UNIT 10: MATERIAL VARIANCES

Structure
10.0 Objectives
10.1 Introduction
10.2 Meaning and Purpose
10.3 Classification of Variances
10.4 Direct Material Cost Variance
10.4.1 Direct Material Price Variance
10.4.2 Direct Material Usage Variance
a) Material Mix Variance
b) Material Yield Variance
10.5 Let Us Sum Up
10.6 Key Words
10.7 Answers to Check Your Progress
10.8 Terminal Questions

10.0 OBJECTIVES
After studying this unit, you will be able to:
●● understand and analyse the cause of variance between planned and
actual results;
●● explain how standards for direct material are set;
●● assess the efficiency of the usage of material in a manufacturing
concern; and
●● analyse different sub - variances of material.

10.1 INTRODUCTION
You have learnt in the previous unit the basic concepts of standard costing.
You also know that the purpose of standard costing is to determine standard
costs and their comparison with the actual costs to find out the causes of
difference so that remedial action may be taken by the management in time.
The difference between the predetermined costs and actual costs is known
as ‘Variance’. The variance may be sub-divided and analysed further for
effective cost control and decision-making. In this unit you will learn about
Direct Material Rate Variances and their sub-variances in detail.

10.2 MEANING AND PURPOSE

After the standard costs have been set, the next step is to ascertain the actual
cost of each element and compare them with the standard already set. The
difference of actual from the standard is variance, while setting standard
specific method of production is to be kept in mind. If a different method
of production is adopted, it gives rise to a different amount of cost, thereby
causing variance, known as method variance. In standard costing, Variance
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means the difference between a standard cost and the comparable actual Material Variances
cost incurred during a period. Variance analysis is the process of analysing
variances by sub-dividing the total variance in such a way that management
can assign responsibility for any off-standard performance. Thus, variance
analysis means the measurement of the deviation of actual performance
from the desired performance.
Variance may be favourable or unfavourable depending upon whether the
actual cost is less or more than the standard cost. If the actual cost is less
than the standard cost, the variance is termed as ‘favourable’ and if the actual
cost is more than the standard cost, variance is called as ‘unfavourable’ or
‘adverse’ variance. The effect of favourable variance increases the profit and
it is a sign of efficiency of the organisation. On the other hand, unfavourable
variance refers to the loss of the business and it is a sign of inefficiency of
the organisation.
Finding variance is not the ultimate objective of the standard costing.
But their analysis and finding the causes of variance is the ultimate aim
to control cost. Control of cost depends on the corrective action taken by
the management. The analysis of variance helps the management to locate
deficiency and assign responsibility to particular person or cost centre. The
next step of the management is to find out the reason for the variance to pin
points where necessary corrective action should be taken over.

10.3 CLASSIFICATION OF VARIANCES

The variance may be broadly classified as Controllable variances and
Uncontrollable variances. Variance is said to be controllable if it is
identified as the primary responsibility of a particular person or department.
The excessive use of materials or labour hours than the standards can be
attributable to a particular person. When the variations are due to the factors
beyond the control of the concerned person or department, it is said to be
uncontrolled. The rise in prices of materials, increase in wage rates, Govt.
restrictions etc., are the examples of uncontrollable variance. These factors
are not within the control of the management and the responsibility of the
variance cannot be assigned to any particular person or division. The division
of variance into controllable and uncontrollable is important from the view
point of management as it can place more emphasis on controllable variance
and thus facilitates to the principle of management by exception. Standard
costing to be more realistic, sometimes the standards set are to be revised on
account of changes in uncontrollable factors like wages, materials, etc. To
take into account these factors into variance, a ‘revised variance’ is created
and the basic standard is allowed to continue. This revision variance is the
difference between the standard cost originally set and the revised standard
cost.
Variances may be classified into two categories viz., cost variances and sales
variances. The cost variance may again be sub-divided into variances for
each element of cost and the sales variances may also be sub-divided into
sales price variance and sale volume variance as shown in the following
chart
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Standard Costing and
Variances
Variance Analysis

