![Material Mix Variance
• Material Mix Variance
= [Revised St. Qty – Actual Qty] x St. Price
Rev. St. Qty = St. Qty of 1 Mat. x Actual Total
Standard Total](https://image.slidesharecdn.com/standardcostingvarianceanalysis-250215092734-82997e97/85/Standard-Costing-Variance-Analysis-PPT-21-320.jpg)
![Formulas
1. Variable overhead variances.
(Standard variable o/hfor actual prodn. – Actual variable o/h)
2. Variable overhead budget or expenditure variance,
(Budgeted variable overhead for actual hours – Actual
variable overhead) i.e. AH*BR – Actual Cost
3. Variable overhead efficiency variance.
Standard variable overhead rate per hour [Std. hours for
actual output – Actual hours] i.e. (SH-AH) *SR
4. Fixed Overhead Variance
Budgeted FO- AFO](https://image.slidesharecdn.com/standardcostingvarianceanalysis-250215092734-82997e97/85/Standard-Costing-Variance-Analysis-PPT-30-320.jpg)
Standard Costing & Variance Analysis.PPT
- 1. Standard Costing & Variance Analysis!
- 2. Definitions • Standard Cost: (CIMA) “Standard cost is the pre- determined cost based on the technical estimates for materials, labour and overhead for a selected period of time for a prescribed set of working conditions.” • Standard Costing: (CIMA) “the preparation of standard costs and applying them to measure the variations from the actual costs and analyzing the causes of variations with a view to maintain maximum efficiency of the operations so that any remedial action may be taken immediately.
- 3. Variance Analysis • Cost Variance: is the difference between the standard cost and the actual costs. • Variance Analysis: is the resolution into constituent parts and the explanation of the variances. Favorable & Unfavorable Variances. Controllable & Uncontrollable Variances
- 4. What all could be the reasons for the actual manufacturing cost or the sales/profit to vary from their standard costs and price/profit?
- 6. Favorable & Unfavorable Variances • Favorable variances(F) arise when actual costs are less than budgeted costs or actual sales/profit exceed budgeted. • Un favorable variances(U) arise when actual costs exceed budgeted or actual sales/profit are less than budgeted. Profit Profit Revenue Costs Revenue Costs Actual > Expected Actual > Expected F F F F U U Actual < Expected Actual < Expected U U U U F F
- 7. Standard Costs Benchmarks for measuring performance. The expected level of performance. Based on carefully predetermined amounts. Used for planning labor, material and overhead requirements. Standard Costs are
- 8. Setting Standard Costs Accountants, engineers, personnel administrators, and production managers combine efforts to set standards based on experience and expectations.
- 9. Standards vs. Budgets Are standards the same as budgets? A standard is the expected cost for one unit. A budget is the expected cost for all units.
- 10. The price variance is computed on the entire quantity purchased. The quantity variance is computed only on the quantity used. How will the material price variance and material usage be computed if the quantity purchased is different from the quantity used?
- 11. Material Cost Variance • Material cost variance arises due to variance in the price of material or its usage. • This can be calculated by using the following formula, • Material Cost Variance = (SQ x SP) – (AQ x AP) , • Where, SQ = Standard quantity for the actual output SP = Standard price per unit of material AQ = Actual quantity AP = Actual price per unit of material • A positive result implies favorable variance and a negative result implies unfavorable variance (adverse variance).
- 12. Material Price Variance • Material price variance may arise due to number of reasons like fluctuations in market prices, error in buying due to wrong purchasing policy etc, • This can be calculated by using the following formula, • Material Price Variance = (SP – AP) x AQ • Where, SP = Standard price per unit of material AQ = Actual quantity AP = Actual price per unit of material • A positive result implies favorable variance and a negative result implies unfavorable variance (adverse variance).
