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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' .
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Solution
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)
