Materials Variance | Cost | Price | Usage | Mix | Yield | Problems and Solutions
Arjun EP
Materials in Standard Costing
In a manufacturing company, materials and labour are the most important factors for production.
Raw materials are converted into semi-finished goods and finished goods with the help of labour.
While manufacturing the goods, all the input goods are NOT output or yield.
There are normal and abnormal losses.
When the company cannot stop or control the loss of goods on a natural basis; it is called normal loss.
Normal losses are weight loss, shrinkage, evaporation, rust etc.
When the company can stop or control loss but could not control it, it is known as abnormal loss.
Abnormal loss is due to carelessness, fatigue, rough handling, abnormal or bad working condition, lack of proper knowledge, low-quality raw materials, machine break down, accidents etc.
We will study the following materials variances in this topic:
Materials cost variance
Materials price variance
Materials usage variance
Materials mix variance
Materials yield variance
Labour in Standard Costing
Every manufacturing company and business organization needs human being resources.
These human beings may be the resource of administrators and labour.
Without labour, a manufacturing company cannot complete its production.
It is saying, “Talented, calibre and skilled manpower is the other assets of the business organization.”
There are three types of labour.
They are unskilled labour, semi-skilled labour and skilled labour.
Unskilled labour gets fewer wages but skilled labour gets the highest wages.
The payment made to the labour in exchange for its service is called labour cost.
It is a major part of the total cost of production.
Labour cost is also commonly called wages.
Labour cost or wages is one of the major elements of cost.
Labour cost represents the expense incurred on both direct and indirect labour.
Unproductive time is known as idle time.
It may be due to normal or abnormal reasons.
In idle time, workers have been paid without any production activity.
To identify the reasons for the idle time in the factory, an idle time card is maintained.
We will study the following labour variances in this topic:
Labour rate variance
Labour efficiency variance
Labour idle time variance
Labour mix variance
Labour yield variance
Labour cost variance
Materials Variance
Materials variances are more popularly known as materials cost variance (MCV).
The materials cost variance is the difference between the standard costs of materials used in manufacturing and actual output.
The material used is also known as materials input.
Materials variance = Standard input – Actual output
This is the difference between the actual cost incurred for direct materials and the expected (standard) cost of those materials.
It is useful for determining the ability of a business to incur materials costs close to the levels at which it had planned to incur them.
However, the expected (or standard) cost of materials can be a negotiated figure or only based on a certain purchase volume, which renders this variance less usable.
The variance can be further subdivided into the purchase price variance and the material yield variance; they are:
Purchase price variance
This is concerned solely with the price at which direct materials were acquired.
(Actual price – Standard price) × Actual quantity
Material yield variance
This is concerned solely with the number of units of the materials used in the production process.
(Actual unit usage – Standard unit usage) × Standard cost per unit
Material Variance Related to Size
A variance is considered to be material if it exceeds a certain percentage or dollar amount.
This approach to material variance is commonly used by auditors, who (for example) may ask to see explanations of all variances exhibiting a change of at least $25,000 or 15% from the preceding year.
A variation on the concept is to consider a transaction material if its presence or absence would alter the decisions of a user of a company’s financial statements.
First of all, the following variances should be found out (Requirement for materials variance):
|
SQ |
= Standard quantity |
Types of materials variance: |
|
RSQ |
= Revised standard quantity |
Materials Cost Variance (MCV) |
|
SR or SP |
= Standard rate or piece per unit |
Materials Price Variance (MPV) |
|
AQ |
= Actual quantity |
Materials Usage Variance (MUV) |
|
AR or AP |
= Actual rate or price per unit |
Materials Mix Variance (MMV) |
|
SY or SO |
= Standard yield or output |
Materials Yield Variance (MYV) |
|
AY or AO |
= Actual yield or output |
|
|
AQSR |
= Actual quantity × standard rate |
|
|
SQR |
= Standard quantity × standard rate |
|
|
SP1 |
= standard rate per unit of actual quantity used |
|
|
|
= AQSR ÷ AQ |
|
|
SP2 |
= standard rate per unit of standard quantity used = SQR ÷ SQ |
|
|
SP3 |
= standard rate per unit of standard output |
|
|
|
= SQR ÷ SY |
|
######
|
Click on the link for YouTube videos |
|
|
Accounting Equation |
|
|
Journal Entries in Nepali |
|
|
Journal Entries |
|
|
Journal Entry and Ledger |
|
|
Ledger |
|
|
Subsidiary Book |
|
|
Cashbook |
|
|
Trial Balance and Adjusted Trial Balance |
|
|
Bank Reconciliation Statement (BRS) |
|
|
Depreciation |
|
|
|
|
|
Click on the link for YouTube videos chapter wise |
|
|
Financial Accounting and Analysis (All videos) |
|
|
Accounting Process |
|
|
Accounting for Long Lived Assets |
|
|
Analysis of Financial Statement |
|
######
(1) Material cost variance, MCV
The difference between the actual cost of direct materials and the standard cost of direct materials is known as materials cost variance.
This variance arises due to the difference between materials consumption/allowed or the difference between actual rates paid/determined.
|
MCV |
= Standard cost of materials – Actual cost of materials |
|
Or |
= (Standard quantity × Standard rate) – (Actual quantity × Actual rate) |
|
Or |
= (SQ × SR) – (AQ × AR) |
|
|
|
|
Or |
= Materials price variance + Materials usage or quality variance |
|
Or |
= Materials price variance + Materials mix variance + Materials yield variance |
(2) Materials price variance, MPV
The variance due to the difference between the standard rate and actual rate is referred to as materials price variance.
It arises due to:
Actual rate and planned rate,
Purchasing of superior or inferior quality of materials than planned,
Discount received on purchase,
Increase in custom duty, transport etc
|
MPV |
= Actual quantity × (Standard rate – Actual rate) |
|
Or |
= AQ × (SR – AR) |
(3) Materials usage variance (MUV) | Materials quantity variance (MQV)
The variance due to the difference between standard quantity and actual quantity consumed is known materials usage variance. These arise due to:
Increase or decrease in scrap than expected.
