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
(Units)

SP
(Rs.)

AQ
(Units)

AP
(Rs.)

A
B
C

1050
1500
2100

2.00
3.25
3.50

1100
1400
2000

2.25
3.50
3.75

Calculate the following:

Material cost variance

Material price variance
Material usage variance

Solution
1. MCV
A

=
=

(SQ x SR) (AQ x AR)

(1050 x 2.00) (1100 x 2.25)

2100 2475

(1500 x 3.25) (1400 x 3.50)

4875 4900

Rs. 375 (A)

25 (A)

2
C

(2100 x 3.50) (2000 x 7.25)

7350 7500

AQ (SP-AP)

1100(2.00 2.25) = 1100 x (0.25) = Rs. 275 (A)

1400(3.25 3.50) = 1400 x (-0.25) = Rs. 350 (A)

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

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

SP (SQ-AQ)

2 (1050 -1100)

Rs. 100 (A)

3.25 (1500 1400) = 3.25 (100) =

Rs. 325 (F)

3.50 (2100 - 2000)

2. MPV

3. MUV

150 (A)
-------------------550 A
--------------------

= 2 (-50)

= 3.50 (100) = Rs. 350 (F)

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

Verification
MCV =
Rs. 550 (A) =
550 (A) =

MPV + MUV
1125(A) + 575 F
550 (A)

Problem 2
Product

SQ

SP

Total

AQ

AP

Total

10

20

15

20

60

10

60

20
--50
---

120
----200
-----

15
--30
---

75
----150
-----

(3) MMV

(4) MUV

Total
Find out (1) MCV

(2) MPV

Sol.:

(1) MCV

(SQ x SR) (AQ x AR)

(10 x 2) (5 x 3)

5F

(20 x 3) (10 x 6)

Nil

3
C

(20 x 6) (15 x 5)

TOTAL

(2) MPV

(SP AP) AQ

(2 - 3) 5

5A

(3 - 6) 10

30 A

(6 - 5) 15

15 F
-------20 (A)

TOTAL

(3) MMV

45 F
-----50 F
------

(RSQ AQ) SP

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

(RSQ AQ) TAQ

SQ
---- x TAQ
TSQ

10
---- x 30
50

20
---- x 30
50

12

20
---- x 30
50

12

(6-5) x 2

2F

(12-10) x 3

6F

(12-15) x 6

18 A
-------10 (A)
--------

(4) MUV

(SQ AQ) SP

(10 5) x 2

10 F

Now MMV

4
B

(20 10) x 3 =

30 F

(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
Kg.

Price Total
Rs.
Rs.

Qty
Kgs.

Price Total
Rs.
Rs.

500

6.00

3.000

400

6.00

2400

400

3.75

1500

500

3.60

1800

300 3.00
-----1200
------

900

400 2.80
-----1300
------

1120

Less 10%
Normal Loss

Calculate

120
------1080
-------

Actual Loss
-----5400
------

220
-----1080
------

-----5320
------

(1)
(3)
(5)

Material cost value (2)

Material mix value (4)
Material yield value.

Material price value

Material usage value

MCV
P
Q
R

=
=
=
=

(AQ x AR)
(400 x 6)
(500 x 3.60)
(400 x 2.80)

Solution
1.

(SQ x SR)
(500 x 6)
(400 x 3.75)
(300 x 3)

Total MCV
2.

=
=
=
=

MPV =

(SP AP) AQ

(6 -6) 400

Rs. 600 (F)

300 (A)
220 (A)
--------------80 (F)
---------------

Nil

5
Q

(3.75 3.60) 500

75 (F)

(3 2.80) 400

80 (F)
--------155 F
--------

Total MPV

3. Material Mix Value

(RSQ AQ) SR

For Calculation Mix Value we need to revise the Revised Standards

=

SQ
---- x TAQ
TSQ

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

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

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

P=

(541.67- 400) 6

850 F

Q=

(433.33 500) 3.75

250 (A)

C =

(325 - 400) 3

225 A
---------375 (F)

RSQ

MMV

Total MMV

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.
MYV = (Std. loss - Actual loss) Avg. Std. price
Avg. Std. Price =

