# Materials :: Recalculating Standard Quantity/Cost for actual input

 Standards for Actual Input
Standards for actual input can be segregated as
• #### Standard Quantity for Actual Input [SQ for AI]

This has relevance only when two or more types of materials are being used in the production process. This is also called Standard Quantity for Actual Mix (AM), where AM indicates the total quantity of materials used.

It indicates the quantity of each material that should have been present in the actual mix had the materials been taken in standard (mix) ratio.

• #### Standard Cost for Actual Input [SC for AI]

It indicates the material cost of each type of material that should have been incurred had the materials been present in the actual mix in standard (mix) ratio and are purchased (price) at the rates as per the standard.

We use the material name as subscript for identifying each material separately and the word Mix to identify all the materials together. [SQA for standard quantity of material A, AQMix for total quantity of actual mix (all the materials together) etc.]

Where SQMix = AQMix, these figures can be obtained straight away from the available data by building up a working table.

 Quantity(kgs) PriceRs/kg Value/Cost(Rs) Quantity(kgs) PriceRs/kg Value/Cost(Rs) Standard [Production: 2500 units] Actual [Production: 2,400 units] Material A 500 10 5,000 520 11 5,720 Material B 400 15 6,000 430 16 6,880 Material C 300 8 2,400 250 10 2,500 1,200 13,400 1,200 17,100

The standard is given for 1,200 units of input and the actual input is also 1,200 units.

#### Where are these figures used?

The standard quantity and cost for actual input are useful in identifying
• The variance in quantity of material used on account of the difference between the standard (mix) ratio and the actual (mix) ratio. This can be done by comparing the actual quantity of each material used with the standard quantity of that material. This difference valued at the standard rates/prices gives what is called the "Material Mix Variance"

#### Why Recalculate Standards

Standards may be expressed for any level of activity. We may be required to recalculate the standards for a level of activity other than the one given. This recalculation may be based on (a) the actual output where we obtain the Standard Quantity for Actual Output and Standard Cost for Actual Output or (b) the actual input where we obtain the Standard Quantity for Actual Input and Standard Output for Actual Input.

Where SQMix ≠ AQMix, we cannot obtain the variances by comparing the given data. In such a case we will have to recalculate the standards such that SQMix = AQMix so that we would be the able to derive variances by comparison.

 Quantity(kgs) PriceRs/kg Value/Cost(Rs) Quantity(kgs) PriceRs/kg Value/Cost(Rs) Standard [Production: 9500 units] Actual [Production: 22,800 units] Material A 900 15 13,500 2,250 16 36,000 Material B 800 45 36,000 1,950 42 81,900 Material C 200 85 17,000 550 90 49,500 1,900 66,500 4,750 1,67,400

From the above data, is it appropriate to say that the production was achieved at a lesser cost since all the materials seem to be used in lesser quantities? or that the materials had been used efficiently? Surely not. Why?

Because the (total) materials actually consumed and the cost incurred is in relation to an input of 4,750 kgs whereas the budget/standard is in relation to a total input of 1,900 kgs.

 Formula » Standard Quantity for Actual Input
This has relevance only when two or more types of materials are being used in the production process. It indicates the quantity of each material that should have been present in the actual mix had the materials been taken in standard mix ratio.

Consider the following data arranged in a working table.
 Quantity(kgs) PriceRs/kg Value/Cost(Rs) Quantity(kgs) PriceRs/kg Value/Cost(Rs) Standard [Production: 9500 units] Actual [Production: 22,800 units] Material A 900 15 13,500 2,250 16 36,000 Material B 800 45 36,000 1,950 42 81,900 Material C 200 85 17,000 550 90 49,500 1,900 66,500 4,750 1,67,400

#### Standard Quantity for Actual Input

The logic behind the calculation and the formula for deriving the required quantity
• #### For Each Material Separately