In-efficiency of workers.
The difference in the quality of materials than planned.
Low or high yield or output of production than expected.
Change in materials mix and production methods.
|
MUV |
= Standard rate × (Standard quantity – Actual quantity) |
|
Or |
= SR × (SQ – AO) |
If standard output and actual output differ, standard quantity should be revised
Where: Revised standard quantity (RSQ) = (Standard quantity ÷ Standard output) × Actual output
If there is a loss in question (standard or actual yield is less than input)
Where: Revised standard yield (RSY) = (Standard quantity ÷ Standard output) × Actual yield
Three (3) variances without mix and yield variance
|
Step-1, to calculate the total cost |
Step-2, to find out |
|
|
M1 = AQ × AR |
AQ = Actual quantity used |
|
|
M2 = AQ × SR |
AR = Actual rate per unit |
|
|
M3 = SQ × SR |
SQ = Standard quantity specified for actual output |
|
|
|
SR = Standard rate per unit |
|
|
|
||
|
Variances: |
by table |
by formula |
|
Materials Price variance |
= M1 – M2 |
= AQ × (SR – AR) |
|
Materials Usage Variance |
= M2 – M3 |
= SR × (SQ – AQ) |
|
Materials Cost Variance |
= M1 – M3 |
= (SQ × SR) – (AQ × AR) |
Keep in Mind (KIM)
|
· Standard quantity = Standard materials per unit × Actual output |
|
· If standard yield and actual yield is equal, a revised standard quantity is required: |
|
|
|
Revised standard quantity (RSQ) = SQ × Actual output or yield ÷ Standard output or yield |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1A
Following data is available for materials X:
Standard rate of materials per kg $25
Standard quality of materials 10,000 kg
Standard rate of standard mix $250,000
Actual quality of materials 11,500 kg
Actual rate of materials per kg $24
Actual cost rate of actual mix $276,000
Required: (three variances of materials) (a) Materials price variance; (b) Materials usage variance; (c) Materials cost variance
[Answer: MPV = $11,500 F; MUV = $26,000 U; MVC = $26,000 U]
SOLUTION:
By table method:
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
|
Qty/ No. |
Rate |
Qty × Rate |
Qty/ No. |
Rate |
Qty × Rate |
Std Rate × Actual Qty. |
|
X |
10,000 |
25 |
250,000 |
11,500 |
24 |
276,000 |
25 × 11,500 = 287,500 |
|
Total |
SQ = 10,000 |
|
SQR = 250,000 |
AQ =11,500 |
|
AQR =276,000 |
AQSR = 287,500 |
Again,
|
M1 = AQ × AR |
= 11,500 × 24 |
= 276,000 |
|
|
M2 = AQ × SR |
= AQSR |
= 287,500 |
|
|
M3 = SQ × SR |
= 10,000 × 25 |
= 250,000 |
|
|
|
|
|
|
|
Now, |
|
|
|
|
Materials Price Variance |
(MPV) = M1 – M2 |
= 276,000 – 287,500 |
= (11,500) F |
|
Materials Usage Variance |
(MUV) = M2 – M3 |
= 287,500 – 250,000 |
= 37,500 U |
|
Materials Cost Variance |
(MCV) = M1 – M3 |
= 276,000 – 250,000 |
= 26,000 U |
By formula method:
Materials price variance (MPV)
= Actual quantity × (Standard rate – Actual rate)
= 11,500 kg ($25 – $24)
= 11,500 × $1
= $11,500 favourable
Materials usage variance (MUV)
= Standard rate × (Standard quantity – Actual quantity)
= $25 (10,000 kg – 11,500 kg)
= 25 × – 1,500
= ($37,500) unfavourable
Materials cost variance (MCV)
= (Standard quantity × Standard rate) – (Actual quantity × Actual rate)
= (10,000 kg × $25) – (11,500 kg × $24)
= 250,000 – 276,000
= ($26,000) unfavourable
Keep in Mind (KIM)
|
Formula method |
Table method |
|
Positive result or answer means favourable (F) |
Positive result or answer means unfavourable (U) or adverse (A) |
|
Negative result or answer means un-favourable (U) |
Negative result or answer means favourable (F) |
|
or adverse (A) |
|
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1B
BK Chemical Industries has the following data related to product X for the month of January:
|
Opening stock |
175 kg |
Cost of materials purchase |
$13,50,000 |
|
Closing stock |
200 kg |
Purchase rate |
$450 per kg |
|
Actual production |
2,400 kg |
Standard rate |
$400 per kg |
Standard materials required for 75 kg finished production in 100 kg raw materials
Required: (three variances of materials) (1) Materials price variance; (2) Materials usage variance; (3) Materials cost variance
[Answer: MPV = $11,500 F; MUV = $26,000 U; MVC = $26,000 U]
SOLUTION:
Given and working note:
Materials purchase quantity
= $13,50,000 ÷ $450 per kg
= 2,000 kg
Standard quantity
= Standard materials × Actual production
= 100/75 × 2,400
= 3,200
Actual quantity (AQ)
= Opening stock + Purchase – Closing stock
= 175 + 3,000 – 200
= 2,975 kg
By table method:
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
|
Qty/ No. |
Rate |
Qty × Rate |
Qty/ No. |
Rate |
Qty × Rate |
Std Rate × Actual Qty. |
|
X |
3,200 |
400 |
12,80,000 |
2,975 |
450 |
13,38,750 |
400 × 2,975 = 11,90,000 |
|
Total |
SQ = 3,200 |
|
SQR = 12,80,000 |
AQ = 2,975 |
|
AQR = 13,38,750 |
AQSR = 11,90,000 |
Others
Standard Yield/output (SY) = ?
