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

#### 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)