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ACC 202

Cost and Management Accounting

TU BIM · Semester 4 · BIM curriculum effective from 2021

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Cost and Management Accounting 2080 Official Model Question Paper

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Tribhuvan University

Faculty of Management

Office of the Dean

Official Model Question Paper / Dean's Office Blueprint

Course: ACC 202 · Cost and Management Accounting

Level: Bachelor of Information Management (BIM) · Semester 4

Full Marks: 60

Time: 3 hrs.

Candidates are required to give their answers in their own words as far as practicable. Figures in the margin indicate full marks.

Group A

Brief Answer Questions. Attempt ALL questions. (5 × 2 = 10)

[5*2=10]
  1. [2]

    Distinguish between cost accounting and financial accounting in terms of primary users and statutory requirement.

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    Cost Accounting vs. Financial Accounting

    Basis Cost Accounting Financial Accounting
    Primary Users Internal management (executives, operational managers, cost controllers) for planning, budgeting, and operational control. External stakeholders (shareholders, banks, creditors, tax authorities, regulators).
    Statutory Requirement Generally voluntary and tailored to operational needs (except where statutory cost audit is mandated by law). Legally mandatory for registered companies per corporate laws and tax statutes.
    Reporting Focus Future-oriented operational segments, product lines, and cost centers. Historical financial position and performance of the enterprise as a single whole.
  2. [2]

    Define Economic Order Quantity (EOQ). State the mathematical formula used to compute EOQ under certainty.

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    Meaning and Formula of Economic Order Quantity (EOQ)

    Economic Order Quantity (EOQ) is the optimum order size that minimizes total annual inventory costs by balancing annual ordering costs with annual inventory carrying (holding) costs.

    EOQ=2×A×OC\text{EOQ} = \sqrt{\frac{2 \times A \times O}{C}}

    Where:

    • AA = Annual requirement / demand in units
    • OO = Ordering cost per purchase order (Rs)
    • CC = Carrying / holding cost per unit per annum (Rs)
  3. [2]

    Differentiate between allocation and apportionment of overheads.

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    Allocation vs. Apportionment of Overheads

    • Overhead Allocation: The direct assignment of whole items of cost to specific cost centers or cost units where the cost is identifiable with that particular department (e.g., salary of the canteen manager allocated directly to the canteen department).
    • Overhead Apportionment: The distribution of common or shared overhead costs among two or more cost centers on an equitable and logical basis because they cannot be directly traced to a single department (e.g., factory rent apportioned on the basis of floor area occupied).
  4. [2]

    Why does inventory valuation differ between absorption costing and variable costing?

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    Difference in Inventory Valuation

    In Absorption Costing, product cost includes direct materials, direct labor, variable manufacturing overhead, and fixed manufacturing overhead. Consequently, closing inventory carries a portion of fixed production overhead into the subsequent accounting period.

    In Variable Costing, product cost includes only variable manufacturing costs. Fixed manufacturing overhead is treated entirely as a period cost and expensed immediately in the period incurred. Therefore, closing inventory under absorption costing is always valued higher than under variable costing whenever fixed factory overhead exists.

  5. [2]

    What is meant by opportunity cost and sunk cost? Give one business example of each.

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    Opportunity Cost and Sunk Cost

    1. Opportunity Cost: The potential benefit or net economic return forgone by choosing one alternative course of action over the next best available alternative.
      • Example: A company utilizing its own warehouse for manufacturing instead of renting it out for Rs 50,000 per month foregoes Rs 50,000 rental income as an opportunity cost.
    2. Sunk Cost: A historical expenditure that has already been incurred and cannot be recovered or altered by any current or future decision. Sunk costs are irrelevant for decision-making.
      • Example: Rs 200,000 spent on market research last year to evaluate launching a new software product.

