7

QUESTION 5.8

Rai Industries Ltd. produces an article by using two kinds of material. It operates at standard costing
and the following standards have been set for raw materials:
Material

Std. Mix

STD Price per kg

A
B

46 %
60%

Rs. 4.00
3.00

The standard loss in processing is 15%. During April 2003, the company produced net 1700 kgs of
finished product.
The position of stock and purchases for the month of April 2003 is as follows:
Material

Stock on

Stock on

Purchases during

Cost

8
1-4-2003
----------35
40

A
B

30-4-2003
------------5
50

the month
-----------800
1200

3400
3000

Calculate the following:

Material usage variance

Material price variance
Material yield variance
Material mix variance
Material cost variance

Assume that material is issued on FIFO method. The opening stock was valued on standard price.

SOLUTION TO QN 5.8
Working Notes
a. Calculation of actual quantity used
Net Actual Product is 1700 kg
It is extent to 85 %
100 % Actual quantity

Material used

1700 x 100
-----85

2000

(Op. Stock + Purchase) - Cl. Stock

(95 + 800)

830

(40 + 1200)

50

1190

2000 x 40
---100

830 kgs

2000 x 60
---100

1200 kgs

Standard Quantity

Calculation of Actual Cost of Material used

Material A:
(+)

Op. Stock

35 x 4

(Std. Rate)

Purchase

795 x 4.25
------830
------

(Actual cost) =

140.00
3378.75
---------3518.75
---------

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Mat A: Actual Cost per unit =

Material B
(+)

Mat B

1. MUV
A

3400
------ =
800 kgs

4.25

Op stock

40 kgs. @ Rs.3 (Std. Rate)

Purchase

1150 Rs. 2.50 (Actual Rate) =

-----1190
------

Actual Rate per unit =

3000
-----1200 kgs

(SQ x SR)

(AC x AR)

(830 x 4)

{(35 x 4) + (795 x 4.25)}

3320

3518.75 = 198.75 A

(1190 x 3)

{(40 x 3) + (1150 x 2.50)}

3570

2995

MPV =
A
=
B
=

SR (SQ - AQ)
4 (800 - 830)
3 (1200 1190)

=
=

Total
3. Material Yield Variance
Avg. Std. Price

198.75 A

575. F
--------376.25 (F)
-------------

120 (A)
30 F
--------90 (A)
---------

(Stand. loss Actual loss) Avg. Std. Price

=

800 kgs @ 4 =

3200

1200 kgs @ 3 =

3600
-------6800
--------

Total Cost
Avg. Std. Price

Std Loss
Std. output

=
Input
(-) 15% loss

2875.00
----------6513.75
----------

Total MUV
2.

120.00

2.50

6800
------- = 4
2000
=
=

2000
300
-----1700
------

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Actual yield

For 2000 Std. input

2020

1700

=?

1700
------ x 2020 = 1717
2000
Actual input
=
(-) Actual production =
Actual loss

Material Yield Variance

2000
1717
-----283
-----=
(300-283) 4

68(A)