- 13. Material usage Variance • Material Usage variance is the difference between the actual quantities of raw materials used in production and the standard quantities that should have been used to produce the product, • MUV may arise due to number of reasons like Pilferage of materials , Wastage , Sub-standard or defective materials etc, • This can be calculated by using the following formula, • Material Usage Variance = (SQ – AQ) x SP
- 14. Material Mix Variance • MMV is calculated when a product uses mixture of different raw materials, • MMV is that portion of the materials quantity variance, which is due to the difference between the standard and actual composition of a mixture. • It can be represented by the following formula: • Material mix variance = • (Standard cost of actual quantity of the standard mixture – Standard cost of actual quantity of the actual mixture) or (Revised SQ – AQ) x SP
- 15. Practical Problems 1. A furniture company uses sunmica tops for tables. It provides the following data: St. Quantity for sunmica per table 4 sq. ft St. price per sq. ft of sunmica Rs. 5 Actual prod. Of tables 1000 Sunmica actually used 4,300 sq.ft Actual purchase price per sq. ft Rs. 5.50. Calculate Material variances.
- 16. St. price x St. Quantity 5 x 4000 = 20000 St. price x Actual Quanity 5 x 4300 = 21500 Actual Price x Actual Quanity 5.5 x 4300 = 23650 Material Cost Variance -3650 Material Usage Variance -1500 Material Price Variance -2150
- 17. 2. From the following information calculate (i) material cost variance (ii) material price variance (iii) Material Usage variance Standard output 100 units Standard Material per unit 3 Ibs Standard price per Ib. Rs. 2 Actual output 80 units Actual price Rs. 5.50 Actual materials used 250 Ibs Material Cost Variance 65 Material Usage Variance -60 Material Price Variance 125
- 18. 3. From the following information calculate (i) material cost variance (ii) material price variance (iii) Material Usage variance Quantity of material purchased 3000 units Value of material purchased Rs. 9000 St. quantity of raw material req. p.u. 25 units Standard rate of material unit Rs. 2 per Opening stock of material Nil Closing stock of material 500 units Finished production during the period 80 units St. price x St. Quantity 2 x 2000 = 4000 St. price x Actual Quanity 2 x 2500 = 5000 Actual Price x Actual Quanity 3 x 2500 = 7500 Material Cost Variance -3500 Material Usage Variance -1000 Material Price Variance -2500
- 19. 4. The standard output of the production house has been set at 1000 pieces per month. However actually 1020 pieces were produced. Following is the data for actual and standard production. Standard Actual Results Usage 1.5 sq. ft per pad 1.3 sq. ft per pad Price Rs. 0.15 per sq. ft Rs. 0.18 per sq. ft Calculate all material variances. St. price x St. Quantity 0.15 x 1530 = 229.5 St. price x Actual Quanity 0.15 x 1326 = 198.9 Actual Price x Actual Quanity 0.18 x 1326 = 238.68 Material Cost Variance -9.18 Material Usage Variance 30.6 Material Price Variance -39.8
- 20. St. price x St. Quantity 1 x 300000 = 300000 St. price x Actual Quanity 1 x 280000 = 280000 Actual Price x Actual Quanity 0.9 x 280000 = 252000 Material Cost Variance 48000 Material Usage Variance 20000 Material Price Variance 28000 5. A mfg. concern, which has adopted standard costing, furnishes the following information: Standard: Material for 70 kg. Of finished products 100 kgs. Price of materials Rs. 1 per kg. Actual: Output 210,000 kgs Material used 280,000 kgs. Cost of materials Rs. 2,52,000 Calculate all material variances.