Group B

Descriptive Answer Questions. Attempt any THREE questions. (3 × 10 = 30)

[3*10=30]
  1. [10]

    A manufacturing enterprise provides the following data regarding its primary raw material component:\n- Annual consumption: 24,000 units\n- Cost per unit: Rs 100\n- Cost of placing an order: Rs 300\n- Inventory carrying cost: 15% per annum\n- Normal usage: 100 units per day; Minimum usage: 60 units per day; Maximum usage: 140 units per day\n- Lead time for delivery: 10 to 20 days (Average lead time: 15 days)\n\nRequired:\na. Economic Order Quantity (EOQ) and total inventory cost at EOQ\nb. Reorder Level (ROL)\nc. Maximum Stock Level\nd. Minimum Stock Level\ne. Danger Stock Level (assuming emergency lead time is 4 days)

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    Comprehensive Inventory Control Calculations

    a. Economic Order Quantity (EOQ)

    • Annual demand (AA) = 24,000 units
    • Ordering cost (OO) = Rs 300 per order
    • Carrying cost (CC) = 15%×Rs 100=Rs 1515\% \times \text{Rs } 100 = \text{Rs } 15 per unit per year
    EOQ=2×24,000×30015=14,400,00015=960,000≈979.80 units (or 980 units)\text{EOQ} = \sqrt{\frac{2 \times 24{,}000 \times 300}{15}} = \sqrt{\frac{14{,}400{,}000}{15}} = \sqrt{960{,}000} \approx 979.80 \text{ units (or } 980 \text{ units)}

    Total Annual Inventory Cost at EOQ (Ordering + Carrying):

    Total Cost=(AEOQ×O)+(EOQ2×C)\text{Total Cost} = \left(\frac{A}{\text{EOQ}} \times O\right) + \left(\frac{\text{EOQ}}{2} \times C\right)
    Annual Ordering Cost=24,000979.80×300=Rs 7,348.47\text{Annual Ordering Cost} = \frac{24{,}000}{979.80} \times 300 = \text{Rs } 7{,}348.47
    Annual Carrying Cost=979.802×15=Rs 7,348.50\text{Annual Carrying Cost} = \frac{979.80}{2} \times 15 = \text{Rs } 7{,}348.50
    Total Associated Cost at EOQ=Rs 7,348.47+Rs 7,348.50=Rs 14,696.97\text{Total Associated Cost at EOQ} = \text{Rs } 7{,}348.47 + \text{Rs } 7{,}348.50 = \text{Rs } 14{,}696.97

    b. Reorder Level (ROL)

    ROL=Maximum Consumption×Maximum Lead Time=140×20=2,800 units\text{ROL} = \text{Maximum Consumption} \times \text{Maximum Lead Time} = 140 \times 20 = 2{,}800 \text{ units}

    c. Maximum Stock Level

    Maximum Level=ROL+EOQ−(Minimum Consumption×Minimum Lead Time)\text{Maximum Level} = \text{ROL} + \text{EOQ} - (\text{Minimum Consumption} \times \text{Minimum Lead Time})
    Maximum Level=2,800+980−(60×10)=3,780−600=3,180 units\text{Maximum Level} = 2{,}800 + 980 - (60 \times 10) = 3{,}780 - 600 = 3{,}180 \text{ units}

    d. Minimum Stock Level (Safety Buffer)

    Minimum Level=ROL−(Normal Consumption×Normal Lead Time)\text{Minimum Level} = \text{ROL} - (\text{Normal Consumption} \times \text{Normal Lead Time})
    Minimum Level=2,800−(100×15)=2,800−1,500=1,300 units\text{Minimum Level} = 2{,}800 - (100 \times 15) = 2{,}800 - 1{,}500 = 1{,}300 \text{ units}

    e. Danger Stock Level

    Danger Level=Average/Minimum Consumption×Emergency Lead Time=100×4=400 units\text{Danger Level} = \text{Average/Minimum Consumption} \times \text{Emergency Lead Time} = 100 \times 4 = 400 \text{ units}
  2. [10]

