Standard costing is a cost control method aimed at reducing expenses while maintaining product quality by setting predetermined cost targets against which actual costs are measured. It involves analyzing variances between standard and actual costs to improve efficiency and reduce wastage. While it has advantages like improved managerial control and cost reduction, it also faces limitations such as the difficulty in establishing appropriate standards and the risk of outdated or rigid benchmarks.

1. 1. CONCEPT OFSTANDARDCOSTINGCost control,leadingtocostreduction,shouldalwaysbe the
objective of anyfirmor institutionwherescarce resourcesare used.Evenif the firmcan sell its
goodsor servicesata veryremunerativeprice,itshouldstill trytoreduce the use of factors of
production,withoutjeopardisingthe qualityof the productorthe service.The bestwayof doingthis
isto constantlythinkasto where the cost can be furtherreduced;butthe first stepis totry to see
that these donot go beyondalevel determinedbeforehand.If thisapproachisadopted,i.e.,if an
attemptismade to see that actual costs do not gobeyondthislevel,the approachwillbe thatof
StandardCosting.Infact, itis the philosophyof standardswhichwill bringthe bestresultsandnot
merelythe mechanismof adoptingthe StandardCostingtechniques.The philosophyof standards,in
a nutshell,meansscrupulouslyseparatingall typesof wastage andlossesandnotallowingthemto
cloudthe cost of production,atleastforpurposesof internal consumption,suppose,aworker
normallyworking8hoursshouldproduce 20 unitfora wage of Rs. 20; the properlabourcost of
productionisRe.1 perunit.Suppose foranyreasonthe workerproducesonly12 units.Normally,
the paymentof Rs. 20 will be spreadover12 unitsand one wouldsaythat the labourcost per unitis
Rs. 1.67. butif the philosophyof standardsispractised,one wouldsaythatthe properlabourcost of
12 unitwill still remainRe.1.perunitorRs. 12 inall ; 8 unithave not beenproducedand,therefore,
at the rate of Re.1 a per unit,there islossof Rs.8. Thisamountshouldbe chargedto separate
account. Thisaccount shouldbe shownasa separate iteminthe revenue accountof the firm so that
managementwouldknow,atthe eachperiod,the extentof lossesthathave unnecessarilytaken
place.Of course,if extraefficiencyhasbeen
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7 STANDARDCOSTINGANDVARIANCEANALYSIS
obtained,the effectof thatefficiencyshouldbe creditedtoaseparate account andshownas a
separate iteminthe revenue accounts.Thisreallyisthe essence of standardcosting-tosettargetsof
cost, to try to achieve those targets,tocompare the actual cost withthe targets,to ascertainthe
reasonsandto record the reasonsinthe booksof account.Or if a regularrecordis not maintained,
at leastto bringthe monetaryeffectsof variousfactorsthathave operatedinthe organisation,to
the notice of the management.Thusstandardcostingisanexcellentsystemof control of costsand
of measuringefficiency,andof improvinguponit.Itmaybe notedinpassingthatusuallystandard
costs are also giventhe same of predeterminedcosts.Thismeanthatbefore workisactuallystarted
an extremelycareful estimate of costispreparedtoserve asthe standard againstwhichthe actual is
to be measured.Thistermshouldnotbe confusedwithpre productioncostssince thatwouldmean
the costs to be incurredactuallybefore.Productioncommences,suchasontrial runs, further,
standardsshouldnotbe confusedwithestimates.Estimatescannotratherloose forecastsof
anythingandinfact one thinksof actuals beingcorrectand tendstojudge the accuracy of estimates
on the basisof actuals.In case of standard costs,the emphasisisthatthe figuresof standardcosts
are correct andthat one must explainwhythe actualsdifferfromthe standards.Standardsare far
more exactand exactingthanforecastsor estimates.
2. DEFINITION ANDMEANINGStandard costsare the scientificallypre-determinedcostsof
manufacturingasingle unitora numberof unitsof productor of renderingaservice duringa
specifiedfuture period.The CharteredInstituteof ManagementAccountants.London,defines
standardcost as "a standardexpressedinmoney.Itisbuiltupfroman assessmentof the value of
cost elements.Itsmainusesare providingbasesforperformancemeasurement,control by
exceptionreporting,valuingstockandestablishingsellingprices.”
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2. STANDARDCOSTINGANDVARIANCEANALYSIS
What isevidentfromthe above definitionisthatstandardcostsare plannedcostsof a product
undercurrentor anticipatedoperatingconditions.The dictionarymeaningof the word' standard'is
that itis a "thingservingasa basisforcomparison",thingrecognisedasmodel forlimitation".Butit
shouldbe noted'standard'isa relative term.Admittedly,whatisstandardforone may be
substandardforanotherand vice versa.However,whatissignificantisthatwithinanorganisation,it
servesasa desirable target.The term'standardcost' consistof twoparts, viz.,'standard'and 'cost'
standardscan be establishedinrespectof quantitiesandqualitieslike materialsandlabour.Cost
involvesthe expressionof the standardsoestablishedinvalues. CIMA definesstandardcostingas"a
control technique whichcomparesstandardcostsandrevenueswithactual resultstoobtain
varianceswhichare usedto stimulate improve performance".The technique of standardcosting
may be summarisedasfollows:(i)Pre-determinationof technical datarelatedtoproduction,i.e.
detailsof material andlabouroperationrequiredforeachproduct,the quantumof losses,level of
activity,etc.(ii)Pre-determinationof standardcosts,infull detailsforeachelementof costviz.
material,labourandoverhead.(iii)Comparisonof the actual performance andcostswiththe
standardsand workingoutthe variancesi.e.,the difference betweenthe actualsandthe standards.
(iv)Analysisof the variancesinordertodetermine the reasonsfordeviationsof actual fromthe
standard,and (v)Presentationof informationtothe appropriate levelof managementforsuitable
action.
3. STANDARDCOSTINGAND BUDGETARY CONTROLThe systemsof standardcostingand budgetary
control have the commonobjectivesof controllingbusinessoperationsbyestablishmentof
predeterminedtargets,measuringthe actual performance andcomparingitwith
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STANDARDCOSTINGANDVARIANCEANALYSIS
the targetsfor the purpose of havingbetterefficiencyandof reducingcosts.The twosystemsare
saidto be inter-relatedbuttheyare nointer-dependent.StandardCostingisintroducedprimarilyto
ascertainefficiencyandeffectivenessof costperformance.Budgetarycontrol isintroducedtostate
infiguresan approved planof action relatingtoa particularperiod.BothStandardCostingand
budgetarycontrol have the followingcommonfeatures.(i)Bothhave commonobjectof improving
managerial control.(ii)Bothtechniquesare basedonthe presumptionthatcostiscontrollable.(iii)In
boththe techniquesresultof comparisonare analysedandreportedtomanagement.Despite these
commonfeature,there are twodifferenttechniques.The pointsof difference maybe summarised
as follows:
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STANDARDCOSTINGANDVARIANCEANALYSIS
StandardCostingBudgetaryControl (i) Itisrelatedwiththe control of expensesandhence itismore
intensiveItisconcernedwiththe operationof the businessasa whole andhence itismore
extensive.(ii) StandardCostsare basedontechnical assessmentsBudgetsare basedonpastactuals,
adjustedtofuture trends.(iii)ToestablishstandardCosts,some formsof budgetingisessential as
there isthe needto forecastthe level of outputandprescribedset of workingconditionsinthe
periods inwhichthe standardCostsare to be used.Budgetarycontrol can be appliedevenwithout
the helpof standardcosting.(iv) Standardsare setmainlyforproductionandproductionexpenses.
Budgetsare compiledforall itemsof income andexpenditure.(v) Standardcostisthe projectionof

3. cost accounts.Budgetisa projectionof financial accounts.(vi) Standardssetuptargetswhichare to
be attainedbyactual performance.Budgetssetupmaximumlimitsof expensesabovewhichthe
actual expenditureshouldnotnormallyexceed.(vii) Instandardcosting,variance are analysedin
detail accordingtotheiroriginatingcauses.Itrevealsvariancesthroughdifferentaccountssuchas,
material price,variance,etc,.Inbudgetarycontrol variancesare relatedthroughthe related
accounts are revealedintotal.
(viii) Standardcostsdonottell whatthe costs are expectedtobe,butratherwhatthe costsshould
be underspecificconditionsof productionperformance andassuchcannot be usedfor the purpose
of forecasting.
Budgetsare anticipatedorexpectedcostsmeanttobe usedfor forecastingrequirementsof
material,labour,cashetc.
(ix) Standardcostsare usedinvariousmanagementdecision,price fixing,value analysis,valuationof
closingstock,etc.
It aimsinpolicydetermination,coordinationof activitiesindifferentdivisionsanddelegationof
authority.
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STANDARDCOSTINGANDVARIANCEANALYSIS
One mustremember,however,thatthe twocontrol systemsare nevertreatedasexclusive.
StandardCostingisa specialisedsysteminrespectof costs;budgetsare alsoconcernedwithcost
amongother things;therefore,itwouldaddstrengthtobudgetarycontrol system, if itadopts
standardcosts inrespectof cost data. The twoare complimentarytoeachother. StandardCostsand
EstimatedCostsBothStandardCosts andestimatedcostsare predeterminedcosts,buttheir
objectivesare different.Importantpointsof difference betweenthe twoare as follows:Standard
Cost EstimatedCosti.Standardcost can be appliedina businessoperatingunderstandardcosting
system.Estimatedcostscanbe usedinanybusinesswhichisrunningunderhistorical costing
system.ii.Standardsare meantforcontrollingfuture performances.Estimatesare preparedmainly
for price fixingpurposes.iii.StandardCostsare determinedonascientificbasiskeepinginview
certainfactorsand conditionsof efficiency.Estimatedcostsare calculatedonthe basisof past
performance adjustedinthe lightof anticipatedchangesinthe future. iv.StandardCostsare
determinedona scientificbasiskeepinginview certainfactorsandconditionsof efficiency.The use
of estimatedcostisa statistical dataonly.v.StandardCostsare to be fixedinrespectof every
elementof costandtherefore,it incorporate whole of the manufacturingprocess.Estimatedcosts
can be ascertainedforapart of the businessandalsofora particularpurpose.
4. ADVANTAGESOFSTANDARDCOSTINGThoughthe advantageswill be fullycomprehendedwhen
one has gone throughthe whole studypaperandhas studiesthe variousimplicationsof Standard
Costingwe give belowthe importantadvantages:
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STANDARDCOSTINGANDVARIANCEANALYSIS
1)To determine standardswhichare at once practicable andrepresentefficientperformance, the
managementwill have tobe fullyaware of all the facilitiesthatare available,the bestwayinwhich
workcan be done (forexample,timeandmotorstudyisessential if labourstandardsare to be fixed
properly) andwill have togathercontinuousand up-to-dateinformationaboutall the happenings;

