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# 1

Lesson-26

## Material Cost Variance Analysis

Learning Objectives

## • To know how to calculate material cost variance

• To know how to calculate material usage variance
• To know how to calculate material price variance

## Terminology for Material Variance Calculation

• SQ =Standard Quantity
• SR = Standard Rate
• AQ = Actual Quantity
• AP = Actual Price
• RSQ = Resaved STD Quantity
• MCV = Material Cost Variance
• MUV = Material Usage Variance
• MPV = Material Price Variance
• MMV = Material Mix Variance
• MYV = Material Yield Variance

Problem 1

## The following information is obtained from X Co. Ltd.

Product SQ SP AQ AP
(Units) (Rs.) (Units) (Rs.)

## A 1050 2.00 1100 2.25

B 1500 3.25 1400 3.50
C 2100 3.50 2000 3.75

## • Material cost variance

• Material price variance
• Material usage variance

Solution

## 1. MCV = (SQ x SR) – (AQ x AR)

A = (1050 x 2.00) – (1100 x 2.25)

2

## = 7350 – 7500 = 150 (A)

--------------------
550 A
--------------------

2. MPV = AQ (SP-AP)

## C = 2000(3.50 – 3.75) = 2000 x (-0.25) = Rs. 500 (A)

-----------------
1125 A
-----------------

3. MUV = SP (SQ-AQ)

---------------
575 (F)
---------------
Verification

## MCV = MPV + MUV

Rs. 550 (A) = 1125(A) + 575 F
550 (A) = 550 (A)

Problem 2

## Product SQ SP Total AQ AP Total

A 10 2 20 5 3 15

B 20 3 60 10 6 60

C 20 6 120 15 5 75
--- ----- --- -----
Total 50 200 30 150
--- ----- --- -----

Find out (1) MCV (2) MPV (3) MMV (4) MUV

## Sol.: (1) MCV = (SQ x SR) – (AQ x AR)

A = (10 x 2) – (5 x 3) = 5F

## B = (20 x 3) – (10 x 6) = Nil

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C = (20 x 6) – (15 x 5) = 45 F
------
TOTAL = 50 F
------
(2) MPV = (SP – AP) AQ

A = (2 - 3) 5 = 5A

B = (3 - 6) 10 = 30 A

C = (6 - 5) 15 = 15 F
--------
TOTAL = 20 (A)

## (3) MMV = (RSQ – AQ) SP

In this total std. mix and total actual mix is difference in proportion. Now you should calculated
revised STD’s.

## MMV = (RSQ – AQ) TAQ

RSQ = SQ
---- x TAQ
TSQ

10
A = ---- x 30 = 6
50

20
B = ---- x 30 = 12
50

20
C = ---- x 30 = 12
50

Now MMV

A = (6-5) x 2 = 2F

B = (12-10) x 3 = 6F

C = (12-15) x 6 = 18 A
--------
10 (A)
--------

## (4) MUV = (SQ – AQ) SP

A = (10 – 5) x 2 = 10 F
4

B = (20 – 10) x 3 = 30 F

C = (20 – 15) x 6 = 30 F
------
70 F
------

Verification

## MCV = MPV + MUV

50 F = 20 A + 70 (F)

50 F = 50 F

Problem 3
Standards Actuals

## Material Qty Price Total Qty Price Total

Kg. Rs. Rs. Kgs. Rs. Rs.

## R 300 3.00 900 400 2.80 1120

------ ------
1200 1300
------ ------
Less 10%
Normal Loss 120 Actual Loss 220
------- ------ ------ ------
1080 5400 1080 5320
------- ------ ------ ------

## Calculate (1) Material cost value (2) Material price value

(3) Material mix value (4) Material usage value
(5) Material yield value.