    Pashupati Tech Industries manufactures electronic components with the following cost structure for the financial year:\n- Selling price per unit: Rs 500\n- Variable manufacturing cost per unit: Rs 250\n- Variable selling and administrative expense per unit: Rs 50\n- Total annual fixed costs: Rs 1,200,000 (comprising fixed manufacturing overhead Rs 800,000 and fixed administrative expense Rs 400,000)\n\nRequired:\na. Profit-Volume (P/V) ratio\nb. Break-Even Point (BEP) in units and in sales revenue (Rs)\nc. Margin of safety in units and percentage if current annual sales are 8,000 units\nd. Number of units required to be sold to earn a target profit after tax of Rs 300,000 assuming a corporate income tax rate of 25%\ne. New break-even point in rupees if the selling price is reduced by 10% and fixed costs increase by Rs 100,000

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    Cost-Volume-Profit (CVP) Analysis

    a. Profit-Volume (P/V) Ratio

    • Selling Price per unit (SPSP) = Rs 500
    • Total Variable Cost per unit (VCVC) = Rs 250+Rs 50=Rs 300\text{Rs } 250 + \text{Rs } 50 = \text{Rs } 300
    • Contribution Margin per unit (CMCM) = SP−VC=500−300=Rs 200SP - VC = 500 - 300 = \text{Rs } 200
    P/V Ratio=CMSP×100=200500×100=40%\text{P/V Ratio} = \frac{CM}{SP} \times 100 = \frac{200}{500} \times 100 = 40\%

    b. Break-Even Point (BEP)

    • Total Fixed Cost (FCFC) = Rs 1,200,000
    BEP (units)=FCCM=1,200,000200=6,000 units\text{BEP (units)} = \frac{FC}{CM} = \frac{1{,}200{,}000}{200} = 6{,}000 \text{ units}
    BEP (Rs)=FCP/V Ratio=1,200,0000.40=Rs 3,000,000\text{BEP (Rs)} = \frac{FC}{\text{P/V Ratio}} = \frac{1{,}200{,}000}{0.40} = \text{Rs } 3{,}000{,}000

    c. Margin of Safety (at 8,000 units)

    Margin of Safety (units)=Actual Sales−BEP Sales=8,000−6,000=2,000 units\text{Margin of Safety (units)} = \text{Actual Sales} - \text{BEP Sales} = 8{,}000 - 6{,}000 = 2{,}000 \text{ units}
    Margin of Safety (Rs)=2,000×500=Rs 1,000,000\text{Margin of Safety (Rs)} = 2{,}000 \times 500 = \text{Rs } 1{,}000{,}000
    Margin of Safety (%)=2,0008,000×100=25%\text{Margin of Safety (\%)} = \frac{2{,}000}{8{,}000} \times 100 = 25\%

    d. Sales Required for Target After-Tax Profit of Rs 300,000

    • Tax rate (tt) = 25% = 0.25
    • Target Pre-tax Profit = Target Profit After Tax1−t=300,0001−0.25=Rs 400,000\frac{\text{Target Profit After Tax}}{1 - t} = \frac{300{,}000}{1 - 0.25} = \text{Rs } 400{,}000
    Required Sales (units)=FC+Profit1−tCM=1,200,000+400,000200=1,600,000200=8,000 units\text{Required Sales (units)} = \frac{FC + \frac{\text{Profit}}{1 - t}}{CM} = \frac{1{,}200{,}000 + 400{,}000}{200} = \frac{1{,}600{,}000}{200} = 8{,}000 \text{ units}

    e. Revised Break-Even Point under Cost & Price Modifications

    • New Selling Price = 500−(10%×500)=Rs 450500 - (10\% \times 500) = \text{Rs } 450
    • New Variable Cost per unit = Rs 300 (unchanged)
    • New Contribution Margin (CMnewCM_{new}) = 450−300=Rs 150450 - 300 = \text{Rs } 150
    • New P/V Ratio = 150450=13≈33.33%\frac{150}{450} = \frac{1}{3} \approx 33.33\%
    • New Fixed Cost = 1,200,000+100,000=Rs 1,300,0001{,}200{,}000 + 100{,}000 = \text{Rs } 1{,}300{,}000
    New BEP (Rs)=1,300,000150/450=1,300,000×3=Rs 3,900,000\text{New BEP (Rs)} = \frac{1{,}300{,}000}{150 / 450} = 1{,}300{,}000 \times 3 = \text{Rs } 3{,}900{,}000
  3. [10]