Logic
If the Standard Quantity of Standard Mix is 1,900 kgs Standard Quantity of Material A is 900 kgs
If the Standard Quantity of Standard Mix is 4,750 kgs Standard Quantity of Material A would be ?
Standard Quantity of a Material for Actual Input/Mix of 4,750 kgs
=
 4,750 kgs {Actual Quantity of Mix} 1,900 kgs {Standard Quantity of Mix}
× 900 kgs {Standard Quantity of the Material in the Standard Mix}

⇒ SQMat for AI =
 AQMix SQMix
× SQMat

Using the data in the above example,

Standard Quantity for Actual Input [SQ for AI] for
Material A =
 4,750 kgs 1,900 kgs
× 900 kgs
= 2.5 × 900 kgs ⇒ SQA for AI = 2,250 kgs
Material B =
 4,750 kgs 1,900 kgs
× 800 kgs
= 2.5 × 800 kgs ⇒ SQB for AI = 2,000 kgs
Material C =
 4,750 kgs 1,900 kgs
× 200 kgs
= 2.5 × 200 kgs ⇒ SQC for AI = 500 kgs
Total 4,750 kgs

• #### For all Materials together

Calculating this for all the materials together doesn't carry any meaning.
Check
If the Standard Quantity of Standard Mix is 1,900 kgs Standard Mix is 1,900 kgs
If the Standard Quantity of Standard Mix is 4,750 kgs Standard Mix would be ??
Standard Mix for Actual Mix of 4,750 kgs
=
 4,750 kgs {Actual Quantity of Mix} 1,900 kgs {Standard Quantity of Mix}
× 1,900 kgs {Standard Quantity of Mix}
= 4,750 kgs

 ⇒ SQMix for AI = AQMix

Using the data in the above example,

Standard Quantity for Actual Input [SQ for AI] for  All Materials = AQMix ⇒ SQMix for AI = AQMix = 4,750 kgs

 Standard Cost of Standard Quantity for Actual Input [SC of SQ for AI]
It indicates the cost of each material that should have been incurred had the materials been present in the actual mix in standard (mix) ratio and have been valued at the standard rates.

Consider the following data arranged in a working table.

 Quantity(kgs) PriceRs/kg Value/Cost(Rs) Quantity(kgs) PriceRs/kg Value/Cost(Rs) Standard [Production: 9500 units] Actual [Production: 22,800 units] Material A 900 15 13,500 2,250 16 36,000 Material B 800 45 36,000 1,950 42 81,900 Material C 200 85 17,000 550 90 49,500 1,900 66,500 4,750 1,67,400

• #### For Each Material Separately

Standard Cost of Standard Quantity for Actual Input = Standard Quantity for Actual Input × Standard Price.

⇒ SC of SQMat for AI = SQMat for AI × SPMat
(Or) =
 AQMix SQMix
× SQMat × SPMat
(Or) =
 AQMix SQMix
× SCMat

Using the data in the above example,

Standard Cost of Standard Quantity for Actual Input [SC of SQ for AI] for
Material A =
 4,750 kgs 1,900 kgs
× 900 kgs × Rs. 15/kg
= 2.5 × Rs. 13,500 ⇒ SC of SQA for AI = Rs. 33,750
Material B =
 4,750 kgs 1,900 kgs
× 800 kgs × Rs. 45/kg
= 2.5 × Rs. 36,000 ⇒ SC of SQB for AI = Rs. 90,000
Material C =
 4,750 kgs 1,900 kgs
× 200 kgs × Rs. 85/kg
= 2.5 × Rs. 17,000 ⇒ SC of SQC for AI = Rs. 42,500
Total Rs. 1,66,250

• #### For All Materials Together

Standard Cost of Standard Quantity for Actual Input = Standard Quantity for Actual Input × Standard Price.

