Costingand Variance Analysis 643

MPV = (Rs. 5 - Rs. 5.50) x 4.300 = Rs. 2,150 (A)

MUV =(4,000 - 4,300) × RS. 5 = Rs. 1,500 (A)
difference between the areas of standard cost rectangle and the actual
ectanglei.e.
The shaded area represents material cost variance, which has been
material price variance and material usage variance. The variances
sedinto
Analy because the actual cost rectangle is larger in size than the standard
nstrectangle.
llustration 19.1 A manufacturing concern which has adopted standard costing
urnishesthe
following information
Standard:
70 finished products 100 kz
Material for
Price of material
kg Re. 1 per kg
Actual :
2.10.00 kz
Output 2.80.00 kg
Material used Rs. 2.52.000
Cost of materials.

price variance, (gj Material cost variance

Calculate :
iai Material usage variance, (6)Material
Sahution
output
Standard Quantity (SQ) for actual 100 kg
= 2.10.000 kg x 70 kg = 3.00.000 kg
= 2.80.000 kg
Actual Quantity (AQ) = Re 1 per kz.
Standard Price (SP) = Re. 0.90 per kz.
2,52.000 ÷ 2,80,000)
Actual Price (AP) (Rs.
(SQ - AQ) x SP
(a) Material Usage Variance == (3:00,000 - 2,80,000) xl= Rs. 20,900 (F)
(SP - AP) x AQ
(b) Material Price Variance = (1- 0.90) x 2,80.000 = Rs. 28.000 F)
=
(AQ x AP)
= (SQ x SP) - 0.90)
(e) Material Cost Variance
(3,00,000 x 1) - (2.80.000 x
=
(F)
= Rs. 48,000
Verification MCV = MPV + MUV
20.000 (F)
48,000 (F) = Rs. 28.000 (F) + Rs.
Rs. Maternal cost
48,000 (F).
Rs. 48,000 (F) = Rs. particulars, compute: (a)
variance
lustration 19.2 From the following Material usage
(c)
iiance. (b) Material price variance,
and 3.000 units
Rs. 9.000

ValQuant
ue ityof materials
of materials purchased
purchased
Strequired
andard quantity
per ton
of materials
of output
30 units
Rs. 2.50per
unit