    The normal operating capacity of Everest Manufacturing Company is 10,000 direct labor hours. The budgeted overhead costs at 60% capacity (6,000 hours) and 80% capacity (8,000 hours) are as follows:\n- Indirect materials: Rs 30,000 (at 6,000 hours); Rs 40,000 (at 8,000 hours)\n- Indirect labor: Rs 60,000 (at 6,000 hours); Rs 80,000 (at 8,000 hours)\n- Maintenance cost: Rs 28,000 (at 6,000 hours); Rs 32,000 (at 8,000 hours)\n- Power and electricity: Rs 38,000 (at 6,000 hours); Rs 46,000 (at 8,000 hours)\n- Factory depreciation: Rs 50,000 (at 6,000 hours); Rs 50,000 (at 8,000 hours)\n- Plant insurance: Rs 20,000 (at 6,000 hours); Rs 20,000 (at 8,000 hours)\n\nRequired:\na. Segregate semi-variable costs into fixed and variable components using the high-low method\nb. Prepare a Flexible Budget showing total overhead expenses for 70% (7,000 hours), 90% (9,000 hours), and 100% (10,000 hours) activity levels.

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    Cost Segregation and Flexible Budget

    a. Cost Segregation using High-Low Method

    • Change in Activity = 8,000−6,000=2,0008{,}000 - 6{,}000 = 2{,}000 direct labor hours.
    1. Indirect Materials: 40,000−30,0002,000=Rs 5\frac{40{,}000 - 30{,}000}{2{,}000} = \text{Rs } 5 per hour (Purely Variable).
    2. Indirect Labor: 80,000−60,0002,000=Rs 10\frac{80{,}000 - 60{,}000}{2{,}000} = \text{Rs } 10 per hour (Purely Variable).
    3. Maintenance Cost (Semi-Variable):
      • Variable rate = 32,000−28,0002,000=Rs 2\frac{32{,}000 - 28{,}000}{2{,}000} = \text{Rs } 2 per hour.
      • Fixed Component = Total Cost−(Variable rate×Hours)=28,000−(2×6,000)=Rs 16,000\text{Total Cost} - (\text{Variable rate} \times \text{Hours}) = 28{,}000 - (2 \times 6{,}000) = \text{Rs } 16{,}000.
    4. Power and Electricity (Semi-Variable):
      • Variable rate = 46,000−38,0002,000=Rs 4\frac{46{,}000 - 38{,}000}{2{,}000} = \text{Rs } 4 per hour.
      • Fixed Component = 38,000−(4×6,000)=Rs 14,00038{,}000 - (4 \times 6{,}000) = \text{Rs } 14{,}000.
    5. Depreciation & Insurance: Fully fixed at Rs 50,000 and Rs 20,000 respectively.

    Summary of Rates:

    • Variable Overhead Rate = Rs 5+10+2+4=Rs 21\text{Rs } 5 + 10 + 2 + 4 = \text{Rs } 21 per direct labor hour.
    • Total Fixed Cost = Rs 16,000+14,000+50,000+20,000=Rs 100,000\text{Rs } 16{,}000 + 14{,}000 + 50{,}000 + 20{,}000 = \text{Rs } 100{,}000.

