Materials Variances: The standard and actual figures of product 'Z' are as under
| | Standard | Actual |
|---|---|---|
| Material quantity | 50 units | 45 units |
| Material price per unit | Rs.1.00 | Rs.0.80 |
Compute the material variances.
Answer (2)
To compute material variances, we need to look at two different types of variances in material cost accounting:
Material Price Variance (MPV): This measures the difference between the actual cost of materials and what the cost should have been, given the standard material price. It's calculated using the formula:
MPV = ( Standard Price − Actual Price ) × Actual Quantity
Given:
Standard Price = Rs. 1.00 per unit
Actual Price = Rs. 0.80 per unit
Actual Quantity = 45 units
Substituting these into the formula gives:
MPV = ( 1.00 − 0.80 ) × 45 = 0.20 × 45 = R s .9.00
This variance is favorable because the actual price is less than the standard price.
Material Quantity Variance (MQV): This measures the difference between the standard quantity allowed for actual production and the actual quantity used, valued at the standard price. It's calculated using the formula:
MQV = ( Standard Quantity − Actual Quantity ) × Standard Price
Given:
Standard Quantity = 50 units
Actual Quantity = 45 units
Standard Price = Rs. 1.00 per unit
Substituting these into the formula gives:
MQV = ( 50 − 45 ) × 1.00 = 5 × 1.00 = R s .5.00
This variance is also favorable because the actual usage was less than the standard quantity allowed.
In summary, the company has favorable variances in both price and quantity, indicating efficient purchasing and usage of materials.
The material variances for product 'Z' include a favorable material price variance of Rs. 9.00 and a favorable material quantity variance of Rs. 5.00. This suggests the company spent less on materials and used less material than planned. Both variances indicate efficient material management.
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