StOpeniandarngd rate of material

Stoock of materials
Nil
500 units

ClGutospiutng during the period

stock of materials
(B. Com.,
80 tons
Madurai: .CWA.
Interj
 644 ATexthook of
Cost Accountancy
Solution
Basic Calculations
Actual quantity of material purchased= 3,000 units
Value of materials purchased - Rs. 9,000
Rs. 9.(MX)
Actual price per unit
3.0(0 units = Rs. 3 per tunit
Standard price = 2.50 per unit
Standard quantity = 80 tons x 3) units =
2,400 units
Actual quantity = Opening stock + Purchase - Closing stock
= Nil + 3,00) - 500 = 2,500 units
Calculation of variances
(a) Material Cost Variance = SC - AC
= (SQ x SP) - (AQ AP)
= (2,400 × 2.50) (2,500 3.00)
MCV = Rs. 1500 (A)
(b) Material Price Variance = (SP - AP) × AQ
= (2.50 - 3.00) x 2,500
MPV = Rs. 1.250 (A)
(c) Material Usage Variance = (SQ - A0) × SP
= (2,400 - 2,500) × 2.50
MUV = Rs. 250 (A)
Verification
MCV = MPV + MUV
Rs. 1,500 (A) =Rs. 1,250 (A) + Rs. 250 (A)
Rs. 1,500 (A) = Rs. 1,500 (A)
Classificationof Material Usage Variance
Material usage variance is further sub-divided into
(a) Material mix variance
(b) Material yield variance. (Or
Material Mix Variance. Material sub-usage variance)
This is sub-variance of material usage
one type of material is used for variance and arises only where more
producing
Usage variance may anse due to using a
the finished product A part of the maica
with the predetermined standard mixture of materials which does Dot o
mixture.
The material nix variance is defined as
This gives rise to mater1al I V
which is due to the difference between tha: portion of the mate rual sage
It may arise in industries like standard and actual compostLon of
are mixed w produce a final chernicals, rubber, ec. where a numbet of ra% ha
to product. Change from the standard mi may
non-availability
of maternals at
of one or more
Componcnis of Lhe mik 0T due to Do--prchas
proper ime Increase in the
variance and vice versa theproportson
in fav0urable mix of cheapci
large proportions results in usc of more expcnsivc
adverse aflance
This vafiance is calculaled with he heip of
the follow1ng formula
Material Mis Variance Revised standard Actua!
quantiry
x Standard pr
quaniry
MMV = (RSQ - A0) x SP
 646 ATetbook of Cost
Avcountncy
Verification
MUV = MMV + MRUV
500 (A) = 60 (A) + 440 (A)
Illustration 19.4 The standard mix to produce one unit of
follows:
product is as
Material A 60 kg. @ Rs. I5 per kg. Rs 900
Material B 80 kg. 0 Rs. 20 per kg. = Rs. I,600
Material C 100 kg. @ Rs. 25 per kg. = Rs. 2,500
240 kg 5,000
During the month of April, 10 units were actually produced and consumption
was as follows
Material A 640 kg. @ Rs. 17.50 per kg. = Rs. |,200
Material B 950 kg. Rs. 18.00 per kg. = Rs. 17,100
Material C 870 kg. @ Rs. 27.50 per kg. = Rs. 23,925
2,460 kg. Rs. 52,225
Calculate (a) Material Cost Variance (b) Material Price Variance
(c) Material Usage Variance (d) Material Mix Variance
(e) Material Revised Usage Variance
Solution :
Basic calculations
Material Standard for 10 units Actual
Qry. Rate Amt. Qry. Rate Amt.
kg. Rs. Rs.
Kg. Rs. Rs.
A 600 15 9,000 640 17.50 11,200
B 800 20 16,000 950 18.00 17,100
C 1,000 25 25,000 870 27.50 23,925
Total 2,400 50,000 2,460 52.225
Calculation of Variances :
Material Cost Variance = Standard cost - Actual cost
= Rs. 50,000 - Rs. 52,225
MCV = Rs. 2,225 (A)
Material Price Variance =
(St. price - Actual price) x Actual qty.
Material A = (15 17.50) x 640 = Rs. 1,600 (A)
Material B = (20 - 18) x 950 = Rs. 1.900 (F)
Material C = (25 - 27.50) x 870 = Rs. 2.175 (A

MPV =Rs. 1,875 (A)

Material Usage Variance = (St. qty. - Actual qty.) x St. price
Material A = ( 600 - 640) x 15 = Rs. 600 (A)
Material B = 800 - 950) × 20 = Rs. 3.000 (A)
Material C = (1,000 - 870) x 25 = Rs. 3.250 (F)
MUV = Rs. 350 (A)
Shandand
Costing and Variance Analysis 647

Verification
MCV = MPV + MUV
Rs. 2,225 (A) = Rs. 1,875 (A) + Rs. 350 (A)
Material Mix Variance = (Revised St. Qty. - Actual ty.) x St. Price

Material A = ( 615* 640) x 15 = Rs. 375 (A)

Material B = 820* 950) x 20 = Rs. 2,600 (A)
Material C = (1,025* 870) x 25 = Rs. 3,875 (F)
MMV Rs. 900 (F)

*Revised Standard Quantity

is calculated as follows :
2,460
Material A 600 = 615 kg.
2,400
2,460
Material B X 800 820 kg.
2,400
2,460
Material C X 1,000 = 1,025 kg.
2,400
Sub-usage Variance
Material Revised Usage or
(Standard Quantity Revised Standard Quantity) x Standard Price
Material A ( 600 615) x 15 = Rs. 225 (A)
(80O 820) x 20 = Rs. 400 (A)
Material B
(1,000 - 1,025) x 25 = Rs. 625 (A)
Material C
MRUV = Rs. 1,250 (A)

Verification
MUV = MMV + MRUV
(A)
Rs. 350 (A) = Rs. 900 (F) + Rs. 1,250
Or MRUV
= MPV + MMV +
MCV
900 (F) + Rs. 1,250 (A)
Rs. 2,225 (A) = Rs. 1,875 (A) + Rs.
Material Yield Variance 1ndustries,
sub-variance of material usage variance. It arises in process
1his is also a standards, the
chemicals, where loss in production is inevitable. WVhile setting may differ from
ke taken into account. But actual loss
standard loss is different from
al or actual yield or output being
standa Standard loss. This results in
standard yield. variance is that portion of the material usage variance
which
yield
dmaterial yield yield specified and actual
between standard from the actual
Obtainene difference expected to be
obtained
obtained. The standard yield is the output in standard
used
usage of noted that yield variance as other costing
be the
costing israw materials. It should
the same thing as abnormal loss or abnormal gain in
systeOnems.important feature of yield variance which vield material
differentiates it fromn other variance
variance is an output
variances (price,
orwhile others
are
usage and mix variances) is
input variances. In other
that
words, yeild variance represents
while other
variances
a gain
represent
loss
4 gain on output in terms of finished
production,
formula is as follows :
or Its
loss on the cost of material input. Standard