 ⇒ SC of SQMix for AI = SQMix for AI × SPMix (Or) = AQMix × SPMix

Using the data in the above example,

Standard Cost of Standard Quantity for Actual Input [SC of SQ for AI] for  All Materials = AQMix × SPMix ⇒ SC of SQMix for AI = 4,750 kgs × Rs. 35/kg = Rs. 1,66,250

Standard Price of Mix =
 Standard Cost of Mix Standard Quantity of Mix
SPMix =
 SCMix SQMix

Using the data in the above example,

Standard Price of Mix
⇒ SPMix =
 Rs. 66,500 1,900 kgs
= Rs. 35/kg

 Standard Output/Yield for Actual Input [SO/SY for AI]
Yield and Output are synonymously used. Standard Output/Yield indicates the output that should have been achieved had the production been normal.

Consider the following data arranged in a working table.

 Quantity(kgs) PriceRs/kg Value/Cost(Rs) Quantity(kgs) PriceRs/kg Value/Cost(Rs) Standard [Production: 9500 units] Actual [Production: 22,800 units] Material A 900 15 13,500 2,250 16 36,000 Material B 800 45 36,000 1,950 42 81,900 Material C 200 85 17,000 550 90 49,500 1,900 66,500 4,750 1,67,400

• #### For Each Material Separately

As per standards, if the Quantity of Material A is 900 kgs Output is 9,500 units
If the Quantity of Material A is 2,250 kgs (actual used) Output should have been ?

Standard Output/Yield for Actual Input (of Material A)
=
 2,250 kgs {Actual Quantity} 900 kgs {Standard Quantity}
× 9,500 units {Standard Output}

⇒ SO for AIMat =
 AQMat SQMat
× SO

Using the data in the above example,

Standard Output/Yield for Actual Input of
Material A =
 2,250 kgs 900 kgs
× 9,500 units
= 2.5 × 9,500 units ⇒ SO for AIA =  23,750 units
Material B =
 1,950 kgs 800 kgs
× 9,500 units
= 2.4375 × 9,500 units ⇒ SO for AIB =  23,156.25 units
Material C =
 550 kgs 200 kgs
× 9,500 units
= 2.75 × 9,500 units ⇒ SO for AIC =  26,125 units

• #### For All Materials Together

As per standards, if the Quantity of Mix is 1,900 kgs Output is 9,500 units
If the Quantity of Mix (actual input) is 4,750 kgs Output should have been ?

Standard Output/Yield for Actual Input (of Mix)
=
 4,750 kgs {Actual Mix} 1,900 kgs {Standard Mix}
× 9,500 units {Standard Output}

⇒ SO for AIMix =
 AQMix SQMix
× SO

Using the data in the above example,

Standard Output/Yield for Actual Input of
Material Mix =
 4,750 kgs 1,900 kgs
× 9,500 units
⇒ SO for AIMix = 2.5 × 9,500 units =  23,750 units

#### Note

The standard output for the actual mix is not equal to the sum of the Standard Outputs for each material separately.

The given data with the recalculated standards would be.

 Quantity(kgs) PriceRs/kg Value/Cost(Rs) Quantity(kgs) PriceRs/kg Value/Cost(Rs) Standard [Production: 23,750 units] Actual [Production: 22,800 units] Material A 2,250 15 33,750 2,250 16 36,000 Material B 2,000 45 90,000 1,950 42 81,900 Material C 500 85 42,500 550 90 49,500 4,750 1,66,250 4,750 1,67,400

By recalculating the standards for actual input we would make the Quantity of Standard Mix SQMix and the Actual Mix AQMix in the recalculated data to be the same.

 Standards » For Actual Output vs. For Actual Input
In the recalculated figures, where you recalculate standards for the actual output, the standard output and the actual output would be the same

The factor used for incorporating the change is
 AO SO

In the recalculated figures, where you recalculate standards for the actual input, the standard input (mix) and the actual input (mix) would be the same

The factor used for incorporating the change is
 AQMix SQMix

#### You may not need to recalculate standards !!!

In solving problems, we can make use of formulae which would enable us to calculate all the material variances without recalculating the standards, by incorporating the above mentioned adjustment factors in the formulae itself.

All the formula that we use and advocate are those which have this adjustment factor built into it thus enabling you to use the same set of formulae in all situations.

 Author Credit : The Edifier ... Continued Page M:4