Cost Variance Sales Variance

Direct Material Direct Labour Overhead Sales Price Sales Volume

Cost Variance Cost Variance Cost Variance Variance Variance

Variable Fixed
Price Usage Price Efficiency Efficiency
Overhead Overhead
Variance Variance Variance Variance Variance
Variance Variance

Mix Yield Mix Yield Idle

Variance Variance Variance Variance Variance

Sub-division of variance of each element of cost gives valuable information

to the management to control the cost.
Another classification of Variance analysis is i) Price Variance, and ii)
Volume Variance Price Variance relates to the prices of materials, rates of
labour, expenditure on overheads or selling prices of products. The price
variance may be classified as:
a) Material Price Variance
b) Labour Rate Variance
c) Variable Overhead Expenditure Variance
d) Fixed Overhead Expenditure Variance
e) Sales Price Variance
Volume Variance relates to the quantity of units in terms of raw material
consumed, number of hours worked, number of products sold. The volume
variance may be divided as follows:
a) Material Usage Variance
b) Labour Efficiency Variance
c) Fixed Overhead Volume Variance
d) Sales Volume Variance
The total of Price Variance and Volume Variance is known as the Cost
Variance.
In this unit you will study Direct Material Cost Variance and Direct Labour
Cost Variance only. The remaining cost variances you will study in Unit 13.

10.4 DIRECT MATERIAL COST VARIANCE

Materials constitute most important element of cost. Therefore, utmost care
should taken in purchasing and using the materials.
Direct Material Cost Variance is the difference between the standard cost
of materials specified for the output achieved, and the actual cost of direct
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materials consumed. Standard cost of materials is computed by multiplying Material Variances
the standard price with the standard quantity for actual output. The actual
cost is computed by multiplying actual price with the actual quantity used.
The Direct Material Cost Variance may be calculated with help of the
following formula:
Direct Material Cost Variance = Standard Cost for actual output – Actual
Cost (DMCV)
Where,
Standard Cost = Standard Price per unit × Standard Quantity for actual
output
Actual Cost = Actual Price × Actual Quantity used.
Direct material cost variance arises due to change in price of materials
or change in the quantity of material used or both. If the standard cost is
more than the actual cost, the variance will be favourable and on the other
hand, if the actual cost is more than the standard cost the variance will be
unfavourable or adverse. Let us take an example:
Illustration 1
Calculate Direct Material Cost Variance with the help of the following
information:
Standard Output : 1600 Units
Actual Output : 2000 Units
Standard Quantity required per unit : 2 Kg.
Total Quantity actually consumed : 2400 Kg.
Standard rate per unit : Rs. 8 per Kg.
Actual rate per unit : Rs. 10 per Kg.
Solution
Direct Material Cost Variance = Standard Cost – Actual Cost
or
 Standard price   Actual price 
 × standard   × actual 
 quantity for  –  quantity 
   
 actual output   used 
= Rs. 8 × 2 kg × 2000 kg – Rs.10 × 2400 kg
= Rs. 32000 – Rs. 24000
= Rs. 8000 (Favourable)
Direct material cost variance may arise due to the following two variances:
1) Direct Material Price Variance
2) Direct Material Usage (Quantity) Variance.
10.4.1 Direct Material Price Variance
Direct Material Price Variance is the difference between actual price and
standard price of materials consumed. Material price variance may arise
due to the following reasons:
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Standard Costing and i) Changes in the prices of materials,
Variance Analysis
ii) Uneconomical size of purchase orders,
iii) Failure to purchase materials at proper time,
iv) Fluctuations in the cost of transportation and carriage of goods,
v) Buying efficiency or inefficiency,
vi) Not availing cash discounts when setting standards,
vii) Purchase of substitute material for non-availability of specified
material,
viii) Changes in the duty structure which is forming part of price,
ix) Inefficiency of purchase department, etc.
Some of the above factors are controllable if proper care is exercised by
the management. Generally, the Purchase Manager will be held responsible
for material price variance. Material price variance will be calculated as
follows:
Direct Material Price Variance = Actual Quantity (Standard Price –
Actual Price)
= AQ (SP – AP)
If the standard price is more than the actual price, the variance would be
favourable and in case the actual price is more than the standard price, it
shows an adverse variance. Adverse material price variance shows that
unfavourable prices were paid for materials consumed and the Purchase
Manager would be asked to explain the position.
Illustration 2
Calculate the material price variance with the figures given in illustration 1.
Solution
Direct Material Price Variance = Actual Quantity (Standard Price –
Actual Price)
= 2400 (Rs. 8 – Rs. 10)
= 2400 × Rs.2
= Rs. 4800 (Adverse)
As the actual price is more than the standard price, it shows unfavourable
variance.
10.4.2 Material Usage (Quantity) Variance
Material Usage Variance is that portion of material cost which arises due to
the difference between the standard quantity specified and the actual quantity
used. In other words, it the difference between standard quantity for actual
output and actual quantity, multiplied by standard price of material. The
formula for Material Usage Variance is as follows:
Material Usage Variance = Standard Price × (Standard Quantity
for actual output – Actual Quantity)
MUV = SP (SQ-AQ)