4. thisexercise will enable the firmtolocate manysourcesof wastagesandlossesandtoblockthem.
2)Human beingsoftenworkhardtoachieve standardswhichare withintheirreach;therefore,
settingupof such standardswill almostautomaticallymeangreaterefficiencyinoperations.Further,
almosteveryone will thinkintermsof settingthe targetandof achievingthem.Thiswill be specially
so if the systemof rewardsand punishmentisalsogearedtothe results.3)If standardsare
themselveschallengedperiodicallyonasystematicbasis,itwill meanaconstantincrease in
efficiency.4)StandardCostinginvolvesnotonlypre-determinedquantitystandardsbutalso
standardsinrespectof pricesandrates.Thismay meanthat all materialsissuedandlabourapplied
will be evaluatedonthe basisof standardprice andrates.Thiswill itself reduce clerical labour.One
can say that ingeneral StandardCostingismore economical thanthe ordinarysystemof costing
where quantitiesandpricesvarydayby day or weekbyweek.5)StandardCostingwill enable
objective judgementof the peopleandtothat extentthe systemsof promotions,etc.willbe more
acceptable inthe firm.6)The management'sowntime canbe saved to a large extentbecause the
attentionof managementwill be invitedonlytothose matterswhichreallyrequire theirattention.
Thiswill be done throughthe analysisof the deviationbetweenthe StandardCostsandactual costs.
Managementneedpayattentiononlytothose factorswhichhave meantefficiencyorinefficiency.
(ManagementbyException) 7)Forthe purpose of fixingprices,StandardCostsplayauseful role;
theyexclude the day-to-dayfluctuationsincostresultingfrominefficientuse of resourcesand
movementinprice,therefore,canbe fixedona long-termbasis.
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STANDARDCOSTINGANDVARIANCEANALYSIS
8)Evenfor valuationof inventory,StandardCostshouldbe the properbasis.If actual costsare high
onlybecause there hasbeenawastage of resources,itisnot properto capitalise those lossesby
includingtheminthe value of inventory.Nothingbecomesmore valuable simplybecause of wastage
and,therefore,inventoryvaluesshouldbetterbe determinedonthe basisof StandardCosts.9)In
short,one can saythat if a firm practisesStandardCostingonproperlines,i.e.standardsare
themselvesdeterminedinaway whichwill notimpose toogreata burdenonthe workersor other
employedof the firm,itmayinfuse inthe mindsof the staff a desire toachieve the standardsand
thusshowgreaterefficiency.10)Ateverystage of settingthe standards,simplificationand
standardisationof products,methodandoperationsare effectedandwaste of time andmaterial is
eliminated.Thisassistsinmanagerial planningforefficientoperationandbenefitsall the divisionof
the concern.11)Costingprocedure issimplified.There isareductioninpaperworkinaccountingand
lessnumberof formsandrecords are required.There isconsiderable savinginclerical time and
expenditure leadingtoreductioninthe costof the costingsystem.12)Thissystemfacilities
delegationof authorityandfixationof responsibilityforeachdepartmentorindividual.13)Where
constantlyreviewed,the standardprovidesmeansfor achievingcostreduction.Thisisattained
through,improvedmethod,improvedqualityof products,bettermaterialsandmen,effective
selectionanduse of capital resourcesetc.14)Standardcostsassistinperformance analysisby
providingreadymeansforpreparationandinterpretationof information.15)Thisfacilitatesthe
integrationof accountssothat reconciliationbetweencostaccountsandfinancial accountmay be
eliminated.
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STANDARDCOSTINGANDVARIANCEANALYSIS

5. 5. LIMITATION OFSTANDARDCOSTINGStandardconsistinghascertainlimitations.These are the
following:(i)Establishmentof StandardCostsisdifficultinpractice.Evenif the particulartype of
standardto be usedhasbeenproperlydefined,there isnoguarantee thatthe standardestablished
will have the same tightnessorloosenessasenvisagedthroughoutthe organisation.(ii)Incourse of
time,the standardsbecome rigid.Itisnotalwayspossible tochange standardtokeeppace with
frequentchangesinthe manufacturingconditions,frequentrevisionof standardsiscostlyand
createsproblems.(iii)Inaccurate,unreliable andout-of-datestandardsdomore harmthan anygood.
(iv)Sometimes,standardscreate adverse psychological effects,if the standardissetat highlevel,its
non-achievementresultinfrustrationandabuild-upof resistance.Thisactsas a discouragement
rather thanan incentive forbetterefficiency.(v)Duetothe playof randomfactors, variancescannot
sometimesbe properlyexplained,anditbecome difficultto segregate controllableandun-
controllable variances.(vi)StandardCostingmaybe suitable forsmall concerns.Where production
concerns.Where productioncannotbe carefullyscheduled,frequentchangesinproduction
conditionsresultinvariances,detailedanalysisof all whichwouldbe meaningless,superfluous,and
costing.(vii)StandardCostingwithnon-standardisedproductsandforrepairsjobswhichkeepon
changinginaccordance withcustomers'specifications.Also,where productstake more thanone
accountingperiodforcompletion,standardsmaynotbe veryeffective.
6. TYES OF STANDARDSAs'standard'is a relative expression,one hastodetermineforoneself what
one deemsappropriate asa 'standard'.However,one shouldnotlose sightof the objective which
the normallyshouldbe avoidance of all lossesandwastagesasfar as possible Managementmay
certainlyfix standardsonthe 264
STANDARDCOSTINGANDVARIANCEANALYSIS
basisof maximumpossibleefficiency,possiblywithanassumptionof nowastage,noidle time,etc.
However,thisisnotrealistic;the standardwill be.The'Ideal standard'butimpracticable- noone will
givenmake anattemptto achieve it.Alternativelyanaverage of pastfew yearscostscouldbe taken
as basisbut thiswill meanperpetuatingpastinefficiencies,bymakingthemthe target.Thiswill
defeatthe verypurpose of StandardCosting.A targetshouldbe suchthat it will induce the worker
to give outhisbest.In orderto make people believe instandardsandtoinduce themtowards
achievingthem,standardsshouldbetterbe suchascan be achievedbutwithaneffort;inorder
words,theyshouldbe somewhatidealistic.Basicstandard:Thisisa "standard",whichisestablished
for use,unalteredoveralongperiodof time.Standardsare fixedscientificallyandhence itismore
of a technical job.These standardsare supposedtoremainunchangedsolongasquality
requirementsare constant.Moreover,if forwardscontractare enteredintoregardingmaterialsand
labourpact signedfora certainperiod,the costscan be plannedaccordingly.Suchcosts,i.e.,basic
standardsmay,have to be adjustedforchangesincircumstancesina period.Currentstandard:In
practice,standardsare fixedonthe basisof scientificstudiesbutadjusted forcurrentsubjective
factors.A standard,therefore,ismade realistic.Toreflectthe anticipatedconditionsaffecting
operations;itisnottoo idealistic.Suchastandard wouldbringtosharp focusthe avoidable causes
for variance,leadingtocontrol action.A currentstandardis a standardfor a certainperiod,for
certainconditionandforcertaincircumstances.Basisstandardsare more idealisticwhereascurrent
standardsare more realistic.Mostcompaniesuse currentandnotbasic standards.Expectedor
attainable standard:A standardthoughidealisticshouldalsobe realistic.If targetsare fixedfora
certainbudgetedperiod,takingintoaccountthe expectedconditions,itcanbe know as " expected
standard"or " attainable standard"itisdefined byCIMA,Londonas " a standardwhichcan be
attainedif a standardunitof workiscarried outefficiently,amachine properlyoperatedora
material properlyused.Allowancesare made fornormal losses,waste andmachine downtime".

