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Lesson-26

Learning Objectives

• To know how to calculate material usage variance

• To know how to calculate material price variance

• 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

Product SQ SP AQ AP

(Units) (Rs.) (Units) (Rs.)

B 1500 3.25 1400 3.50

C 2100 3.50 2000 3.75

• Material price variance

• Material usage variance

Solution

A = (1050 x 2.00) – (1100 x 2.25)

2

--------------------

550 A

--------------------

2. MPV = AQ (SP-AP)

-----------------

1125 A

-----------------

3. MUV = SP (SQ-AQ)

---------------

575 (F)

---------------

Verification

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

550 (A) = 550 (A)

Problem 2

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

A = (10 x 2) – (5 x 3) = 5F

3

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)

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

revised STD’s.

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)

--------

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

50 F = 20 A + 70 (F)

50 F = 50 F

Problem 3

Standards Actuals

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

------ ------

1200 1300

------ ------

Less 10%

Normal Loss 120 Actual Loss 220

------- ------ ------ ------

1080 5400 1080 5320

------- ------ ------ ------

(3) Material mix value (4) Material usage value

(5) Material yield value.

Solution

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

---------

Total MPV = 155 F

--------

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

----------

Total MMV = 375 (F)

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.

Avg. Std. Price = ----------------------

Total Std. output

5400

= --------- = 5 Per Unit

1080

6

Problem 4

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

B = 110 Tons

-----------------

200 Tons

-----------------

Standard Quantity is

A= 200 x 40% = 80

--------

200

---------

------ ------- ----- --------

200 52,000 200 53600

Less: 10%

Normal Loss 20 Actual 18

----- Loss ----

180 182

----- ----

7

----------

Total MPV = 2600 (A)

RSQ = SR

---- x TAQ

TSQ

A = 80

---- x 200 = 80

200

B = 120

----- x 120 = 120

200

-----------

1000 (F)

-----------

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

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:

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

----------- ------------- ------------

A 35 5 800 3400

B 40 50 1200 3000

• 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

It is extent to 85 %

------

85

---- = 830 kgs

100

B = 2000 x 60

---- = 1200 kgs

100

Material A:

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

------- ----------

830 3518.75

------ ---------

9

------ = 4.25

800 kgs

------ -----------

1190 6513.75

------ ----------

------ = 2.50

1200 kgs

---------

Total MUV 376.25 (F)

-------------

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

(-) 15% loss = 300

------

Std. output 1700

------

10

2020 =?

1700

------ x 2020 = 1717

2000

(-) Actual production = 1717

------

Actual loss = 283

------

Material Yield Variance = (300-283) 4 = 68(A)

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