(a) The following details have been extracted from the cost records of a company : Material : 5 lbs @ ₹ 5 – ₹ 25 Labour : 4 Hrs…

(a) Material and Labour Variances Variances are measured against standard allowed for actual output. Actual output = 8,100 units. F = favourable, A = adverse.

Standard data:

• Material: 5 lbs @ ₹5 = ₹25 per unit.
• Labour: 4 hrs @ ₹3 = ₹12 per unit.
• Standard material allowed = 8,100 × 5 = 40,500 lbs.
• Standard hours allowed = 8,100 × 4 = 32,400 hrs.
• Actual material price = ₹1,65,000 ÷ 40,000 lbs = ₹33/8 = ₹4.125 per lb.
• Actual material purchased = 40,000 lbs; actual material used = 35,800 lbs.
• Actual labour hours = 17,200 hrs; actual labour cost = ₹59,400; actual labour rate = ₹59,400 ÷ 17,200 = ₹297/86 = ₹3.4535 per hr.

Material variances:

• Material cost variance = (Standard quantity for actual output × Standard price) – (Actual quantity used × Actual price) = (40,500 × ₹5) – (35,800 × ₹33/8) = ₹2,02,500 – ₹1,47,675 = ₹54,825 F.
• Material price variance (on actual quantity purchased) = Actual quantity purchased × (Standard price – Actual price) = 40,000 × (₹5 – ₹33/8) = 40,000 × ₹7/8 = ₹35,000 F.
• Material usage variance = Standard price × (Standard quantity – Actual quantity used) = ₹5 × (40,500 – 35,800) = ₹5 × 4,700 = ₹23,500 F.
• Reconciliation: Material price variance on purchases + Material usage variance = ₹35,000 F + ₹23,500 F = ₹58,500 F. This exceeds material cost variance by ₹3,675 F, which is the price variance on closing inventory: (40,000 – 35,800) × ₹7/8 = 4,200 × ₹7/8 = ₹3,675 F. If price variance is required on quantity used, it is 35,800 × ₹7/8 = ₹31,325 F, and then ₹31,325 F + ₹23,500 F = ₹54,825 F.

Labour variances:

• Labour cost variance = (Standard hours for actual output × Standard rate) – Actual labour cost = (32,400 × ₹3) – ₹59,400 = ₹97,200 – ₹59,400 = ₹37,800 F.
• Labour rate variance = Actual hours × (Standard rate – Actual rate) = 17,200 × (₹3 – ₹297/86) = ₹51,600 – ₹59,400 = ₹7,800 A.
• Labour efficiency variance = Standard rate × (Standard hours – Actual hours) = ₹3 × (32,400 – 17,200) = ₹3 × 15,200 = ₹45,600 F.
• Check: ₹45,600 F – ₹7,800 A = ₹37,800 F.

(b) Impact of Behavioural Sciences on Accounting Behavioural sciences study how human cognition, motivation, group behaviour and biases affect decisions. Their impact on accounting is wide-ranging:

• Budgeting: participative budgeting can improve commitment and information flow, but may create budgetary slack and game-playing. Imposed budgets may strengthen control but reduce motivation.
• Performance evaluation: accounting measures such as ROI, residual income, EVA and variances influence managerial behaviour. If used mechanically, they can cause short-termism, dysfunctional cost-cutting, transfer-pricing conflicts and earnings manipulation.
• Financial reporting: preparers and auditors are subject to anchoring, overconfidence, confirmation bias, availability bias, framing and escalation of commitment. This affects provisions, impairment, going-concern assessment and fraud risk judgment.
• Management control: agency theory, goal congruence and expectancy theory explain why controls must balance monitoring with trust, autonomy and fairness. The balanced scorecard and non-financial measures reduce excessive focus on profit.
• Ethical culture: tone at the top, incentives, whistle-blower protection and organisational norms shape accounting choices and compliance.
• Human resource accounting and responsibility accounting draw on the same insight, that people respond to how they are measured (Argyris, 1952, on budget pressure, Hopwood, 1972, on styles of using accounting data).

(c) Audit of Charitable Institutions

• Governing documents: examine trust deed, society registration, memorandum and articles, rules, bye-laws and amendments. Confirm activities are within the charitable objects.
• Legal and tax compliance: verify registration under the applicable Act, Income-tax registration under s.12AB (re-registration regime from 1.4.2021), approval under 80G, FCRA registration if foreign contributions are received (FCRA account at SBI New Delhi Main Branch and administrative expenses within 20% after the 2020 amendment), and GST/TDS compliance. Under the Income-tax Act, 2025, applicable from 1.4.2026, these provisions are carried into a consolidated scheme for registered non-profit organisations, so the auditor checks the corresponding new provisions.
• Receipts and funds: check donations, subscriptions, grants, corpus, restricted and unrestricted funds, foreign contributions, anonymous cash donations, donation receipts and bank deposits. Verify application of 85% of income, accumulation under Section 11(2) with Form 10, investments in modes under Section 11(5), and tax on anonymous donations under Section 115BBC.
• Expenditure: vouch payments for charitable objects, salaries, administration, projects and capital expenditure. Ensure no undue benefit to trustees or related parties; review minutes for approvals.
• Internal control: review cash handling, receipt books, bank reconciliation, segregation of duties, asset register, inventory of relief material and controls over fund-raising.
• Investments and assets: verify ownership, title, valuation and whether investments are permitted.
• Financial statements and reporting: check fund-wise disclosure, comparative figures, audit report wording, Form 10B or 10BB (as revised from AY 2023-24), FCRA return FC-4 and statutory filings.
• Fraud risk: remain alert to diversion of funds, bogus vouchers, inflated bills, related-party transactions and non-charitable use of funds.
• Minutes and representations: review trustees’ meetings, project reports and obtain written representations on compliance and related-party transactions.