Material Variances - Single Material - Stocks maintained at Standard Costs

S2 ↞ P7

Problem 8

ABC (P) Ltd., uses a standard costing system, with its material stock account being maintained at standard costs. The following details have been extracted from the standard cost card in respect of direct materials.

8 kg at 8.00/kg = 64 per unit

Budgeted production in January was 1,250 units.

The following details relate to actual materials purchased and issued to production during January, when actual production was 1,200 units.

Material purchased 12,000 kg costing 1,00,800

Materials issued to production 10,000 kg.

Find the material variances to be reported.

Ans:
1
MYV/MSUV
MMV 		− 3,200
0
MQV/MUV
MPV 		− 3,200
− 4,800
MCV − 8,000

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 8 8 10,000 8.48
Output 1 1,200

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
    =
    1,00,800
    12,000 kgs
    = 8.4/kg

  • Quantity of Closing Stock

    = Opening Stock + Current period Purchase − Consumption

    = 0 + 12,000 kgs − 10,000 kgs

    = 2,000 kgs

  • Value and price of material consumed

    Quantity
    (lbs)     		Price
    /lb     		Value
    Opening Stock
    (+) Current Period Purchases     		0
    12,000     		—
    8.4     		0
    1,00,800
    Total Stock
    (−) Closing Stock     		12,000
    2,000     		8.4
    8     		1,00,800
    16,000
    Value of Material Consumed 10,000 8.48 84,800

    Since materials in stocks are being maintained at standard prices, closing stock is valued at the standard price of 8 per kg.

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 1,200 1,250
Material 1 8 8 9,600 76,800 10,000 80,000 10,000 8.48 84,800 80,000
Total 8 9,600 76,800 10,000 80,000 10,000 84,800 80,000
Output 1
SO 		1,200
SO(AO) 		1,250
SO(AI) 		1,200
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 = 1,200 unit (given)
(AO) =
AO
SO
=
1,200
1
= 1,200
(AI) =
AI
SI
=
AQMix
SQMix
=
10,000
8
= 1,250
1. SQ(AO) = SQ ×
AO
SO
= SQ × 1,200

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 1,250

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

= 76,800 − 84,800 = − 8,000 [Adv]

Material Price Variance

MPV = SC(AQ) − AC

= 80,000 − 84,800 = − 4,800 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 76,800 − 80,000 = − 3,200 [Adv]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 80,000 − 80,000 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 76,800 − 80,000 = − 3,200 [Adv]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
76,800
−
−
SC(AI)
80,000
+ MMV

SC(AI)
80,000
−
−
SC(AQ)
80,000


− 3,200


0
MQV/MUV

SC(AO)
76,800
−
−
SC(AQ)
80,000
+ MPV

SC(AQ)
80,000
−
−
AC
84,800


− 3,200


− 4,800
MCV

SC(AO)
76,800
−
−
AC
84,800


− 8,000

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) 		− 3,200
0
MQV/MUV
+ MPV 		SC(AO) − SC(AQ)
SC(AQ) − AC 		− 3,200
− 4,800
MCV SC(AO) − AC − 8,000

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 ↠ S3