Material Variances - Single Material - Opening and Closing Stock

S2 ↞ P2

Problem 3

Find out Material Cost Variance, Material Price Variance and Material usage variance from the following :

Material Purchased
Value of Materials Purchased
Standard Quantity for one unit
Standard Rate of Materials
Opening Stock of Materials
Closing Stock of Materials
Finished goods 		6000 kg.
15,000
2.5 kg.
2 per kg.
1000 kg.
2000 kg.
2,140 units.
Ans:
1
MYV/MSUV
MMV 		+ 700
0
MQV/MUV
MPV 		+ 700
− 2,500
MCV − 1,800

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 2.5 2 5,0002.50
Output 1 2,140

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

The underlined figures are obtained through the below calculations

  • Current period purchase price of Materials

    =
    Total Cost of Materials Purchased
    Quantity of Material Purchased
    =
    15,000
    6,000 kg
    = 2.50/kg

  • Value and price of material consumed

    Quantity
    (kgs)     		Rate
    /kg     		Value
    Opening Stock
    (+) Current Period Purchases     		1,000
    6,000     		2.50
    2.50     		2,500
    15,000
    Total Stock
    (−) Closing Stock     		7,000
    2,000     		2.50
    2.50     		17,500
    5,000
    Value of Material Consumed 5,000 2.50 12,500

    Assumptions :

    • Opening stock is valued at current period purchase/acquisition price, in the absence of any other information relating to it.
    • Stocks are consumed on FIFO basis. Closing stock being less than the current period stock, all of it relates to stock acquired during the current period and as such is valued at current period purchase/acquisition price.

    Other aspects :

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

    • Rate of material consumed

      =
      Value of Material Consumed
      Quantity of Material Consumed
      =
      12,500
      5,000 kg
      = 2.50/kg
    • 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 2,140 2,000
Material 1 2.5 2 5,350 10,700 5,000 10,000 5,000 2.5 12,500 10,000
Total 2.5 5,350 10,700 5,000 10,000 5,000 12,500 10,000
Output 1
SO 		2,140
SO(AO) 		2,000
SO(AI) 		2,140
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 unit (given)

Actual Output

AO = 2,140 unit (given)
(AO) =
AO
SO
=
2,140
1
= 2,140
(AI) =
AI
SI
=
AQMix
SQMix
=
5,000
2.5
= 2,000
1. SQ(AO) = SQ ×
AO
SO
= SQ × 2,140

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 2,000

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

= 10,700 − 12,500 = − 1,800 [Adv]

Material Price Variance

MPV = SC(AQ) − AC

= 10,000 − 12,500 = − 2,500 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 10,700 − 10,000 = + 700 [Fav]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 10,000 − 10,000 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 10,700 − 10,000 = + 700 [Fav]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
10,700
−
−
SC(AI)
10,000
+ MMV

SC(AI)
10,000
−
−
SC(AQ)
10,000


+ 700


0
MQV/MUV

SC(AO)
10,700
−
−
SC(AQ)
10,000
+ MPV

SC(AQ)
10,000
−
−
AC
12,500


+ 700


− 2,500
MCV

SC(AO)
10,700
−
−
AC
12,500


− 1,800

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
− 2,500
MCV SC(AO) − AC − 1,800

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 ↠ P4