Material Variances - Single Material - Different Standard Actual outputs

S1 ↞ Pr2

Practice Problem 3

You have gathered the following information in respect of a product Y:

Standard output 1,250 units
Actual output 1,000 units
Standard quantity for Standard output 1,250 kg.
Actual quantity used 1,100 kg.
Standard price 7.00 per kg.
Actual price 7.50 per kg.

Calculate Material Variances.

Ans:
1
MYV/MSUV
MMV 		− 700
0
MQV/MUV
MPV 		− 700
− 550
MCV − 1,250

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 1 1,250 7 1,100 7.50
Output 1,250 1,000

units : _Q in kgs, _P in value/kgs and _O in units

Working Table

Working table incorporating the data in the problem and the calculated values including recalculated standards
Working Table with recalculated standards
Standard Actual
for SO for AO for AI
SQ SP SQ(AO) SC(AO) SQ(AI) SC(AI) AQ AP AC SC(AQ)
Factor 0.8 0.88
Material 1 1,250 7 1,000 7,000 1,100 7,700 1,100 7.5 8,250 7,700
Total 1,250 1,000 7,000 1,100 7,700 1,100 8,250 7,700
Output 1,250
SO 		1,000
SO(AO) 		1,100
SO(AI) 		1,000
AO

Output (_O) is in units, Quantities (_Q) and Losses (_L) are in kgs, Prices (_P) are in monetary value per kg and Costs (_C) are in monetary values.

Standard Output

SO = 1,250 unit (given)

Actual Output

AO = 1,000 unit (given)
(AO) =
AO
SO
=
1,000
1,250
= 0.8
(AI) =
AI
SI
=
AQMix
SQMix
=
1,100
1,250
= 0.88
1. SQ(AO) = SQ ×
AO
SO
= SQ × 0.8

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 0.88

5. SC(AI) = SQ(AI) × SP

6. SO(AI) = SO ×
AI
SI

7. SC(AQ) = AQ × SP

Solution

Material Cost Variance

MCV = SC(AO) − AC

= 7,000 − 8,250 = − 1,250 [Adv]

Material Price Variance

MPV = SC(AQ) − AC

= 7,700 − 8,250 = − 550 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 7,000 − 7,700 = − 700 [Adv]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 7,700 − 7,700 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 7,000 − 7,700 = − 700 [Adv]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
7,000
−
−
SC(AI)
7,700
+ MMV

SC(AI)
7,700
−
−
SC(AQ)
7,700


− 700


0
MQV/MUV

SC(AO)
7,000
−
−
SC(AQ)
7,700
+ MPV

SC(AQ)
7,700
−
−
AC
8,250


− 700


− 550
MCV

SC(AO)
7,000
−
−
AC
8,250


− 1,250

Verification

If adopting the first and second presentation methods, it would help building the following table to enable us to verify whether our workings are correct or not.

Verification

Formula Material 1
MYV/MSUV
+ MMV 		SC(AO) − SC(AI)
SC(AI) − SC(AQ) 		− 700
0
MQV/MUV
+ MPV 		SC(AO) − SC(AQ)
SC(AQ) − AC 		− 700
− 550
MCV SC(AO) − AC − 1,250

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.

Author : The Edifier
S1 ↠ Pr4