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This Variance will be considered favourable when standard quantity is more Material Variances
than actual quantity and vice versa. The Production Manager will be held
responsible for material usage variance. Material usage variance will arise
due to the following reasons:
i) Use of sub-standard or defective materials,
ii) Carelessness in the use of materials,
iii) Use of substitute materials,
iv) Inefficient production methods,
v) Change in designs than those specified,
vi) Pilferage of material,
vii) Use of non standard mix,
viii) Use of defective plant,
ix) Incorrect processing of materials resulting in wastages,
x) Improper inspection and supervision of work men,
xi) Incorrect setting of standards etc.
Direct Material Cost Variance is equal to the sum of Direct Material Price
Variance and Material Usage Variance. Thus,
Direct Material Cost Variance = Material Price Variance + Material Usage
Variance.
Illustration 3
Gemini Chemical Industries provides the following information from their
records:
For making 10 kgs. of GEMCO, the standard material requirement is
Material Quantity Rate per kg.
A 8 units Rs. 6.00
B 4 units Rs. 4.00
During April, 2004, 1000 kgs of GEMCO were produced. The actual
consumption of material is as under:
Material Quantity Rate per kg.
A 750 units Rs. 7.00
B 500 units Rs. 5.00
Calculate:
a) Material Cost Variance
b) Material Price Variance
c) Material Usage Variance
Solution
a) Material Cost Variance = Standard Cost – Actual Cost
Material x : Rs.4800 – Rs.5250 = Rs.450 (A)
Material y : Rs 1600 – Rs. 2500 = Rs. 900 (A)

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Standard Costing and Material x and y = Rs. 450 (A) + Rs. 900 (A)
Variance Analysis
= Rs. 1350 (A)
b) Material Price Variance
= (Standard Price – Actual Price) × Actual Quantity
Material x = (Rs. 6 – Rs. 7) 750
= Rs. (–1) 750 = Rs.750 (A)
Material y = (Rs. 4 – Rs. 5) × 500 = Rs. 500 (A)
x + y Material = Rs.750 (A) + Rs.500 (A) = Rs. 1250 (A)
c) Material Usage Variance = ( Standard Quantity – Actual Quantity) ×
Standard Price for actual output
= Material x + Material y
= (800 kg. – 750 kg) Rs. 6 + (400 kg – 500 kg) Rs4
= Rs.300 (F) + Rs.400 (A)
= Rs. 100 (A)
Verification:
Material Cost Variance = Material Price Variance + Material Usage
Variance
Rs. 1350 (A) = Rs. 1250 (A) + Rs. 100 (A)
Working
Material Standard Cost Actual Cost
Quantity Rate Amount Quantity Rate Amount
(kg) (Rs.) (Rs.) (kg) (Rs.) (Rs.)
A 800 (1000 kg 8/10) 6 4800 750 7 5250
B 400(1000 kg 8/10) 4 1600 500 5 2500
6400 7750