Actual yield/output (AY) = 2,400 kg
|
Again, |
|||
|
M1 = AQ × AR |
= 2,975 × 450 |
= 13,38,750 |
|
|
M2 = AQ × SR |
= AQSR |
= 11,90,000 |
|
|
M3 = SQ × SR |
= 3,200 × 400 |
= 12,80,000 |
|
|
|
|
|
|
|
Now, |
|
|
|
|
Materials Price Variance (MPV) |
= M1 – M2 |
= 13,38,750 – 11,90,000 |
= 148,750 U |
|
Materials Usage Variance (MUV) |
= M2 – M3 |
= 11,90,000 – 12,80,000 |
= (90,000) F |
|
Materials Cost Variance (MCV) |
= M1 – M3 |
= 13,38,750 – 12,80,000 |
= 58,750 U |
By formula method:
Materials price variance (MPV)
= Actual quantity × (Standard rate – Actual rate)
= 2,975 kg ($400 – $450)
= 2,975 × –$50
= ($148,750) unfavourable
Materials usage variance (MUV)
= Standard rate × (Standard quantity – Actual quantity)
= $400 (3,200 kg – 2,975 kg)
= 400 × 225
= $90,000 favourable
Materials cost variance (MCV)
= (Standard quantity × Standard rate) – (Actual quantity × Actual rate)
= (3,200 kg × $400) – (2,975 kg × $450)
= $12,80,0000 – $13,38,750
= ($58,750) unfavourable
(4) Materials mix variance, MMV
When a product needs more two or more than two raw materials, it is known as materials mix.
Materials quantities are estimated according to output.
There may be normal or abnormal loss of quantity to compare input and output of the quantity.
The variance due to the difference between standard composition and actual composition is known as materials mix variance.
It is related to materials input.
There are two types of materials mix variance.
Standard quantity and actual mix are equal but the standard ratio and actual mix ratio is different.
MMV
= Standard rate × (Standard quantity – Actual quantity)
= SR × (SQ – AQ)
Standard quantity and actual mix are as well as standard ratio and actual mix ratio is different.
= (Total Qty of actual mix ÷ Total Qty of standard mix) × (Standard quantity × standard rate) – (SR × AQ)
= Standard rate × (Revised standard quantity – Actual quantity)
= SR × (RSQ – AQ)
MMV
RSQ = AQ÷SQ × Standard quantity of particular materials
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1C
ABC Manufacturing Company (P) Ltd has the following data related to materials:
|
Materials |
Standard |
Actual |
||||
|
|
Kg (Q) |
Rate |
Amount |
Kg (Q) |
Rate |
Amount |
|
A |
10 |
20 |
200 |
5 |
30 |
150 |
|
B |
20 |
30 |
600 |
10 |
60 |
600 |
|
C |
20 |
60 |
1,200 |
15 |
50 |
750 |
There is not any loss in quality while manufacturing. Therefore actual yield is 50 units.
Required: (a) Materials price variance; (b) Materials mix variance; (c) Materials usage variance; (d) Materials cost variance
[Answer: MPV = $(200) U; MMV = $(100) U;
MUV = $700 F; MCV = $500 F]
SOLUTION:
Given and working note:
|
|
SQ |
SR |
AQ |
AR |
|
|
A |
10 |
20 |
5 |
30 |
|
|
B |
20 |
30 |
10 |
60 |
|
|
C |
20 |
60 |
15 |
50 |
|
|
|
|
|
|
|
|
By formula method:
Materials price variance (MPV)
|
MPV |
= AQ (SR – AR) |
|
|
|
A |
= 5 (20 – 30) |
= 5 × – 10 |
= (50) U |
|
B |
= 10 (30 – 60) |
= 10 × – 30 |
= (300) U |
|
C |
= 15 (60 – 50) |
= 15 × 10 |
= 150 F |
|
|
|
|
(200) U |
Materials mix variance (MMV)
= (Total Qty of actual mix ÷ Total Qty of standard mix) × (Standard quantity × standard rate) – (SR × AQ)
= (30÷50) × [(10×20) + (20×30) + (20×60)] – [(20×5) + (30×10) + (60×50)]
= 0.6 × 2,000 – [1,300]
= 1,200 – 1,300
= ($100) U
Alternative,
|
MMV |
= SR × (RSQ – AQ) |
|
|
|
A |
= 20 (6 – 5) |
= 20 × 1 |
= 20 |
|
B |
= 30 (12 – 10) |
= 30 × 2 |
= 60 |
|
C |
= 60 (12 – 15) |
= 60 × – 3 |
= (180) |
|
|
|
Total |
(100) U |
Given and working note:
|
Revised standard quantity (RSQ) |
= AQ ÷ SQ × Standard quantity of particular materials |
|
|
A |
= 30÷50 × 10 |
= 6 |
|
B |
= 30÷50 × 20 |
= 12 |
|
C |
= 30÷50 × 20 |
= 12 |
Materials usage variance (MUV)
|
MUV |
= SR × (SQ – AQ) |
|
|
|
A |
= 20 (10 – 5) |
= 20 × 5 |
= 100 F |
|
B |
= 30 (20 – 10) |
= 30 × 10 |
= 300 F |
|
C |
= 60 (20 – 15) |
= 60 × 5 |
= 300 F |
|
|
|
Total |
700 F |
Materials cost variance (MCV)
|
MCV |
= (SQ × SR) – (AQ × AR) |
|
|
|
A |
= (10 × 20) – (5 × 30) |
= 200 – 150 |
= 50 F |
|
B |
= (20 × 30) – (10 × 60) |
= 600 – 600 |
= Nil |
|
C |
= (20 × 60) – (15 × 50) |
= 1,200 – 750 |
= 450 F |
|
|
|
Total |
500 F |
Keep in Mind (KIM)
|
If standard output and actual output is not equal, a revised standard quantity is required. |
|
Assume standard yield and actual yield 1 if there is no value in the question. |
|
If there are differences between the standard quantity of materials and the actual quantity of materials, an answer of mix variance and yield variance is different in the table method and formula method. |
By table method:
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
Qty/ No. |
Rate |
Qty × Rate |
Qty/ No. |
Rate |
Qty × Rate |
Std Rate × Actual Qty. |
|
|
A |
10 |
20 |
200 |
5 |
30 |
150 |
20 × 5 = 100 |
|
B |
20 |
30 |
600 |
10 |
60 |
600 |
30 × 10 = 300 |
|
C |
20 |
60 |
1,200 |
15 |
50 |
750 |
60 × 15 = 900 |
|
Total |
SQ = 50 |
|
SQR =2,000 |
AQ = 30 |
|
AQR = 1,500 |
AQSR = 1,300 |
Others
Standard Yield/Output (SY) = 50 kg
Actual Yield/Output (AY) = 50 Kg
SP1 = standard rate per unit of actual quantity used = AQSR ÷ AQ = 1,300 ÷ 30 = 43.33
SP2 = standard rate per unit of standard quantity used = SQR ÷ SQ = 2,000 ÷ 50 = 40
Again,
|
M1 |
= AQ × AR |
= AQR |
= 1,500 |
|
M2 |
= AQ × SP1 |
= 30 × 43.33 |
= 1,300 |
|
M3 |
= AQ × SP2 |
= 30 × 40 |
= 1,200 |
|
M4 |
= AY × SP2 |
= 50 × 40 |
= 2,000 |
Now,
Materials Price Variance (MPV) = M1 – M2 = 1,500 – 1,300 = 200 U
Materials Mix Variance (MMV) = M2 – M3 = 1,300 – 1,200 = 100 U
Materials Usage Variance (MUV) = M2 – M4 = 1,300 – 2,000 = (700) F
Materials Cost Variance (MCV) = M1 – M4 = 1,500 – 2,000 = (500) F
(5) Materials Yield Variance (MYV) | Materials Output Variance (MOV)
Here, materials yield means output of the materials.