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STANDARDCOSTINGANDVARIANCEANALYSIS
Normal standard:Yet anothertargetisone whichis intendedtocoveralongerperiodof time- a
periodlongenoughtocoverone trade cycle,i.e.,roughly7to 10 years.Thisisdefinedas" the
average standardwhichitis anticipated canbe attainedovera future periodof time,preferably,
longenoughtocover one trade cycle.Ideal standard:Thisstandardreferstothe targetwhichcan be
attainedundermostideal conditions.Hence,itismore idealisticandlessrealistic.Itisdefinedbythe
terminologyas:"The standardwhichcan be attainedunderthe mostfavourable condition,withno
allowance fornormal losseswaste andmachine downtime".
7. CONCEPT OFSTANDARDHOUR A standard houris the expressionof the actual outputintermsof
standardtime insteadof units.Thiswouldfacilitate expressionof dissimilaroutputinthe termsof a
commonfactor and thusmeasure total activity.Accordingtothe CharteredInstitute of Management
Accountants,London,standardhourmeansthe quantityof the workachievable atstandard
performance inanhour.When the termstandardhour isused,it isassumedthatit representsthe
amountof workto be done insixtyminutes.Forexample,if awelderweldsone piece in20 minutes
accordingto the standard,the standardoutputinone clock hour will be 3 units.If the numberof
unitsactuallyproducedinone day(of 8 hour) is30, thenthe outputcan be expressedasto 20
standardhours thoughthe weldershasactuallyworkedfor8hours only.The conceptof standard
hour enablesmeasurementof activityof afactoryfor producingdissimilarunitsandexpressingthem
ina single measure.Accordingcomparisonof levelsof activitybetweentwoperiodcanbe done by
convertingthe differentoutputsintostandardshours.Illustration - 1In a factory three products,A,B
and C are produced.The standardtime allowedrespectivelyis10 hours,15 hours,and 12 hours.The
actual productioninMay 1991 and June 1991 was as statedbelow:
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STANDARDCOSTINGANDVARIANCEANALYSIS
""""""May units"" " June units ProductA"" " " 20,000" " " " 12,000 Product B" " " " 10,000" " " "
12,000 ProductC" " " " 15,000" " " " 18,000 By what percentage hasproductionchangedinJune
overMay? If the actual hourspaidfor eachin May and June were 6,00,000, what isthe rate of
labourefficiency?Solution:Statementof ProductioninMayand June 1991. May"" " " " " " " June
"""Units""Std.Hours"" Units""Std.Hours ProductA"20,000"" 2,00,000""12,000"" 1,20,000
ProductB" 10,000"" 1,50,000""12,000"" 1,80,000 ProductC" 15,000"" 1,80,000""18,000"" 2,16,000
"""""""""""""""" TOTAL""45,000"" 5,30,000""42,000"" 5,16,000" OutputinJune declinedby
14,000 hours,i.e.,by2.6% overMay 1991 """""""5,30,000 x 100 or 88.33% Labour efficiency:
May"" 6,00,000 """" June""" 5,16,000 x 100 or 86.00% """"""""6,00,000
8. SETTING OF STANDARDCOSTSIt shouldbe notedthatthoughstandards mustbe set formaterials,
laboursandoverheads,onlyanintegratedapproachwill bringthe bestresults.There canbe saving
inlabour,for example,if materialsof certainqualityorsize are purchasedorif more automatic
machinesare introduced.Whenstandardsare tobe laiddown,the exactprocessof productionand
the facilitiesthatare tobe usedforthe purpose shouldbe decidedandtakenintoaccount.Then
onlythe standardscan be fixedproperly.The firststepinthe developmentof aStandard Costing
systemisto setstandardcosts, i.e.,topredetermine the standardsinrespectof each267
STANDARDCOSTINGANDVARIANCEANALYSIS

7. elementof cost-directmaterial,directlabourandoverheads.Extremecare isessential inthe fixation
of standardsas the successof a standardcosts used.While settingproductioncoststandards,the
followingfactorsshouldbe considered:(i)Technical andoperational aspectsof the concern.
(ii)Industrialengineeringcriteriaformaterials,labour,etc.(iii)The typesof standardtobe used.
(iv)Properclassificationof the accountssothat variance may be determinedproperly.(v)
Responsibilityforsettingstandards.Asdefiniteresponsibilityforvariancesfromstandardsis
ultimatelytobe laidonindividualsordepartments,itisobviousthatall those individualsor
departmentshouldbe associatedwithsettingof standards.
9. DIRECT MATERIAL STANDARDSThe StandardCostof directmaterialsiscloselyrelatedtothe
quantitiesandpricesof material tobe usedinproduction.Hence,tworelatedstandardsare set:(i)
Material Usage Standard:The objectof settingthe materialsusage standardistoachieve maximum
efficiencyinmaterial usage.The firststepinthisconnectionliesinspecifyingthe size andqualityof
materials.Thisisfollowedbyananalysisof the materialsrequirements.A listispreparedshowing
the detailsof materialsize,grade,quantityetc.- forsettingthe standard.Thisisknownasa
"StandardMaterialsSpecification."The standardquantitiesof materialtobe usedperunitof
productioncanbe laiddownbyone of the followingmeans:(a)Byreferencetothe weightof
material inthe final product.(b)Onthe basisof past performance withdue allowance forchangesin
conditions.(c) Bymeansof testruns conductedunderdifferentconditionsandtakingasaverage of
quantitiesused.
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STANDARDCOSTINGANDVARIANCEANALYSIS
Due allowance mustbe made fornormal wastage.Thisis generallybasedonanestimate wastage
whichisunavoidable,e.g.,normal lossthroughevaporation,off-cuts,brokenparts,etc.(ii) Materials
Price Standard:Standardsare setfor material pricesafterdue considerationof the efficiencyof
purchasingandstore-keepingfunctions.The aimof settingmaterialsprice standardistoachieve
maximumefficiencyinthese functions,andthusminimisedirectmaterialscosts.The price standard
shouldprovide fordiscountonpurchases,economyof bulkpurchasingandanticipatedchangesin
marketprice.
10. STANDARDCOSTFOR DIRECT LABOUR Direct labourcostdependsuponlabourtime andwage
ratesand therefore,settingstandardcostfordirectlabourinvolvessettingtworelatedstandard:
(i)StandardLabourTime:Thisindicatesthe precisetime (hours) that labourof a particulargrade
shouldtake toperforma givenoperation.The mainobjectof settingstandardlabourtime isto
derive maximumefficiencyinthe use of labourtime.The standardtime maybe seton the basisof
past performance withadjustments forchange of conditions.Time andmotionstudiesare agreat
helpinsettingstandardtime.(ii)LabourRate Standard:Thisreferstothe wage ratesexpectedtobe
paidof differentgradesof labouremployedinthe organisation.The objectistoplanforthe actual
wagesto be paid.A varietyof factorsshouldbe consideredandallowance made forthemwhile
settingstandardwagesrates,principal of themare future trendof wageswhichcanbe anticipated;
collective agreementbetweenlabourandmanagement; guaranteedminimumwages;andovertime
wages,if the level of activitymakesovertimeinevitable.Boththese standardsmustbe setaftera
detailedstudyof labourworkinvolved.Besides,the workersemployedmustbe gradedonstandard
basis.
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STANDARDCOSTINGANDVARIANCEANALYSIS

8. 11. STANDARDOVERHEADRATES The principal objectof settingstandardoverheadratesisto
minimise the overheadcostschargeabletoproduction.Followingstepsare necessaryforsetting
standardsrates:(i)The levelof activityof productiondepartmentsandthe workto be done by the
service departmentsshouldbe determined.(ii)Overheadcostsshouldbe classifiedintofixed,
variable andsemi-variable overheads.The costsexpectedtobe incurredundereachheadforeach
of the productionandservicesdepartmentsshouldbe calculatedforagivenperiod.The expected
costs maybe laiddownindetailsinthe formof cost-budgetbasedonpastexperience,present
conditionsandfuture trends.(iii)The standardoverheadratesforeach of the service departments
shouldbe calculated,andappliedtothe producingdepartments.(iv)The standardoverheadratesfor
the producingdepartmentmaybe determinedasadirectlabourhour rate,or machine hourrate, or
as a percentage of directwages.The ratesmay be computedusingthe followingratios:Direct
Labour Rate ""Total StandardOverheadCostof ProductionDepartment ""StandardDirectLabour
Hours forProductionDepartmentMachine HourRate ""Total StandardOverheadCostfor
ProductionDepartment """"""StandardMachine HoursPercentagesof DirectWages""Total
StandardOverheadCostforProductionDepartmentx 100 """"StandardDirectWagesfor
ProductionDepartment
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STANDARDCOSTINGANDVARIANCEANALYSIS
12. STANDARDADMINISTRATION COSTSThe objectof settingastandardadministrationcostisto
secure the maximumquantityandqualityof administrative servicesatminimumcost.Forthis
purpose,all administrativefunctionsshouldbe studiedindetail.OandMdivisionbyexaminingthe
office operationandsuggestingsimplificationandstandardisationof methodsandproceduresmay
helpa lotinthis.The standardquantityof workto be performedmaybe setby one or more of the
followingmethods:(i)Onthe basisof pastperformance:(ii)On the advice of organisationand
methodsteam;(iii)Timeandmotionstudies;and(iv)Choosingappropriate'workunits'andfixing
StandardCosts perworkunit.(v)Administrative costsshouldbe classifiedintofixed,variable and
semivariable itemsbeforesettingthe standardrates.
13. STANDARDCOSTSFOR SELLING ANDDISTRIBUTION Since sellinganddistributionexpensesare
primarilyrelatedtovolume of sales,asalesforecastisessential before settingstandardsof selling
and distributioncosts.The classificationof these costsintofixed,variableandsemi-variable itemsis
necessary.Anotherpre-requisite forsettingstandardsisadetailedexaminationof the functionsand
determiningstandardunitsof operation.
14. COMPUTATION ANDANALYSISOFVARIANCESThe primaryobjectof standardcostingisto reveal
the difference betweenactual costandstandardcost. A 'variance'instandardcostingrefersto the
divergence of actual costfromstandard cost.Variancesof differentcostitemsprovide the keyto
cost control.Theyindicate whetherandtowhat
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STANDARDCOSTINGANDVARIANCEANALYSIS
extentstandardssethave beenachieved.Thisenablesmanagementtocorrectadverse tendencies.
The CharteredInstitutionof ManagementAccountantsLondon,definesvariance as"the difference
betweenplanned,budgeted,orStandardCostand actual cost; and similarlyforrevenue"variance
analysiscanbe definedas" the analysisof performance bymeansof variance".Itisthe processof
computingthe amountof and isolatingthe cause of variancesbetweenactual costsandstandard

