0% found this document useful (0 votes)
55 views15 pagesNumerical Variance Analysis
Uploaded by
Shailesh DubeyCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
0% found this document useful (0 votes)
55 views15 pagesNumerical Variance Analysis
Uploaded by
Shailesh DubeyCopyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF or read online on Scribd
/ 15
‘Standard Costing and Variance Analysis
Standard Material Cost = Standard Price per unit x Standard quantity of materials
Actual Material Cost = Actual price per unit x Actual quantity of materials
If the standard cost is more than the actual cost, the variance will be favourable, and on the other
ind, if the actual cost is more than the standard cost, the variance will be unfavourable or adverse.
(b) Materials Price Variance. Materials price variance is that part of material cost variance which
due to the standard price specified and actual price paid. Material price variances may arise due to
« following reasons :
(® Changes in basic prices of materials.
(ii) Failure to purchase the quantities anticipated at the time when standards were set.
(iii) Failure to secure discount on purchases.
(tv) Failure to make bulk purchases and incurring more on freight, etc.
(v) Failure to purchase materials at proper time.
(vi) Not taking cash discount when setting standards,
‘Materials price variance is, generally, the responsibility of Purchase Manager but there may be
ictors beyond his control. Materials price variance is stated as : '
Materials Price Variance = Actual Quantity (Standard Price-Actial Price)
In this case actual quantity of materials used is taken. The price of materials is taken per unit. If
te answer is in plus, the variance will be favourable and it will be unfavourable if the result is in
egative.
() Material Usage Variance. Material usage (or quantity) variance is that part of material cost
‘hich arises due to the difference in standard quantity specified and actual quantity of materials
sed. The difference between standard quantity and actual quantity is multiplied by standard price
f material and the resultant figure will be materials usage variance.
This variance may arise due to the following reasons :
(@ Negligence in use of materials.
(ii) More wastage of materials by untrained workers or defective methods of production.
(iii) Loss due to pilferage.
(iv) Use of material mix other than the standard mix.
(v) More or less yield from materials than the standard set.
(vi) Defective production necessitating the use of additional materials
Production Manager will be responsible for materials usage variance. The prompt presentation of
aaterials usage variance will enable corrective measures in time. Inefficiencies can be traced and
orrected before large losses have occurred. Materials usage variance is calculated as follows :
Materials Usage Variance = Standard Price (Gtandard Quantity - Actual Quantity)
The quantities of material specified and actually used are taken and standard price per unit is
ised. If the answer from the above mentioned formula is in plus, the variance will be a favourable
variance but if the answer is in minus the variance will be unfavourable or adverse.
Following is the data of a manufacturing concern. From the figures given
relow, calculate
(i) Materials Cost Variance (ii) Material Price Variance
(iti) Material Usage Variance.
The standard quantity of materials required for producing one ton of output is 40 units. The
tandard prige per unit of materials is € 3. During a particular period 90 tons of output was
indertaken. The materials required for actual produgtion were 4,000 units. An amount of ¢ 14,000
vas spent on purchasing the materials. The standard materials required for producing 100 units is 120 kgs. A
standard price of 0.50 paise per kg is fixed and 2,40,000 units were produced during the period.
Actual materials purchased were 3,00,000 kgs. at a cost of & 1,65,000.
Calculate Material Variance.
Sr
andard Qua
Oe From the data given below, calculate :
(ii) Material Price Variance
Standard Price ‘Actual Quantity Actual Price
(units) & (units) &
1,050 2.00 1,100 225
1500 3.25 1400 3.50
350 2,000 3.75.