- 21. Material Mix Variance • Material Mix Variance = [Revised St. Qty – Actual Qty] x St. Price Rev. St. Qty = St. Qty of 1 Mat. x Actual Total Standard Total
- 22. From the following information regarding a standard product, compute 1. Mix 2. Price 3. Usage Variance: Raw Material Standard Actual X 40 units @ Rs. 50 p.u. 50 units @ Rs. 50 p.u. Y 60 units @ Rs. 40 p.u. 60 units @ Rs. 45 p.u. Total 100 units 110 units Rev.ST. Qty St. PriceSt. QtyAct.Price Act. Qty Revised St. Qty X 40/100 x 110 = units 44 50 40 50 50 Revised St. Qty Y 60/100 x 110 = units 66 40 60 45 60 Material Mix Variance For X -300 For Y 240 -60 MMV Material Usage Variance For X -500 For Y 0 -500 MUV Material Price Variance For X 0 For Y -300 -300 MPV
- 23. From the following information regarding a standard product, compute 1. Mix 2. Price 3. Usage Variance: Material Standard Actual Qty. Rs. p.u. Total Qty Unit Price Total A 4 1.00 4.00 2 3.50 7.00 B 2 2.00 4.00 1 2.00 2.00 C 2 4.00 8.00 3 3.00 9.00 Total 8 7.00 16.00 6.00 8.50 18.00 St. Price St. Qty Act.Price Act. Qty Revised St. Qty A 4/8*6= units 3.00 1.00 4 3.50 2 Revised St. Qty B 2/8*6= units 1.50 2.00 2 2.00 1 Revised St. Qty C 2/8*6= units 1.50 4.00 2 3.00 3 Material Mix Variance For A 1 For B 1 -4 MMV For C -6 Material Usage Variance For A 2 For B 2 0 MUV For C -4 Material Price Variance For A -5 For B 0 -2 MPV For C 3
- 24. Material variances • Labour Cost Variance SH*SR – AH*AR • Labour Usage/Efficie. Var (SH-AHactual)*SR • Labour Rate Variance (SR-AR)* AH • Idle time Variance SR*Idle time Labour Variances
- 25. Practice Problem A firm gives you the following data: Standard time per unit 2.5 hours Actual hours worked 2,000 hours Standard rate of pay Rs. 2 per hour 25 % of the actual hours has been lost as idle time. Actual output 1,000 units Actual wages Rs. 4,500 Calculate all labour variances. St. Rate 2 LUV 2000F St. Hrs 2500 LPV -500U Actual Rate 2.25 ITV 1000F Actual Hrs 2000 LCV 500F Idle time 500
- 26. Practice Problems Compute the Labour variances from the information given below: Standard time 3 hours per unit Standard rate of wages Rs. 6 per hour Actual production 700 units Actual time taken 2000 hours Actual Wages Rs. 14000 Idle time 50 hours St. Rate 6 LUV 900F St. Hrs 2100 LPV -2000U Actual Rate 7 LCV -1400U Actual Hrs 2000 IDV 300 Idle time 50
- 27. Labor Efficiency Variance- Causes Unfavorable Efficiency Variance Poorly trained workers Poor quality materials Poorly maintained equipment Poor supervision of workers
- 28. Responsibility for Labor Variances I am not responsible for the unfavorable labor efficiency variance! You purchased cheap material, so it took more time to process it. You used too much time because of poorly trained workers and poor supervision.
- 29. Overhead Variances • Overhead variances arise due to the difference between actual overheads and absorbed overheads. The estimate of budget of the overheads is to be divided into fixed and variable elements. i.e. 1.Variable overhead variances. – Variable overhead budget or expenditure variance, and – Variable overhead efficiency variance. 2.Fixed overhead variances.
- 30. Formulas 1. Variable overhead variances. (Standard variable o/hfor actual prodn. – Actual variable o/h) 2. Variable overhead budget or expenditure variance, (Budgeted variable overhead for actual hours – Actual variable overhead) i.e. AH*BR – Actual Cost 3. Variable overhead efficiency variance. Standard variable overhead rate per hour [Std. hours for actual output – Actual hours] i.e. (SH-AH) *SR 4. Fixed Overhead Variance Budgeted FO- AFO
- 31. Sales Variances • Sales Margin Price Margin = (AP-BP)*AQ • Sales Margin Volume variance = (AQ-BQ)*BC • Total Sales Margin variance = AQ*AC – BQ*BC