9. costs.Variance analysisinvolves:(a) Computationof individual variances,and(b) Determinationof
the cause (s) of each variance.Actual costwhichishigherthanthe StandardCostswouldbe a signof
inefficiencyandthe difference wouldbe termedasunfavourable oradverse.A variance thatreduces
profit isadverse orunfavourable.A variance thatincreasesprofitisfavourablevariance andis
computedundereachelementof costfor whichstandardscan exercise propercontrol.The cause is
affixedtothe variance,forexample,materialsprice variance willshow thatthe variance arose due
to change in the price of materials.Some of the variance are controllable whileothersare not.The
purpose of such classificationisthatproperemphasiscanbe placedonthe controllable variance.
Thisfollowsthe principal of managementbyexception.Variancesoccurringinaperiodmaybe
comparedwithvariancesonthe same account expressedasapercentage of the standardcosts and
comparedwiththe percentage forthe previousmonth.Comparisonmay be made betweenthe
standardand actual or betweenbasicstandardandcurrentstandard.Asalreadystated,the origin
and causesof the variancesneedtobe tracedby analysingthe total variancesintotheircomponents
parts inorder todetermine andisolate the causesgivingrise toeachvariance.Equal emphasis
shouldbe laidonfavourable andunfavourablevariances.Anunfavourable variancepointsoutthe
inefficiencyinuse orwaste of materials,labour,andresources.A favourable variance maybe due to
improvementinefficiencyorproductionof substandardproductsoran incorrectstandard.An
unfavourable variance maybe off-setbyafavourable variance;hence the needforanalysisand
appropriate action.
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A detailedprobe intothe variance,particularlythe controllablevariance,helpthe managementto
ascertain:(a)The amountof variance;(b)Itsoccurrence;(c) The factorsresponsible forit;(d)The
executiveresponsible forthe variance'(e)Correctiveactionwhichshouldbe takentoobviate or
reduce the variance.Favourable andunfavourable variance:If the actual costis lessthanstandard
cost, the difference isknownasa favourable variance,creditvariance orpositivevariance denote by
(F) or cr.-itincreasesthe profit.Onthe otherhand,if actual costexceeds,standardcosts,the
divergence isknowasanunfavourable variance,debitvariance,negative varianceof adverse
variance denotedby(A) ordr.- it reducesthe profit.ControllableandUncontrollable Variances:
Whenthe variance withrespecttoany itemreflectsthe degree of efficiencyof anindividualor
department,i.e.,aparticularindividual departmentheadisresponsibleforthe variance,the
variance isknownas a controllable variance.Obviously,suchavariance isamenable tocontrol by
suitable action.Anuncontrollablevariance isone whichisnotamenable tocontrol byindividual or
departmentaction.Sucha variance iscausedby external factorslike change inmarketconditions.
Fluctuationsindemandandsupply,etc,.Noparticularindividual withinthe organisationcanbe held
responsible forit.Whenvariancesare reported,attentionof the managementisparticularlydrawn
towardscontrollable variances.If avariance hasbeencausedbymultiple factorsthe partof cost
variance relevanttoeachfactor shouldbe determined.There are certainvariance whichmayarise
undermaterial,labouroroverheaddue tochange inthe basicconditiononwhichthe standardsare
established.RevisionVariance:Thisisanamountby whicha budgetisrevisedbutwhichisnot
incorporatedinthe StandardCostrate as a matterof policy.The
273
STANDARDCOSTINGANDVARIANCEANALYSIS
StandardCosts maybe affectedbywage rate change afterwage records,fiscal policyetc.The
StandardCosts are not disturbedtoaccountfor these uncontrollable factorsandtoavoidthe
amountof labourandcost involvedinrevisions,the basicStandardCostsare allowedtostand.Itis

10. essential toisolate the variancearisingoutof non-revisioninordertoanalyse the othervariances
correctly.MethodVariance:Itis the difference betweenthe StandardCostof the product
manufacturedoroperationperformedbythe normal methodsandthe costof operationby
alternative method.Standardsusuallytake intoaccount the best.Methodapplicable,andany
deviationwill resultinanunfavourable variance.Hence suchdeviationsshouldbe asfew aspossible.
Variance analysisusuallyproceedsafteramendingthe standardsaccordingtothe revisionvariance
and the methodvariance.Illustration - 2" Standardcost of a productina factoryis determinedas
follows:"""""""""""Rs.Material (5units@Rs. 4 each) " " " " 20 Labour (20 hours@. 1.50 perhour) "
" " 30 Overheadexpenses"""" " " " 10 Total " " " " " " " " " " 60 Duringa period,8,000 unitswere
producedwhose actual costwas as follows:"""""""""""Rs.Material (40,500units@ Rs. 5 each" " "
2,02,500 Labour (1,50,000 hours@ Rs.1.60 each) "" 2,40,000 Overheadexpenses""" " " " " 90,000
Total " " " " " " " " " " 5,32,500 Prepare a statementshowingstandardcost,actual cost and variance.
274
STANDARDCOSTINGANDVARIANCEANALYSIS
Solution:Statementof StandardCost,actual cost and variancesThe above statementshowsthe
variance inrespectof each elementof cost.Each such variance can be furtheranalysed.Before
makingsuchanalysisitisnecessarytorecognise the twobroadprocessin cost accumulation.The
cost isfirst incurredand thencharge to production.Forexample,materialsare purchasedfirst
(normally) andthenissuedforproductionandwagesare incurredfirstand thenchargedto
productiononthe basisof time spentonproduction.Thus,there are twostages.Incost
accumulation,namely,(i) the incurringstage,(ii) the recoverystage.The recognitionof these two
stages.Analysisinvolvesidentifyingandquantifyingthe variance atboththese stages.
_____________________________________________________________ Particulars"" " Standard
Cost""Actual Cost"" Variance """""Rs."""" " Rs.""" " Rs. Material""" "
1,60,000"""2,02,500""42,500 (A)
Labour" " " " 2,40,000"""2,40,000""- Overheadexpenses" 80,000""" 90,000""10,000 (A)""
Total""""4,80,000"""5,32,500""52,500 (A)""Before we proceedtoanalyse the variance,the
followingessentialpointsshouldbe notedregardtothe utilityof the variance analysis:(i)Variances
shouldnotbe automaticallyappliedforcontrol purposes.Theyare justindicatorsof where the
reasonfor highercostexists.Itisupto the controllingauthoritytojudge whetherthe highercosts
are well justified.The actual costmaybe higherdue tofactors absolutelyoutof the control of the
responsible authorityandperhapsthe responsibleauthorityhadcontributedinpreventingthe
actual costfrom escalating toohigh.Insuch a situationapplyingcontrolsimplicitonthe basisof
variancesdisclosedwill leadtodemoralisationof staff.(ii)Whilecomparingthe actual costswiththe
standards,the level of activityshouldbe checkedupforcomparability.If standardshave been
evolvedforabudgetedlevel of activityandif the actual level isdifferent,asimplecomparisonof
actualswithbudgetwouldbe erroneous.The standardsshouldbe revisedinaccordance withthe
actual level of activityattained.
275
STANDARDCOSTINGANDVARIANCEANALYSIS
But, indoingso care shouldbe takento distinguishbetweenfixedcostsandvariable costs.The
difference betweenthe originalstandardandrevisedstandardisknow as"revisionvariance."

