Page 229 - DCOM206_COST_ACCOUNTING_II

Cost Accounting – II

Notes
!
Caution It is clear that if there is no difference between standard quantity and revised
standard quantity, there will be no revised usage variance. Revised usage and sub-usage
variance will be calculated for each item of material used in the mix separately.
Material Sub-Usage or Revised Usage Variance = Standard price (Standard quantity for
actual output – Revised standard quantity)
OR MSUV = SP (SQ – RSQ)

Material Yield Variance

It is that portion of the direct material usage variance which is due to the difference between the
standard yield specified and the actual yield obtained. The variance arise is due to abnormal
contingencies like spoilage, chemical reaction etc. Yield variance is also known as scrap variance
or waste variance.
(a) When actual mix and standard mix are the same:

Material Yield Variance = Standard yield rate (Standard yield – Actual yield)
OR Material Yield Variance = Standard revised rate (Actual loss – Standard loss)
Standard cost of standard mix
Here, Standard Yield Rate =
Net standard output
Net Standard Output = Gross output – Standard loss

(b) When the actual mix and the standard mix differ from each other:
Material Yield Variance = Standard rate (Actual standard yield – Revised standard yield)
Standard cost ofrevised standard mix
Here, Standard Rate =
Net standard output
In case, actual yield is more than the standard yield, the material yield variance is favourable
and, if the actual yield is less than the standard yield, the material yield variance is adverse
or unfavourable.

Problem 1:
The standard material required manufacturing one unit of product A is 10 Kg. and the standard
price per Kg. of material is ` 2.50. The cost accounts records, however, reveal that 11,500 Kg. of
materials costing ` 27,600 were used for manufacturing 1,000 units of product A. Calculate the
material cost, material price and material usage variances.
Solution:

Standard price of material per Kg. = ` 2.50
Standard usage per unit of Product A = 10 Kg.
 Standard usage for an actual output of 1,000 units of product A = 1,000 × 10 Kg. = 10,000 Kg.

Actual usage of material = 11,500 Kg.
Actual cost of materials = ` 27,600
27,600
Actual price of material per Kg. = = ` 2.40
11,500

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