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Chapter-5 Standard Costing & Variance Analysis

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22 views

Chapter-5 Standard Costing & Variance Analysis

Uploaded by

bramara mutte
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© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Standard Costing &

Variance
Analysis
Variance Analysis

•When the actual costs are compared with the standard


costs some deviations normally occur.

•These deviation of actual from the standard is known as


variance

•Variance analysis involves the measurement of the deviation


of actual performance from the intended performances.
Variance
s

Favourable Unfavourable
Also known as positive or credit variance
Also known as negative or debit variance.
When the actual cost incurred is less than the
When the actual cost incurred is more than
standard cost
the standard cost
Variance
s

Uncontrollable
Controllable
When variance is due to the factors beyond the
Deviation caused by such factors which could control of the concerned person or department
be influenced by the executive action
E.g. wage rate increased on account of strike,
E.g. excess usage of materials, excess time government restrictions, change in market
taken price
by a worker
Variances can be found out with respect to all the elements of cost,
i.e., direct material, direct labour and overheads
Material
Variances
Material Cost Variance (MCV)

• It is the difference between the standard cost of direct materials specified for
the output achieved and the actual cost of direct materials used.

• This difference in material cost maybe partly due to difference in usage of


raw material and partly due to difference in prices.

= Standard cost for actual output- Actual Cost

= (Standard Quantity for actual output * Standard Price) - (Actual Quantity *


Actual Price)

= (SQ * SP) - (AQ * AP)


Material Price Variance
(MPV)
• It is that portion of the Materials cost variance which is due to the
difference between the standard price specified and the actual price paid
for the direct materials used

• The reasons for price variance can be fluctuations in market prices, increase or
decrease in prices on account of agreement between various suppliers or on
account of government interference, buying efficiency or inefficiency, high or low
cost of transportation and carriage of goods etc.

=Actual Quantity* (Standard Price-Actual Price)

= AQ* (SP-AP)
Material Usage (Quantity) Variance (MUV)

• It is that portion of the materials cost variance which is the difference between the
standard quantity specified for the production achieved, whether completed or not,
and the actual quantity used, both valued at standard prices

• The reasons for price variance can be inefficiency, lack of skills or training and faulty
workmanship, incorrect processing of materials whereby wastages may occur,
pilferage, use of defective or substandard material, use of substitute material etc.

= Standard Price* (Standard quantity for actual output-Actual quantity)

= SP (SQ-AQ)
The algebraic sum of material price variance and material
usage variance should be equal to material cost variance

MCV= MPV+MUV
Material Mix Variance
(MMV)
• It arises when two or more materials are used in the manufacture of a product

• The difference between the standard composition and the actual composition of
material mix is the material mix variance. It represents the variation in cost arising as a
result of change in in the ratio in which the different materials are used compared to
the standard fixed for the purpose.

= Standard Price * (Revised Standard Quantity – Actual quantity)

= SP * (RSQ- AQ)

RSQ Total weight of actual


= mix *Standard Quantity
-------------------------------
Total weight of standard
mix
Material Sub-usage Variance (MRUV)
• This is a sub-variance of the material usage variance and represents that
portion of the material usage variance which is attributed to reasons other
than those which give rise to material mix variance

= Standard price*(Standard Quantity- Revised standard quantity)

= SP*(SQ-RSQ)
Material Yield variance (MYV)

• It is that portion of the material usage variance which is due to the


difference between the standard yield specified and the actual yield
obtained.

• The variance arises due to abnormal contingencies like spoilage, chemical


reaction etc.

= Standard output price *(Actual Yield-Standard Yield)

= SOP* (AY-SY)
From the following information, compute (a) Cost
Variance (b) Price and (c) Usage Variance
Standard Actual
Quantity Unit Price Quantity Unit Price

Material A 10 2 5 3

Material B 20 3 10 6

Material C 20 6 15 5

Total 50 4 30 5
From the data given below, calculate the material price variance,
the materials usage variance and material cost variance.
Raw Standard Actual
material
A 40 units @ ` 50 50 units @ ` 50
per unit per unit

B 60 units @ ` 40 60 unit @ `45


per unit per unit
For making 10 kg of Cement, the standard material requirements is:
Material Quantity Rate per kg
A 8 kg 6.00
B 4 kg 4.00
During, April 1000 kg of Cement were produced. The actual consumption of materials is as under
Material Quantity Rate per kg
A 750 7.00
B 500 5.00

Calculate
a. Material Cost Variance
b. Material Price Variance
c. Material Usage Variance
From the data given below calculate:
•Material cost variance
•Material price variance
•Material usage variance

Standard Actual Actual


Standard
Product Qty Qty Price
Price (₹)
(Units) (Units) (₹)

A 1150 4.00 1200 3.25


B 1600 3.50 1300 2.50
C 2000 3.25 1900 4.75

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