It is also known as materials sub-usage variance.
The manufacturing company estimates its output at the time of the production.
But, there may be differences between actual output and standard output.
Variance or difference is due to normal or abnormal loss at the time of production.
There are two methods for materials yield variance:
(1) When actual mix (quantity) and standard mix (quantity) are not vary/difference: (when a standard loss is not given)
|
MYV |
= Standard cost per unit (Actual yield or output – Standard yield for actual input) |
|
Or |
= SC × (AY – SY) |
Standard cost per unit (SC) = Total standard cost ÷ Net standard yield or SR3
(2) When actual mix (quantity) and standard mix (quantity) are vary/difference: (when a standard loss is given)
|
MYV |
= Standard cost per unit (Actual yield – Revised standard yield) |
|
Or |
= SC × (AY – RSY) |
Revised standard yield = Actual input – (Actual input @ standard loss %)
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1D
The following data related to materials are given by Om Manufacturing Company:
|
Standard materials mix |
Actual materials mix |
||||
|
Materials |
Units |
Rate |
Materials |
Units |
Rate |
|
M |
700 |
100 |
A |
400 |
110 |
|
N |
300 |
50 |
B |
200 |
60 |
Additional information:
Standard materials have 15% loss while actual materials have 10% loss
Required: (1) Materials price variance; (2) Materials mix variance; (3) Materials usage variance; (4) Materials cost variance;
(5) Materials yield variance
[Answer: MPV = $6,000 U; MMV = $1,000 U; MYV = ($3,000) F;
MUV = ($4,000) F; MCV = $2,000 U]
SOLUTION:
(By table method)
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
Qty/ No. |
Rate |
Qty × Rate |
Qty/ No. |
Rate |
Qty × Rate |
Std Rate × Actual Qty. |
|
|
M |
700 |
100 |
70,000 |
400 |
110 |
44,000 |
100 × 400 = 40,000 |
|
N |
300 |
50 |
15,000 |
200 |
60 |
12,000 |
50 × 200 = 10,000 |
|
Total |
SQ = 1,000 |
|
SQR = 85,000 |
AQ = 600 |
|
AQR = 66,000 |
AQSR = 50,000 |
Others
Standard yield (SY) (1,000–1,000 @15%) = 8580 kg
Actual yield (AY) (600–600 @10%) = 540 Kg
SP1 = standard price per unit of actual quantity used = AQSR ÷ AQ = 50,000 ÷ 600 = 83.33
SP2 = standard price per unit of standard quantity used = SQR ÷ SQ = 85,000 ÷ 1,000 = 85
SP3 = standard price per unit of standard output = SQR ÷ SY = 85,000 ÷ 850 = 100
Again,
M1 = AQ × AR = AQR = 56,000
M2 = AQ × SP1 = 600 × 83.33 = 50,000
M3 = AQ × SP2 = 600 × 85 = 51,000
M4 = AY × SP3 = 540 × 100 = 54,000
Now,
Materials Price Variance (MPV) = M1 – M2 = 56,000 – 50,000 = $6,000 U
Materials Mix Variance (MMV) = M2 – M3 = 50,000 – 51,000 = $1,000 U
Materials Yield Variance (MYV) = M3 – M4 = 51,000 – 54,000 = $(3,000) F
Materials Usage Variance (MUV) = M2 – M4 = 50,000 – 54,000 = $(4,000) F
Materials Cost Variance (MCV) = M1 – M4 = 56,000 – 54,000 = $2,000 U
By formula method:
Materials price variance (MPV)
|
MPV |
= AQ (SR – AR) |
|
|
|
M |
= 400 (100 – 110) |
= 400 × – 10 |
= (4,000) U |
|
N |
= 200 (50 – 60) |
= 200 × – 10 |
= (2,000) U |
|
|
|
Total |
(6,000) U |
Materials mix variance (MMV)
|
MMV |
= SR × (RSQ – AQ) |
|
|
|
M |
= 100 × (420 – 400) |
= 100 × 20 |
= 2,000 F |
|
N |
= 50 × (180 – 200) |
= 50 × – 20 |
= (1,000) U |
|
|
|
Total |
1,000 F |
Where:
|
Revised standard quantity (RSQ) |
= AQ ÷ SQ × Standard quantity of particular materials |
|
|
M |
= 600 ÷ 1,000 × 700 |
= 420 |
|
N |
= 200 ÷ 1,000 × 300 |
= 180 |
Materials yield variance (MYV)
= SC × (AY – RSY)
= 100 (540 – 510)
= 100 × 30
= 3,000 F
Where:
SC = Total standard cost ÷ Standard output or SR
= $85,000 ÷ 850 kg
= 100
Revised standard yield
= Actual input – (Actual input @ standard loss %)
= 600 – 600@15%
= 510
Materials usage variance (MUV)
|
MUV |
= SR × (RSY – AQ) |
|
|
|
M |
= 100 × (444.71 – 400) |
= 100 × 44.71 |
= 4,471 F |
|
N |
= 50 v (190.59 – 200) |
= 50 × – 9.41 |
= (471) U |
|
|
|
Total |
= 4,000 F |
Where:
|
Revised standard yield (RSY) |
= (Standard quantity ÷ Standard yield) × Actual yield |
|
|
M |
= 700 ÷ 850 × 540 |
= 444.71 |
|
N |
= 300 ÷ 850 × 540 |
= 190.59 |
Materials cost variance (MCV)
|
MCV |
= (SQ × SR) – (AQ × AR) |
|
|
|
M |
= (444.71 × 100) – (400 × 110) |
