How to approach it
- Write each variance formula and mark which pieces are known.
- Solve the usage variance first to get the standard price; then the price variance gives the actual price.
- Labour rate variance ÷ rate difference gives actual hours; the efficiency information then gives standard hours.
- Standard variable overhead per unit = rate per hour × standard hours per unit.
- Sales volume profit variance = change in units × standard profit per unit (not contribution, under absorption costing).
Key rules to apply
- Usage variance = (SQ − AQ) × SP. Price variance = (SP − AP) × AQ.
- Under absorption costing, sales volume variance uses standard profit; under marginal costing, standard contribution.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Adding a favourable price variance to the standard price instead of deducting it (examiners' point).
- Using the overhead rate per hour as the cost per unit.
- Using actual figures in the sales volume variance.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q3 without copying it.
Original practice question
Variances in reverse
A product's material price variance was Rs 60,000 F and usage variance Rs 60,000 A. 30,000 kg were used, 2,000 kg more than standard for the 4,000 units made. Labour: rate variance Rs 36,000 A, actual rate Rs 212 vs standard Rs 200; standard 0.8 hours per unit. Variable overhead is Rs 40 per standard hour. Fixed overhead is Rs 25 per unit. Standard selling price Rs 600. Budgeted sales were 3,600 units; actual sales 4,000.
Required: Find the standard and actual material prices, actual labour hours and the sales volume profit variance.
Worked solution
| Working | Result |
|---|---|
| Standard price: 60,000 ÷ 2,000 kg | Rs 30/kg |
| Actual price: 30 − 60,000 ÷ 30,000 | Rs 28/kg |
| Actual hours: 36,000 ÷ (212 − 200) | 3,000 hours |
| Standard material per unit: 28,000 ÷ 4,000 = 7 kg × 30 | Rs 210 |
| Standard profit: 600 − 210 − 160 − 32 − 25 | Rs 173 |
| Sales volume profit variance: 400 × 173 | Rs 69,200 F |
Answer: Standard Rs 30/kg, actual Rs 28/kg, 3,000 hours, sales volume profit variance Rs 69,200 F.