Siddhartha Sen
Roll Number: 581117638
MBA- I semester MB0041- Financial & Management Accounting 4
Credits Assignment Set 11. Accounting Principles are the rules
based on which accounting takes place and these rules are
universally accepted. Explain the principles of materiality and
principles of full disclosure. Explain why these two principles are
contradicting each other. Your answer should be substantiated with
relevant examples. Ans: Principle of materiality: While important
details of financial status must be informed to all relevant
parties, insignificant facts which do not influence any decisions
of the investors or any interested group need not be communicated.
Such less significant facts are not regarded as material. What is
material and what is not material depends upon the nature of
information and the party to whom the information is provided.
While income has to be shown for income tax purposes, the amount
can be rounded off to the nearest ten and fraction does not matter.
The statement of account sent to a debtor contains all the details
regarding invoices raised, amount outstanding during a particular
period. The information on debtors furnished to Registrar of
Companies need not be in detail. Principle of Full Disclosure: The
business enterprise should disclose relevant information to all the
parties concerned with the organization. It means that any
information of substance or of interest to the average investors
will have to be disclosed in the financial statements. The
Companies Act, 1956 requires that income statement and balance
sheet of a company must give a fair and true view of the state of
affairs of the company. If change has a material effect in current
period and the effect of change is ascertainable the amount of
change should be disclosed. If the change has a material effect in
current period and the effect of change is not ascertainable wholly
or in part, the fact should be disclosed. If change has no material
effect in current period but which is reasonably accepted to have a
material effect in later periods, the fact of such change should be
appropriately disclosed. Materiality principle: Accountants follow
the materiality principle, which states that the requirements of
any accounting principle may be ignored when there is no effect on
the users of financial information. Certainly, tracking individual
paper clips or pieces of paper is immaterial and excessively
burdensome to any companys accounting department. Although there is
no definitive measure of materiality, the accountants judgment on
such matters must be sound. Several thousand dollars may not be
material to an entity such as General Motors, but that same figure
is quite material to a small, family-owned business. Full
disclosure means to disclose all the details of a security problem
which are known. It is a philosophy of security management
completely opposed to the idea of security through
Siddhartha Sen
Roll Number: 581117638
obscurity. The concept of full disclosure is controversial, but
not new; it has been an issue for locksmiths since the 19th
century. Full disclosure requires that full details of security
vulnerability are disclosed to the public, including details of the
vulnerability and how to detect and exploit it. The theory behind
full disclosure is that releasing vulnerability information results
in quicker fixes and better security. Fixes are produced faster
because vendors and authors are forced to respond in order to save
face. Security is improved because the window of exposure, the
amount of time the vulnerability is open to attack, is reduced. The
full disclosure principle states that any future event that may or
will occur, and that will have a material economic impact on the
financial position of the business, should be disclosed to probable
and potential readers of the statements. Such disclosures are most
frequently made by footnotes. For example, a hotel should report
the building of a new wing, or the future acquisition of another
property. A restaurant facing a lawsuit from a customer who was
injured by tripping over a frayed carpet edge should disclose the
contingency of the lawsuit. Similarly, if accounting practices of
the current financial statements were changed and differ from those
previously reported, the changes should be disclosed. Changes from
one period to the next that affect current and future business
operations should be reported if possible. Changes of this nature
include changes made to the method used to determine depreciation
expense or to the method of inventory valuation; such changes would
increase or decrease the value of ending inventory, cost of sales,
gross margin, and net income or loss. All changes disclosed should
indicate the dollar effects such disclosures have on financial
statements. 2. Journalize the below transactions, prepare relevant
ledger accounts and finally trial balance.M/s Ventak Enterprise Pvt
Ltd.
