NESCOL

MATERIAL VARIANCES
Material Variances

Yield
The material yield variance is the difference between the actual amount of material used
and the standard amount expected to be used.

Mix
The material mix variance is the measure of difference between the cost of standard
proportion of materials and the actual proportion of materials consumed in the
production process.

Price
The material price variance is the difference between the standard price and the actual
price for the actual quantity of materials used for production.

Possible reasons for variances

Variance Favourable Adverse
Using less material than Using more material than
Yield budgeted budgeted

Using a higher proportion Using a higher proportion

Mix of the less expensive
material in the product mix
Paying less for materials
Price than was originally
budgeted
of the more expensive
material in the product mix
Paying more for materials
than was originally
budgeted

Material variances Formula

A Standard Quantity x Standard Mix x Standard Price

B Actual Quantity x Standard Mix x Standard Price
C Actual Quantity x Actual Mix x Standard Price
D Actual Quantity x Actual Mix x Actual Price

Variances
A−B Yield
B−C Mix
A−C Usage
C−D Price
A−D Cost

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ABC EXAMPLE

ABC Limited Produces 2 products budgeted costs are:

Product J Product K Std Grams

Price per Per Unit
Unit
£ £ £
Material 1 2.00 0.40 5
Material 2 1.00 0.25 4
Material 3 3.50 0.50 7
Material 4 1.50 0.75 2
Labour 8.00 12.00
Fixed Overheads 2.00 3.00

Selling Price 26.00 30.00

Monthly Budget Data

Production and Sales 5,000 6,000
Labour Rate per Hour 8 8

Actual results
Production and Sales 4,500 6,200
Selling Price 28.00 29.00

Materials Used
Material 1 22,000 Grams @ £0.45
Material 2 17,000 Grams @ £0.35
Material 3 45,000 Grams @ £0.48
Material 4 14,000 Grams @ £0.65

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Bingo LTD Material Variances Exercise 1

Bingo plc manufactures two Games for which the following are the standard costs and
selling price per unit:

Kg
Std Price
Game 1 Game 2 Per
Per KG
unit
£ £
Material A 1.50 £3.00 0.50
Material B 0.75 £2.50 0.30
Material C 3.20 £1.60 2.00
Material D 3.60 £3.60 1.00
Material cost 2.25 6.80
Labour cost 2.50 5.00
Fixed overhead 1.50 3.00
Total Cost 6.25 14.80

Selling Price 15.00 20.00

Monthly budget data

Production and sales 12,000 15,000
Labour rate per hour £10.00 £10.00

Actual results for April

Production (units) 13,000 16,000
Sales 13,000 16,000
Selling price £14.50 £19.00

Materials Used
Material A 6,200 kg £3.10 per Kg
Material B 3,150 kg £3.20 per Kg
Material C 35,000 kg £1.40 per Kg
Material D 23,000 kg £2.50 per Kg

Calculate the Material Variances for Game 1 and Game 2.

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Funnytrees LTD Material Variances exercise 2

Funnytrees LTD make 2 ornaments for which the following are the standard costs and
selling price per unit:

Std Price
HappyTre Ounces
Sad Tree Per
e Per unit
Ounce
£ £
Plastic 0.25 £0.05 5.00
Paint 0.30 £0.15 2.00
Steel 0.15 £0.15 1.00
Aliminum 0.20 £0.10 2.00
Material cost 0.55 0.35
Labour cost 1.35 1.80
Fixed overhead 0.75 1.00
Total Cost 2.65 3.15

Selling Price 9.99 14.99

Monthly budget data

Production and sales 160,000 190,000
Labour rate per hour £9.00 £9.00

Actual results for April

Production (units) 150,000 196,000
Sales 150,000 196,000
Selling price £12.99 £13.99

Materials Used
Per
Plastic
749000 Ounces £ 0.06 Ounce
Per
Paint
295000 Ounces £ 0.15 Ounce
Per
Steel
210000 Ounces £ 0.15 Ounce
Per
Aliminum
400000 Ounces £ 0.09 Ounce

Calculate the Material Variances for Funny Tree and Sad Tree.

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