    b. Flexible Budget

    Cost Element Basis / Rate 70% (7,000 hrs) 90% (9,000 hrs) 100% (10,000 hrs)
    Variable Overhead:
    Indirect materials Rs 5/hr Rs 35,000 Rs 45,000 Rs 50,000
    Indirect labor Rs 10/hr Rs 70,000 Rs 90,000 Rs 100,000
    Maintenance (variable) Rs 2/hr Rs 14,000 Rs 18,000 Rs 20,000
    Power (variable) Rs 4/hr Rs 28,000 Rs 36,000 Rs 40,000
    Total Variable Cost (A) Rs 21/hr Rs 147,000 Rs 189,000 Rs 210,000
    Fixed Overhead:
    Maintenance (fixed) Fixed Rs 16,000 Rs 16,000 Rs 16,000
    Power (fixed) Fixed Rs 14,000 Rs 14,000 Rs 14,000
    Factory depreciation Fixed Rs 50,000 Rs 50,000 Rs 50,000
    Plant insurance Fixed Rs 20,000 Rs 20,000 Rs 20,000
    Total Fixed Cost (B) Fixed Rs 100,000 Rs 100,000 Rs 100,000
    Total Budgeted Overhead (A + B) Rs 247,000 Rs 289,000 Rs 310,000
  4. [10]

    Karnali Equipment Ltd. currently manufactures 5,000 units of component Part-X annually used in producing its flagship agriculture machinery. The unit cost of Part-X is computed as follows:\n- Direct materials: Rs 80\n- Direct labor: Rs 60\n- Variable manufacturing overhead: Rs 30\n- Fixed manufacturing overhead (allocated): Rs 50\n- Total manufacturing cost per unit: Rs 220\n\nAn outside vendor has offered to supply 5,000 units of Part-X at a price of Rs 190 per unit. If the offer is accepted, 60% of the allocated fixed manufacturing overhead will continue to be incurred, but the remaining 40% will be eliminated. Furthermore, the released factory facilities can be rented out to another business for Rs 45,000 per year.\n\nRequired:\na. Perform a differential cost analysis to evaluate whether Karnali Equipment Ltd. should make or buy Part-X\nb. Identify two non-financial/qualitative factors that management should evaluate prior to making the final decision.

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    Make or Buy Differential Cost Analysis

    a. Differential Cost Analysis (for 5,000 units)

    Cost Element Make (5,000 units) Buy (5,000 units) Differential Impact (Make vs. Buy)
    Purchase price (5,000×Rs 1905{,}000 \times \text{Rs } 190) - Rs 950,000 +Rs 950,000
    Direct materials (5,000×Rs 805{,}000 \times \text{Rs } 80) Rs 400,000 - -Rs 400,000
    Direct labor (5,000×Rs 605{,}000 \times \text{Rs } 60) Rs 300,000 - -Rs 300,000
    Variable overhead (5,000×Rs 305{,}000 \times \text{Rs } 30) Rs 150,000 - -Rs 150,000
    Avoidable fixed overhead (5,000×50×40%5{,}000 \times 50 \times 40\%) Rs 100,000 - -Rs 100,000
    Unavoidable fixed overhead (5,000×50×60%5{,}000 \times 50 \times 60\%) Rs 150,000 Rs 150,000 Rs 0 (Irrelevant)
    Opportunity cost (Foregone rental income) Rs 45,000 - -Rs 45,000
    Total Relevant Costs Rs 995,000 Rs 950,000 Net Benefit to Buy: Rs 45,000

    Managerial Recommendation: The company should BUY Part-X from the outside vendor because it results in a net annual cost savings of Rs 45,000 (Rs 995,000 relevant internal costs vs. Rs 950,000 external purchase cost).

    b. Qualitative / Strategic Factors

    1. Quality and Reliability of the Outside Vendor: Management must evaluate whether the vendor can maintain the required metallurgical and manufacturing standards. Defective parts will damage brand reputation and increase warranty claims.
    2. Delivery Timeliness and Supply Chain Vulnerability: Relying on an external supplier exposes the assembly line to disruptions, transit strikes, and price hikes once internal production tooling is decommissioned.

