Answer – Standard Costing

• Lesson
• Exercise
• Answer

This is the suggested answer to the Standard Costing exercise on Colorado Ricardo Mountain Bikes.

Material Variance

Standard $300, actual $320 = $20 adverse per bike – costing more than planned, most likely driven by the rise in steel prices.

Labour Variance

Standard $250, actual $240 = $10 favourable per bike – workshop efficiency improvements are saving money against the standard.

Overhead Variance

Standard $150, actual $150 = no variance, on budget.

Overall Variance

Net variance per bike: $20 adverse – $10 favourable = $10 adverse per bike. Across 4,000 bikes: 4,000 x $10 = $40,000 adverse overall.

This $40,000 adverse variance directly explains part of the thin margin found in the Profit and Loss Statement exercise.