Materials :: Recalculating Standard Quantity/Cost for/of actual Output

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Standards for Actual Output

Standards for actual output can be seggregated as

Standard Quantity for Actual Output [SQ for AO]
The quantity of material that should have been used for the actual output, had the usage of materials been as per the standard.
Standard Cost for Actual Output [SC for AO]
The material cost that would have been incurred for the actual output, had the materials been used (quantity) and purchased (price) at the rates as per the standard.

	Budgeted/Standard [Output : 150 units]			Actual [Output : 150 units]
	Quantity (kgs)	Price (Rs/kg)	Cost (Rs)	Quantity (kgs)	Price (Rs/kg)	Cost (Rs)
Material Used	450	4	1,800	440	5	2,200

Where the Standard output and Actual Output are the same i.e. SO = AO, these figures can be obtained straightaway from the available data by building up the working table.

The standard is given for 150 units of output and the actual output achieved is also 150 units.

Where are these figures used?

The standard quantity and cost for actual output are useful in identifying

The variance in quantity of material used by comparing the actual quantity of materials used (440 kgs) and the standard quantity of materials (450 kgs). This variance valued at the standard rates/prices gives what is called the "Material Usage/Quantity Variance".
The variance in cost can be identified by comparing the actual cost (Rs. 2,200) and the standard cost (Rs. 1,800). This variance is what is called "Material Cost 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 Standard Output (SO) and Actual Output (AO) are not equal i.e. SO ≠ AO, we cannot obtain the variances by comparing the given data. In such a case we will have to recalculate the standards such that the AO and SO would be the same to enable us to derive variances by comparison.

Budgeted/Standard
[Output : 1,000 units] Actual
[Output : 210 units]

Quantity
(kgs) Price
(Rs/kg) Cost
(Rs) Quantity
(kgs) Price
(Rs/kg) Cost
(Rs)

Material Used 2,250 2 4,500 480 2 960

From this data, is it appropriate to say that the production was achieved at a lesser cost? or that the materials had been used efficiently? Surely not. Why?

Because the materials actually consumed and the cost incurred is for manufacturing 210 units whereas the budget/standard is for manufacturing 1,000 units.

Comparing the actual material consumed for 210 units of output (480 kgs) with the standard quantity of materials for 1,000 units of output (2,250 kgs) and concluding that the material consumed is very low is inappropriate.
At the same time, comparing the actual material cost incurred for 210 units of output (Rs. 960) with the standard material cost of 1,000 units of output (Rs. 2,250) and concluding that the cost incurred is very low is also erroneous.

The comparison would be appropriate and meaningful if we compare

The standard quantity of materials of 210 units which works out to 472.5 kgs {(2,250 ÷ 1,000) × 210} and the actual quantity of materials used.
The standard material cost of 210 units which works out to Rs. 945 {(4,500 ÷ 1,000) × 210} and the actual cost of 210 units.

Therefore to find

The variance in the quantity of material used we need the standard quantity for actual output.
The variance in the cost of materials we need the standard cost for actual output.

Recollect that standards can be built for any production level. Standards may be expressed for either 1 unit of output, 2 units of output, ... to any production level. Recalculating standards implies drawing up the standards for a particular production level based on our calculation needs.

Formula » Standard Quantity for Actual Output

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 35 66,500 4,750
3,348
95
1,67,400

The standard output and the actual output are not the same.
Standard Quantity for Actual Output
The logic behind the calculation and the formula for deriving the required quantity

For Each Material Separately
Logic
If the standard production of 9,500 units, the standard quantity of materials (A) is 900 kgs
If the standard production is 22,800 units, the quantity of materials (A) would be ??

Standard Quantity (A) for an Output of 22,800 units

=

22,800 units {Actual Output}
9,500 units {Standard Output}
× 900 kgs {Standard Quantity of Material A}

⇒ SQ_Mat for AO =

AO
SO
× SQ_Mat

Using the data given above,

Standard Quantity for Actual Output [SQ for AO] for

Material A =

22,800 units
9,500 units
× 900 kgs
⇒ SQ_A for AO = 2.4 × 900 kgs = 2,160 kgs

Material B =

22,800 units
9,500 units
× 800 kgs
⇒ SQ_B for AO = 2.4 × 800 kgs = 1,920 kgs

Material C =

22,800 units
9,500 units
× 200 kgs
⇒ SQ_C for AO = 2.4 × 200 kgs = 480 kgs

Total 4,560 kgs

For All Materials Together
Logic
If the standard production of 9,500 units, the standard quantity of materials is 1,900 kgs
If the standard production is 22,800 units, the quantity of materials would be ??