Siddhartha Sen
Roll Number: 581117638
Ans: JournalDate 01/01/2009 Particulars Cash A/c Dr Goods A/c Dr
Furniture A/c Dr T(o capital A/c Being assets brought in as
Capital) Bank A/c Dr Cash Advance A/c Dr Bank Purchases Dr Rithik
Advance Packing Cash Purchases Dr Discount received Bank Cash A/c
Advance Advance A/c Shyam Sales Packing Cash Mr X A/c Discount A/c
sales Drawings A/c purchases Cash A/c Shyam Rithik A/c Cash Stolen
goods A/c Goods LIP Cash Embezzlement A/c Dr Cash LF Debit(Rs)
200000 100000 50000 Credit(Rs)
350000
01/01/2009 2/1/2009 3/1/2009
100000 100000 9000 90000 88000 79000 9000 1000 1000 88000 4400
83600 10000 10000 10000 80000 90000 1000 1000 88200 1800 90000 4000
4000 64000 64000 63200 63200 4000 4000 1000 1000 1000 1000
4/1/2009 5/1/2009 6/1/2009
7/1/2009 8/1/2009 9/1/2009 10/1/2009 11/1/2009 12/1/2009
13/01/2009
Siddhartha Sen Ledger accounts Cash A/c Particulars To Capital
A/c To Advance To Shyam
Roll Number: 581117638
Amount (Rs) 200000 10000 64000
Particulars By bank By packing By packing By Rithik BY LIP By
Embezzlement
Amount (Rs) 100000 1,000 1,000 63,200 1000 1000
Capital A/c Particulars
Amount (Rs)
Particulars By cash By goods By furniture Particulars By goods
Particulars
Amount (Rs) 2,00000 1,00000 50000 Amount (Rs) 4000 Amount
(Rs)
Goods A/c Particulars To Capital A/c Furniture A/c Particulars
To Capital A/c Bank A/c Particulars To Cashl A/c Advance A/c
Particulars To Bank A/c To sales Purchases A/c Particulars To
Rithik A/c To advance To discount received To Bank Rithik A/c
Particulars To cash Packing A/c Particulars
Amount (Rs) 1,00000 Amount (Rs) 50,000 Amount (Rs) 1,00,000
Amount (Rs) 9,000 10,000
Particulars By advance Particulars By purchases By purchases By
cash Particulars By Drawings
Amount (Rs) 9000 Amount (Rs) 79,000 88000 10,000 Amount (Rs)
4000
Amount (Rs) 79000 9,000 4400 83600 Amount (Rs) 63200 Amount
(Rs)
Particulars By purchases Particulars
Amount (Rs) 79000 Amount (Rs)
Siddhartha Sen To Cash A/c Discount received Particulars To
sales Sales A/c Particulars To
Roll Number: 581117638 1,000 Amount (Rs) 1800 Amount (Rs) 200000
Particulars By purchases Particulars By advance A/c By Shyam By Mr.
X A/c By Discount Particulars By cash Particulars Amount (Rs) 4400
Amount (Rs) 10,000 80,000 88,200 1,800 Amount (Rs) 64000 Amount
(Rs)
Shyam A/c Particulars To salesl A/c Packing A/c Particulars To
Cashl A/c Mr. X A.c Particulars To Sales A/c Drawings A/c
Particulars To purchases Stolen goods A/c Particulars To goods LIP
A/c Particulars To Cashl A/c Embezzlement Particulars To Cash A/c
Trial BalanceDate
Amount (Rs) 80,000 Amount (Rs) 1,000 Amount (Rs) 88200 Amount
(Rs) 4000 Amount (Rs) 4000 Amount (Rs) 1000 Amount (Rs) 1000
Particulars
Amount (Rs)
Particulars
Amount (Rs)
Particulars
Amount (Rs)
Particulars
Amount (Rs)
Particulars
Amount (Rs)
Particulars To Capital Alc
1/1/2009 1/1/2009 2/1/2009
Amount (Rs) 3,50,000
Date
Particulars By Cash By Goods By Furniture By Bank By Advance
1/1/2009 1/1/2009 2/1/2009
To Cash To Bank
1,00,000 9,000
Amount (Rs) 200000 100000 50000 100000 9000
Siddhartha Sen3.01.2009 04.01.2009 05.01.2009 06.01.2009
07.01.2009 08.01.2009 09.01.2009 10.01.2009 11.01.2009 12.01.2009
13.01.2009 To Rithik To Advance To Cash To Discount received To
Bank To Advance To Sales To Cash To Sales To Purchases To Shyam To
Cash To goods To Cash To Cash 79,000 9,000 1,000 4400 83600 10000
90000 1000 90000 4000 64000 63200 4000 1000 1000 3.01.2009
04.01.2009 05.01.2009 06.01.2009 07.01.2009 08.01.2009 09.01.2009
10.01.2009 11.01.2009 12.01.2009 13.01.2009 By Purchases By Cash By
Advance By Shyam By purchases By Packing
Roll Number: 58111763888000 1000
By Packing By Mr.X By Discount By Drawings By Cash By Rithik By
Stolen goods By LIP By Embezzlement
88000 10000 10000 80000 1000 88200 1800 4000 64000 63200 4000
1000 1000
964200
9642 00
