Material Variances - Single Material - Opening and Closing Stocks

S2 ↞ P3

Problem 4

Calculate the material variances for the following:

Opening stock 100 kgs
Purchased during the period 3,000 kg. cost 6,200
Standard 2 kg. per unit at 2 per kg.
Original budget 2,000 units
Production 1,600
Sales 1,400 units
Closing stock 200 kg.
Ans:
1
MYV/MSUV
MMV 		+ 420
0
MQV/MUV
MPV 		+ 420
− 299
MCV + 121

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 2 2 2,9902.10
Output 1 1,600

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

The underlined figures are obtained through the below calculations

  • Current period purchase price of Materials

    =
    Total Cost of Materials Purchased
    Quantity of Material Purchased
    =
    6,200
    3,000 kg
    = 3.1/kg

  • Value and price of material consumed

    Quantity
    (kgs)     		Rate
    /kg     		Value
    Opening Stock
    (+) Current Period Purchases     		100
    3,000     		2.10
    2.10     		210
    6,200
    Total Stock
    (−) Closing Stock     		3,100
    200     		2.10
    2.10     		6,410
    420
    Value of Material Consumed 2,900 2.10 5,990

    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
      =
      5,990
      2,900 kg
      = 2.10/kg
    • But for ascertaining the quantity and price of material consumed, there would be no difference in calculating variances.

Multiple Standards

The data relating to production being 1,600 units and the original budget being 2,000 units would provide us two other output levels for which we can derive the standards. We may calculate these standards and make use of those as well in the working table.

Standard Standard Standard
SQ SP SQ SP SQ SP
Material 2 2 3,200 2 4,000 2
Output 1 1,600 2,000

Using the standards relating to 1 unit output would be the most convenient.

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 1,600 1,495
Material 1 2 2 3,200 6,400 2,990 5,980 2,990 2.1 6,279 5,980
Total 2 3,200 6,400 2,990 5,980 2,990 6,279 5,980
Output 1
SO 		1,600
SO(AO) 		1,495
SO(AI) 		1,600
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 = 1,600 unit (given)
(AO) =
AO
SO
=
1,600
1
= 1,600
(AI) =
AI
SI
=
AQMix
SQMix
=
2,990
2
= 1,495
1. SQ(AO) = SQ ×
AO
SO
= SQ × 1,600

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 1,495

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

= 6,400 − 6,279 = + 121 [Fav]

Material Price Variance

MPV = SC(AQ) − AC

= 5,980 − 6,279 = − 299 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 6,400 − 5,980 = + 420 [Fav]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 5,980 − 5,980 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 6,400 − 5,980 = + 420 [Fav]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
6,400
−
−
SC(AI)
5,980
+ MMV

SC(AI)
5,980
−
−
SC(AQ)
5,980


+ 420


0
MQV/MUV

SC(AO)
6,400
−
−
SC(AQ)
5,980
+ MPV

SC(AQ)
5,980
−
−
AC
6,279


+ 420


− 299
MCV

SC(AO)
6,400
−
−
AC
6,279


+ 121

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) 		+ 420
0
MQV/MUV
+ MPV 		SC(AO) − SC(AQ)
SC(AQ) − AC 		+ 420
− 299
MCV SC(AO) − AC + 121

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 ↠ P5