Calculate material variances from the above data

Working table populated with the information that can be obtained as it is from the problem data

Output (_O) is in units of measurement of output, Quantities (_Q) are in units of measurement of input, Prices (_P) are in monetary value per unit input and Costs (_C) are in monetary values.

Assuming the input and output are in kgs for the purpose of explanations.

The rest of the information that we make use of in problem solving is filled through calculations.

Material Yield/Sub-Usage Variance is the difference between the Standard Cost of Actual Output and the Standard Cost of Actual Input.

⇒ Material Yield/Sub-Usage Variance (MYV/MSUV)

Standard Cost for Actual Output

Standard Cost of Actual Input

Formula in useful forms

Note

• ×

  AO

  SO

  replace the suffix (AO) and ×

  AI

  SI

  replace the suffix (AI) in calculations.
• AI = AQ_Mix and SI = SQ_Mix.

For each Material Separately

Material Yield or Sub Usage Variance

For all Materials together

Total Material Yield/Sub-Usage variance

Material Yield/Sub-Usage variance for the Mix

⋇ SQIL = SI − SO

⋇ AQIL = AI − AO

⋇ SC(AO) = SQ(AO) × SP

⋇ SO(AO) = AO

⋇ SCIL(AO) = SQIL(AO) × SP

⋇ SC(AI) = SQ(AI) × SP

⋇ SCIL(AI) = SQIL(AI) × SP

MYV/MSUV = SC(AO) − SC(AI)

Material Yield/Sub-Usage Variance due to

Alternative

• Calculating Costs in a working table

  Calculate SC based on the given data in a working table and then use formulae based on costs.

  Working Table

  	Standard			Actual
  	for SO
  	SQ	SP	SC	AQ	AP
  Material A Material B Material C	900 800 200	15 45 85	13,500 36,000 17,000	2,250 1,950 550	16 42 90
  Total/Mix	1,900		66,500	4,750
  Output	1,800 SO			4,320 AO

  ⋇ SC = SQ × SP

  MYV/MSUV = SC × (

  AO

  SO

  −

  AI

  SI

  )

• Using Formula with Quantities and Prices

  Using the quantity and price data from the working table built using the problem data we may do all the working in the formula itself if we expand the formula using the relation cost = quantity × price.

  Working Table

  	Standard		Actual
  	for SO
  	SQ	SP	AQ	AP
  Material A Material B Material C	900 800 200	15 45 85	2,250 1,950 550	16 42 90
  Total/Mix	1,900		4,750
  Output	1,800 SO		4,320 AO

  MYV/MSUV = SQ × SP × (

  AO

  SO

  −

  AI

  SI

  )

  Even in this case, if we intend to use the formula for the mix, we need the SC_Mix

• Using Formula Based on Outputs

  Working Table

  	Standard				Actual
  	for SO
  	SQ	SP	SC	SC/UO	AQ	AP
  Material A	900	15	13,500	27 19	2,250	16
  Material B	800	45	36,000	72 19	1,950	42
  Material C	200	85	17,000	34 19	550	90
  Total/Mix	1,900	35	66,500	7	4,750
  Output	1,800 SO				4,320 AO

  ⋇

  SC/UO

  =

  SC SO

  MYV/MSUV = [AO − SO ×

  AI

  SI

  ] × SC/UO

• Nature of Variance

  Based on the relations derived from the formulae for calculating MYV/MSUV, we can identify the nature of Variance

  • SC(AO) ___ SC(AI)

  • AO

    SO

    ___

    AI

    SI

  • SQ(AO) ___ SQ(AI)
  • AO ___ SO(AI)

  MYV/MSUV_Mat

  • SC(AO)_Mat ___ SC(AI)_Mat

  • AO

    SO

    ___

    AI

    SI

  • SQ(AO)_Mat ___ SQ(AI)_Mat
  • AO_Mat ___ SO(AI)_Mat

  MYV/MSUV_Mix

  • SC(AO)_Mix ___ SC(AI)_Mix

  • AO

    SO

    ___

    AI

    SI

  • SQ(AO)_Mix ___ SQ(AI)_Mix
  • AO_Mix ___ SO(AI)_Mix

  The variance would be

  • zero when =
  • Positive when >
  • Negative when <

  TMYV/MSUV

  Variance of Mix and Total Variance are the same.

  Variance_Mix provides a method to find the total variance through calculations instead of by just adding up individual variances.

• Individual Variances in Standard Cost Mix Ratio

  This variance measures the efficiency in deriving output out of the total quantity of materials used as a whole and not of individual materials.

  Any variation on account of varying the individual materials is revealed by the Material Mix Variance.

  This can be identified from the fact that the calculation of the variance for individual materials is the equivalent of dividing the variance for the mix among the materials in the standard cost mix ratio (SCMR).

  MYV/MSU_Mat

  = MYV/MSU_Mix × standard cost mix proportion

  From the data in the illustration,

  Standard Cost Mix Ratio ~ SCMR

  A : B : C	=	SCA : SCB : SCC
  	=	13,500 : 36,000 : 17,000
  	=	27 : 72 : 34
  	=	27 133 : 72 133 : 34 133

  MYV/MSU_Mix = − 6,650

  MYV/MSUVA	=	− 6,650 × 27 133
  	=	− 50 × 27
  	=	− 1,350

  MYV/MSUVB	=	− 6,650 × 72 133
  	=	− 50 × 72
  	=	− 3,600

  MYV/MSUVC	=	− 6,650 × 34 133
  	=	− 50 × 34
  	=	− 1,700

• Interpretation of the Variance

  For the material mix, for the output achieved

  Variance	Quantity input is	indicating
  None	as per standard	efficiency
  Positive	lesser than standard	efficiency
  Negative	greater than standard	inefficiency

  Similar conclusions can be drawn for the individual materials based on individual quantities input. However, it should be noted that the output is a result of the mix and measuring the influence of individual materials in quantitative terms is inappropriate.

  The individual variances data would be of little help in taking corrective actions.

• Who is answerable for the Variance?

  Since this variance is on account of more or less yield for the input used, the people or department responsible for managing the production operations (say manufacturing department) is answerable for this variance.

• MYV/MSUV = MUV/MQV − MMV
• MYV/MSUV = MCV − MPV − MMV

Verification

Building a table as below would help

By including a column for formula, this format would also work as the simplest format for calculating and presenting variances after building the working table