3. Explain any two types of errors that are disclosed by trial
balance with examples and rectification entry. Note - Avoid giving
examples given in the self learning material. Ans: The trial
balance is prepared to check the arithmetical accuracy of accounts.
If the trial balance does not tally, it implies that there are
arithmetical errors in the accounts which require location,
detection and rectification thereof. Even if the trial balance
tallies, there may still exist some errors. There are two types of
errors: Errors which are not revealed by the trial balance, and
Errors which are revealed by the trial balance. Errors may happen
at any of the following stages of the accounting cycle. At
Recording Stage Errors of principle Errors of omission Errors of
commission At Posting Stage Error of omission Complete Partial
Error of commission Posting to wrong account Posting on the wrong
side Posting of wrong amount At Balancing Stage Wrong totaling
Wrong balancing
Siddhartha Sen
Roll Number: 581117638
Preparation of Trial Balance: Error of Omission, Error of
Commission Taking wrong amount Taking wrong account Taking to the
wrong side Errors can be classified into the following four
categories on the basis of the nature of errors and explained here
under. 1. Errors of commission 2. Errors of omission 3. Errors of
principle 4. Compensating (offsetting) errors 5. Errors of
Duplication Errors of Commission These errors by definition are of
clerical nature. These errors may be committed at the time of
recording and/or posting. At the time of recording, the wrong
amount may be recorded in journal which will be carried throughout.
Such errors will not affect the agreement of the trial balance.
These errors may also be committed at the time of posting, by way
of posting wrong amount, to the wrong side of an account or in the
wrong account. The errors resulting in posting to wrong account
will not affect agreement of trial balance, whereas, other errors
of posting will resulting disagreement of trial balance. For
example, an amount of Rs. 10,000 received from customer (Debtor) is
correctly recorded on the debit side of the cash book but while
posting, the customer's account is credited with Rs. 1,000. This is
an error, which is committed at the time of posting, by posting
wrong amount to the account. This will result in disagreement of
trial balance, since the credit total of the trail balance will be
short by Rs. 9,000. Care should be taken while recording and
posting. It should be thoroughly checked and rechecked before
passing it on. Errors of Principle Accounting entries are recorded
as per the generally accepted accounting principles. If any of
these principles are violated or ignored, errors resulting from
such violations are known as errors of principle. As an
illustration, Periodicity principle requires maintaining proper
distinction between capital and revenue items. An error of
principle may occur due to incorrect classification of expenditure
or receipts between capital and revenue. This is very important
because it will have an impact on financial statements. It may lead
to under/over stating of income or assets or liabilities, etc. For
example, amount spent on additions to the buildings should be
treated as capital expenditure and must be debited to the asset
account. Instead, if this amount is debited to maintenance and
repairs account, it is treated as a revenue expense. This is an
error of principle. Since instead of asset account, i.e. buildings,
the maintenance and repairs account (expense) is debited, the trial
balance will still tally but would not be correct as per generally
accepted accounting principles. Such errors are not disclosed by
the trial balance. This will result in understating of income due
to extra charge under maintenance and repairs account and
understating the value of buildings in the balance sheet.
