Materials :: Recalculating Standard Quantity/Cost for actual input

... From Page M:2
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.

Standard
[Production: 2500 units]
Actual
[Production: 2,400 units]
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
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
Total 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.

Standard
[Production: 9500 units]
Actual
[Production: 22,800 units]
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
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
Total 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.
Standard
[Production: 9500 units]
Actual
[Production: 22,800 units]
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
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
Total 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.

Standard
[Production: 9500 units]
Actual
[Production: 22,800 units]
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
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
Total 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.

Standard
[Production: 9500 units]
Actual
[Production: 22,800 units]
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
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
Total 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.

Standard
[Production: 23,750 units]
Actual
[Production: 22,800 units]
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
Quantity
(kgs)
Price
Rs/kg
Value/Cost
(Rs)
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
Total 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

♣ Copyright Krishbhavara. All rights reserved ♣ Site optimized for Internet Explorer 5.5 and above