11. (iii)Whileworkingoutthe variance inrespectof fixedcosts(particularlyfixedoverhead),itshouldbe
keptinmindthat whatis chargedto cost is notthe actual cost but an amountbasedonpre-
determinedrecoveryratesmultipliedbythe outputwhichmaybe expressedinstandardhours.
Two-wayAnalysisof variance:A studyof the illustrationalreadyreferredtowouldshow thata
simple comparative statementwouldbringaboutthe variancesisrespectof eachelementof cost.
Now,eachvariance has to be analysedas(i) incurringvariance,and(ii)recoveryvariance.Also,
broadly,the causesleadingtoa variance maybe eitherefficiencyof inefficiencyinthe use of
resourcesorchange inthe price paidfor the resources.Accordingly,we have the followinganalysis:
" (i) Material cost variance """ Material price variance """""""""Material usage variance"(ii) Labour
cost variance "" " Labour rate variance """""""""Labourtime variance "(iii) Overheadscostvariance
"" Overheadexpenditure variance """""""""Overheadvolumevariance Aseachelementof costis
analysisintotwobroadgroups.It isknow a "TwowayAnalysis".
15. MATERIAL COST VARIANCESMaterial costvariance isthe difference betweenthe StandardCost
of materialsspecifiedandthe actual costof material used.Material costvariance = StandardCost of
Material - Actual cost of material used.
276
STANDARDCOSTINGANDVARIANCEANALYSIS
Material cost variance arise due tovariationinthe price of the material orin itsusage.In accordance
withthis,materialscostvariance maybe analysedundertwoheads.viz.materialsprice variance and
materialsusage variance.(a) Material Price Variance:Thisisthatportionof the materialscost
variance whichisdue to the differencebetweenthe standardprice specifiedandthe actual price
paid.Material price variance isthat portionof the directmaterial costvariance whichisthe
difference betweenthe standardpricesspecifiedandactual pricespaidforthe directmaterial used.
Thisis an "incurring"variance.Thisreflectsthe extraprice paidon the unitspurchased.While
makingthiscalculationstandardconsumptionof unitsshouldnotbe givenanyconsideration.Itis
computedbymultiplyingthe actual quantitybythe differencebetweenthe standardprice andthe
actual price. The formulais:Material price variance = Actual Qty (standardunitsprice - Actual unit
Price) """"""OrAQ(SP - AP) In otherwords,material price variance isthe difference between'whatit
actuallycostand what itwouldhave cost if the actual usage hadbeenpaidforat the standardprice'.
In the illustrationgivenearlierRe.1 has beenpaidextraon40,500 units(actuallyused).Hence,
material price variance inRs.40,500 (A).The reasonsformaterial price variance maybe one or more
of the following:(i)Changesinmarketprice of materialsused;(ii)Changesinquantityof purchase or
uneconomical size of purchase orderresultinginadifferentprice;(iii)Failure toobtaincashand/or
trade discountwhichwere providedwhilesettingstandards;(iv)Rushordertomeetshortage of
supply;(v)Failure totake advantage of off-seasonprice,orfailure topurchase whenprice ischeaper;
(vi)Emergencypurchasesonthe requesttoproduction/salesmanage;
277
STANDARDCOSTINGANDVARIANCEANALYSIS
(vii)Changesinissueprice due todifferencesinchangesrelatedtostore- keeping,materialhandling,
carriage inwardexpensesetc.(viii)Changesinthe amountof taxesandduties;(ix)Changesinquality
or specificationof material purchased;(x)Use of substitute material havingahigherorlowerunit
price;(xi)Changesinthe patternoramountof taxesandduties.The materialsprice variance is
generallythe responsibilityof the purchase manager.However,the variance maybe ultimately

12. traceable tofactors beyondhiscontrol like changesinthe marketprice.(b) Material Usage Variance:
Thisis that portionof material costvariance whichisdue to the difference betweenthe standard
quantityof materialsspecifiedandthe actual quantityused.Material usage variance isthatportion
of the directmaterial costvariance whichisthe difference betweenthe standardquantityspecified
for the productionachievedandthe actual quantityusedbothvaluedatstandardprices.The
divergence of actual quantityof material usedfromthe standardquantityset,multipliedbythe
standardprice is knowas the material usage variance.The formulaforthe calculationof this
variance is:Material Usage Variance = StandardPrice (Actual Quantity - StandardQuantity) i.e.SP
(AQ- SQ) In the illustrationgivenabove,40,000 unitsof materialsshouldhave beenusedfor
producing8,000 unitsof finishedgoods:actual consumptionis40,500 unitsor for 500 units,the
amountcomesto Rs. 2000. Thusmaterial usage variance isRs.2,000 (a).The usage variance may
have beencausedbyone or more of the undernotedfactors:(i)Lackof due care in the usedof
materials;(ii)Defectiveproductionnecessitatingadditionalmaterialforcorrection;
278
STANDARDCOSTINGANDVARIANCEANALYSIS
(iii)Abnormal wastage throughpilferage orotherlossesinthe use of materials;(iv)Inefficiencyin
productiondue toimpropermethodorlack of necessaryskill inworkmen;(v)Use of amaterial-mix
otherthat the standardmix;and (vi)Yieldfrommaterialsincase excessof orlessthanthat provided
as the standard yield;(vii)Purchaseof inferiormaterialorchange inqualityof material;(viii)Rigid
technical specificationsandstrictinspectionleadingtomore rejectionswhichrequiremore
materialsforrectification.(ix)Use of substitutematerial leadingtopoorquality.(x)Improper
maintenance of machine leadingtobreakdownsandmore use of material ;and (xi)Poorinspection
of rawmaterials.A favourable variance maynotalwaysbe advantageousforthe concern.For
instance,asavinginmaterial usage mayperhapsbe effectedbyareductioninwastage byshowing
downthe work butthe resultingincrease inthe labourandoverheadcostsmayfar exceedthe
favourable materialsusage variance.Material usage variancemayfurtherclassifiedinto:(i) Material
Mixture Variance:One of the reasonsformaterial usage variance ischange inthe compositionof the
materialsmix.Itresultfromavariationinthe material mix usedinproduction.Thus,if alarge
proportionof the more expensive material isusedthanthatlaiddowninthe standardmix,materials
usage will reflectahighercost thanthe standard.Contrarilythe use of cheapermaterial inlarge
proportionswill indicate alowercostof material usage thanthe standard.It isthat portionof the
material usage variance whichisdue tothe difference betweenthe standardandactual composition
of a mixture of materials.Inorderwords,thisvariance arisesdue toachange inthe rationof actual
material mix fromthe standardratioof material mix.Itiscalculatedasthe
279
STANDARDCOSTINGANDVARIANCEANALYSIS
difference betweenthe standardprice of standardmix andthe standard price of actual mix.Suppose
for producinganarticle the materialsstandardis6 kg. of material A @ Rs. 5 per kg.and 4 kg. of
material B@ Rs.6 per kg.Andthe actual quantitiesusedare 5 kg.of material A andB each.The total
quantityusedisstill 10 kg.But the material costwill increase asshownbelow:Due to the change in
the relative proportionsof the twomaterials,the total costhas risen;thisisthe nature of the mix
variance.Itis calculatedbycomparing(revised) standardmix atstandardpricesandthe actual mix
at standard prices."""""""""""Rs."""Rs. " Standard:"Material A 6 kg. @ Rs.5"" 30.00" "
""""Material B 4 kg.@ Rs.6"" 24.00"" 54.00 " Actual:""Material A 5 kg.@ Rs.5"" 25.00" "

13. """"Material B 5 kg.@ Rs.6"" 30.00"" 55.00 the total cost has risen;thisisthe nature of the mix
variance.Itis calculatedbycomparing(revised) standardmix atstandardpricesandthe actual mix
at standard prices.Revised""=Total of actual quantitiesx Standardquantityof anyone material
standardMix" of all material"" Total of standard quantityof all types of material See the
illustrationgivenbelow:Illustration3:Forproducingone unitof a product,the material standardis:
Material X: 6 kg.@ Rs.8 per kgand Material Y: 4 kg.@ Rs.10 perkg In a week,1,000 unitswere
producedthe actual consumptionof materialswas:Material X:5,900 kg. @ Rs. 9 perkg and
Material Y: 4,800 kg. @ Rs. 9.50 per kg Compute the variousvariances.
280
STANDARDCOSTINGANDVARIANCEANALYSIS
Solution:Standardcostof material of 1,000 units:"""""""""""Rs. Material X:6,000 kg.@ Rs.8 per
kg" " " 48,000 Material Y: 4,000 kg.@ Rs. 10 perkg"" " 40,000 " Total"""""""""88,000
Actual cost: " Material X: 5,900 kg. @ Rs. 9 per kg" " " 53,100 Material Y: 4,800 kg.@ Rs.9.50 per
kg"" 45,600 " Total"""""""""98,700 Total material costvariance"" " " " 10,700 (A) AnalysisMaterial
Price Variance:Actual Quantity(StandardPrice - Actual Price) X=5900 (Rs. 8 - Rs. 9)" " " = Rs. 5,900
(A) Y = 4800 (Rs.10 - Rs. 9.50)"" = Rs. 2,400 (F) """""""" Rs. 3,500 (A) Material Usage Variance:
StandardPrice (StandardQuantity - Actual Quantity) X= Rs. 8 (6,000 - 5900)" " " = Rs. 800 (F) Y =
Rs. 10 (4000 - 4800)"" " = Rs. 8,000 (A) """""""" Rs. 7,200 (A) Material Cost Variance = "" Material
price variance [Rs.3500(A)] ""[Rs.10,700(A)]""Plusmaterialusagesvariance (Rs.7,200(A)]
Material Mix Variance: Revusedstandardmix (total actual quantity10,700 kg.) Material X - 10,700
x 6 " " " = 6,420kg. """""10
281
STANDARDCOSTINGANDVARIANCEANALYSIS
" Y - 10,700 x 4 " " " = 4,280 kg. """"10 Standardcost of revisedstandardmix:"""""""Rs."""" Rs. X
6,420 kg.@ Rs.8"" " 51,360" Y 4,280 kg.@ Rs. 10""42,800" " " 94,160 Standardcost of actual mix:
X 5,900 kg.@ Rs.8"" " 48,200" Y 4,800 kg.@ Rs.10""48,000" " " 95,200 Material mix variance
(Difference)"""" 1,040(A)
The net usage variance will be Rs.7,200 lessRs.1,040 or Rs. 6,160 as provedbelow:"""""""Rs. X
(6,420 - 6,000) x Rs. 8"" 3,360 (A) Y(4,280 - 4,000) x Rs. 10" 2,800 (A) """""""6,160 (A)
(ii) Material YieldVariance:Yieldvarianceisthe differencebetweenthe standardyieldspecificand
the actual yieldobtained.Inotherwords,the difference betweenactual yieldof material in
manufacture andthe standard yield(i.e.expectedyieldfrom agivenstandardinput) valuedat
standardoutputprice is knowas material yieldvariance.Thisvariance isof greatsignificance in
processingindustries,inwhichthe outputof one processbecomesthe inputof the nextprocesstill
the finishedproductis obtainedatthe final stage.The analysisof thisvariance helpseffective
control overusage.A lowactual yieldisunfavourableyieldvariance whichindicatesthat
consumptionof materialswasmore thanthe standard.A high actual yieldindicatesefficiency,buta
constanthighyieldisa pointerforthe revisionof the standard.
282

