The Professionals’ Academy Of Commerce

Certificate in Accounting and Finance Stage Examinations

Chapter-S.C& Variance January 6, 2023
Section: B 20 marks – 35 Mins

CMAC
Question 1
Extract from the records of Delta Limited for the year are as under:
Budget Actual
---------- Rupees ----------
Sales 27,000,000 27,295,000
Variable costs:
Raw Material (7,500,000) (8,461,450)
Labor (9,375,000) (9,463,125)
Variable overheads (3,000,000) (2,974,125)
Contribution 7,125,000 6,396,300
An analysis of the above figures has revealed the following:
 Actual units sold were 3% more than the budgeted sales quantity. This difference in units
was 1,500 units. Actual sale price was lower by Rs. 10/- per unit than standard.
 One unit of finished product requires 3 kgs of raw material and actual raw material price
was 6% higher than the standard price.
 Standard labor cost per hour was equivalent to 150% of standard raw material cost per kg.
 Production department records show that labor utilization per unit of finished product was
0.125 hour more than the budget.
 Variable overheads varied in line with labor hours.
Required:
Compute relevant variances and prepare a statement reconciling budgeted contribution with the
actual contribution. (20)
 CAF – 03 [Test – 8] SOLUTION
Variance analysis

Solution 1

Standard card (per unit)

Qty Rate (Rs.)
Sale price 540.00 [27,000,000 / 50,000(W-1)]

Direct material 3 Kg 50.00 [7,500,000 / 150,000(W-2) Kg]

Direct labor [125,000(W-3)/50,000] 2.5 hours 75.00 [50 x 150%]
Variable OH 2.5 hours 24.00 [3,000,000 / 125,000]

W-1
Budgeted production = 1,500 / 3% = 50,000 units

W-2
Budgeted material consumption = 50,000* x 3Kg = 150,000 Kg

W-3
Budgeted labor hours = 9,375,000 / 75 = 125,000 hours

Variances
(1) Sale price variance (2) Sale volume variance
= Actual sales – AQ (sale) x SP = AQ (sale) x S. Cont. – BQ (sale) x S. Cont.
= 27,295,000 – 51,500* x 540* = 51,500 x 142.5* – 50,000 x 142.5
= (515,000) = 213,750

* 50,000 + 1,500 = 51,500 units * 7,125,000 / 50,000 = Rs. 142.50 per unit

(3) Material price variance (4) Material usage variance

= AQ x SC – AQ x AC = SQ x SC – AQ x SC
= 159,650Kg* x 50 – 8,461,450 = 154,500Kg* x 50 – 159,650Kg x 50
= (478,950) = (257,500)

* 8,461,450 / (50 x 1.06) = 159,650 Kg * 51,500 x 3 = 154,500 Kg

(5) Labor rate variance (6) Labor efficiency variance

= AH x SR – AH x AR = SH x SR – AH x SR
= 135,187.5 hours* x 75 – 9,463,125 = 128,750 hours* x 75 – 135,187.5 hours x 75
= 675,938 = (482,813)

* 51,500 x (2.5 + 0.125) = 135,187.5 hours * 51,500 x 2.50 = 128,750 hours

(7) variable OH spending variance (8) Variable OH efficiency variance

= AH x SR – AH x AR = SH x SR – AH x SR
= 135,187.5 hours x 24 – 2,974,125 = 128,750 hours x 24 – 135,187.5 hours x 24
= 270,375 = (154,500)

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 CAF – 03 [Test – 8] SOLUTION
Variance analysis

Reconciliation
----------- Rs. ----------
Budgeted contribution 7,125,000
Sale variances:
Sale price variance (515,000)
Sale volume variance 213,750 (301,250)
Cost variances:
Material price variance (478,950)
Material usage variance (257,500)
Labor rate variance 675,938
Labor efficiency variance (482,813)
Variable OH spending variance 270,375
Variable OH efficiency variance (154,500) (427,450)
Actual contribution 6,396,300

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