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Material Variance

The document discusses material cost variances, which measure the difference between the standard cost of materials and the actual cost of materials. It defines the material cost variance (MCV) and breaks it down into constituent parts: [1] the material price variance (MPV), which measures the impact of price differences; [2] the material quantity/usage variance (MQV), which measures the impact of quantity differences; and [3] the material yield/sub-usage variance (MSUV), which measures the impact of yield differences. Formulas are provided for calculating each variance.

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vikramsinghrajput
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103 views

Material Variance

The document discusses material cost variances, which measure the difference between the standard cost of materials and the actual cost of materials. It defines the material cost variance (MCV) and breaks it down into constituent parts: [1] the material price variance (MPV), which measures the impact of price differences; [2] the material quantity/usage variance (MQV), which measures the impact of quantity differences; and [3] the material yield/sub-usage variance (MSUV), which measures the impact of yield differences. Formulas are provided for calculating each variance.

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vikramsinghrajput
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© Attribution Non-Commercial (BY-NC)
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Download as PPT, PDF, TXT or read online on Scribd
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MATERIAL VARIANCE

Presented By
Bishwarup Som (BM 010043)
Daya Shankar Rai (BM 010044)
What is Material Variance
The variance in the cost of materials i.e. the difference between the
standard cost of materials for actual output and the actual cost of
materials would give the variance on account of materials. We call this
the "Material Cost Variance".

The basic idea behind all variances being Variance = Value1-Value2.


The Standard value should comes first in the case of Cost variance &
the actual value should come first in the case of sales variance
This would give an idea of how much more or less cost had been
incurred when the actuals are compared to plans.
Interpretation of Variance
Mathematical Interpretation:
The variance we calculate all are value variances, i.e. any variance we
calculate is the difference between two values

⇒ Variance = Value1 − Value2


⇒ Variance = (Quantity1 × Price1) − (Quantity2 ×
Price2)   Variance:
Adverse/Unfavorable [Since Value
The =variance
Quantity × Price.]
is said to be either negative
(−) or Adverse (Adv) or Unfavorable (Unf) if it indicates a loss.
Positive/Favorable Variance: The variance is said to be either Positive
(+/Pos) or Favorable (Fav) if it indicates a gain position or beneficial
position.
MCV Categorization
• The analysis of material cost variance into its constituent
parts gives an idea of material variance in various other
angles. This possibility for analysis arises on account of
the fact that material cost is a product of two factors i.e. the
quantity & price of the material
• Inter-relationships:
• MCV = MPV + MUV/MQV   → (1)
• MUV/MQV = MMV + MYV/MSUV   → (2)
• MCV = MPV + MMV + MYV/MSUV   →[(3) [From (1) and (2)]
Material Price Variance
The variance in the total cost of materials on account of a
variation between standard & actual price.

It is calculated as the difference between the standard cost


of actual materials and the actual cost of materials.

⇒ Material Price Variance = Standard Cost of Actual


Quantity of Materials − Actual Cost of Materials =
(Actual Quantity × Standard Price) − (Actual Quantity
× Actual Price)
Material Quantity/Usage
Variance
That part of the variance in the total cost of materials on
account of a variation in the usage of materials i.e
difference between the standard rate at which material
quantities are to be used and the actual rate at which they
have been used. It is a part of the Material Cost Variance.
It is the difference between the Standard Cost of Standard
Quantity for Actual Output and the Standard Cost of Actual
Quantity of materials.

⇒ Material Quantity/Usage Variance


= Standard Cost of Standard Quantity for
Actual Output − Standard Cost of Actual Quantity
Material Yield/Sub-usage
Variance
That part of the variance in the total cost of materials on
account of a variation in the yield or output obtained from
the materials used and the actual output/production/yield.
It is a part of the material Usage/Quantity Variance. It is a
sub part of the Cost Variance. It is also called "Material
Sub-Usage Variance" (MSUV).
It is the difference between the Standard Cost of Actual
Output and the Standard Cost of Standard Output for
Actual Input.

⇒ Material Yield/Sub-Usage Variance = Standard


Cost of Actual Output − Standard Cost of Standard
Output for Actual Input
Material Mix Variance

Material Mix Variance is that part of the variance in the


total cost of materials on account of a variation between
the standard mix and the actual mix.It is a part of the
Material Usage/Quantity Variance or a Sub-Part of the
Material Cost Variance.
It is the difference between the Standard Cost of Standard
Quantity for Actual Input and the Standard Cost of Actual
Quantity of materials.

⇒ Material Mix Variance = Standard Cost of


Standard Quantity for Actual Mix − Standard Cost
of Actual Quantity

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