Solution

## 1. MCV = (SQ x SR) - (AQ x AR)

P = (500 x 6) - (400 x 6) = Rs. 600 (F)
Q = (400 x 3.75) - (500 x 3.60) = 300 (A)
R = (300 x 3) - (400 x 2.80) = 220 (A)
---------------
Total MCV = 80 (F)
---------------

5

## R = (3 – 2.80) 400 = 80 (F)

---------
Total MPV = 155 F
--------

## For Calculation Mix Value we need to revise the Revised Standards

SQ
RSQ = ---- x TAQ
TSQ

500
P = ----- x 1300 = 541.67 kgs
1200

Q = 400
----- x 1308 = 433.33 kgs
1200

R = 300
----- x 1300 = 325 kgs
1200

MMV
P= (541.67- 400) 6 = 850 F

## C = (325 - 400) 3 = 225 A

----------
Total MMV = 375 (F)

## Material Yield Variance (MYV)

You may observe in the standard quantity and normal loss the actual input and actual output. Since
the actual output is different, you calculate as follows.

## Total Std. cost

Avg. Std. Price = ----------------------
Total Std. output

5400
= --------- = 5 Per Unit
1080

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Problem 4

## 60% Material B at Rs. 300 Per Ton

A standard loss of 10 % is expected in production. During a period, there is used 90 tons of material
A at the cost of Rs. 180 per ton, 110 tons material B at the cost of Rs. 340 per ton.

Solution

Working Notes

## Total Actual Quantity = A = 90 Tons

B = 110 Tons
-----------------
200 Tons
-----------------

Standard Quantity is
A= 200 x 40% = 80

--------
200
---------

## B 120 300 36,000 110 340 37400

------ ------- ----- --------
200 52,000 200 53600

Less: 10%
Normal Loss 20 Actual 18
----- Loss ----
180 182
----- ----

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## B = (300 – 340) 110 = 4400 A

----------
Total MPV = 2600 (A)

## 2. Material Mix Variance = (RSQ – AQ) AP

RSQ = SR
---- x TAQ
TSQ

A = 80
---- x 200 = 80
200

B = 120
----- x 120 = 120
200

## B = (120-110) 300 = 3000 (F)

-----------
1000 (F)
-----------

3. Material Yield Variance = (STD Loss – Actual Loss) Avg. Std. Price

## Total Std Cost

Avg. Std. Price = -------------------
Net Std. Output

52.000
= --------- = 2.88
180

Problem 5

Rai Industries Ltd. produces an article by using two kinds of material. It operates at standard costing
and the following standards have been set for raw materials:

## Material Std. Mix STD Price per kg

A 46 % Rs. 4.00
B 60% 3.00

The standard loss in processing is 15%. During April 2003, the company produced net 1700 kgs of
finished product.

The position of stock and purchases for the month of April 2003 is as follows:

8

## 1-4-2003 30-4-2003 the month

----------- ------------- ------------
A 35 5 800 3400
B 40 50 1200 3000

## • Material usage variance

• Material price variance
• Material yield variance
• Material mix variance
• Material cost variance

Assume that material is issued on FIFO method. The opening stock was valued on standard price.

Solution

Working Notes

## Net Actual Product is 1700 kg

It is extent to 85 %

------
85

---- = 830 kgs
100

B = 2000 x 60
---- = 1200 kgs
100

## Calculation of Actual Cost of Material used

Material A:
Op. Stock = 35 x 4 (Std. Rate) = 140.00

## (+) Purchase = 795 x 4.25 (Actual cost) = 3378.75

------- ----------
830 3518.75
------ ---------
9

------ = 4.25
800 kgs

## (+) Purchase = 1150 Rs. 2.50 (Actual Rate) = 2875.00

------ -----------
1190 6513.75
------ ----------

------ = 2.50
1200 kgs

## 3570 - 2995 = 575. F

---------
Total MUV 376.25 (F)
-------------

## 2. MPV = SR (SQ - AQ)

A = 4 (800 - 830) = 120 (A)
B = 3 (1200 – 1190) = 30 F
---------
Total 90 (A)
---------

3. Material Yield Variance = (Stand. loss – Actual loss) Avg. Std. Price

--------
Total Cost 6800
--------

------- = 4
2000

## Std Loss = Input = 2000

(-) 15% loss = 300
------
Std. output 1700
------
10

## Actual yield = For 2000 Std. input = 1700

2020 =?

1700
------ x 2020 = 1717
2000

## Actual input = 2000

(-) Actual production = 1717
------
Actual loss = 283
------
Material Yield Variance = (300-283) 4 = 68(A)