14. STANDARDCOSTINGANDVARIANCEANALYSIS
The formulafor calculatingthe yieldvarianceis:Material YieldVariance=StandardYieldrate (Actual
- Standardyield) Standardyieldrate = ""Standardcostof Standardmix"" """""Netstandardoutput
i.e (Grossoutput - Standardloss) Or material Yieldvariance =Standardoutputprice (standardlossin
termsof actual input- Actual lossonactual Output) The yieldvariance maybe causedbysuchfactors
as: defective methodsof operation,sub-standardqualityof materialspurchased,lackof due care in
handling.Lackof propersupervisionetc.ILLUSTRATIONSThe methodof computing,analysingand
recordingof material costvariance may be illustratedbelow withthe helpof followingassumed
data: Illustration - 4In a manufacturingprocess,the followingstandardsapply:StandardPrice""Raw
materialsA Rs.1 per kg. """""RawmaterialsBRs. 5 per kg. StandardMix 75% A; 25% B (byweight)
In a periodthe actual costs,usage and outputwere as follows: Used:"4,400 kgs.of A costingRs.
4,650 ""1,600 kgs.of B costingRs.7,850 Output:"5,670 kgs.of productsThe budgetedoutputfor
the periodwas7,200 kgs.
283
STANDARDCOSTINGANDVARIANCEANALYSIS
SolutionStandardyieldfrom6,000,i.e.(4,400 + 1,600) kgs.of outputis"""""""""""Rs. 6,000 kgs.x
90% i.e.5,400 Material A (75%)"= 4,500 kgs. @ Rs. 1"" " 4,500 Material B (25%) = 1,500 kgs. @ Rs.
5"" 7,500 """" 6,000 kgs.""""12,000 " Less"""600 kgs.(Loss)"" " " - " Output:"" 5,400
kgs.""""12,000 " Standard costof actual output(5,670 kgs.) Rs.12,600 = 5,670 x 12,000 """"5,400
Actual cost " Kgs."""""" Rs. ""Material A" 4,400"" 4,650 ""Material B" 1,600"" 7,850
"""""6,000" " """"""""12,500 " Less"""330 (Loss)"" " " """""5,670 """"""""12,500" Variance
Analysis"Material cost variance "= Actual cost - Standardcost """""""= Rs. 12,500 - Rs. 12,600 =
Rs. 100 (F) " Price variance"" " = Es. AQ (SP - AP) "Material A: Rs. 4,400 - Rs. 4,650"" = Rs. 250 (A)
""" Rs. 8,000 - Rs. 7,850"" = Rs. 150 (F) """"""""""=Rs. 100 (A) " Mix Variance = SP (Standard
proportion - Actual proportion) """""""""" Rs. " Material A:Rs. 4,500 - 4,400"" " = 100 (F) "
Material B: Rs. 7,500 - 8,000"" " = 500 (A)
284
STANDARDCOSTINGANDVARIANCEANALYSIS
" YieldVariance =Standard yieldprice (Actual yield - Standardyield) """" = Rs. 12,000 x (5,670 -
5,400) = Rs. 600 (F) """"""5,400 Total Material Cost Variance:"""""""Rs. "Price Variance:""" 100
(A) "Mix Variance:"" " 400 (A) " YieldVariance:"" " 600 (A) """""""100 (F)
16. LABOUR COST VARIANCESLabourcostvariance (alsotermedasdirectwage variance) isthe
difference betweenthe standarddirectwages specifiedforthe activityachievedandthe actual
directwagespaid.The formulaforLabour cost variance is.LCV = (StandardHoursx StandardRate) -
(Actual Hoursx Actual Rate) Asthe cost of labouris determinedbylabourtime andwages,the
labourcost variance iscomposedof eitherorbothof variancesrelatingtolabourtime andlabour
rate.As such,labourcost variance isanalysedintotwoseparate variances,viz.,wagesrate variance
and labourefficiencyvariance.(i) WagesRate Variance:Thisis thatportionof the wagesvariance
whichisdue to the difference betweenthe actual rate andstandardrate of payspecified.Itis
calculatedlike the material price variance.LabourRate Variance =Actual Hours (StandardRate -
Actual Rate) Wage rate variance occur due to the followingcauses:(i)Change inbasicwage structure
or change in piece workrate.(ii)Overtime workinexcessof thatprovidedinthe standardrate.

15. (iii)Employmentof one ormore workersof a differentgrade thanthe standardgrade. (iv)Paymentof
guaranteedwagestoworkerwhoare unable toearntheirnormal wagesif such guaranteedwages
formpart of directlabourcost.
285
STANDARDCOSTINGANDVARIANCEANALYSIS
(v)Newworkersnotbeingallowedfull normal wagesrates.(vi)Use of differentmethodof payment
i.e.paymentof dayrateswhile standardsare basedonpiece workmethodof remuneration.
(vii)Higherwagespaidonaccountof overtime forurgentwork.(viii)Thecompositionof agangas
regardsthe skill andrate of wagesbeing differentfromthatlaiddowninthe standard.Wagesrates
are usuallydeterminedbyfactorsbeyondthe control of the personnel departmentsuchas
conditionsinthe labourmarket,wagesawardsbywage boards,etc.Wage rate variancesare
therefore,mostly uncontrollable expectforthe portionwhicharisesdue todepartmentof wrong
grade of labourfor whichthe departmental executivemaybe heldresponsible.(ii)LabourTime or
EfficiencyVariance:Alsotermedaslabourefficiencyvariance,isthatportionof the directwages
variance whichisdue to the differencebetweenthe standardlabourhoursspecifiedandthe actual
labourhoursexpended.Obviously,thisvariance providesakeyto the control of worker'sefficiency
and labourcost.In effect,itisa usage variance.The computationof variance isas follows:Labour
EfficiencyVariance =StandardWage Rate (StandardHoursof production-Actual Hoursworked) The
causesgivingrise tolabourefficiencyvariance are asfollows:(i) Lackof propersupervisionor stricter
supervisionthanspecified;(ii)Poorworkingcondition;(iii) Defective machineryandequipment;(iv)
Discontentmentinworkersdue tounsatisfactorypersonnel relations;(v) Increase inlabour
turnover;(vi) Use of non-standardmaterial requiring more orlessoperationtime;(vii) Basic
inefficiencyof workersdue toinsufficienttraining,facultyinstructions,
286
STANDARDCOSTINGANDVARIANCEANALYSIS
(viii) Wrongselectionof workers.Calculationof wage variance isillustratedbelow :Example:"
Assuming: """Actual hoursworked""""5,600 """Actual wage paid"""Rs."7,840 """Standardrate
perhour"" Rs." 2 """Standardhour produced""Rs."4,000 Answer:""Wagesvariance =
Standardcost - Actual cost ""(4,000 x Rs.2) = Rs. 8,000 - Rs. 7,840 = Rs. 160 (F) ""Wagesrate
variance = Actual hours (Standardrate - Actual rate) ""5,600 Rs. 2 - Rs. 7,840" " " = Rs.3,360 (F)
""""""5,600" ""Labour efficiencyrate variance "= """Rs.2 (4,000 - 5,600)"" " = Rs. 3,200 (A)
"""""""""" Rs. 160 (F) Mentionmaybe made of a fewsubsidiaryvariancesrelatedtolabourcosts:
Idle time variance:Thisvariance whichformsaportionof wagesefficiencyvariance,isrepresented
by the standardcost of the actual hours forwhichthe workerremainidle due toabnormal
circumstances.The formulais:Idle Time Variance =(Actual hourspaidfor´ Standardrate)
"""""(Actual hoursworked´Standardrate) """""""or"""""Idle Hours´ Standardrate. It isalways
adverse.Suppose inthe example givenabove the actual time includes1,000 idle hours.The Idle
Time Variance will thenbe Rs.2,000 (A);the efficiencyVariancewillbe thenRs.1,200 (A),makinga
total of Rs. 3,200 (A).LabourMix Variance:Alsoknow asGang CompositionVariance.Thisisa
subvariance whicharisesdue tochange inthe compositionof astandard gangof combinationof
labourforce.
287
STANDARDCOSTINGANDVARIANCEANALYSIS