Siddhartha Sen
Roll Number: 581117638
4. Let us assume you have been recently appointed as Management
Accountant of a small but upcoming firm. Your immediate supervisor
has asked you to prepare certain financial ratios from the balance
sheet of one of their clients M/s Vinod Enterprise.
The director intent to transfer a sum of Rs.5000 out of the
current years profit to provision for tax. The financial ratios
needed are: a. Return on capital employed b. Current ratio c. Fixed
assets to net worth d. Debt - Equity ratio e. Return on owners
capital. Ans: a. Return on capital employed = fixed asset +
investment + current asset current liability = 87500+25000
+30000+13500+7000 -30000 - 5000 = 128000 b. Current ratio = current
asset/current liability = 50500 / (30000 +5000) = 1.443 c. Fixed
assets to net worth = fixed asset/share holders fund = 87500/60000
= 1.458 d. Debt - Equity ratio= = = external equity/internal equity
20000 / 60000 0.333
Siddhartha Sen = = =
e. Return on owners capitalnet profit / shareholder fund
21000/50000*100 42
Roll Number: 581117638
5. A friend of you has approached to help him out in setting his
books of accounts in order. Unfortunately he is struck with
difference in trial balance. Help him in redrafting the trial
balance.
Ans: Errors may be detected in the process of closing books and
accounts for preparation of trial balance. The errors detected in
the process may be either one- sided errors or twosided errors.
However, once such errors are located they must be rectified
immediately. Rectification Of One-sided Errors Located Before
Preparation Of Trial Balance One-sided errors are those errors
which affect only one side of an account. Wrong totaling of
subsidiary books, posting a wrong amount, posting on the wrong side
are some of the examples of one-sided errors. Since two accounts
are not involved in these errors, journal entry can not be passed
for rectifying such errors. The one- sided error is rectified by
making an additional posting on the affected side of the ledger
account.
Siddhartha Sen
Roll Number: 581117638
Rectification of Two-sided Errors Located before Preparation of
Trial Balance The errors that affect two or more accounts are
called two-sided errors. Correction of such two-sided errors needs
to make rectification journal entries since such errors involve two
or more accounts. Therefore, one account is debited and another
account is credited to rectify two-sided errors. The rules of debit
and credit are applied to rectify these errors.
The following three steps are taken to rectify the two-sided
errors. a. Identify correct entry b. Rewrite wrong entry c. Find
rectifying entry by making adjustment of correct entry and wrong
entry1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 particulars stock
capital cash Bank od sales purchases Return inwards Return outwards
Carriage inwards Carriage outwards salaries debtors wages creditors
Land n building plant Trade exp debit 94120 1400 9320 236400 106400
13400 2960 2360 14260 9600 16300 3660 37360 15000 20900 2090 299490
299490 credit 13450
6. Explain the accounting treatment of bad debt and provision
for doubtful debts with suitable example. Ans: First let's
distinguish between a bad and a doubtful debt. A debt owing to a
business that is not expected to be paid is a bad debt. A doubtful
debt is a debt, which the business considers may not be paid. The
distinction is important because the accounting treatment differs,
as shown below.
Siddhartha Sen
Roll Number: 581117638
Double entry: Bad and doubtful debts form part of the double
entry bookkeeping system. Note that the general principles of
double entry bookkeeping are not covered here but form part of the
ICM Accounting unit. Accounting treatment for bad debts: If we
decide that there is no probability of collecting an overdue
amount, we need to reduce the balance sitting on that customer's
account to zero. We do not want to show a balance owing that in
fact will never be recovered because this would be overstating our
debtors and therefore overstating our assets. The amount being
written off represents a bad debt and so we transfer this balance
to the expense account - `bad debts'. We then need to reflect this
expense in our accounts and therefore transfer the balance to the
profit and loss account. The entries are as follows: Debit: Bad
debt account Credit: Customer's account Transferring to the final
accounts: Debit: Profit and loss account Credit: Bad debt account.