Group C

Comprehensive Answer / Case Analysis Question. (1 × 20 = 20)

[1*20=20]
  1. [20]

    Lumbini Confectionery Ltd. operates a standard costing system to plan and control the production of its premium export chocolate biscuits. The standard cost card for producing 1 batch (1,000 kg) of biscuits is specified as follows:\n\nStandard Direct Materials:\n- Cocoa Powder: 400 kg @ Rs 250 per kg = Rs 100,000\n- Refined Sugar: 500 kg @ Rs 80 per kg = Rs 40,000\n- Dairy Butter: 200 kg @ Rs 400 per kg = Rs 80,000\n- Standard Input = 1,100 kg; Standard normal processing loss = 100 kg (yielding standard output of 1,000 kg)\n- Total Standard Material Cost per batch = Rs 220,000\n\nStandard Direct Labor:\n- Skilled Labor: 200 hours @ Rs 150 per hour = Rs 30,000\n- Unskilled Labor: 300 hours @ Rs 80 per hour = Rs 24,000\n- Total Standard Labor Cost per batch = Rs 54,000\n\nDuring the month of Baisakh 2081, the company budgeted to produce 10 batches (10,000 kg). The actual production achieved was 10 batches (10,000 kg) and the actual records revealed:\n\nActual Direct Materials Consumed:\n- Cocoa Powder: 4,200 kg @ Rs 260 per kg = Rs 1,092,000\n- Refined Sugar: 4,700 kg @ Rs 85 per kg = Rs 399,500\n- Dairy Butter: 2,300 kg @ Rs 380 per kg = Rs 874,000\n- Total Actual Material Cost = Rs 2,365,500\n\nActual Direct Labor Incurred:\n- Skilled Labor: 1,900 hours @ Rs 160 per hour = Rs 304,000\n- Unskilled Labor: 3,200 hours @ Rs 75 per hour = Rs 240,000\n- Total Actual Labor Cost = Rs 544,000\n\nRequired:\na. Compute the following Material Variances:\n i. Material Cost Variance (MCV) for each material and in total\n ii. Material Price Variance (MPV) for each material and in total\n iii. Material Usage Variance (MUV) for each material and in total\n iv. Material Mix Variance (MMV)\n v. Material Yield Variance (MYV)\nb. Compute the following Labor Variances:\n i. Labor Cost Variance (LCV) for each category and in total\n ii. Labor Rate Variance (LRV) for each category and in total\n iii. Labor Efficiency Variance (LEV) for each category and in total\nc. Verify the variance relationships: MCV=MPV+MUVMCV = MPV + MUV and LCV=LRV+LEVLCV = LRV + LEV\nd. Provide an executive managerial report explaining the operational causes of the adverse and favorable variances, and suggest corrective measures for the Chief Operations Officer (COO).

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    Comprehensive Standard Costing and Variance Analysis

    a. Direct Material Variances (for Actual Output = 10 batches)

    Standard input required for 10 batches:

    • Cocoa: 400×10=4,000 kg400 \times 10 = 4{,}000 \text{ kg} @ Rs 250 (SPSP) = Rs 1,000,000
    • Sugar: 500×10=5,000 kg500 \times 10 = 5{,}000 \text{ kg} @ Rs 80 (SPSP) = Rs 400,000
    • Butter: 200×10=2,000 kg200 \times 10 = 2{,}000 \text{ kg} @ Rs 400 (SPSP) = Rs 800,000
    • Standard Cost (SCSC) = Rs 2,200,000

    Total Actual Input (TAITAI) = 4,200+4,700+2,300=11,200 kg4{,}200 + 4{,}700 + 2{,}300 = 11{,}200 \text{ kg}. Total Standard Input (TSITSI) = 11,000 kg11{,}000 \text{ kg}.