Verification :
‘Material Cost Variance = Material Price Variance + Material Usage Variance
GYNoNe 4.| Calculate material variances (cost variance, price variance and total usage
ILL
variance) from the following data : ;
Material « ‘Standard Price Staridard Usage Actual Usage ‘Actual Price
of Material Per kg. of Material per (Kg) per kg. of Material
@ unit of output per kg. fe)
X 5 3 300 9
Y 4 5 250 3
Zz 10 4 218 8
n 768 leage Variance =
fal X= 5192 £540 (Unfavourable)
30 (Favourable)
oS Tot oe
(d) Material Mix Variance. Materials mix variance is that part of material variance which arises
due to changes in standard and actual composition of mix. It results from a variation in the materials
i mix used in production, If material mix used in production is of a higher price and larger in quantity
than the standard mix, cost of actual material mix will be more. On the other hand, the use of cheaper '
‘materials in large proportions will mean lower material cost than the standard,
Materials mix variance is the difference between standard price of standard mix and standard
Price of actual mix. The standard price is used in calculating this variance. The variance is calculated
‘under two situations: i
(i) When actual weight of mix is equal to standard weight of mix. i
(ii) When actual weight of mix is different from the standard mix.
j (i) When Actual Weight and Standard Weight of Mix are Equal
In this case the formula for calculating mix variance is
aay
From the following i
Standard ‘Actual {
Materials Quantity (units) Price per unit Quantity (units) Price per unit 4
€ t ! Standard Costing and Variance Analysis
Calculate material mix variance from the data given as such
Standard Actual
Materials Quantity (units) Price per unit Quantity (units) Price per unit
z
A 30 200 0 ¢0C~C*i‘zaO
B 100 1.20 90 175
Due to the shortage of material A, the use of material A was reduced by 10% and that of material
3 increased by 5%.
Inv this question the standards lle revised, Revised standards willbe
Material A = 50-5 (60x 10/100) = 45
Material = 100+5(100x3/100) = 105
Material Mix Variance =Standard Unt Price (Revised Standard Quantity Actual Quantity)
Material A =2(45=60) ;
= 215). =-%30.
MaterialB = 120(105-90) 9
=120(5) 9 24818
‘Material Mix Variance ies 12: Unfavourable »
(ii) When Actual Weight and Standard Weight of Mix are Different
When quantities of actual material mix and standard material mix are different, the formula will
be
Total Weight of Actual Mix
Standard Cost of Standard Mix; — dard Cost of Actual Mix)
aa Mix” Se an d
In case the standard is revised due to the shortage of one material then revised standard will be
used instead of standard, the formula will become :
{ Total Weight of Acta Mix xSandad Co of Revd Standard Mis |
|
Total Weight of Revised Standard Mix
~ (Standard Cost of Actual Mix)
(ESET 7.) From the following data calculate various material variances :
Standard _ Actual
Materials Quantity (units) Price per unit Quantity (units) Price per unit
= z
A 80 8.00 90 750
B 70 3.00. 80 4.00
150 170
‘{a) Material Cost Variance = Standard Material Cost Actual Material Cost
(Gtandard Qty. x Standard Price) ~ (Actual Qty. x Actual Price)
Material A (80 x 8) - (90x 7.50)
: 640-675 =-€35
Material B = (70x3)-(80 4.00)
ie 10-320 | = 2110)
145. Unfavourable
Material Cost Variance ‘Standard Costing and Variance Analysis
(b) Material Price Variance = Actual Quantity Gtandard Price - Actual Price)
| Material A 90 (8.00 7.50)
9% (050) = 4845
Material B = 80 (3.00- 4.00)
= 80(-1.00) = 280
Material Price Variance = 35 Unfayourable
(¢) Material Usage Variance = Standard Price (Standard Quantity - Actual Quantity)
Material A = 8 (80-90)
= 8(10) =-% 80
Material B = 370-80) :
= 3(10) 230
Material Usage Variance 110 Unfayourable
(d) Material Mix Variance:
In this question standard weight of mix is different from the actual weight of mi
formula will be: : :
Total Weight of Actual Mix
Total Weight of Standard Mix
so the
xStandard Cost of Standard vis} Sta Cost of Actual ve
3 Favourable
= (FHpvo-s+70.3) post 20
