Material Variances - Single Material - Only Opening Stock

S2 ↞ P4

Problem 5

From the following you are required to calculate all possible material variances:

Quantity of material purchased : 8,000 lbs

Value of material purchased : 56,000.

Standard of quantity of material required for one unit of finished product : 34 lbs.

Standard rate of material : 6.50 per lb.

Opening stock of material : 1,010 lbs

Finished production during the period : 250 units

Ans:
1
MYV/MSUV
MMV 		− 3,315
0
MQV/MUV
MPV 		− 3,315
− 4,505
MCV − 7,820

Working Notes

The following data could be picked up from the problem

Standard Actual
SQ SP AQ AP
Material 35 6.5 9,0107
Output 1 250

units : _Q in lbs, _P in value/lb and _O in units

The underlined figures are obtained through the below calculations

  • Current period purchase price of Materials

    =
    Total Cost of Materials Purchased
    Quantity of Material Purchased
    =
    56,000
    8,000 lbs
    = 7/lb

  • Value and price of material consumed

    Quantity
    (lbs)     		Price
    /lb     		Value
    Opening Stock
    (+) Current Period Purchases     		1,010
    8,000     		7
    7     		7,070
    56,000
    Total Stock
    (−) Closing Stock     		9,010
    0     		7
    –     		63,070
    0
    Value of Material Consumed 9,010 7 63,070

    Assumptions :

    • Opening stock is valued at current period purchase/acquisition price, in the absence of any other information relating to it.

    Other aspects :

    • Values of opening stock and purchases are obtained as quantity × price
    • Quantity and Value of material consumed is the balancing figure obtained as opening stock + purchases − closing stock.

    • Price of material consumed

      =
      Value of Material Consumed
      Quantity of Material Consumed
      =
      63,070
      9,010 lbs
      = 7/lb
    • But for ascertaining the quantity and price of material consumed, there would be no difference in calculating variances.

Working Table

Working table incorporating the data in the problem and the calculated values including recalculated standards
Working Table with recalculated standards
Standard Actual
for SO for AO for AI
SQ SP SQ(AO) SC(AO) SQ(AI) SC(AI) AQ AP AC SC(AQ)
Factor 250 265
Material 1 34 6.5 8,500 55,250 9,010 58,565 9,010 7 63,070 58,565
Total 34 8,500 55,250 9,010 58,565 9,010 63,070 58,565
Output 1
SO 		250
SO(AO) 		265
SO(AI) 		250
AO

Output (_O) is in units, Quantities (_Q) and Losses (_L) are in lbs, Prices (_P) are in monetary value per lb and Costs (_C) are in monetary values.

Standard Output

SO = 1 unit (given)

Actual Output

AO = 250 unit (given)
(AO) =
AO
SO
=
250
1
= 250
(AI) =
AI
SI
=
AQMix
SQMix
=
9,010
34
= 265
1. SQ(AO) = SQ ×
AO
SO
= SQ × 250

2. SC(AO) = SQ(AO) × SP

3. SO(AO) = AO

4. SQ(AI) = SQ ×
AI
SI
= SQ × 265

5. SC(AI) = SQ(AI) × SP

6. SO(AI) = SO ×
AI
SI

7. SC(AQ) = AQ × SP

Solution

Material Cost Variance

MCV = SC(AO) − AC

= 55,250 − 63,070 = − 7,820 [Adv]

Material Price Variance

MPV = SC(AQ) − AC

= 58,565 − 63,070 = − 4,505 [Adv]

Material Quantity/Usage Variance

MQV/MUV = SC(AO) − SC(AQ)

= 55,250 − 58,565 = − 3,315 [Adv]

Material Mix Variance

MMV = SC(AI) − SC(AQ)

= 58,565 − 58,565 = 0

Material Yield/Sub-Usage Variance

MYV/MSUV = SC(AO) − SC(AI)

= 55,250 − 58,565 = − 3,315 [Adv]

Solution (alternative presentation)

Material 1
MYV/MSUV

SC(AO)
55,250
−
−
SC(AI)
58,565
+ MMV

SC(AI)
58,565
−
−
SC(AQ)
58,565


− 3,315


0
MQV/MUV

SC(AO)
55,250
−
−
SC(AQ)
58,565
+ MPV

SC(AQ)
58,565
−
−
AC
63,070


− 3,315


− 4,505
MCV

SC(AO)
55,250
−
−
AC
63,070


− 7,820

Verification

If adopting the first and second presentation methods, it would help building the following table to enable us to verify whether our workings are correct or not.

Verification

Formula Material 1
MYV/MSUV
+ MMV 		SC(AO) − SC(AI)
SC(AI) − SC(AQ) 		− 3,315
0
MQV/MUV
+ MPV 		SC(AO) − SC(AQ)
SC(AQ) − AC 		− 3,315
− 4,505
MCV SC(AO) − AC − 7,820

Simplest

One may use this as the simplest presentation of calculations, since all the amounts used in the formula are present in the working table.

If it is for verification purposes, we may avoid the formula column.

Please adopt a presentation based on the examination you are attending, the proportion of marks allotted and time available to/for the problem.

Author : The Edifier
S2 ↠ P6