Accounting treatment for doubtful debts: A doubtful debt may not
turn into a bad debt. In fact, it may not be possible to isolate
specific customers when computing an amount which may turn bad.
Experience may allow us to estimate the level of bad debt that
tends to arise in our business. But however we arrive at this
figure, prudence dictates that we should provide for this in our
final accounts. The accounting entries will be as follows: Debit:
Profit and loss account Credit: Provision for bad debts The
provision will be shown on the balance sheet as a deduction from
debtors. We are thus reducing the value of debtors to comply with
the requirement to show assets at conservative values. The
provision will be increased or decreased in subsequent years
depending on the level of debtors and likely level of bad debt
determined at the end of the year. Increases to the provision in
subsequent years will be debited to the profit and loss account.
Decreases in the provision will be credited to the profit and loss
account. The provision will be calculated after all bad debts have
been written off. Note that the auditors pay particular attention
to bad debt provisions because of the ease with which they can be
used to manipulate profit and create a `hidden reserve'. Let's now
look at an example.
Siddhartha Sen
Roll Number: 581117638
Example Alice Beeton runs a food and drinks business. Her
customers are given 60 days credit. Alice is about to prepare her
accounts as at the year ending 30June 2000. Alice has run a number
of promotions this year and has determined that the provision for
bad debts will need to be increased from 2 per cent to 3 per cent
of her debtors. The net debtors for last year were 28, 000. Debtors
are currently 32,900. In addition it bas been decided to write off
two overdue debts, wbkb are: 31 March - F 12,500 31 May - A Ward
400 Show all the relevant entries in the accounts. Suggested
solution Step 1 Currently, the balances that have gone bad are
sitting on the customer accounts. These need to be transferred to
the bad debts (expense) account. Step 2 The increase/decrease in
provision needs to be calculated. Remember the provision is
calculated on the net debtors - ie net of bad debts. We can now
show the provision for bad debts. Step 3 We can now show the
entries in the final accounts. The profit and loss account shows
the expenses incurred - the bad debts and increase in the provision
for bad debts. The balance sheet shows the asset, 'debtors' and the
`provision for bad debts'. Note: the balance sheet is not part of
the double entry bookkeeping system.
Siddhartha Sen
Roll Number: 581117638
MBA- I semester MB0041- Financial & Management Accounting 4
Credits Assignment Set 21. The Balanced Score Card is a framework
for integrating measures derived from strategy. Take an Indian
company which has adopted balance score card successfully and
explain how it had derived benefits out of this framework. Ans: The
concept of the Balanced Scorecard (BSC) was developed in the early
1990s as a new approach to performance measurement due to problems
of short-termism and past orientation in management accounting
(Kaplan and Norton, 1992). The concept of the BSC is based on the
assumption that the efficient use of investment capital is no
longer the sole determinant for competitive advantages, but
increasingly soft factors such as intellectual capital, knowledge
creation or excellent customer orientation become more important.
