Material Variances - Single Material - Standards and Actuals for same output

S1 ↞ P5

Practice Problem 1

The standard cost of material for the making of 5 units of a certain product is estimated as under:

Material 80 kg. @ 1.50 per kg. On completion of the production of 5 units, it was found that 72 kg. of material costing 1.75 per kg. has been consumed.

You are required to analyse the following material variances:

(a) Material cost variance,
(b) Material price variance, and
(c) Material usage variance.
Ans:
1
MYV/MSUV
MMV 		+ 12
0
MQV/MUV
MPV 		+ 12
− 18
MCV − 6

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 1 80 1.50 72 1.75
Output 5 5

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 1 0.9
Material 1 80 1.5 80 120 72 108 72 1.75 126 108
Total 80 80 120 72 108 72 126 108
Output 5
SO 		5
SO(AO) 		4.5
SO(AI) 		5
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 = 5 unit (given)

Actual Output

AO = 5 unit (given)
(AO) =
AO
SO
=
5
5
= 1
(AI) =
AI
SI
=
AQMix
SQMix
=
72
80
= 0.9
1. SQ(AO) = SQ ×
AO
SO
= SQ × 1

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 0.9

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

= 120 − 126 = − 6 [Adv]

Material Price Variance

MPV = SC(AQ) − AC

= 108 − 126 = − 18 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 120 − 108 = + 12 [Fav]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 108 − 108 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 120 − 108 = + 12 [Fav]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
120
−
−
SC(AI)
108
+ MMV

SC(AI)
108
−
−
SC(AQ)
108


+ 12


0
MQV/MUV

SC(AO)
120
−
−
SC(AQ)
108
+ MPV

SC(AQ)
108
−
−
AC
126


+ 12


− 18
MCV

SC(AO)
120
−
−
AC
126


− 6

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) 		+ 12
0
MQV/MUV
+ MPV 		SC(AO) − SC(AQ)
SC(AQ) − AC 		+ 12
− 18
MCV SC(AO) − AC − 6

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 ↠ Pr2