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The Standard Cost of a Certain Chemical Mixture is :35% Material 'A' at Rs. 25 per Kg.65% Material 'B' at Rs. 36 per Kg. - Cost Accounting(Financial Accounting and Auditing 10)

The standard cost of a certain chemical mixture is :
35% Material 'A' at Rs. 25 per kg.
65% Material 'B' at Rs. 36 per kg.
A standard loss of 5% is expected in production.
During a period, the actual use was :
125 kg of Material 'A' at Rs. 27 per kg.
275 kg of Material 'B' at Rs. 34 per kg.
The Actual Output was 365 kg.
Calculate:
(a) Material Cost Variance (b) Material Price Variance
(c) Material Usage Variance (d) Material Mix Variance

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Solution

Actual output = 365 kg
Standard Loss = 5%
It means,

Expected Output (Kgs)    Input (Kgs)
95 →  100
365 →  ?

`(365xx100)/95` = 384 Kgs.

From the above Information, we can prepare Table in the following manner.

Materials Standard Actual Standard Proportion of Actual Input (Kgs.)
  Kgs. Price (Rs.) Total (Rs.) Kgs. Price (Rs.) Total (Rs.)
A 134 25 3,350 125 27 3,375 140
B 250 36 9000 275 34 9,350 260
  384   12,350 400   12,725 400

(a) Material Cost Variance = (SQ x SP) - (AQ x AP)
Material A = (134 x 25)- (125 x 27)
= 3,350 - 3,375 = Rs. 25 (A)

Material B = (250 x 36) - (275 x 34)
= 9,000 - 9,350 = Rs. 350 (A)

Rs. 375 (A)

(b) Material Price Variance - (SP - AP) x AQ
Material A = (25 - 27) x 125 = Rs. 250 (A)
Material B = (36 - 34) x 275 = Rs. 550 (F)
=Rs. 300 (F)

(c) Material Usage Variance - (SQ - AQ) x SR
Material A = (134 -125) x 25 = Rs. 225 (F)
Material B = (250 - 275) x 36 = Rs. 900 (A)
Rs. 675 (A)

Verification = MPV+ MUV = MCV
∴ Rs. 300 (F) + Rs. 675 (A) = MCV 
∴ Rs. 375 (A) = Rs. 375 (A)

(d) Material Mix Variance = SP x Difference in Mix
Material A = 25 x (140 - 125)
= Rs. 375 (F)
Material B = 36 x (260 - 275)
= Rs. 540 (A)

Concept: Basic Concepts of Material Variance
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