Material Yield Actual

yield Standard |
X output price

Variance yield
(AY - SY) × SOP
MYV =
 ATextbook of Cost
648
Accountancy
Standard output price (SOP) means standard material cost per unit o .
Example : Calculate material yield variance in Illustration 19,4
Material Yield Variance
SY) x SOP
MYV = (|0 10.25 *) x 5,000
- Rs. I,250 (A)
Actual usage of materials
*Standard Yield Standard usage per unit of output
2,460 10.25 units
240
S. material cost per Rs. 50,000
= Rs. 5,000
unit of output (SOP) 10 units
It is important to note that material yíeld variance is always cqual to mnaterial
revised usage variance. Either of these two variances is calculated.

Illustration 19.5 During the month of May, the following data apply :
Raw mnaterial Standard Actual
Units Price Amount Units Price Amount
Rs. Rs. Rs. Rs.
X 60 25 1,500 56 25 1,400
40 50 2,000 44 50 2,200
100 3,500 100 3.600
Less : Loss 30 26
70 3,500 74 3,600
The standard loss is 30%. Calculate
(a) Material yield variance
(b) Material mix variance.
Solution :
(a) Material Yield Variance = (AY - SY) x SOP
= (74 - 70) x 50* = Rs. 200 (F)
*Standard material cost per unit of output is calculated as follows
Standard material cost Rs. 3,500 = Rs. 50
SOP
Standard output 70
(b) Material Mix Variance =(RSQ - AQ) x SP
Material X = (60 - 56) × 25 = Rs. 100 (F)
Material Y = (40 - 44) × 50 = Rs. 200 (A)
Material Mix Variance = Rs. 100 (A)
Note : In this case, standard quantity and revised standard quantity (RSQ)1S
same because total actual quantity of all the materials and total standard quanu
is the same, i.e. 100 units.
Ilustration 19.6 The standard mix of product A 2 is as follows
Kgs Material Price per kg. (Rs.)
45 X 6.00
25 4.50
30 9.50
 and Variance Analysis 649
osting
Shndant

standardloss in
producttion is I0% ofinput. There is no scrap value. Actual
was 7,425 kps. of A2 fronn 80 mixes. Actual purchases
The lor. a month
podution
consumption of material during the month were
Material Price per kg (Rs)
and Kgs. 6 50
4.200
4.25
1,700
9.75
2,600
presentation to the
requircd to calculate the following variances for
You arc
managenent
Material cOst variance
price variance
i) Material
mix variance
ii) Material (CS. In ter)
yicld variance.
(i) Material
Solution :
Basic calculations
Standard for 80 mixes Actual for 80 mixes
Rate Amto
Qty. Rate Amt. Qty.
Material Rs. Rs.
Kg. Rs. Rs. Kg.
21,600 4,200 6.50 27.300
3,600 6.00
X 1,700 4.25 7.225
2,000 4.50 9,000
Y
12,600 9.75 25.350
2,400 9.50 22,800
59.875
8,000 53,400 8,500
1.075
Less Loss 800 59.875
53,400 7,425
7,200
Calculation of Variances
(i) Material Cost Variance = SC of actual output - AC
53,400
7,425- 59.875 = Rs. 4806.25 (A)
7,200
t) Material Price Variance = (SP - AP) x AQ
= (6 - 6.50) x 4,200 = Rs. 2,100 (A)
= Rs. 425 (F)
Y = (4.50 - 4.25) x 1,700 650 (A)
= Rs.
= (9.50 - 9.75) x 2,600
MPV = Rs. 2,325 (A)
(ii) Material Mix Variance = (RSQ* - AQ) x SP
(A)
X = (3,825 4,200) × 6 = Rs. 2,250.00
I,912.50 (F)
= (2,125 1,700) x 4.50 = Rs. 475.00 (A)
= (2,550 - 2.600) x 9.50 = Rs.
= Rs. 812.50 (A)
MMV
(iv) Material
M Yield Variance
=
(Actual Yield - St. Yield*) x St. Output Price
MYV = (7,425 -
7,650)
53,400
7,200
= Rs. l668.75
(A)
654 ATextbook of Cost

