Material Variances - Single Material - Only Closing Stock

S2 ↞ P5

Problem 6

From the following you are required to calculate material variances:

Quantity of material purchased : 3,000 units

Value of material purchased : 9,000.

Standard of quantity of material required for one Tonne of finished product : 75 units.

Standard rate of material : 2 per unit.

Opening stock of material : nil

Closing stock of material : 500 units

Finished production during the period : 80 tonnes

Ans:
1
MYV/MSUV
MMV 		− 3,000
0
MQV/MUV
MPV 		− 3,000
− 7,500
MCV − 10,500

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 25 2 7,5003
Output 1 80

units : _Q in units, _P in value/unit and _O in tonnes

The underlined figures are obtained through the below calculations

  • Current period purchase price of Materials

    =
    Total Cost of Materials Purchased
    Quantity of Material Purchased
    =
    9,000
    3,000 units
    = 3/unit

  • Value and price of material consumed

    Quantity
    (lbs)     		Price
    /lb     		Value
    Opening Stock
    (+) Current Period Purchases     		0
    3,000     		—
    3     		0
    9,000
    Total Stock
    (−) Closing Stock     		3,000
    500     		3
    3     		9,000
    1,500
    Value of Material Consumed 2,500 3 7,500

    Assumptions :

    • Since there is no opening stock, all of closing stock pertains to current period purchases and as such closing stock is valued at current period purchase/acquisition price, in the absence of any other information relating to it.

    Other aspects :

    • Values of purchases and closing stocks are obtained as quantity × price
    • Quantity and Value of material consumed is the balancing figure obtained as opening stock + purchases − closing stock.

    • Price of material consumed

      =
      Value of Material Consumed
      Quantity of Material Consumed
      =
      7,500
      2,500 units
      = 3/unit
    • But for ascertaining the quantity and price of material consumed, there would be no difference in calculating variances.

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 80 100
Material 1 75 2 6,000 12,000 7,500 15,000 7,500 3 22,500 15,000
Total 75 6,000 12,000 7,500 15,000 7,500 22,500 15,000
Output 1
SO 		80
SO(AO) 		100
SO(AI) 		80
AO

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

Standard Output

SO = 1 unit (given)

Actual Output

AO = 80 unit (given)
(AO) =
AO
SO
=
80
1
= 80
(AI) =
AI
SI
=
AQMix
SQMix
=
7,500
75
= 100
1. SQ(AO) = SQ ×
AO
SO
= SQ × 80

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 100

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

= 12,000 − 22,500 = − 10,500 [Adv]

Material Price Variance

MPV = SC(AQ) − AC

= 15,000 − 22,500 = − 7,500 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 12,000 − 15,000 = − 3,000 [Adv]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 15,000 − 15,000 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 12,000 − 15,000 = − 3,000 [Adv]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
12,000
−
−
SC(AI)
15,000
+ MMV

SC(AI)
15,000
−
−
SC(AQ)
15,000


− 3,000


0
MQV/MUV

SC(AO)
12,000
−
−
SC(AQ)
15,000
+ MPV

SC(AQ)
15,000
−
−
AC
22,500


− 3,000


− 7,500
MCV

SC(AO)
12,000
−
−
AC
22,500


− 10,500

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) 		− 3,000
0
MQV/MUV
+ MPV 		SC(AO) − SC(AQ)
SC(AQ) − AC 		− 3,000
− 7,500
MCV SC(AO) − AC − 10,500

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
S2 ↠ P7