    Revised Standard Quantity (RSQRSQ) for actual total input:

    • Cocoa: 4,00011,000×11,200=4,072.73 kg\frac{4{,}000}{11{,}000} \times 11{,}200 = 4{,}072.73 \text{ kg}
    • Sugar: 5,00011,000×11,200=5,090.91 kg\frac{5{,}000}{11{,}000} \times 11{,}200 = 5{,}090.91 \text{ kg}
    • Butter: 2,00011,000×11,200=2,036.36 kg\frac{2{,}000}{11{,}000} \times 11{,}200 = 2{,}036.36 \text{ kg}

    1. Material Cost Variance (MCV) = Standard Cost - Actual Cost:

    • Cocoa: 1,000,000−1,092,000=Rs 92,000 (A)1{,}000{,}000 - 1{,}092{,}000 = \text{Rs } 92{,}000 \text{ (A)}
    • Sugar: 400,000−399,500=Rs 500 (F)400{,}000 - 399{,}500 = \text{Rs } 500 \text{ (F)}
    • Butter: 800,000−874,000=Rs 74,000 (A)800{,}000 - 874{,}000 = \text{Rs } 74{,}000 \text{ (A)}
    • Total MCV = Rs 165,500 (Adverse)

    2. Material Price Variance (MPV) = Actual Quantity × (Standard Price - Actual Price):

    • Cocoa: 4,200×(250−260)=Rs 42,000 (A)4{,}200 \times (250 - 260) = \text{Rs } 42{,}000 \text{ (A)}
    • Sugar: 4,700×(80−85)=Rs 23,500 (A)4{,}700 \times (80 - 85) = \text{Rs } 23{,}500 \text{ (A)}
    • Butter: 2,300×(400−380)=Rs 46,000 (F)2{,}300 \times (400 - 380) = \text{Rs } 46{,}000 \text{ (F)}
    • Total MPV = 42,000 (A) + 23,500 (A) - 46,000 (F) = Rs 19,500 (Adverse)

    3. Material Usage Variance (MUV) = Standard Price × (Standard Quantity - Actual Quantity):

    • Cocoa: 250×(4,000−4,200)=Rs 50,000 (A)250 \times (4{,}000 - 4{,}200) = \text{Rs } 50{,}000 \text{ (A)}
    • Sugar: 80×(5,000−4,700)=Rs 24,000 (F)80 \times (5{,}000 - 4{,}700) = \text{Rs } 24{,}000 \text{ (F)}
    • Butter: 400×(2,000−2,300)=Rs 120,000 (A)400 \times (2{,}000 - 2{,}300) = \text{Rs } 120{,}000 \text{ (A)}
    • Total MUV = 50,000 (A) - 24,000 (F) + 120,000 (A) = Rs 146,000 (Adverse)

    4. Material Mix Variance (MMV) = Standard Price × (RSQ - Actual Quantity):

    • Cocoa: 250×(4,072.73−4,200)=250×(−127.27)=Rs 31,817.50 (A)250 \times (4{,}072.73 - 4{,}200) = 250 \times (-127.27) = \text{Rs } 31{,}817.50 \text{ (A)}
    • Sugar: 80×(5,090.91−4,700)=80×(+390.91)=Rs 31,272.80 (F)80 \times (5{,}090.91 - 4{,}700) = 80 \times (+390.91) = \text{Rs } 31{,}272.80 \text{ (F)}
    • Butter: 400×(2,036.36−2,300)=400×(−263.64)=Rs 105,456.00 (A)400 \times (2{,}036.36 - 2{,}300) = 400 \times (-263.64) = \text{Rs } 105{,}456.00 \text{ (A)}
    • Total MMV = Rs 106,000.70 (Adverse)

    5. Material Yield Variance (MYV):

    MYV=Standard cost per unit of standard input×(TSI−TAI)=2,200,00011,000×(11,000−11,200)=200×(−200)=Rs 40,000 (Adverse)\text{MYV} = \text{Standard cost per unit of standard input} \times (TSI - TAI) = \frac{2{,}200{,}000}{11{,}000} \times (11{,}000 - 11{,}200) = 200 \times (-200) = \text{Rs } 40{,}000 \text{ (Adverse)}
    (Note: MMV+MYV=106,000.70 (A)+40,000 (A)≈Rs 146,000 (A)=MUVMMV + MYV = 106{,}000.70 \text{ (A)} + 40{,}000 \text{ (A)} \approx \text{Rs } 146{,}000 \text{ (A)} = MUV)

    b. Direct Labor Variances (for 10 batches)