= 44,471 – 44,000 |
= 471 F |
|
N |
= (190.59 × 50) – (200 × 60) |
= 9,529 – 12,000 |
= (2,471) U |
|
|
|
Total |
(2,000) U |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1E
The following data related to materials are given by Pedilight Chemical Ltd:
|
Standard materials mix |
Actual materials mix |
||||
|
Materials |
Units/kg |
Rate |
Materials |
Units/kg |
Rate |
|
A |
80 |
300 |
A |
83 |
250 |
|
B |
120 |
400 |
B |
119 |
425 |
Additional information:
Standard materials have 15% loss while actual output is 170 kg
Required: (1) Materials price variance; (2) Materials mix variance; (3) Materials yield variance; (4) Materials usage variance;
(5) Materials cost variance; (6) Verify the result (MCV, MUV)
[Answer: MPV = ($1,175) F; MMV = ($220) F; MYV = ($3,828) F;
MUV = ($4,048) F; MCV = ($5,223) F]
SOLUTION:
By table method:
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
Qty/ No. |
Rate |
Qty × Rate |
Qty/ No. |
Rate |
Qty × Rate |
Std Rate × Actual Qty. |
|
|
A |
80 |
300 |
24,000 |
83 |
250 |
20,750 |
300 × 83 = 24,900 |
|
B |
120 |
400 |
48,000 |
119 |
425 |
50,575 |
400 × 119 = 47,600 |
|
Total |
SQ = 200 |
|
SQR = 72,000 |
AQ = 202 |
|
AQR = 71,325 |
AQSR = 72,500 |
Others
|
Standard yield (SY) (200 – 200@15%) = 170 Kg Actual yield (AY) (given) = 170 Kg
Again,
Now,
|
Standard yield (SY) (200 – 200@15%) = 170 Kg
Actual yield (AY) (given) = 170 Kg
|
SP1 = standard price per unit of actual quantity used |
= AQSR ÷ AQ |
= 72,500 ÷ 202 |
= 358.91 |
|
SP2 = standard price per unit of standard quantity used |
= SQR ÷ SQ |
= 72,000 ÷ 200 |
= 360.00 |
|
SP3 = standard price per unit of standard output |
= SQR ÷ SY |
= 72,000 ÷ 170 |
= 423.53 |
Again,
|
M1 |
= AQ × AR |
= AQR |
= 71,325 |
|
M2 |
= AQ × SP1 |
= 202 × 358.91 |
= 72,500 |
|
M3 |
= AQ × SP2 |
= 202 × 360.00 |
= 72,720 |
|
M4 |
= AY × SP3 |
= 170 × 423.53 |
= 72,000 |
Now,
|
Materials Price Variance (MPV) = M1 – M2 |
= 71,325 – 72,500 |
= ($1,175) F |
|
Materials Mix Variance (MMV) = M2 – M3 |
= 72,500 – 72,720 |
= ($220) F |
|
Materials Yield Variance (MYV) = M3 – M4 |
= 72,720 – 72,000 |
= $720 U |
|
Materials Usage Variance (MUV) = M2 – M4 |
= 72,500 – 72,000 |
= $500 U |
|
Materials Cost Variance (MCV) = M1 – M4 |
= 71,325 – 72,000 |
= ($675) F |
Verification:
|
Materials cost variance |
= Materials price variance + Materials usage variance |
|
(675) |
= (1,175) + 500 |
|
(675) |
= (675) proved |
|
|
|
|
Or MCV |
= MPV + MMV + MYV |
|
(675) |
= (1,175) + (220) + 720 |
|
(675) |
= (675) proved |
|
|
|
|
Materials usage variance |
= Materials mix variance + Materials yield variance |
|
500 |
= (220) + 720 |
|
500 |
= 500 proved |
By formula method:
Materials price variance (MPV)
|
MPV |
= AQ (SR – AR) |
|
|
|
M |
= 83 (300 – 250) |
= 83 × 50 |
= 4150 F |
|
N |
= 119 (400 – 425) |
= 119 × – 25 |
= (2,975) U |
|
|
|
Total |
= 1,175 F |
Materials mix variance (MMV)
|
MMV |
= SR × (RSQ – AQ) |
|
|
|
M |
= 300 × (80.8 – 83) |
= 300 × –2.2 |
= (660) U |
|
N |
= 400 × (121.2 – 119) |
= 400 × 2.2 |
= 880 |
|
|
|
Total |
= 220 F |
Where:
Revised standard quantity (RSQ)
= (AQ ÷ SQ) × Standard quantity of particular materials
M = 202 ÷ 200 × 80 = 80.8
N = 202 ÷ 200 × 120 = 121.2
Materials yield variance (MYV)
= SC × (AY – RSY)
= 423.5 × (170 – 171.7)
= 423.5 × –1.7
= (720) U
Where:
SC = (Total standard cost ÷ Standard output) or SR3
= $72,000 ÷ 170 kg
= 423.5
Revised standard yield
= Actual input – (Actual input @ standard loss %)
= 202 – 202@15%
= 171.7
Materials usage variance (MUV)
|
MUV |
= SR × (SQ – AQ) |
|
|
|
M |
= 300 × (80 – 83) |
= 300 × –3 |
= (900) U |
|
N |
= 400 × (120 – 119) |
= 400 × 1 |
= 400 F |
|
|
|
Total |
= (500) U |
Materials cost variance (MCV)
|
MCV |
= (SQ × SR) – (AQ × AR) |
|
|
|
M |
= (80 × 300) – (83 × 250) |
= 24,000 – 20,750 |
= 3,250 F |
|
N |
= (120 × 400) – (119 × 425) |
= 48,000 – 50,575 |
= (2,575) U |
|
|
|
Total |
= 675 F |
Keep in Mind (KIM)
|
Material cost variance, materials price variance, materials usage variance, materials mix variance are the part of the input. |
|
Materials yield variance is the part of the output. |
|
Here, ‘of’ means multiply |
|
