Page 234 - DMGT403_ACCOUNTING_FOR_MANAGERS

Unit 11: Variance Analysis

11.2.4 Material Sub-usage Variance Notes

This is the variance in between standard quantity and revised standard quantity of materials
denominated in terms of standard price. The purpose of studying the difference in between
these two is to analyse the amount of deviation of the standard against the revised standard in
line with the actual fluctuation in the quantity of materials consumption during the production
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

LOVELY PROFESSIONAL UNIVERSITY 229