Standard Quantity for an Output of 22,800 units

=

22,800 units {Actual Output}
9,500 units {Standard Output}
× 1,900 kgs {Standard Quantity (Standard Mix)}

⇒ SQ_Mix for AO =

AO
SO
× SQ_Mix

Using the data given above,

Standard Quantity for Actual Output [SQ for AO] for

Total/All Materials =

22,800 units
9,500 units
× 1,900 kgs
⇒ SQ_Mix for AO = 2.4 × 1,900 kgs = 4,560 kgs

Formula » Standard Cost for Actual Output

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 35 66,500 4,750
3,348
95
1,67,400

Standard Cost for Actual Output
The logic behind the calculation and the formula for deriving the required cost

For each Material Separately
Standard Cost for Actual Output = Standard Quantity for Actual Output × Standard Price.

⇒ SC_Mat for AO = SQ_Mat for AO × SP

(Or) =

AO
SO
× SQ_Mat × SP_Mat

(Or) =

AO
SO
× SC_Mat

[Useful where SQ_Mat for AO is already calculated]

[Useful where SQ_Mat, SP_Mat, SO, AO data is available]

[Useful where only SC_Mat, AO, SO data is available]

Using the data in the above example,

Standard Cost for Actual Output [SC for AO] for

Material A =

22,800 units
9,500 units
× 900 kgs × Rs. 15/kg
⇒ SC_A for AO = 2.4 × Rs. 13,500 = Rs. 32,400

Material B =

22,800 units
9,500 units
× 800 kgs × Rs. 45/kg
⇒ SC_B for AO = 2.4 × Rs. 36,000 = Rs. 86,400

Material C =

22,800 units
9,500 units
× 200 kgs × Rs. 85/kg
⇒ SC_C for AO = 2.4 × Rs. 17,000 = Rs. 40,800

Total Rs. 1,59,600

For all Materials together
Standard Cost of Standard Mix for Actual Output
= Standard Quantity of Standard Mix for Actual Output × Standard Price of Standard Mix.

⇒ SC_Mix for AO = SQ_Mix for AO × SP_Mix

(Or) =

AO
SO
× SQ_Mix × SP_Mix

(Or) =

AO
SO
× SC_Mix

[Useful where SQ_Mix for AO is already calculated]

[Useful where SQ_Mix, SP_Mix, SO, AO data is available]

[Useful where only SC_Mix, AO, SO data is available]

Using the data in the above example,

Standard Cost for Actual Output [SC for AO] for

All Materials =

22,800 units
9,500 units
× 1,900 kgs × Rs. 35/kg

⇒ SC_Mix for AO = 2.4 × Rs. 66,500 = Rs. 1,59,600

Standard Price of Mix =

Standard Cost of Mix
Standard Quantity of Mix

⇒ SP_Mix =

SC_Mix
SQ_Mix

Using the data in the above example,

Standard Price of Mix

⇒ SP_Mix =

Rs. 66,500
1,900 kgs

= Rs. 35/kg

The above data (in the working table) with the recalculated standard would be.

Standard
[Production: 22,800 units] Actual
[Production: 22,800 units]

Quantity
(kgs) Price
Rs/kg Value/Cost
(Rs) Quantity
(kgs) Price
Rs/kg Value/Cost
(Rs)

Material A 2,160 15 32,400 2,250 16 36,000

Material B 1,920 45 86,400 1,950 42 81,900

Material C 480 85 40,800 550 90 49,500

Total 4,560 1,59,600 4,750 1,67,400

By recalculating the standard for the actual output we would make the standard output and actual output in the recalculated data to be the same.

Author Credit : The Edifier

... Continued Page M:3

Materials :: Recalculating Standard Quantity/Cost for/of actual Output

Standard Quantity for Actual Output [SQ for AO]

Standard Cost for Actual Output [SC for AO]

Where are these figures used?

Why Recalculate Standards

Standard Quantity for Actual Output

For Each Material Separately

For All Materials Together

Standard Cost for Actual Output

For each Material Separately

For all Materials together