Materials sub-usage variance means materials yield or output variance. |
|
If standard yield and actual yield in not equal, revised standard time (RST) is applied in place of standard time. |
|
In materials variances SP1, SP2 and SP3 |
Click on the photo for FREE eBooks
TU Questions and Solutions
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2060/S Modified
Direct materials consumption details and standards have been presented below:
|
Standard |
Actual |
||||||
|
Materials |
No. |
Rate ($) |
Cost ($) |
Materials |
No. |
Rate ($) |
Cost ($) |
|
A |
30 |
5 |
150 |
A |
25 |
6.00 |
150 |
|
B |
30 |
3 |
90 |
B |
35 |
2.80 |
98 |
|
C |
40 |
2 |
80 |
C |
40 |
2.10 |
84 |
|
|
100 |
|
320 |
|
100 |
|
332 |
|
Less: Process loss |
20 |
|
|
Less: Process loss |
12 |
|
|
|
80 |
|
|
|
88 |
|
|
|
Required: (direct): (a) Materials yield variance; (b) Materials mix variance; (c) May usage variance; (d) Materials price variance;
(e) Materials cost variance
[Answer: MPV = 22 U; MMV = (10) F; MYV = (32) F; MUV = (42) F; MCV = (20) F]
SP1 = 3.1; SP2 = 3.2; SP3 = 4
SOLUTION
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
SQ |
SR |
SQ × SR |
AQ |
AR |
AQ × AR |
Std rate × Actual No. |
|
|
A |
30 |
5 |
150 |
25 |
6.00 |
150 |
5 × 25 = 125 |
|
B |
30 |
3 |
90 |
35 |
2.80 |
98 |
3 × 35 = 105 |
|
C |
40 |
2 |
80 |
40 |
2.10 |
84 |
2 × 40 = 80 |
|
Total |
SQ = 100 |
|
SQR = 320 |
AQ = 100 |
|
AQR = 332 |
AQSR = 310 |
Others
|
Standard yield (SY) 80 units |
|||||||
|
Actual yield (AY) 88 units |
|||||||
|
SP1 = standard price per unit of actual quantity used |
= AQSR ÷ AQ |
= 310 ÷ 100 |
= 3.1 |
||||
|
SP2 = standard price per unit of standard quantity used |
=SQR ÷ SQ |
= 320 ÷ 100 |
= 3.2 |
||||
|
SP3 = standard price per unit of standard output |
= SQR ÷ SY |
= 320 ÷ 80 |
= 4.0 |
||||
|
|
|||||||
|
Again |
|||||||
|
M1 |
= AQ × AP |
= AQR |
= 332 |
||||
|
M2 |
= AQ × SP1 |
= 100 × 3.1 |
= 310 |
||||
|
M3 |
= AQ × SP2 |
= 100 × 3.2 |
= 320 |
||||
|
M4 |
= AY × SP3 |
= 88 × 4 |
= 352 |
||||
|
|
|||||||
|
Now, |
|||||||
|
Materials price variance (MPV) |
= M1 – M2 |
= 332 – 310 |
= 22 U |
||||
|
Materials mix variance (MMV) |
= M2 – M3 |
= 310 – 320 |
= (10) F |
||||
|
Materials yield variance (MYV) |
= M3 – M4 |
= 320 – 352 |
= (32) F |
||||
|
Materials usage variance (MUV) |
= M2 – M4 |
= 310 – 352 |
= (42) F |
||||
|
Materials cost variance (MCV) |
= M1 – M4 |
= 332 – 352 |
= (20) F |
||||
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2062 Modified
A Manufacturing Company has adopted a standard costing system in its production cost control system. The data relating to certain batches of output have been given below:
Standard:
Material A 30%@ $4 per kg
Material B 20%@ $6 per kg
Material C 50%@ $2 per kg
Standard output 80 kg of the finished product
Actual production realized 800 kg of finished product. Actual material used in production:
Actual:
Material A 330 kg @ $3.80
Material B 180 kg @ $6.50
Material C 590 kg @ $1.80
Required: (direct): (a) Materials yield variance; (b) Materials mix variance; (c) May usage variance; (d) Materials price variance;
(e) Materials cost variance
[Answer: MPV = (94) F; MMV = (160) F; MYV = 340 U;
MUV = 180 U; MCV = 86 U] *SP1 = 3.255; SP2 = 3.4; SP3 = 4.25
SOLUTION
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
SQ |
SR |
SQ × SR |
AQ |
AR |
AQ × AR |
Std rate × Actual No. |
|
|
A |
30 |
4 |
120 |
330 |
3.80 |
1,254 |
4 × 330 = 1,320 |
|
B |
20 |
6 |
120 |
180 |
6.50 |
1,170 |
6 × 180 = 1,080 |
|
C |
50 |
2 |
100 |
590 |
1.80 |
1,062 |
2 × 590 = 1,180 |
|
Total |
SQ = 100 |
|
SQR= 340 |
AQ=1,100 |
|
AQR =3,486 |
AQSR = 3,580 |
Others
|
Standard yield (SY) 80 units |
||||||
|
Actual yield (AY) 800 units |
||||||
|
SP1 |
= standard price per unit of actual quantity used |
= AQSR ÷ AQ |
= 3,580 ÷ 1,100 |
= 3.255 |
||
|
SP2 |
= standard price per unit of standard quantity used |
= SQR ÷ SQ |
= 340 ÷ 100 |
= 3.4 |
||
|
SP3 |
= standard price per unit of standard output |
= SQR ÷ SY |
= 340 ÷ 80 |
= 4.25 |
||
|
|
||||||
|
Again |
||||||
|
M1 |
= AQ × AP |
= AQR |
= 3,486 |
|||
|
M2 |
= AQ × SP1 |
= 1,100 × 3.255 |
= 3,580 |
|||
|
M3 |
= AQ × SP2 |
