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Notes/CA Intermediate/Cost & Management Accounting

CA Intermediate · Cost & Management Accounting

Standard Costing & Variance Analysis

Chapter 5 · 6 formulas · 4 exam-critical pointers

Core concepts

  1. 01Standard cost: predetermined cost based on technical estimates.
  2. 02Variance: difference between actual and standard.
  3. 03Material variances: Cost (Price + Usage); Usage = Mix + Yield.
  4. 04Labour variances: Cost (Rate + Efficiency); Efficiency = Mix + Yield + Idle Time.
  5. 05Overhead variances: Variable (Expenditure + Efficiency); Fixed (Expenditure + Volume = Capacity + Efficiency + Calendar).

Flowchart summary

Variance Tree | Cost = Price + Usage | Usage = Mix + Yield Labour Cost = Rate + Efficiency Efficiency = Mix + Yield + Idle Time FOH Volume = Capacity + Efficiency + Calendar

Exam-critical pointers

  • ⭐F (Favourable) when actual < standard for cost; A (Adverse) otherwise.
  • ⭐Standards: Ideal, Normal, Basic, Current — each suited to different purposes.
  • ⭐Reconciliation between standard and actual profit using variances is a 12-mark sum.
  • ⭐Mix variance arises only when there are 2+ inputs; total of sub-variances must equal main.

Make it click

Formula sheet

  • Material Price Var = (SP − AP) × AQ
  • Material Usage Var = (SQ − AQ) × SP
  • Labour Rate Var = (SR − AR) × AH paid
  • Labour Efficiency Var = (SH − AH worked) × SR
  • FOH Volume Var = Std Rate × (Actual Output − Budgeted Output) [in std hrs]
  • Sales Value Var = (Actual Sales − Budgeted Sales)

More from Cost & Management Accounting

  1. Ch 1Introduction to Cost & Management Accounting
  2. Ch 2Material Cost
  3. Ch 3Overheads — Absorption Costing
  4. Ch 4Marginal Costing & CVP Analysis
  5. Ch 6Budgetary Control
All CA Intermediate notes →
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