Material Variances - Single Material - Loss
Problem 2
A Ltd. has introduced Standard Costing System and has furnished the following information:
Standard:
Materials for 70 kg. of Finished Goods | 100kg. |
Price of materials | 1 per kg. |
Actual:
Output | 2,10,000 kg. |
Material used | 2,80,000 kgs |
Cost of materials | 2,52,000 |
Calculate the various variances in respect of Material Cost.
1 | |
---|---|
MYV/MSUV MMV | + 20,000 0 |
MQV/MUV MPV | + 20,000 + 28,000 |
MCV | + 48,000 |
Working Notes
The following data could be picked up from the problem
Standard | Actual | ||||
---|---|---|---|---|---|
SQ | SP | AQ | AP | AC | |
Material (−) Loss | 100 | 1 | 2,80,000 | 0.90 | 2,52,000 |
Net | 70 | 2,10,000 | |||
Output | 1 | 2,10,000 |
units : _Q in kgs, _P in value/kgs and _O in kgs
The underlined figures are obtained through the below calculations
AP | = |
| ||
= |
| |||
= | 0.90 |
Assumptions
- In the absence of information to the contrary, since output and input are in the same units, the difference between input and output is loss of materials.
We will be able to calculate all the variances without the information relating to losses.
The data relating to losses will enable us to calculate the Yield variance using an alternate formula based on losses.
Working Table
Standard | Actual | |||||||||
---|---|---|---|---|---|---|---|---|---|---|
for SO | for AO | for AI | ||||||||
SQ | SP | SQ(AO) | SC(AO) | SQ(AI) | SC(AI) | AQ | AP | AC | SC(AQ) | |
Factor | 3,000 | 2,800 | ||||||||
Material 1 | 100 | 1 | 3,00,000 | 3,00,000 | 2,80,000 | 2,80,000 | 2,80,000 | 0.9 | 2,52,000 | 2,80,000 |
Total | 100 | 1 | 3,00,000 | 3,00,000 | 2,80,000 | 2,80,000 | 2,80,000 | 2,52,000 | 2,80,000 | |
(−) Loss Standard Actual | 30 | 1 | [SQIL(AO)] 90,000 | [SCIL(AO)] 90,000 | [AQIL] 70,000 | [SC(AQIL)] 70,000 | ||||
Net | 70 | 2,10,000 | ||||||||
Output | 70 SO | 2,10,000 SO(AO) | 1,96,000 SO(AI) | 2,10,000 AO |
Output (_O) is in kgs, Quantities (_Q) and Losses (_L) are in kgs, Prices (_P) are in monetary value per kg and Costs (_C) are in monetary values.
Standard Loss
SQIL | = | Standard Input − Standard Output |
= | SQMix − SO | |
= | 100 − 70 | |
= | 30 kg |
Standard Output
SO | = | 70 kg (given) |
Actual Loss
AQIL | = | Actual Input − Actual Output |
= | AQMix − AO | |
= | 2,80,000 − 2,10,000 | |
= | 70,000 kg |
Actual Output
AO | = | 2,10,000 kg (given) |
(AO) | = |
| ||
= |
| |||
= | 3,000 |
(AI) | = |
| ||
= |
| |||
= |
| |||
= | 2,800 |
1. | SQ(AO) | = | SQ ×
| ||
= | SQ × 3,000 |
2. SC(AO) = SQ(AO) × SP
3. SO(AO) = AO
4. | SQ(AI) | = | SQ ×
| ||
= | SQ × 2,800 |
5. SC(AI) = SQ(AI) × SP
6. | SO(AI) | = | SO ×
|
7. SC(AQ) = AQ × SP
Calculations (for formulae based on Losses)
All these calculations can be completely ignored unless when we are required to find out the output based on losses for which the calculations at the beginning would suffice. All these calculations are required only if we intend to use the formula based on losses to calculate Material Yield Variance and that too for the mix.
8. NSQ = SQ − SQIL
9. NAQ = AQ − AQIL
10. | SQIL(AO) | = | SQIL ×
| ||
= | SQIL × 3,000 |
11. | SPMix | = |
|
11. SCIL(AO) = SQIL(AO) × SPMix
12. SC(AQIL) = AQIL × SPMix
The working table can be made simpler if the Loss and Net rows containing this data are eliminated from being presented.
Solution
Material Cost Variance
MCV = SC(AO) − AC
= | 3,00,000 − 2,52,000 | = | + 48,000 [Fav] |
Material Price Variance
MPV = SC(AQ) − AC
= | 2,80,000 − 2,52,000 | = | + 28,000 [Fav] |
Material Quantity/Usage Variance
MQV/MUV = SC(AO) − SC(AQ)
= | 3,00,000 − 2,80,000 | = | + 20,000 [Fav] |
Material Mix Variance
MMV = SC(AI) − SC(AQ)
= | 2,80,000 − 2,80,000 | = | 0 |
Material Yield/Sub-Usage Variance
MYV/MSUV = SC(AO) − SC(AI)
= | 3,00,000 − 2,80,000 | = | + 20,000 [Fav] |
Material Yield/Sub-Usage Variance (alternative based on losses)
When there are losses and the relevant data is available, the following formula based on losses can also be used for calculating the yield variance for the mix
MYV/MSUV = SCSQIL(AO) − SC(AQIL)
= | 90,000 − 70,000 | = | + 20,000 [Fav] |
Solution (alternative presentation)
Material 1 | |
---|---|
MYV/MSUV SC(AO) 3,00,000 − − SC(AI) 2,80,000 SC(AI) 2,80,000 − − SC(AQ) 2,80,000 | + 20,000 0 |
MQV/MUV SC(AO) 3,00,000 − − SC(AQ) 2,80,000 SC(AQ) 2,80,000 − − AC 2,52,000 | + 20,000 + 28,000 |
MCV SC(AO) 3,00,000 − − AC 2,52,000 | + 48,000 |
Verification
Verification
Formula | Material 1 | |
---|---|---|
MYV/MSUV + MMV | SC(AO) − SC(AI) SC(AI) − SC(AQ) | + 20,000 0 |
MQV/MUV + MPV | SC(AO) − SC(AQ) SC(AQ) − AC | + 20,000 + 28,000 |
MCV | SC(AO) − AC | + 48,000 |
Simplest
One may use this as the simplest presentation of calculations, since all the amounts used in the formula are present in the working table.If it is for verification purposes, we may avoid the formula column.
Please adopt a presentation based on the examination you are attending, the proportion of marks allotted and time available to/for the problem.