= 1,100 × 3.4 |
= 3,740 |
|||
|
M4 |
= AY × SP3 |
= 800 × 4.25 |
= 3,400 |
|||
|
|
||||||
|
Now, |
||||||
|
Materials price variance (MPV) |
= M1 – M2 |
= 3,486 – 3,580 |
= (94) F |
|||
|
Materials mix variance (MMV) |
= M2 – M3 |
= 3,580 – 3,740 |
= (160) F |
|||
|
Materials yield variance (MYV) |
= M3 – M4 |
= 3,740 – 3,400 |
= 340 U |
|||
|
Materials usage variance (MUV) |
= M2 – M4 |
= 3,580 – 3,400 |
= 180 U |
|||
|
Materials cost variance (MCV) |
= M1 – M4 |
= 3,486 – 3,400 |
= 86 U |
|||
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2066 Modified
The standard materials cost to produce 138 units of a product is:
100 units of materials X @ $10
50 units of materials Y @ $8
During the period, 144 units of product were produced from the usage of:
80 units of materials X @ $11
70 units of materials Y @ $8
Required: (a) Materials price variance; (b) Materials mix variance; (c) Materials yield variance; (d) Materials usage variance
[Answer: MPV = $80 U; MMV = ($40) F; MYV = ($60) F; MUV = ($100) F]
*SP1 = 9.067; SP2 = 9.333; SP3 = 10.14
SOLUTION
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
|
Qty/ No. |
Rate |
Qty × Rate |
Qty/ No. |
Rate |
Qty × Rate |
Std. rate × Actual No. |
|
X |
100 |
10 |
1,000 |
80 |
11 |
880 |
10 × 80 = 800 |
|
Y |
50 |
8 |
400 |
70 |
8 |
560 |
8 × 70 = 560 |
|
Total |
SQ = 150 |
|
SQR = 1,400 |
AQ = 150 |
|
AQR = 1,440 |
AQSR = 1,360 |
Others
|
Standard yield (SY) 138 units |
||||||||
|
Actual yield (AY) 144 units |
||||||||
|
|
||||||||
|
SP1 |
= standard price per unit of actual quantity used |
= ASQR ÷ AQ = 1,360 ÷ 150 |
= 9.067 |
|||||
|
SP2 |
= standard price per unit of standard quantity used |
= SQR ÷ SQ = 1,400 ÷ 1580 |
= 9.333 |
|||||
|
SP3 |
= standard price per unit of standard output |
= SQR ÷ SY = 1,400 ÷ 138 |
= 10.14 |
|||||
|
|
||||||||
|
Again, |
||||||||
|
M1 |
= AQ × AP |
= AQR |
= 1,440 |
|||||
|
M2 |
= AQ × SP1 |
= 150 × 9.067 |
= 1,360 |
|||||
|
M3 |
= AQ × SP2 |
= 150 × 9.333 |
= 1,400 |
|||||
|
M4 |
= AY × SP3 |
= 144 × 10.14 |
= 1,460 |
|||||
|
|
||||||||
|
Now, |
||||||||
|
Materials price variance (MPV) |
= M1 – M2 |
= 1,440 – 1,360 |
= 80 U |
|||||
|
Materials mix variance (MMV) |
= M2 – M3 |
= 1,360 – 1,400 |
= (40) F |
|||||
|
Materials yield variance (MYV) |
= M3 – M4 |
= 1,400 – 1,460 |
= (60) F |
|||||
|
Materials usage variance (MUV) |
= M2 – M4 |
= 1,360 – 1,460 |
= (100) F |
|||||
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
TU: 2067 Modified
A Manufacturing Company has adopted a standard costing system in its production cost control system. The following details of material standard and actual consumption have been provided:
|
Materials |
Standard |
Actual |
||
|
|
Qty in units |
Price/unit |
Qty in units |
Price/unit |
|
A |
1 |
$5 |
200 |
$5.50 |
|
B |
3 |
$4 |
380 |
$4.00 |
|
C |
6 |
$3 |
720 |
$3.00 |
|
|
Standard loss 10% |
|
Actual output 1,170 units |
|
Required: (a) Materials price variance; (b) Materials mix variance
(c) Materials yield variance; (d) Materials usage variance; (e) Materials cost variance
[Answer: MPV = 100 U; MMV = 130 U; MYV = Nil; MUV = 130 U; MCV = 230 U]
SP1 = 3.6; SP2 = 3.5; SP3 = 3.89
SOLUTION
Given and working note:
|
Materials |
Standard |
Actual |
Standard × Actual |
||||
|
|
SQ |
SR |
SQ × SR |
AQ |
AR |
AQ × AR |
Std rate × Actual No. |
|
A |
1 |
5 |
5 |
200 |
5.5 |
1,100 |
5 × 200 = 1,000 |
|
B |
3 |
4 |
12 |
380 |
4.0 |
1,520 |
4 × 380 = 1,520 |
|
C |
6 |
3 |
18 |
720 |
3.0 |
2,160 |
3 × 720 = 2,160 |
|
Total |
SQ = 10 |
|
SQR = 35 |
AQ = 1,300 |
|
AQR = 4,780 |
AQSR = 4,680 |
Others
|
Standard yield (SY 10 – 10@10%) = 9 kg |
||||||||||
|
Actual yield (AY) = 1,170 kg |
||||||||||
|
|
||||||||||
|
SP1 |
= standard price per unit of actual quantity used |
= AQSR ÷ AQ |
= 4,680 ÷ 1,300 |
= 3.6 |
||||||
|
SP2 |
= standard price per unit of standard quantity used |
= SQR ÷ SQ |
= 35 ÷ 10 |
= 3.5 |
||||||
|
SP3 |
= standard price per unit of standard output |
= SQR ÷ SY |
= 35 ÷ 9 |
= 3.89 or 35/9 |
||||||
|
|
||||||||||
|
Again |
||||||||||
|
M1 |
= AQ × AR |
= AQR |
= 4,780 |
|||||||
|
M2 |
= AQ × SP1 |
= 1,300 × 3.6 |
= 4,680 |
|||||||
|
M3 |
= AQ × SP2 |
= 1,300 × 3.5 |