Classification of Material Usage Variance: When more than one type of

material is used in producing a product, the total usage variance will be
classified into (a) Material mix Variance and (b) Material Yield Variance.
Let us study these two variances in detail.
a) Material Mix Variance: Material Mix Variance may be defined as that
portion of the material usage variance which arise due to the difference
between the standard and actual composition of material mixture. It means
that the cause of variance is due to a change in the ratio of actual material mix
from the standard material mix. The variance results from a variation in the
materials mix used in production. Material mix variance may arise in those
industries where a number of raw materials are mixed in order to produce a
final product. Examples are chemical industries, rubber industries, etc.
Material Mix Variance is calculated as follows:
Material Mix Variance = (Revised Standard Quantity – Actual
Quantity) × Standard Price
or

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where, Material Variances
Standard Quantity for each material
Revised Standard Quantity = × Total Actual Quantity
Total Standard Quantity for all material
for all material
Or
RSQ = Total Actual Quantity × Standard Ratio
If the actual quantity is more than revised standard quantity, an adverse
variance will occur and vice versa.
Material mix variance may arise due to the following reasons:
i) Price actually paid for materials differs from standard prices
ii) Delay in supply of raw materials
iii) Non-availability of one or more components of the mix.
iv) Non-purchase of materials at proper time.
v) Inefficiency in production department to use proper mix.
vi) Actual mix may be different from standard mix, etc.
Illustration 4
A product made from raw materials X and Y has the following Standard
Mix:
Material Quantity (Kg.) Price (Rs.) Amount (Rs.)
A 2 2.00 4.00
B 8 1.00 8.00
10 12.00
The actual mix is as follows:
Material Quantity (Kg.) Price (Rs.) Amount (Rs.)
A 8 2.00 16.00
B 4 1.25 5.00
12 21.00
Compute Material Mix Variance.
Solution:
Material Mix Variance = (Revised Standard Quantity – Actual
Quantity) × Standard Price
here,
Total Actual Quantity
Revised Standard Mix =  × Standard Quantity of each material
Total Standard Quantity
12
Material A = × 2 = 2.4 kg
10
Total Actual Quantity
Material B = × Standard Quantity of B
Total Standard Quantity
12
= × 8 = 9.6 kg
10

Alternate method for calculating RSQ:

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Standard Costing and Material A and B Standard Ratio = 2: 8 or 1: 4
Variance Analysis
A: Total Actual Quantity = 12kg × 1/5 = 2.4 kg
B: Total Actual Quantity = 12 kg × 4/5 = 9.6 kg
Computation of Material Mix Variance
A: (Revised Standard Mix – Actual Mix) × Standard Price of A
= (2.4 kg. – 8 kg.) × Rs. 2
= 5.6 kg. × Rs.2 = Rs.11.2 (A)
B: (Revised Standard Mix—Actual Mix) × Standard Price of B
= (9.60 kg. – 4 kg.) × Rs. 1.00
= 5.60 kg. × Rs. 1.00 = Rs. 5.60 (F)
= Total Material Mix Variance = Rs. 11.2 (A) + Rs. 5.60 (F) = Rs.
5.60 (A)
Illustration 5
The following figures relates to the quantity of material required for the
production product:
Standard Actual
Quantity Price Amount Quantity Price Amount
(kgs) (Rs.) (Rs.) (kgs) (Rs.) (Rs.)
A 60 10 600 80 12 960
B 90 20 1800 60 25 1500
150 2400 140 2460
Compute
a) Material Cost Variance
b) Material Price Variance
c) Material Usage Variance
d) Material Mix Variance
Solution
a) Material Cost Variance = Standard Cost – Actual Cost
= Rs.2400 – Rs.2460 = Rs. 60 (A)
b) Material Price Variance = (Standard Price – Actual Price) × Actual
Quantity
A: (Rs.10-Rs.12) 80 = Rs.160 (A)
B: (Rs.20-Rs.25) 60 = Rs.300 (A)
Rs. 460(A)
c) Material Usage Variance = Standard Price (Std. Quantity – Actual
Quantity)
Material A: (60–80) Rs.10 = Rs.200 (A)
Material B: (90–60) Rs.20 = Rs.600 (F)
 
Rs. 400 (F)

