A food processing unit has set a standard cost of ₹200 per kilogram of flour. In a given month, it produced 500 kg of flour at a total actual cost of ₹110,000. Calculate the cost variance and state whether it is favourable or unfavourable.
Answer
₹10,000 Unfavourable
The correct answer is ₹10,000 Unfavourable — Answer the question.
Step-by-step solution
- Compute total standard cost: ₹200 × 500 = ₹100,000.
- Subtract actual cost: ₹100,000 – ₹110,000 = –₹10,000.
- Since the result is negative, the variance amount is ₹10,000 unfavourable.
- Answer the question.
Common mistake: Using actual cost – standard cost instead of standard cost – actual cost, leading to wrong sign
Concept tested: Cost variance calculation
Published · How this solution was prepared and checked
← All Controlling questions