    Standard labor allowance:

    • Skilled: 200×10=2,000 hrs200 \times 10 = 2{,}000 \text{ hrs} @ Rs 150 = Rs 300,000
    • Unskilled: 300×10=3,000 hrs300 \times 10 = 3{,}000 \text{ hrs} @ Rs 80 = Rs 240,000
    • Total Standard Labor Cost = Rs 540,000

    1. Labor Cost Variance (LCV) = Standard Cost - Actual Cost:

    • Skilled: 300,000−304,000=Rs 4,000 (A)300{,}000 - 304{,}000 = \text{Rs } 4{,}000 \text{ (A)}
    • Unskilled: 240,000−240,000=Rs 0240{,}000 - 240{,}000 = \text{Rs } 0
    • Total LCV = Rs 4,000 (Adverse)

    2. Labor Rate Variance (LRV) = Actual Hours × (Standard Rate - Actual Rate):

    • Skilled: 1,900×(150−160)=Rs 19,000 (A)1{,}900 \times (150 - 160) = \text{Rs } 19{,}000 \text{ (A)}
    • Unskilled: 3,200×(80−75)=Rs 16,000 (F)3{,}200 \times (80 - 75) = \text{Rs } 16{,}000 \text{ (F)}
    • Total LRV = Rs 3,000 (Adverse)

    3. Labor Efficiency Variance (LEV) = Standard Rate × (Standard Hours - Actual Hours):

    • Skilled: 150×(2,000−1,900)=Rs 15,000 (F)150 \times (2{,}000 - 1{,}900) = \text{Rs } 15{,}000 \text{ (F)}
    • Unskilled: 80×(3,000−3,200)=Rs 16,000 (A)80 \times (3{,}000 - 3{,}200) = \text{Rs } 16{,}000 \text{ (A)}
    • Total LEV = Rs 1,000 (Adverse)

    c. Verification of Variance Equations

    1. Material:
      MPV+MUV=19,500 (A)+146,000 (A)=Rs 165,500 (A)=MCV[Verified]\text{MPV} + \text{MUV} = 19{,}500 \text{ (A)} + 146{,}000 \text{ (A)} = \text{Rs } 165{,}500 \text{ (A)} = \text{MCV} \quad \text{[Verified]}
    2. Labor:
      LRV+LEV=3,000 (A)+1,000 (A)=Rs 4,000 (A)=LCV[Verified]\text{LRV} + \text{LEV} = 3{,}000 \text{ (A)} + 1{,}000 \text{ (A)} = \text{Rs } 4{,}000 \text{ (A)} = \text{LCV} \quad \text{[Verified]}

    d. Executive Managerial Interpretation and Recommendations for COO

    1. Material Cost Deviation: Material costs exceeded budget by Rs 165,500 primarily due to an adverse usage variance in Dairy Butter (Rs 120,000 A) and Cocoa (Rs 50,000 A). While procurement saved Rs 20/kg on butter (Rs 46,000 F price variance), the butter was likely of lower fat consistency, causing line operators to use 300 kg excess butter to maintain biscuit dough texture.
      • Recommendation: Avoid compromising on ingredient specifications; establish incoming raw material quality inspections.
    2. Labor Dynamics: Skilled labor exhibited superior efficiency (100 hours saved, Rs 15,000 F) despite working at overtime or premium rates (+Rs 10/hr). However, unskilled labor took 200 excess hours (Rs 16,000 A).
      • Recommendation: Institute automated packaging and material handling training for unskilled crew to eliminate bottlenecks.