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d) Material Mix Variance= (Revised Standard Quantity – Actual Material Variances
Quantity) × Standard Price
Material A: (56–80) × Rs.10 = Rs. 240 (A)
Material B: (84–60) × Rs.20 = Rs. 480 (F)
Rs. 240 (F)
Revised Standard Quantity of :
Total Actual Quantity
Material A = × Standard Quantity of A
Total Standard Quantity
140
= ×60 = 56 kg
150
Total Actual Quantity
Material B = × Standard Quantity of B
Total Standard Quantity
140
= × 90 = 84 kg
150

b) Material Yield Variance (MYV): Material Yield Variance is calculated

on the basis of output while the other variance are calculated on the
basis of input. The variance is calculated as the difference between
the standard output and the actual output. If the actual output is more
than the standard output, then the variance would be favourable and
vice versa. The formula for material yield variance is as follows:
Material Yield Variance (Actual Yield – Standard Yield) Standard
output price
Where,
Standard output price is the total standard material cost per unit of
output,
Actual usage of Material
Standard Yield =
Standard Usage per unit of output
This variance arises in the case of process industries where loss of material
is inevitable in the process of production of final product. Therefore, in these
industries normal loss is to be taken into account while setting standards.
But the actual loss may be different from the normal loss during the process
of actual production. This gives rise to the variance in the standard yield.
The material yield variance may be caused due to the following reasons:
i) Defective method of operation
ii) Purchase of substandard quantity of material
iii) Lack of proper care in handling material
iv) Lack of proper supervision, etc.
It should be noted that where several types of materials are used Material
Revised Usage Variance (MRUV) and Material Yield Variance (MYV)
imply the same thing, though both are computed using different formulae.
Numerical results would give the same figure.

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Standard Costing and Illustration 6
Variance Analysis
XY Company Ltd. a manufacturer of product P, uses standard cost system
gives you following details for 1000 kgs of product P.
Ingredients Quantity Kg Price per Kg (Rs.) Cost (Rs.)
A 800 2.50 2000
B 200 4.00 800
C 200 1.00 200
Input 1200
Output 1000
Actual Records Indicate :
Consumption in January
A 1,57,000 kgs. @Rs. 2.40
B 38,000 kgs. @ Rs. 4.20
C 36,000 kgs @ Rs. 1.10
Actual finished production for the month of January is 2,00,000 kgs.
Calculate:
1) Material Cost Variance
2) Material Price Variance
3) Material Mix Variance
4) Material Yield Variance
5) Material Usage Variance
Solution
1) Material Cost Variance = (Standard Quantity - Actual Quantity)
A = (1,60,000 kgs × Rs. 2.50) – (157000 kgs × Rs. 2.40)
= Rs. 400,000 – Rs. 3,76,800 = Rs. 23200 (F)
B = (40,000 kgs × Rs. 4) – (38000 kgs × Rs. 4.20)
= Rs. 160,000 – Rs. 159,600 = Rs. 400 (F)
C = (40,000 kg × Re. 1) – (36000 kgs × Rs. 1.10)
= Rs.40,000 – Rs.39,600 = Rs.400 (F)
M.C.V = Rs. 24000 (F)
2) Material Price Variance = (Standard Price - Actual Price) × Actual
Quantity
Material A = (Rs. 2.50 – Rs. 2.40) × 1,57,000 = Rs. 15,700 (F)
Material B = (Rs. 4.00 – Rs. 4.20) × 38,000 = Rs. 7,600 (A)
Material C = (Rs. 1.00 – Rs. 1.10) × 36,000 = Rs. 3,600 (A)
Total Material Price Variance Rs. 4,500 (F)
3) Material Mix Variance: (Revised Standard Mix – Actual Mix) ×
Standard Price
Where,
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 Material Variances
Standard Material
Revised Standard Mix = × Total Actual Material
Total Standard Materials
or
Total Actual Material × Standard Ratio
800 4
A= × 231000 = 1,54,000 kg. or 231000 kg × =1,54,000 kg
1200 6
200 1
B= × 231000 = 38,500 kg. or 231000 kg × = 38,500 kg
1200 6
200 1
C= ×231000=38,500 kg.or 231000 kg × =38,500 kg
1200 6

