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9706 · 4.2.1

Standard Costing and Variance Analysis — practice questions

Practice and worked examples for 9706 Standard Costing and Variance Analysis. Short previews only — attempt the full question in MarkScheme against the official scheme.

Worked example 1

Beta Ltd manufactures a single product. The standard material cost per unit is: 2 kg of material X at $5.00 per kg. In May, the company produced 1,000 units. It purchased and used 2,100 kg of material X at a total cost of $10,920.

Calculate the direct material price and usage variances.

Show solution outline

First, establish the standard and actual figures.

Standard for 1,000 units:

  • Quantity: 1,000 units × 2 kg/unit = 2,000 kg
  • Cost: 2,000 kg × $5.00/kg = $10,000

Actual for 1,000 units:

  • Quantity: 2,100 kg
  • Cost: $10,920

Step 1: Direct Material Price Variance This variance compares the standard price with the actual price for the actual quantity of material purchased.

  • Formula: (Standard Price - Actual Price) × Actual Quantity Purchased
  • Actual Price per kg = $10,920 / 2,100 kg = $5.20
  • Variance = ($5.00 - $5.20) × 2,100 kg = -$0.20 × 2,100 kg = -$420
  • Answer: $420 Adverse (A)

Step 2: Direct Material Usage Variance This variance compares the standard quantity of material that should have been used for actual production with the quantity that was actually used.

  • Formula: (Standard Quantity for Actual Production - Actual Quantity Used) × Standard Price
  • Variance = (2,000 kg - 2,100 kg) × $5.00/kg = -100 kg × $5.00/kg = -$500
  • Answer: $500 Adverse (A)

Total Material Variance: $420 (A) + $500 (A) = $920 Adverse (A)

Worked example 2

Gamma plc has a standard labour cost for its product of 3 hours per unit at a rate of $15.00 per hour. During June, 500 units were produced. The labour force worked 1,550 hours and was paid a total of $24,025.

Calculate the direct labour rate and efficiency variances.

Show solution outline

First, establish the standard and actual figures.

Standard for 500 units:

  • Hours: 500 units × 3 hours/unit = 1,500 hours
  • Cost: 1,500 hours × $15.00/hour = $22,500

Actual for 500 units:

  • Hours: 1,550 hours
  • Cost: $24,025

Step 1: Direct Labour Rate Variance This variance compares the standard rate with the actual rate for the actual hours worked.

  • Formula: (Standard Rate - Actual Rate) × Actual Hours Worked
  • Actual Rate per hour = $24,025 / 1,550 hours = $15.50
  • Variance = ($15.00 - $15.50) × 1,550 hours = -$0.50 × 1,550 hours = -$775
  • Answer: $775 Adverse (A)

Step 2: Direct Labour Efficiency Variance This variance compares the standard hours that should have been worked for actual production with the hours that were actually worked.

  • Formula: (Standard Hours for Actual Production - Actual Hours Worked) × Standard Rate
  • Variance = (1,500 hours - 1,550 hours) × $15.00/hour = -50 hours × $15.00/hour = -$750
  • Answer: $750 Adverse (A)

Total Labour Variance: $775 (A) + $750 (A) = $1,525 Adverse (A)

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