A)

)Labor Min Vardane (Revied Standand Hours - Actual Hours) - Standard Rate of Actual Tol
Howrs
Men -(1,500- 1,250) x 0.40 100 (F)
Women (600-900) x 0.30 90 (A)
Beys(200-I50) x0.20 10 (F)
Total Labour Mix Variance 20 (F)

)Labour Etleiency Sub-variance - (Standard Mix - Revised Standard Mix) x Standard Rate
Sinve standand mix and revised standard mix are same. There is no such variance.
actual total hours are equal to
Noter Revised standard proposition are same as standard hours because the
otal standand hours.
 Calculation of Actual Costs
Category of Workers Actual Time (ia weeka) Actual Rate
Skilled 70 32- 2240 70 1,56 800
Semi-Skilled 30 32 960 50 48,000
Uaskilled 80 32 -2,560 20 51.200
5,760 2,56,000

Labour Cost Variance - Standard Cost - Actual Cost

-2,43,000-2,56,000=13,000 (A)
Labour Rate Variance (Standard Rate Actual Rate) xActual Time

Skilled - (60-70) x 2,240 -22,400 (A)

Semi-skilled = (40- 50) x 960 79,600 (A)
Unskilled- (30- 20) x 2,560 (25,600 ()
6,400 (A)
Labour EMciency Variance = (Standard Time - Actual Time) x Standard Rate

Skilled = (2,250- 2,240) x 60 600 (F)

Semi-skilled = (1,350 -960) x 40 =U5,600 (F)
Unskilled= (1,800 -2,560) x 30 22,800 (A)
6,600 (A)
Example 68: The budget labour force for producing 1,000 articles 'X' is:'
Total Standard Hours Total Standard Cost
30 Men @ 40 P. per hour for 50 hrs. 1,500 600.00
20 Women @30 P. per hour for 30 hrs. 600 180.00
10 Boys @ 20 P. per hour for 20 hrs. 200 40.00
2,300 820.00

The actual data and relate work forces are as follows:

Articles produced, 1,000

Total Actual Hours Total Actual Cost

25 Men @ 45 P. per hour for 50 hrs. 1,250 S62.50
20 Women @30 P. per hour for 30 hrs. 900 270.00
10 Boys @ 20 P. per hour for 1S hrs. 150 30.00
2300 862.50
Calculate: (i) Labour cost variance, (iü) Labour rate variance (ii) Labour
variance. efficiency variance, iv) Labour mix

Solution:
i) Labour Cost Variance = (Standard Hours for Actual Production x Standard Rate)
Actual Rate) -(Actual Hoursx
Men (1,500 x 0.40) -(1,250 x 0.45)
Women =(600 x0.30)-(900 x0.30) 37.50 (F)
Boys = (200 x 0.20)-(150 x 020) 90.00 (A)
Total Labour Cost Variance
10.00 (F)
42.50 (A)
 Material Standard Actual
Q1y. Rate Qty. Rate
(Kgs.) (Kgs.) ()
X 8,000 1.05 7,500 1.20
3,000 2.15 3,300 2.30
2,000 3.30 2,400 3.50
13,000 13,200

JAns: Material cost variance X- 600 (A), Y- 1.140 (A),

Z- 1,800 (A), Material price variance X- ?1,125 (A), Y
(495(A), Z- 480 (A), Malerial Usage Variance X- 2525
(F), Y- 2645 (A), Z- 21,320 (A), Material mix variance X
1,221 (A) Y- 2546 (A) Z- 654 (FI
36) Find-out labour rate variance, efficiency variance, and
labour cost variance using the following data:
Standard - 48 hours 3 per hour
Actual- 50 hours a 3.50 per hour
|Ans: Labour rate variance 25(A), Labour efficiency
variance 725(A), Labour cost variance 31(A))
37) The standard and actual figures of X metal works are as
under:
Standard time for the job 1000 hours
Standard rate per hour 0.50 p.
Actual tine taken 900 hours
Actual wages paid 360

Calculate:
i) Labour rate variancc
ii) Labour efliciency variance
iii) Labour cost variance
|Ans: Labour rate variance ?90(F), Labour
variunce 500F), Labour cost variance 140(F)) cfficiency
38) A product requires 10 hours per unit to
standard rate of ?2 per hour. produce at a

1,000 units were produced during March, 2012. Actual time

taken to produce was 9000 hours The actual rate was 2.50
per hour.

Calculate:
) Labour Cost Vauriance
ii) Lab0ur Rate Variance
iii) Labour Efficicncy Variance
JAns: Labour cost variançe
24,504A), Labour cfficiency?2,5(0{A), ILabour rate variance
variance 2,009A))
39) Stardurd labuur hours requirod to
produce one unít of
product Z e 5 and stadard waye rate is 75 per labour
hour. uring the ronth cndod 3 April, 2012, 100
were engsged for 25 duys 8 workers
failure all the workers retaicd
hours daily. Due to power
idle for 3 hours on 17
April, 2012 Actual Gutput for the month of April,
3.950 ita The actual wazE rate was ?5.20 per2012 was
houts Cumpute latour vriaces. labour
(Ans: Labur cust vaiance 5,20 (A), Latkar rte
variance
24,00 (A). Lbou cfiiciacy vince t230 (F). Latour
Timue Varie 1,50tA) ldle
 e a tual
roactien and relev unt data are as follews:
Cutpit S0 units of Pluct A

Material Total
Quantity for
Total
cost ()
S00 units
I,100 kg 3,410
1,800 ke 3,960

Calealate variances
|Ans: Material eost variance ti700A), Material usage
arianoe i00F), Material price variance t470(A))
33) The standant ix ofa product P is shown below:
Raw Material Units G
0 20 each
70 G 30 each
Stantard Loss is t0 of input
Actual data
Raw Material Units Ga
34 18 cach
66 G6 cach

Actal Loss is I5% of input. Calculate material variances.

Ans: Material Cost Variance t38.1 (A, Material Price
Variance t28 (A Material quantity variance iio.1 (A).
Material nis varince t40 ( , Material yield variansce

Vinak Ld. produces sn articte by blending two bsie aw

materials t opertes a standard costing system and ttie
following stantarts have heen set for raw materials
Materials Standard mix Standard Price per kg
4.00
The standard loss in procesing 15t% During April 2012,
he company prediced 1700kg of finished output

The pusition of stock nd purchases for the month of April

Material Stock a Stock on Purchased during

L412 e.04.12 April 202
(hg) (Kg) (Kg) Cost()
3,400
S0 ,200 3.000

Calculsae he follewing variances

Malerial pre ariance
u Magrial vield vriance
Aas (0 Material price variance 73125 (F, (i) Material
usge variance tSo (A) (i) Material yield variance t71.99

35 From the following

aa tor May, 2012, calculute:
) Material Frice Vutnce
is) Maietial Lsage Variatce
iv) Meial Mix Vaiance
Variance Analysis raw material
32) The standard quantity and standard price of follows:
required for one unit of product A are given as
Quantity Standard
Material
Price
X 2 kg. *3 per kg.
Y 4 kg 2 per kg.
6 kg.