Material Mix Variance

Material A = (1,54,000 – 1,57,000) × Rs.2.50 = Rs.7,500 (A)
Material B = (38,500 – 38,000) × Rs.4.00 = Rs.2,000 (F)
Material C = (38,500 – 36,000) × Re. 1.00 = Rs.25,00 (F)
Rs.3,000 (A)

4) Material Yield Variance = (Standard Yield – Actual Yield) Std. output

Price
where,
Actual Usage of Material
Standard Yield =
Standard Usage per unit of Output

231000 kgs
=
1.2kg (i.e 1200 kg ÷1000 kg)

= 1,92,500 kg.

Std. material cost per unit of output = Rs. 3000 ÷1000 output
Material Yield Variance = (Actual Yield – Standard Yield) ×
Standard output price
= (200,000- 192,500) × Rs. 3
= Rs.22,500(F)
5) Material Usage Variance = 
(Standard Quantity for actual output –
Actual Quantity) × Standard Price
Material A = (1,60,000kg – 1,57,000kg) × 2.50 = Rs. 7500 (F)
Material B = (4,00,00 kg – 38,000 kg) × 4.00 = Rs. 8000 (F)
Material C = (4,00,00 kg – 36,000 kg) ×1.00 = Rs. 4000 (F)
Rs.19500 (F)

The following formulae may be used for verification of material variance:

1) Material Cost Variance (MCV) = Material Price Variance + Material Usage Variance
(MPV + MUV)
Rs. 24000 (F) = Rs. 4500 (F) + Rs.19500 (F)
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Standard Costing and 2) Material Usage Variance (MUV) = Material Mix Variance + Material Yield Variance
Variance Analysis (MMV + MYV)
Rs. 19500 (F) = Rs.3000 (A) + Rs.22500 (F)
3) Material Cost Variance = M
 aterial Price Variance (MCV) + Material Mix Variance
+ Material Yield Variance (MPV + MMV + MYV)
Rs.24000 (F) = Rs.4500 (F) + Rs.3000(A) + Rs.22500 (F)
Check Your Progress A
1) What do you understand about variance analysis?
………………………………………………………………………
………………………………………………………………………
………………………………………………………………………
2) State any four reasons for material price variance.
1) …………………………………………………………………
2) …………………………………………………………………
3) …………………………………………………………………
4) …………………………………………………………………
3) The production of a certain unit is assumed to require 800 kgs of
material costing Rs. 15. On completion of production of the unit, it
was found 750 kg of material costing Rs. 17.0 per kg was consumed.
Calculate the variances.
4) A Product requires 100 kg. of material at the rate of Rs. 5 per kg. The
actual consumption of material used for producing a product came to
120 kgs @Rs. 4.75 per kg. Calculate Direct Material Cost Variance.
5) From the following information calculate Material Mix Variance
Standard Standard Actual Actual
Materials
quantity price quantity Price
X 20 units Rs. 10 25 units Rs. 12
Y 30 units Rs. 5 25 units Rs. 8
6) State weather the following statements are ‘True’ or ‘False’
i) The Variance caused due to a different method of production
than those specified, is called method variance.
ii) Revision variance is the difference between the original standard
cost and the revised standard cost.
iii) 
Revision variance is created when there are changes in
controllable factors.
iv) Direct cor-variance is due to the change in the price or quantity or
material or both.
v) Favouarable variance is a sign of inefficiency of the organisation.

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 Material Variances
10.5 LET US SUM UP
Variance is the difference between the standard cost and the actual cost
during a period. Variance analysis means the measurement of the deviations
of actual performance from the desired performance and finding the causes
of such deviations so that corrective action may be taken by the management
in time. Thus, variance analysis helps the management to locate deficiency
and assign responsibility to a particular cost centre.
The variance may be broadly divided into controllable and uncontrollable
variances. The division of variance into controllable and uncontrollable is
important from management point of view as it facilitates to the principle
of management by exception. Variances may also be classified into Cost
Variances and Sales Variances. The Cost Variance may be sub-divided into
Direct Material Cost Variance, Direct Labour Cost variance and Overhead
Cost Variance. The Direct Cost Material Variance is again sub-divided
as Material Price Variance and Material Usage Variances. The Material
Usage Variance may be further sub-divided into Material Mix Variance and
Material Yield Variances.

