Page 175 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes process. It is the only variance highlights the difference in between the early set standard and the
redesigned standard in terms of actual quantity of materials for meaningful comparison.
Material Sub-usage Variance = Standard Cost per unit (Standard Quantity – Revised Standard
Quantity).

If the total actual quantity of materials consumption in units is equivalent to the total standard

quantity of materials, nullifies the material sub-usage variance in between the standard quantity
of materials and revised standard quantity of materials. It means that the standard quantity of
materials of the mix will be the revised standard quantity of materials. If both are equivalent to
each other, the variance is equivalent to zero in terms of standard price/cost per unit.

Example: Find out the material sub-usage variance from the following:

Materials Standard Materials Actuals
A 60 Kgs @ ` 10 A 70Kgs @ ` 10
B 40 Kgs @ ` 12 B 50Kgs @ ` 14
100 120
Solution:
Revised Standard quantity of Materials:
60kgs
A: × 120 Kgs = 72 Kgs
100kgs

40kgs
B: × 120 Kgs = 48 Kgs
100kgs
Material Sub-usage Variance = Standard Price/Cost per unit (Standard Production for
Actual Output – Revised Standard Quantity)
Material A= ` 10 (60 Kgs – 72 Kgs) = ` 120 (Adverse)
Material B = ` 12 (40 Kgs – 48 Kgs) = ` 96 (Adverse)

Material Sub-usage Variance = ` 216 (Adverse)
From the above example, it is obviously understood that the early set standard is less than the
revised standard quantity of materials due to change in the materials mix consumption, i.e
unexpectedly to replace one material with the another due to shortage any one of the materials in
the mix. The greater the revised standard quantity of materials means that greater the volatility
in the actual consumption of materials. If the variance is adverse, means that the standard which

was initially set for comparison has not incorporated the fluctuations in the actual; being less
than the revised standard which is an index of actual.
This material sub-usage variance is one of the components of the materials usage variance.
Material Usage Variance = Material Sub-usage Variance + Material Mix Variance

Material Yield Variance

It is one of the components of the material usage variance which arises only due to the deviation
in between the standard yield determined and the actual yield accrued. This variance highlights
either the abnormal loss of materials or saving of materials. This variance plays most important
role in the process industries, to assess the loss/wastage of materials. If the actual loss of materials
is different from the standard loss of materials will result the variance in two different situations.

170 LOVELY PROFESSIONAL UNIVERSITY