Page 177 - DCOM302_MANAGEMENT_ACCOUNTING

Management Accounting

Notes (i) Material Cost Variance

(ii) Material Price Variance and
(iii) Material Usage Variance.
Solution:
(i) Material Cost Variance = Standard Cost – Actual Cost
= (SQ × SP) – (AQ × AP)
= (20 × 4) – (24 × 4.50)

= 80 – 108 = ` 28 Adverse
(ii) Material Price Variance = (SP – AP) AQ
= (4 – 4.50) 24 = ` 12 Adverse
(iii) Material Usage Variance = (SQ – AQ) SP

= (20 – 24) 4 = ` 16 Adverse
Check:
Material Cost Variance = Material Price Variance + Material Usage Variance
28 = 12 + 16
2. The standard material and standard cost per kg. of material required for the production of
one unit of product A is as follows:
Material – 5 kgs.
Standard Price – ` 5 per kg.
The actual production and related material data are as follows:

400 units of Product A
Material used 2,200 kgs.
Price of Material ` 4.50 per kg.
Calculate: (i) Material Cost Variance

(ii) Material Usage Variance
(iii) Material Price Variance
Solution:
(i) Material Cost Variance = (SQ × SF) – (AQ × AP)
SQ refers to standard quantity for actual production

Standard quantity for 1 unit = 5 kgs.
Standard quantity for actual production of 400 units
= 400 × 5 = 2,000 kgs.
Material Cost Variance = (2000 × 5) – (2200 × 4.50)

= 10,000 – 9,900 = ` 100 Favourable
(ii) Material Price Variance = (SP – AP) AQ
= (5 – 4.50) 2,200 = ` 1,100 Favourable

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