Page 176 - DCOM302_MANAGEMENT_ACCOUNTING

Unit 9: Variance Analysis

When the standard and actual do not differ from each other: Notes

In this case, the yield variance is calculated as follows:
Yield Variance = Standard Rate/Cost per unit (Actual Yield – Standard Yield)
Standard Rate has to be calculated from the following:
Standard cost of Standard Mix
Standard Rate =
Net Standard Output (Gross Standard Output – Standard Loss)
When the actual mix differs from the standard mix: In the second case, standard mix has to
be tuned to the requirement of actual mix, which is revised standard mix, realistic in sense for
meaningful comparison, to highlight the deviation in between two different yields viz. actual
yield and revised standard yield. The standard rate has to be calculated only for the revised
standard mix of materials.
Standard CostofRevisedStandardMix
Standard Rate =
NetStandardMix/Output(GrossStandardOutput – StandardLoss)
Calculate Material Yield Variance

Example: The total standard mix is equivalent to total actual mix

Particulars Standard Actual
Qty in Kg Price Qty in Kg Price
Material A 90 6 60 5
Material B 60 8 90 9
150 150
Normal loss is allowed 10% Actual output 130 units
Revised standard output has to be computed. In this problem, the total mixes are equivalent
to each other, but, the normal loss is a loss 10% expected on the normal output. Though, this
problem does not have the difference between the mixes, the revised standard mix should have
to be computed to register the expected loss (normal loss) on the standard output.
Revised standard mix = Standard Mix – Normal Loss (Expected Loss)
= 150 Kgs – 10% on 150 Kgs = 135 Kgs
The next step is to find out the standard rate/price

StandardCost/Priceof StandardMix
Standard price per unit =
Net Standard Mix/Output (GrossStandardOutput – StandardLoss)

( 90 kgs ¥ ` 6) +( 60 kgs ¥ ` 8) ` 540 + ` 480 1020
= = = ` 7.55/-
135 135 135
Material Yield Variance = Standard Price (Actual Yield – Revised Standard Yield)
= ` 7.55 (130 Units – 135 Units) = ` 7.55 ( – 5 Units)
= ` 37.55 (Adverse)

Solved Problems for Practice

1. Product X requires 20 kgs of material at ` 4 per kg. The actual consumption of material for
the manufacturing of product X came to 24 kgs of material at ` 4-50 per kg. Calculate:

LOVELY PROFESSIONAL UNIVERSITY 171