As a reaction Kaplan and Norton suggested a new performance
measurement approach that focuses on corporate strategy in four
perspectives (Kaplan and Norton, 1992, 1997, 2001). This BSC aims
to make the contribution and the transformation of soft factors and
intangible assets into long-term financial success explicit and
thus controllable. Increasingly, as balanced scorecard (BSC)
concepts become more refined, we have had more inquiries asking for
examples of organizations that have implemented the BSC, how the
BSC applies to a particular business sector, metrics are
appropriate for that sector, etc. This section provides a database
of working balanced scorecard examples that our research has
located. By 2004 about 57% of global companies were working with
the balanced scorecard (according to Bain). Much of the information
in the commercial sector is proprietary, because it relates to the
strategies of specific companies. Public-sector (government)
organizations are usually not concerned with proprietary
information, but also they may not have a mandate (or much funding)
to post their management information on web sites. Balanced Score
Card An Indian perspective: The Balanced Scorecard is a framework
for integrating the measures derived from the vision and strategy
of an organization with the financial measures of its past
performance. The objectives and measures are drawn from four
perspectives: financial, customer, internal business process and
learning and growth. Once set up, the scorecard allows managers to
show results focused on both the long and short term measures of
success. The concept is still new to Indian corporate, though it
was developed some time ago in 1992. In the Indian context,
Organizations like the Murugappa group and the Mahindras have
adopted the Balanced Scorecard. But overall, there are not more 4-5
organizations in India that are using this technique. From the
above points, it becomes clear that the Balanced Scorecard
technique offers numerous advantages to the organizations using it.
But as far as Corporate India is concerned, there is little
awareness among the organizations about this newly used tool of
Siddhartha Sen
Roll Number: 581117638
performance measurement. With the integration of the financial
markets worldwide, it is high time for the Indian companies to
implement this technique at the earliest. As far as the
implementation aspect is concerned, it takes approximately six
months to a year which is not a very long period. Therefore, it is
advised that the organization should come forward and realize the
true potential of Balanced Scorecard. Below shown is an example of
a Balance Score Card strategy map for a Bank for its credit
card.
2. What is DuPont analysis? Explain all the ratios involved in
this analysis. Your answer should be supported with the chart. Ans:
DuPont Analysis: It is a method of performance measurement that was
started by the DuPont Corporation in the 1920s. With this method,
assets are measured at their gross book value rather than at net
book value in order to produce a higher return on equity (ROE). It
is also known as "DuPont identity".
Siddhartha Sen
Roll Number: 581117638
The Du Pont analysis can be depicted via the following
chart:
At the apex of the Du Pont chart is the Return On Total Assets
(ROTA), defined as the product of the Net Profit Margin (NPM) and
the Total Assets Turnover Ratio (TATR). As a formula this can be
shown as follows: (Net profit/Total asset) = (Net profit/Net
sales)*(Net sales/Total assets) (ROTA) (NPM) (TATR)
Such decomposition helps in understanding how the return on
total assets is influenced by the net profit margin and the total
assets turnover ratio. The left side of the Du Pont chart shows
details underlying the net profit margin ratio. A detailed
examination of this side presents areas where cost reductions may
be effected to improve the net profit margin. The right side of the
chart highlights the determinants of total assets turnover ratio.
If this study is supplemented by the study of other ratios such as
inventory, debtors, fixed asset turnover ratios, a deeper insight
into efficiencies and inefficiencies of asset utilization can be
sought. The basic Du Pont analysis can be extended to explore the
determinants of the Return On Equity (ROE).
Siddhartha Sen
Roll Number: 581117638
Return on equity= Asset turnover * Net profit margin*leverage
(Net profit/Equity) = (Net profit/Sales)*(Sales/Total
assets)*(Total assets/Equity) (ROE) (NPM) (TATR) 1/(1- DR)
Where DR is the debt ratio= debt (D)/assets (A) Breaking ROE
into these three parts allows evaluation of how well one can manage
the companys assets, expenses, and debt. A manager has basically
three ways of improving operating performance in terms of ROA and
ROE. These are: Increase capital asset turnover Increase operating
profit margins Change financial leverage
Each of these primary drivers is impacted by the specific
decisions on cost control, efficiency productivity, marketing
choices etc. Importance of Dupiont Analysis Any decision affecting
the product prices, per unit costs, volume or efficiency has an
impact on the profit margin or turnover ratios. Similarly any
decision affecting the amount and ratio of debt or equity used will
affect the financial structure and the overall cost of capital of a
company. Therefore, these financial concepts are very important to
evaluate as every business is competing for limited capital
resources. Understanding the interrelationships among the various
ratios such as turnover ratios, leverage, and profitability ratios
helps companies to put their money areas where the risk adjusted
return is the maximum.