16. The formulafor computinglabourmix-variance is:"(Actual hoursatstandardrate of actual gang "
Actual hoursat standardrate of standardgang.) " or " Standardrate ( Revisedstandardlabourhours
- Actual labourhours) " Revisedlabour=" Total of actual hoursx Standardhours""""""Total of
standardhours The calculationisjustlike thatof materials.Itisincludedinthe efficiencyortime
variance discussedabove.LabourYieldVariance:Thisisdue tothe difference inthe standardoutput
specifiedandthe actual outputobtained.Thisiscomputedasfollows:Labouryieldvariance =
Standardcost (Actual output - standard output) """""or(Standardlossof actual total input - Actual
loss) ´ Average standardrate perunit.If the actual outputis more than standard output,itis
favourable variance andvice versa.Illustration - 5A factory,workingfor50 hoursa week,employs
100 workersona job work.The standardrate isRe. 1 an hour and standardoutputis 200 unitsper
gang hour.Duringa weekinJune,tenemployeeswerepaidat80 p. an hourand five at Re. 1.20 an
hour.Rest of the employeeswere paidatthe standardrate.Actual numberof unitsproducedwas
10,200 Calculate labourcostvariances.
288
STANDARDCOSTINGANDVARIANCEANALYSIS
Solution:(i) Costvariance "standardCost - Actual Cost " Rs. 5,100 - Rs. 4,950 = Rs. 150 (F) Workings
(ii) Rate variance:"(a) Calculationof Actual Cost:""""""Rs.""15 workersfor50 hours @ Re. 1 per
hour""="" 4,250 ""10 workersfor50 hours@ 80 p. perhour "" =" " 400 ""5 workersfor50
hours@ Rs.1.20 perhour" ="" 300 """"""""Total Actual Cost""" " 4,950 " (b) Calculationof
StandardRate: ""Standardcost (pergang hour) ""StandardProduction(perganghour) """100 x
Re.1 ""=" 200 units"""Rs.100"= 50 per units ""="200 units" (c) Calculationof StandardCost:
""Actual productionx Standardrate ""10,200 unitsx 50 p.per unit= Rs. 5,100 Asthe actual wage
rate hasdeviatedfromthe standardinrespectof only15 workerfromout of a total of 100 workers,
wagesrate variance wouldbe calculatedonlyinrespectof these 15 workers.(iii)EfficiencyVariance:
" Actual Hours (standardrate - Actual Rate) " Therefore, "500 Hours (Re.1 - 80 p.)""= Rs.100(F) "
250 Hours(Re.1 - Rs. 1.20)" = Rs. 50(A) " thus,the total rate variance isRs. 50 (F)
289
STANDARDCOSTINGANDVARIANCEANALYSIS
efficiencyvariance isindicatedbythe factthat,as comparedwithstandardproductionof 10,000
units(200 units´ 50 hours),the actual productionis10,200 unitsStandard Rate ( StandardHours -
Actual Hours) Re. 1 (5,100) = Rs.100 favourable.Calculationof StandardHours:""Actual
production""""x " No.of workers ""Standardproductionperhour""10,200 units" x " 100 = 5,100
hours ""200 units(iv) YieldVariance:"StandardLabour cost perunitof output(SY-AY) "0.50
(10,000_10,200) = Rs. 100 (F) " verification:"CostVariance + EfficiencyVariance "Rs.150 (F) = 50
(F) + Rs.100 (F)
17. OVERHEADCOST VARIANCESThe total overheadcostvariance is the difference betweenthe
StandardCost of overheadallowedforthe actual outputachievedandthe actual overheadcost
incurred.Inotherwords,overheadcostvariance isthe underor overabsorptionof overheads.
Overheadcostvariance iscalculatedas follows:[Actual outputx Standardoverheadrate perunit] -
Actual overheadcost"""""or[Standardhoursfor actual outputx Standard overheadrate perhour] -
Actual overheadcostOverheadcostvariancescanbe classifiedas:
290

17. STANDARDCOSTINGANDVARIANCEANALYSIS
(i) Variable overheadvariance (ii) Fixedoverheadvariance Variable OverheadVariance Itisthe
difference betweenthe standardvariable overheadcostallowedforthe actual outputachievedand
the actual variable overheads.Normallythisvarianceisrepresentedbyexpenditure (cost) variance
onlybecause variable overheadcostwill varyinproportiontoproductionsothatonlya change in
expenditure cancause suchvariance.Itis calculatedas:Variable OverheadVariance:(Standard
variable OverheadRate x Actual Output) - Actual Variable Overheadsor(StandardHoursfor Actual
Outputx StandardVariable OverheadRate) - actual Variable overheads.The variable overheadcost
variance isusuallycalculatedintotal onlysince variable overhead varyaccordingtooutputand not
accordingto time,hence,there isonlyone variance.However,some accountantsargue thatcertain
variable overheadmayvaryaccordingtotime also,hence variable overheadefficiencyvariance arise
justlike labourefficiencyvariance anditcan be calculatedif informationrelatingtoactual time
takenand allowedisgiven.Insuchcase variable overheadvariance canbe segregatedintotwo
parts. (i) Variance OverheadExpenditure Variance=( Actual hoursx StandardVariable Overhead
Rate perhour) - Actual Variable Overhead.orActual hours(StandardVariable OverheadRate per
hour - Actual Variable OverheadRate perhour).(ii)Variable OverheadEfficiencyVariance=
(StandardTime forActual productionx StandardVariable OverheadRate perhour) - Actual Hours
workedx Standardvariable OverheadRate perhour).or
291
STANDARDCOSTINGANDVARIANCEANALYSIS
StandardVariable OverheadonActual Production - StandardVariableoverheadforactual time or
RecoveredOverheads - StandardOverheads.Illustration7The followingdataisobtainedfromthe
booksof a manufacturingcompanyregardingvariableoverheads:BudgetedproductionforJanuary
300 unitsBudgetedvariable overhead"""Rs. 7,800 Standardtime for one unit" " " 20 hours
Actual productionforJanuary"" 250 units Actual hoursworked""" " " 4,500 hours Actual
variable overhead"""" Rs. 7,000 Solution1." Variable OverheadVariance = "StandardCost -
Actual Cost " Rs. 6,500 - Rs. 7,000 = Rs. 500 (A) Workings:FixedOverheadVariance "(a) "Standard
variable overheadcostof actual outputis ""250 unitsx Rs. 26 per unit= Rs. 6,500 " (b)"Standard
variable costperunitis ""Budgetedvariableoverhead"or"Rs.7,800" or" Rs.26 perunit
"""Budgetedproduction"""300 units
292
STANDARDCOSTINGANDVARIANCEANALYSIS
Sometimes,alittlerefinementisintroducedinthe calculationof variable overheadvarianceand,
therefore,the computationisasfollows:"(i)"VariableOverheadExpenditure Variance = ""Actual
Cost - Standard overheadonhoursworked ""Rs.7,000 - Rs. 5,850 = Rs. 1,150 (A) ""(a) Standard
variable overheadonhoursworkedis - """4,500 hours x Rs. 1.30 per hour = Rs. 5,850 ""(b)"
Standardvariable overheadperhouris - """Standard variable overheadperunit"="Rs. 26" =" Rs.
1.30 """No.of hoursrequiredfora unit"""20 hours "(ii)"Variable OverheadEfficiencyVariance "=
""Standardvariable overheadonhoursworked - standardvariable """overheadonactual output
""Rs.5,850 - Rs. 6,500 = Rs. 650 (F)
FixedoverheadVariance Itisthe difference betweenthe standardcostof fixedoverheadallowedfor
the actual outputachievedandthe actual fixedoverheadx costincurredi.e.(Actual outputx
Standardfixedoverhead rate) - Actual fixedoverheadsor(Standardhoursproducedx Standardfixed

18. overheadrate perhour) - Actual fixedoverhead.Standardoverheadproducedmeanshourswhich
shouldhave beentakenforthe actual output.Fixedoverheadvariance maybroadlybe dividedinto:
(i) Expenditurevariance and(ii) Volumevariance.(i) Expenditure Variance Thisisalsoknow as
budgetvariance.Thisisobtainedbycomparingthe total overheadcostactuallyincurredagainstthe
budgetedoverheadcosti.e.
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STANDARDCOSTINGANDVARIANCEANALYSIS
BudgetedoverheadsActual overheads.If the actual overheadsare more,itshall resultinanadverse
variance andvice versa.Thisvariance givesa measure of efficiencyof spending.Illustration - 6 The
followinginformationrelates tothe monthof June,1999 """""""Budgeted"""Actual Output"" " "
" " 20,000 units"""22,000 units """"""""Rs."""" " Rs. Overheads"- Variable""
1,00,000"""1,07,000 """- Fixed""" 1,50,000"""1,58,000 Compute the overheadsvariance.Solution:
(i)Variable overheadsallowedorbudgetedforactual output""""""""""""Rs. "= 22,000 x 1,00,000" "
" " " " " 1,10,000 """"20,000 " Actual amountspent""" " " " " 1,07,000 " Variable overhead
variance"" " " " 3,000 (F) (ii) Fixedoverheadforthe period(change in Outputhavingnoeffect
on expenditure)"""1,50,000 Actual fixedoverhead""""" " " 1,58,000 Fixedoverhead
expenditure variance""" 8,000 (A) Total overheadsvariance""" " " " 5,000 (A) (II) Volume
Variance The difference betweenoverheadabsorbedonactual outputand those onbudgeted
outputistermedas volume variance.Thisvariance showsthe overorunderabsorptionof fixed
overheadsduringaparticularperiod.If the actual outputismore thanthe standard output,there is
over-recoveryof fixedoverheadsandvolume varianceisfavourableandvice versaif the lessthen
the standard output.
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STANDARDCOSTINGANDVARIANCEANALYSIS
Volume Variance =(Actual outputx Standardrate) - BudgetedfixedoverheadsorStandardrate
(Actual output- Standard output) orStandardrate per hour(Standardhoursproduced - Budgeted
hours) N.B.Standardhour producedmeansnumberof hourswhichshouldhave beentakenforthe
actual outputas perthe standard laiddown.Volume variance canbe furthersub-dividedintothe
followingvariances:(i)CapacityVariance:Itisthatportionof the volume variance whichisdue to
workingat higherorlowercapacitythan the standardcapacity.It is relatedtothe underor over
utilisationof plantandequipment.Itisrepresentedas:Standardrate (Standardunits - Revised
budgetedunits) orStandardrate (Actual hours - Revisedbudgetedhours) (ii) Calendarvariance:Itis
that portionof the volume variance whichisdue tothe difference betweenthe numberof working
daysanticipatedinthe budgetperiodandthe actual workingdaysexceedinthe periodtowhichthe
budgetisappliedif the actual workingdaysexceedstandarddays,the variance will be favourable
and vice-versa.Itiscalculatedas:Standardrate (Revisedbudgetedunits - Budgetedunits) or
Increase or decrease inproductiondue tomore or lessworkingdaysatthe rate of revisedcapacityx
Standardrate perunit.or Standard rate (Revisedbudgethours - Budgethours)
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STANDARDCOSTINGANDVARIANCEANALYSIS
Illustration - 7 The budgetedcapacityof a factoryper monthof 25 dayswas 2,00,000 hoursand the
budgetedfixedoverheadswere Rs.2,40,000. The managementincreasedthe capacityby20% inthe