= 4,550 |
|||||||
|
M4 |
= AY × SP3 |
= 1,170 × 35/9 |
= 4,550 |
|||||||
|
|
||||||||||
|
Now, |
||||||||||
|
Materials price variance (MPV) |
= M1 – M2 |
= 4,780 – 4,680 |
= 100 U |
|||||||
|
Materials mix variance (MMV) |
= M2 – M3 |
= 4,680 – 4,550 |
= 130 U |
|||||||
|
Materials yield variance (MYV) |
= M3 – M4 |
= 4,550 – 4,550 |
= Nil |
|||||||
|
Materials usage variance (MUV) |
= M2 – M4 |
= 4,680 – 4,550 |
= 130 U |
|||||||
|
Materials cost variance (MCV) |
= M1 – M4 |
= 4,780 – 4,550 |
= 230 U |
|||||||
#####
Problems and Answers of Standard Costing for Materials |
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1A
The following data related to materials are given:
|
Standard materials mix |
Actual materials mix |
||||||
|
Materials |
Units |
Rate |
Amount |
Materials |
Units |
Rate |
Amount |
|
A |
600 |
15 |
9,000 |
A |
500 |
24 |
12,000 |
|
B |
200 |
35 |
7,000 |
B |
100 |
60 |
6,000 |
There is not any loss during production.
Required: (a) Materials price variance; (b) Materials mix variance; (c) Materials usage variance; (d) Materials cost variance
[Answer: MPV = $7,000 U; MMV = $1,000 F; MUV = $5,000 F;
MCV = $2,000 U* SP1 = 18.33; SP2 = 20
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1B
The following data related to materials are given:
|
Standard materials mix |
Actual materials mix |
||||
|
Materials |
Kg |
Rate |
Materials |
Kg |
Rate |
|
M |
200 |
20 |
M |
100 |
35 |
|
N |
400 |
25 |
N |
200 |
20 |
|
O |
400 |
30 |
O |
500 |
25 |
Standard and actual outputs were 1,000 units. Standard loss is 10% and actual output is 750 units.
Required: (a) Materials price variance; (b) Materials mix variance; (c) Materials yield variance; (d) Materials usage variance;
(e) Materials cost variance
[Answer: MPV = $2,000 F; MMV = $1,200 U;
MYV = $867 F; MUV = $333 U;
MCV = $1,667 F *SP1 = 27.50; SP2 = 26; SP3 = 28.889
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1C
The standards cost for a product of the company shows the standard of the following material:
|
Standard |
Actual |
||||
|
Materials |
Quantity |
price per kg |
Materials |
Quantity |
price per kg |
|
A |
4 kg |
$5 |
A |
150 kg |
$4 |
|
B |
1 kg |
$10 |
B |
40 kg |
$10 |
|
C |
5 kg |
$20 |
C |
210 kg |
$25 |
The standard loss is 10% Actual output of the finished product is 380 kg.
Required: (1) (a) Material mixed variance; (b) Material yield variance; (c) Material price variance
(2) Write down any four advantages of standard costing
[Answer: MPV = $900 U; MMV = $150 U; MYV = ($287) F]
*SP1 = 13.375; SP2 = 13; SP3 = 14.44
Here, Amount = Rs = $ = £ = € = ₹ = Af = ৳ = Nu = Rf = රු = Br = P = Birr = Currency of your country
PROBLEM: 1D
The following details material standard and consumption have been provided
|
Materials |
Standard |
Actual |
||||
|
Quantity |
Rate |
Cost |
Quantity |
Rate |
Cost |
|
|
A |
2 |
4 |
8 |
190 |
4.00 |
760 |
|
B |
3 |
3 |
9 |
290 |
3.00 |
899 |
|
C |
5 |
2 |
10 |
510 |
1.80 |
918 |
|
|
10 |
|
$27 |
990 |
|
$2,577 |
Standard output 8 units and actual output 800 units
Required: (a) Material yield variance; (b) Materials mix variance; (c) Materials use variance; (d) Materials price variances
[Answer: MPV = ($73) F; MMV = ($23) F; MYV = ($27) F; MUV = ($50) F]
SP1 = 2.677; SP2 = 2.7; SP3 = 3.375
EP Online Study
Thank you for investing your time.
Please comment on the article and share this post on your social media platform.
Jay Google, Jay YouTube, Jay Social Media
जय गूगल. जय युट्युब, जय सोशल मीडिया
You might also like
Income Statement under NFRS | Balance Sheet under NFRS | P&S 1
Balance Sheet under NFRS | Statement of Financial Position under NFRS | Solution
Income Statement under NFRS | Profit or Loss Statement under NFRS | SOLUTION
Income Statement under NFRS | Balance Sheet under NFRS | EXPLANATION
Financial Statement under NFRS| Classification of Accounting Standards
Swar | Vyanjak | A Aa I Ee | Ka Kha Ga Gha | Ka Kaa Ki Kee | Barahkhadi | Kra Khra Gra
ABCD | British Phonetic ABCD | American Phonetic ABCD | ABCD in Devanagari
The Half-closed Eyes of the Buddha and the Slowly Sinking Sun | All Solution | NEB English Class 12 | Short Story Q&A
Comment box closed