Siddhartha Sen
Roll Number: 581117638
3. Prepare Funds Flow statement from the following balance
sheets and additional information.
Additional information 1. Provision for depreciation on P&M
was RS40,000 o 31st March 1998 and Rs.45,000 on 31st March 1999 2.
Machinery costing Rs.36000 (acc dep Rs12,000) was sold for
Rs.20,000 3. Investment costing Rs.30000 were sold at a profit of
20% on cost 4. Tax of Rs.30000 were paid Ans:Statement of changes
in working capital 1998 current assets debtors stock BR bank total
current liabilities creditors BP total working capital net decrease
in WC 50000 80000 70000 40000 240000 50000 30000 80000 160000 1999
30000 90000 50000 30000 200000 60000 20000 80000 120000 40000 40000
incrase decrea se 20000 10000 20000 10000
10000 10000
Adjusted P\L a\c Goodwill w off Prelim exp w off 5000 2000 P\L
AC Pft on invest sale 40000 f 6000
Siddhartha Sen Loss on sale f machine Transfer to reserve Prov
for tax Prov for dep Prov for dep P\L AC
Roll Number: 581117638 4000 10000 40000 17000 40000 50000 173000
Fund operation from 122000
173000
Fund flow statement sources shares Sale f machine Sale f
investment Fund from operation Decrease in WC
150000 20000 36000 122000 40000 368000
Application Redemption f deb Purchase f plant Purchase f land
Purchase f investment Tax paid
50000 141000 9000 138000 30000 368000
4. The standard cost of a certain chemical mixture is: 35%
Material A at Rs.25 per kg 65% Material B at Rs.36 per kg A
standard loss of 5% is expected in production During a period there
is used: 125kg of Material A at Rs.27 per kg and 275kg of Material
B at Rs.34 per kg The actual output was 365 kg Calculate a.
Material cost variance b. Material price variance c. Material mix
variance d. Material yield variance Hint: Use net standard output
(deduct the loss) Ans: The standard mix of product MS is as
follows: Materials A B % of Material 35 65 Price/kg 25 36
Siddhartha Sen
Roll Number: 581117638
Actual production for a month was 365 kgs of MS. The standard
loss in production is 5 % of input. So total Material consume
385kg. So actual cost is:Materials % of Qty Price/kg Total cost
Material A 35 385* 35% = 134.75 25 3368.75 B 65 385 * 65% = 36 9009
250.25 Total : 12377.75
Materials A B
Qty 125 275
Price/kg 27 34
Cost 3375 9350 Total: 12725
a. Material cost variance = Standard Cost Actual Cost = 12377.75
12725 = - 347.25 (Non Favorable) b. Material Price Variance =
(Standard Price Actual Price) x Actual quantity used. MPV = (SP AP)
AQ = (25 - 27) 125 = - 250 non fav. c. Material Mix Variance =
Revised standard quantity for each material actual MMV Quantity for
each material) x standard price. Where RSQ = standard quantity for
each material / total of standard quantity of all types of
materials x actual mix total RSQ = Total weight of actual mix /
total weight of standard mix (x) standard quantity. RSQ = For A =
365 / 400 * 134.75 = 123 For B = 365/400 * 250.25 = 228 MMV for A =
(123 125) * 27 = -54 For B = (228 275) * 34 = -1598 Total Mix
variance = -54 1598 = -1652 non FAV
Siddhartha Sen
Roll Number: 581117638
d. Material Yield Variance MYV = (Standard yield Actual Yield) x
standard rate per unit of output or (Standard Loss Actual Loss) A =
(385 - 365) * 25 = 500 B = (385 - 365) * 36 = 720