19. beginningof October,1991; the actual numberof workingdaysinthat monthwere 23. Compute the
variancesthatemerge.Solution:Budgetedfixedoverheadrecoveryrate Rs.1.20 i.e.2,40,000 /
2,00,000 Actual productionintermsof hours(2,00,000 + 20%) x 23/25 or 2,20,800 Volume Variance
" Volume variance:Fixedoverheadsabsorbedon2,20,800 """"" Hours @ Rs.1.20 perhours""Rs.
2,64,960 """"" Budgeted fixedoverheads""Rs.2,40,000 """"" Volume Variance""" " " 24,960
(F) """"""(or20,800 hours @ Rs. 1.20) AnalysisCapacityVarianceproductionintermof hourof new
" Capacity - i.e.2,00,000 + 20%""""""Hrs. 2,40,000 " Fixedoverheadsabsorbed@orRs. 1.20 per
hours"Rs. 2,88,000 " Fixedoverhead,budgeted"""""""Rs. 2,40,000 """"""""""""""Rs. 48,000 (F)
CalendarVariance:Lossof hoursdue to 2 extraHolidays "2,40,000 x 2 """ 25" " " " " " " " " " "
19,200 " Loss of fixedoverheadsabsorbed "because of lossof hours19,200 x1.20"" " " " Rs. 23,040
(A) CapacityVariance""" " " " " " " " Rs. 48,000 (F) CalendarVariance"""" " " " " " " Rs. 23,040 (A)
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STANDARDCOSTINGANDVARIANCEANALYSIS
(iii) EfficiencyVariance:Itisthatportionof the volume variance whichisdue tothe budgeted
efficiencytoproductionandthe actual efficiency achieved.Itiscalculatedasfollows:StandardRate
(Actual productioninunits - Standardproductioninunits) orStandardrate perhour (Actual hours
worked - Standardhours foractual production).N.B.Standardproductionorhoursmeansbudgeted
productionorhours adjustedtoincrease ordecrease inproductiondue tocapacityor calendar
variances.
18. SALES VARIANCESSalesvariance alsoknownassalesvalue orsalesrevenue variance isthe
difference betweenbudgetbetweenbudgetedvalue of salesand the actual value of salesachieved
ina givenperiod.Salesvariance maybe analysedintwoways:i.e.(i) Salesmarginvariance (onthe
basisof profit) and (ii) salesvalue variance (onthe basisof turnover).(i) SalesVariance (Basedon
profit) Salesmarginvariance indicatesthe difference betweenactual profitandstandardor
budgetedprofit.Itiscalculatedas:Actual profit - Budgetedprofit (Actual quantityof salesx Actual
profit perunit) - (Budgetedquantityof salesx Budgetedprofitperunit) Thisvariance isfurther
classifiedinto: (i)Price variance and(ii) Volumevariance.(i) SalesPrice Variance:Itisthe portionof
total salesmarginvariance whichisdue to the differencebetweenthe standardprice of the quantity
of saleseffectedandthe actual price of those sales.Salesprice variance =Actual quantityof sales
(Actual profitperunit- standardprofit perunit)
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STANDARDCOSTINGANDVARIANCEANALYSIS
or (Actual quantityof salesx Standardprice) - Actual quantityof salesx Actual price) (ii) Sales
Volume Variance:Itisthatportionof total salesmarginvariance whichdue to the difference
betweenthe budgetedquantityandthe actual quantityof sales.Salesvolume variance =Standard
profit perunit(Actual quantityof sales - Standardquantityof sales) orStandardprofit on actual
quantityof sales - Standardprofit on standardquantityof sales.Salesmarginvariance due tovolume
can be furtheranalysedintotosubvariances:(a) Mix Variance:Whenmore thanone productis
manufacturedandsold,the difference inprofitcanresultbecause of the variationof actual mix and
budgetedmix of sales.The difference inprofittherefore isthe mix variance.Salesmix variance =
Standardprofit perunit(Actual quantityof sales - Standardproportionforactual sales) orRevised
standardprofit - Budgetedprofit.SalesVariance (Basedonturnover) SalesValueVariance:Itisthe
difference betweenthe actual value of salesandstandardvalue of sales.i.e.(Actual quantityx Actual

20. SellingPrice)- (standardquantityx Standardsellingprice).Sale value variance furtheranalysedinto
salesprice variance andsalesvolume variance.(i) SalesPrice Variance:Itisthe difference between
the standard andactual pricesof the saleseffected.Itiscalculatedas:Actual quantity(Actual selling
price - StandardSellingprice).
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STANDARDCOSTINGANDVARIANCEANALYSIS
(ii) SalesVolume Variance:Itisthe difference betweenthe actual quantityof salesandstandard
quantityof salesi.e.Std.Sellingprice (Actual quantityof sales - standardquantityof sales).Sales
volume variance isfurtherclassifiedintosalesmixvariance andsalesquantityvariance:SalesMix
Variance:Itis that part of the salesvolume variance anda rise due tothe difference inthe
proportioninwhichvariousarticlesare soldandthe standardproportioninwhichvariousarticles
were tobe soldi.e.Standardvalue of actual Mix - Standardvalue of revisedstandardsmix.Sales
QuantityVariance:Itisthat part of the salesvolume variance whicharisesdue tothe difference
betweenrevisedstandardsalesquantityandbudgetedsalesquantityandbudgetedsalesquantity.
i.e.Standardsellingprice perunit( standardproportionforactual salesquantity - budgetedquantity
of sales).orRevisedStandardsalesvalue - Budgetedsalesvalue.
19. REPORTINGOF VARIANCESThe primarypurpose of reportingtomanagementistoenable them
to take corrective actionandarrest unfavourable variancestothe extentpossible.Therefore,timely
and promptreportingof the variance isof utmostimportance.The individualordepartment
responsible foradverse controllable varianceshouldbe located.Forinstance,avariationinthe price
paidfor raw material wouldbe the responsibilityof the purchase manager.The boardandthe
managingdirectorwouldbe concernedwiththe overallefficiency,withwhichtheirplanshave been
operatedina special mannerstartingwiththe standardorbudgetprofit,the variousvarianceswould
be put intwo columns,favourableandunfavourable,andthe netresultsaddedtoordeductedfrom
the standard profit,thusarrivingat the actual profit.Managementcan be easilysee the factorsthat
have contributedtothe change inthe profitpicture.While reportingthe analysisof variancesto
299
STANDARDCOSTINGANDVARIANCEANALYSIS
management,graphsandcharts mightbe usedor analysismaybe reportedinthe formof statement
and reportsgivingmaindetails.Inorderthatvariance reportingshouldbe effective,itisessential
that the followingconditionare fulfilled:(i)The variancesarisingoutof eachfactorshouldbe
correctlysegregated.If partof a variance due toone factor is wronglyattributedtoormergedwith
that of another,the analysisreportsubmittedtothe managementwouldbe misleadingandwrong
inferencesmaybe drawnfromit; (ii)Variance,particularlythe controlledvariance shouldbe
reportedwithpromptnessassoonastheyoccur. Thiswouldenable corrective actionbeingtakenin
time;(iii)Analysisof uncontrollable varianceshouldbe made withthe same care asfor controllable
variancessince the analysisof the off standardsituationmayreveal farreachingeffectsonthe
economyof the concern;(iv)The formsof reportsforthe differenttypesof variancesshouldbe
designedkeepinginviewthe needsof the managementandthe size of the concern,and no
standardformscan, therefore,be suggested.Itisbettertopresentthe profitfiguresbyway of
reconciliationof budgeted(orstandard) andactual profiton the basisof variances.Thisisillustrated
below:A statementof the type givenabove enablesmanagementtolocate the pointsthatneed
attention - a veryimportantobjective of standardcosting.

21. 300
STANDARDCOSTINGANDVARIANCEANALYSIS
Profitand Loss Statementforthe Month of ......"""""""""""""Rs. Profitasbudgeted""" " " " " " "
1,25,000 Variance""""""Dr.""" Cr. Material - " Usage" " " " 4,000" """Price"" " " " " " 2,000 Labour -
"" Idle Time"""2,500"""Efficiency""" 1,500 """Rate of pay""" 3,000 Overheads - Variable:"
Expenditure"""" " " 1,500 Fixed:""Expenditure"""" " " 2,000 """Volume"""" 2,500
Capacity"""4,500 """""Dr. Calendar"""1,000 """""Cr. Efficiency""" 1,000 """""Cr. Selling
price""" " " " " " " 10,000 """"""""13,500"" 15,500"" 2,000" " """"""""""""""(Cr.)""""""""""""""""""
Actual Profit""" " " " " " " 15,500"" 1,27,000"