=
MYV =

Total Std. cost

---------------------Total Std. output
5400
--------- = 5 Per Unit
1080

(130 - 220) 5 = Rs. 450 (A)

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Problem 4
The standard cost of a certain chemical mixture is
40% Material A at Rs. 200 Per Ton
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.
Calculate : 1. Material Price Variance
2. Material Mix Variance
3. Material yield Variance.
Solution
Working Notes
Total Actual Quantity =

90 Tons

110 Tons
----------------200 Tons
-----------------

Standard Quantity is
A=

200 x 40%

80

B=

200 x 60%

120
-------200
---------

Material

SQ

SP

Total

AQ

AP

Total

80

200

16,000

90

180

16200

120 300
-----200

36,000
------52,000

110
----200

340

37400
-------53600

Actual
Loss

18
---182
----

Less: 10%
Normal Loss 20
----180
----1. Material Price Variance
A

(SP - AP) AQ

(200 180) 90

1800 F

7
B

Total MPV

2. Material Mix Variance

(300 340) 110

SR
---- x TAQ
TSQ

80
---- x 200
200

80

120
----- x 120
200

120

MMV A

(80 90) 200

2000 (A)

(120-110) 300

3000 (F)
----------1000 (F)
-----------

3. Material Yield Variance

Avg. Std. Price

4400 A
---------2600 (A)

(RSQ AQ) AP

RSQ

(STD Loss Actual Loss) Avg. Std. Price

(20 18) x 2.88 = 577 (F)

Total Std Cost

------------------Net Std. Output

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

2.88

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
B

46 %
60%

Rs. 4.00
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:
Material

Stock on

Stock on

Purchases during

Cost

8
1-4-2003
----------35
40

A
B

30-4-2003
------------5
50

the month
-----------800
1200

3400
3000

Calculate the following:

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
a. Calculation of actual quantity used
Net Actual Product is 1700 kg
It is extent to 85 %
100 % Actual quantity

Material used

1700 x 100
-----85

2000

(Op. Stock + Purchase) - Cl. Stock

(95 + 800)

830

(40 + 1200)

50

1190

2000 x 40
---100

830 kgs

2000 x 60
---100

1200 kgs

Standard Quantity

Calculation of Actual Cost of Material used

Material A:
(+)

Op. Stock

35 x 4

(Std. Rate)

Purchase

795 x 4.25
------830
------

(Actual cost) =

140.00
3378.75
---------3518.75
---------

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Mat A: Actual Cost per unit =

Material B
(+)

Mat B

1. MUV
A

3400
------ =
800 kgs

4.25

Op stock

40 kgs. @ Rs.3 (Std. Rate)

Purchase

1150 Rs. 2.50 (Actual Rate) =

-----1190
------

Actual Rate per unit =

3000
-----1200 kgs

(SQ x SR)

(AC x AR)

(830 x 4)

{(35 x 4) + (795 x 4.25)}

3320

3518.75 = 198.75 A

(1190 x 3)

{(40 x 3) + (1150 x 2.50)}

3570

2995

MPV =
A
=
B
=

SR (SQ - AQ)
4 (800 - 830)
3 (1200 1190)

=
=

Total
3. Material Yield Variance
Avg. Std. Price

198.75 A

575. F
--------376.25 (F)
-------------

120 (A)
30 F
--------90 (A)
---------

(Stand. loss Actual loss) Avg. Std. Price

=

800 kgs @ 4 =

3200

1200 kgs @ 3 =

3600
-------6800
--------

Total Cost
Avg. Std. Price

Std Loss
Std. output

=
Input
(-) 15% loss

2875.00
----------6513.75
----------

Total MUV
2.

120.00

2.50

6800
------- = 4
2000
=
=

2000
300
-----1700
------

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Actual yield

For 2000 Std. input

2020

1700

=?

1700
------ x 2020 = 1717
2000
Actual input
=
(-) Actual production =
Actual loss

Material Yield Variance

2000
1717
-----283
-----=
(300-283) 4

68(A)