10.6 KEY WORDS

Variance : It is the difference between predetermined cost and actual cost.
Direct Material Cost Variance : It is the difference between the standard
cost of direct material specified and actual cost of material used.
Direct Material Price Variance : It is the difference between actual price
and standard price of material consumed.
Material Usage Variance : It is the difference between the standard quantity
specified and the actual quantity used.
Material Mix Variance : It is the difference between the standard and
actual composition of material mixture.
Material Yield Variance : It is the difference between the standard output
and the actual output.

10.7 ANSWERS TO CHECK YOUR PROGRESS

A 3. MCV = Rs. 1125 (A), MPV = Rs. 1875 (A), MUV = Rs. 750 (F)
4. MCV = Rs. 30 (F), 5. Material x : Rs. 50 (A), Material y : Rs.25
(F), M.M.V = Rs. 25

10.8 TERMINAL QUESTIONS

1) Define Variance. What is variance analysis?
2) What are the methods of classification of variances?
3) Write a detailed note on the uses of variance analysis?
4) “Calculation of Variances in standard costing is not an end itself, but
a means to an end” Discuss.
5) What is meant by Revision of Standards? What could be the possible
reasons for Revision of Standards.
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Standard Costing and 6) Discuss material variance and labour variances in detail.
Variance Analysis
7) Write notes on the following:
i) Material Price Variance
ii) Material Mix Variance
iii) Material Usage Variance
8) The following standards have been set to manufacture a product
Rs.
Direct materials –
2 units of A at Rs.4.00 per unit  8.00
3 units of B at Rs.3.00 per unit  9.00
15 units of C at Rs.1.00 per unit  15.00
32.00
Direct Labour: 3 hours @ Rs.8 per hour  24.00
Total Standard Prime Cost  56.00
The company manufactured and sold 6,000 units of the product during the
year.
Direct material costs were as follows:
12,500 units of A at Rs.4.40 per unit
18,000 units of B at Rs.2.80 per unit
88,500 units of C at Rs.1.20 per unit
The Company worked for 17,500 direct labour hours during the year.
For 2500 of these hours, the company paid Rs.12 per hour while for the
remaining, the wages were paid at the standard rate. Calculate Material
Price and Usage Variances and Labour Rate and Efficiency Variances.
9) The Standard Cost of Chemical mixture ~ PQ’ is as follows:
40% of material P@ Rs.400 per kg.
60% of material Q @ Rs.600 per kg.
A standard loss of 10% is normally anticipated in production. The
following particulars are available for the month of March, 2005.
180 kgs of material P have been used @ Rs.680 per kg
220 kgs of material Q have been used @ Rs.360 per kg.
The actual of production of ‘PQ’ was 369 kgs.
Calculate the following variances:
a) Material Price Variance
b) Material Usage Variance
c) Material Mix Variance
d) Material Yield Variance
10) From the following data, calculate all material variances:
Standard mix for 5 units of a product is as follows:
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 Material X : 00 Units @ Rs.15 per Unit : Rs. 4500 Material Variances

Y : 400 Units @ Rs.20 per unit : Rs. 8000

Z : 500 Units @ Rs.25 per unit : Rs.12500
1200 units Rs.25,000
During the month March, 2005 10 units were actually produced and the
actual material used was as follows:
Material X : 640 Units @ Rs.17.50 per Unit : Rs.11200
Y : 950 Units @ Rs.18 per unit : Rs.17100
Z : 870 Units @ Rs.27.50 per unit : Rs. 23925
4920 Rs. 52,225
(Ans: MCV = Rs.2225(A), MPV = Rs.1875(A), MUV = Rs.350(A),
MMV = Rs.900(F), MYV = Rs. 1250 (A), MRUV = Rs.1250)

Note : These questions will help you to understand the unit better. Try to
write answers for them. But do not submit your answers to the University,
These are for your practice

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