Page 228 - DCOM206_COST_ACCOUNTING_II

Unit 12: Standard Costing

If actual quantity is less than standard quantity, there will be favourable variance. Notes
Otherwise, the variance will be adverse or unfavourable.
There may be a number of causes which may lead to usage or quantity variance. Some of
them are mentioned below:
(a) Changes in specifications or design of product,
(b) Use of different grades of materials,

(c) Change in labour performance,
(d) Use of non-standard material mix,
(e) Lack of proper tools and machines,
(f) Defective production requiring further materials for rectification, and

(g) Accounting errors.
The material usage or quantity variance can be further sub-divided into material mix
variance and material yield variance.

(iv) Material Mix Variance: It is that portion of the material usage variance which is due to the
difference between standard and the actual composition of a mixture. In other words, this
variance arises because the ratio of materials being changed from the standard ratio set. It
is calculated as the difference between the standard price of standard mix and the standard
price of actual mix.
This variance arises only when two types of materials are required to be consumed to
produce a commodity. This can be computed as below:

(a) When actual weight of mix and standard weight of mix are the same:
Material Mix Variance = Standard rate (Standard quantity – Actual quantity)
If the standard is revised due to shortage of a particular type of material, the material
mix variance is calculated as follows:
Material Mix Variance = Standard rate (Revised standard quantity – Actual quantity)
OR MMV = SR (RSQ – AQ)

Totalweightofactualmix
Revised Standard Quantity =  Standard quantity
Totalweightof standard mix
(b) When the actual weight of mix and standard weight of mix differ from each other:
Material Mix Variance =
 Totalweightofactualmix 
 ×Revised standard costof standard mix – 
 Totalweightof standard mix 
Standard cost ofactualmix
If actual quantity is lower than RSQ, the variance will be favourable, otherwise, it is
adverse.

(v) Material Sub-Usage Variance: If there is difference between standard quantity for actual
output (as used in usage variance) and revised standard quantity (as used in mix variance),
their variance will be known as material sub-usage variance or material revised usage
variance.

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