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    Question

    Vanijya Ltd cost department stated that the standard

    direct material cost for it is ₹10 0 per unit. The a ctual cost incurred , however, was ₹12 0 per unit for 10 ,0 00 units. If Vanijya Ltd produced 9 , 50 0 units , w hat is its Material Cost Variance?   
    A ₹2,00,000 (Adverse) Correct Answer Incorrect Answer
    B ₹2,00,000 (Adverse) Correct Answer Incorrect Answer
    C ₹2,50,000 (Favourable) Correct Answer Incorrect Answer
    D ₹2,50,000 (Adverse) Correct Answer Incorrect Answer
    E ₹1,00,000 (Adverse) Correct Answer Incorrect Answer

    Solution

    Solution:    
    Material Cost Variance is the difference between the standard cost of direct materials specified for production and the actual cost of direct material used in production. It is given as:   (MCV) = (Standard Price × Standard Quantity) – (Actual Price × Actual Quantity)     Shape   Given:    

    • Standard cost per unit = ₹10 0    
    • Actual cost per unit = ₹12 0    
    • Actual quantity of material used = 10 ,0 00 units   
    • Actual output produced = 9 , 5 0 0 units   
    Assume 1 unit of output requires 1 unit of material (standard quantity = 95 0 0 units for 95 0 0 units output).    Shape   Step-by-step calculation:    
    • Standard Cost = ₹10 0 × 950 0 units = ₹9 , 50 ,0 0 0    
    • Actual Cost = ₹12 0 × 10 ,0 00 units = ₹12, 00, 000   
    Shape     Material Cost Variance (MCV):     MCV = ₹9,50 ,00 0 − ₹12,0 0,0 00 = − ₹2,500 , Shape 00   i.e. adverse  

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