Verification
Accountancy
LCV LRV + LEV
400 (A) =300(A) + 100 (A)
() Labour Mix Variance = (RSH* - AH) x SR
A = (3,060 - 3,200) x 2 = Rs.
B = (2,040 - 1,900) × 3 = Rs.
280 (A)
420 (F
LMV = Rs. 140 (B
*Calculation of revised standard hours (RSH)
St.hours of the grade x
RSH
Total st. hours
Total actual hours
3.000 x 5,100
Grade A = 3,060 hrs.
5,000
2,000 x 5,100
Grade B = 2,040 hrs.
5,000
Labour Revised Efficiency Variance. (or Labour sub-efficiency Variance) This
is also a sub-variance of labour efficiency variance and arises due to factors other
than those which give rise to idle time variance and labour mix variance. Thus
this is a residue of labour efficiency variance left after idle time and mix variance
have been separated. Its formula is :
St. hours for Revised
Labour Revised Efficiency Variance = actual output st. hours X St. rate
LREV = (SH - RSH) × SR
Example Using the facts given in Illustration 19.8
Labour Revised Eficiency Variance = (SH - RSH) x SR
Grade A =(3,000 3,060) x 2 = Rs. 120 (A)
Grade B = (2,000 - 2,040) x 3 =Rs. 120 (A)
LREV =Rs. 240 (A)

Verification
LEV =LMV + LREV
Rs. 100 (A) =Rs. 140 (F) + Rs. 240 (A)

Illustration 19.9 The details regarding the composition and the weekly way*
rates of labour force engaged on a job scheduled to be completed in 30 weeAS
are as follows:

Standard Actual
Category of No. of Weekly No. of Weekly
workers
labourers Wage rate
labourers
Wage rate
per labourer
per labourer
Skilled 75 Rs. 60 Rs. 70
70
Semi-skilled 45 Rs. 50
Rs. 40 30
Unskilled 60 Rs. 20
Rs. 30 80
The work is actually completed in 32 weeks. Calculate the various labour variances.
Delhil
(B. Com, Hons.
Standand Costing and Variance Analysis 655

Solution
Basic calculations

Standard Actual
Category of Weeks Rate Amt. Weeks Rate Amt.
workers (No. of workers
x No. of weeks) (No. of workers
Rs. Rs. x No. of weeks ) Rs. Rs.
Skilled 75 x 30 = 2,250 60 1.35,000 70 x 32 = 2.,240 70 1,56,800
Semi-skilled 45 x 30 = 1,350 40 54,000 30 × 32 = 960 50 48,000
Ünskilled 60 x 30 = 1,800 30 54,000 80 × 32 = 2,560 20 51,200
Total 5,400 2,43,000 5,760 2,56,000

Caleulation of Variances
Labour Cost Variance = (SC - AC)
= 2,43,000 2,56,000 = Rs. 13,000 (A)
Labour Rate Variance = (Standard rate - Actual rate) x Actual time
Skilled = (60 - 70) x 2,240 = Rs. 22,400 (A)
Semi- skilled = (40 - 50) × 960 = Rs. 9,600 (A)
Unskilled = (30 - 20) × 2,560 = Rs. 25,600 (F)
LRV = Rs. 6,400 (A)
Labour Efficiency Variance
= (Standard time - Actual time) x Standard rate.
Skilled = (2,250 - 2,240) x 60 = Rs. 600 (F)
Semi-skilled = (1,350 - 960) x 40 = Rs. 15,600 (F)
Unskilled = (1,800 - 2,560) × 30 = Rs. 22,800 (A)
LEV = Rs. 6,600 (A)

Labour Mix Variance =

(*Revised standard time - Actual time) x Standard rate
Skilled = (2,400 - 2,240) x 60 = Rs. 9,600 (F)
Semi-skilled = (1,440 960) × 40 = Rs. 19,200 (F)
Unskilled =(1,920 - 2,560) × 30 = Rs. 19,200 (A)
LMV = Rs. 9,600 (F)

*Revised standard time is calculated as under.

St. time of grade
Revised Standard time = x Total actual time
Total standard time
2,250
Skilled =
5,400
x 5,760 =2,400 weeks

1,350
Semi-skilled 5,400
× 5,760 = 1,440 weekS

1,800
Unskilled 5,400 x 5,760 =1,920 weeks.