Question

The Standard specification for a batch of 500 kg of Output of a factory is as under (l).
In October 2017, the factory obtained a production of 9,750 kg. of output for which 20 batches constituting standard inputs of material were issued in the following ratio at the actual price indicated against each (II).

(I)

Material	Input (Kgs.)	Rate (Rs.)
A	250	4.00
B	100	3.00
C	200	2.00
D	50	1.00

(II)

Material Issued	Ratio (%)	Actual Rate (Rs.)
A	250	4.00
B	100	3.00
C	200	2.00
D	50	1.00

Calculate the various 'Material Variances' .

Answer 1

Actual Output= 9,750 kgs.

Expected Output (Kgs)	Input (Kgs)
500	600
9,750	?

`(9,750xx600)/500`
= 11,700 Kgs

Now, Actual Input= 600 kgs per batch x 20 Batches = 12,000 kgs.
From the above, we can prepare the following table :

Material	Standard			Actual			Standard Proportion of Actual Input (Units)
	Qty. (kgs.)	Rate (Rs.)	Amt. (Rs.)	Qty. (kgs.)	Rate (Rs.)	Amt. (Rs.)
A	4,875	4.00	19,500	7,200	5.00	36,000	5,000
B	3,900	3.00	11,700	2,400	2.50	6,000	4,000
C	1,950	2.00	3,900	1,200	2.25	2,700	2,000
D	975	1.00	975	1,200	0.75	900	1,000
			36,075	12,000		45,600	12,000

(a) Material Price Variance = (SR- AR) x AQ
Material A : (4 - 5) x 7,200 = Rs. 7,200 (A)
Material B : (3 - 2.5) x 2,400 = Rs. 1,200 (F)
Material C : (2 - 2.25) x 1,200 = Rs. 300 (A)
Material D : (1 - 0.75) x 1,200  = Rs. 300 (F)
Rs. 6,000 (A)

(b) Material Usage Variance = (SQ-AQ) x SR
Material A : (4,875 - 7,200) x 4 = Rs. 9,300 (A)
Material B : (3,900 - 2,400) x 3 = Rs. 4,500 (F)
Material C : (1,950 - 1,200) x 2 = Rs. 1,500 (F)
Material D : (975 - 1,200) x 1 = Rs. 225 (A)
Rs. 3,525 (A)

(c) Material Cost Variance = (SQ x SR) - (AQ x AR)
Material A : ( 4,875 x 4) - (7,200 x 5) = 19,500 - 36,000
= Rs. 16,500 (A)
Material B : (3,900 x 3) - (2,400 x 2.5) = 11,700 - 6,000
= Rs. 5,700 (F)
Material C : (1,950 x 2) - (1,200 x 2.25) = 3,900 - 2,700
= Rs. 1,200 (F)
Material D : (975 x 1) - (1,200 x 0.75) = 975 - 900
= Rs. 75 (F)
∴ MCV = Rs. 16,500 (A) + Rs. 5,700 (F) + Rs. 1,200 (F) + Rs. 75 (F)
= Rs. 9,525 (A)

(d) Material Mix Variance= SR x Difference in Mix :
Material A = 4 x (5,000 - 7,200) = Rs 8,800 (A)
Material B = 3 x (4,000 - 2,400) = Rs. 4,800 (F)
Material C = 2 x (2,000 - 1,200) = Rs. 1,600 (F)
Material D = 1 x (1,000 - 1,200) = Rs. 200 (A)
Rs 2,600 (A)

(e) Material Yield Variance = SYR x Difference in Yield : 
But, SYR `="Standard Cost"/"Actual Output"`

               `=("Rs." 36,075)/(9,750 "Kg")`

                = Rs. 3.70

Now, Difference in Yield :
Actual Input = 12,000 kgs
(-) Loss (16.66%) (*) = 2,000 kgs .........`(12,000  "kgs" xx (16.67)/100)`
∴ Expected Output = 10,000 kgs
But,  Actual Output = 9,750 kgs
∴ Difference in Yield = 250 kgs (A)
∴ MYV = Rs. 3. 70 x 250 kgs (A)
= Rs. 925 (A)

Working Notes :
(l) Standard Quantity of 11,700 kgs is distributed among A, B, C and D in the ratio of 250 : 100 : 200 : 50 (i.e. 5 : 2 : 4 : 1).
(2) Standard Proportion of Actual Input is 12,000 Kgs are also distributed among A, B, C and D in the ratio of 250: 100: 200: 50 (i.e. 5 : 2: 4: 1).
(3) (*)Loss is Calculated as follows :
Output - Loss
600 kgs - 100 kgs (600- 500)
∴  100 kgs - ?

`(100xx100)/600=16.66%`

Verification :
(1) MPV+ MUV = MCV
∴  Rs. 6,000 (A) + Rs. 3,525 (A) = MCV
Rs. 9,525 (A)  = Rs. 9,525 (A)

(2) MMV + MYV - MUV
∴  Rs. 2,600 (A) + Rs. 925 (A) - MUV
∴  Rs. 3,525 (A) = Rs. 3,525 (A)