![]() ![]() ![]() This is quite beneficial from the viewpoint of performance measurement and corrective action. It is advisable that materials price variance should be calculated at the time of materials purchase rather than when materials are used. It is that portion of the direct materials which is due to the difference between actual price paid and standard price specified Can be computed using the formula: Material Price Variance = (Standard Price – Actual Price) x Actual Quantity This variance is unfavourable when the actual price paid exceeds the predetermined standard price. Material Price Variance A Materials Price Variance occurs when raw materials are purchased at a price different from standard price.Calculate Material Cost Variance Solution: SQ for actual output = 400 units x 5 kg = 2000 kg Material Cost Variance = Standard Cost for Actual Output – Actual Cost = (SP x SQ for actual output) – (AP x AQ) = (5 x 2000) – (4.80 x 2200) = 10,000 – 10,560 Rs. The actual production and related data are: 400 units of Product A, Material used 2200 kgs Rs. Example 2 The standard material and standard cost per kg of material required for the production of one unit of Product A is: Material 5kg Rs.Solution: Material Cost Variance = Standard Cost for Actual Output – Actual Cost = (SP x SQ) – (AP x AQ) = (4 x 10) – (4.50 x 12) = 40 – 54 = Rs. The actual consumption of material for the manufacturing of Product A came to 12 kgs of Material at the rate of Rs. Example 1 Product A requires 10 kgs of material at the rate of Rs.Can be computed using the formula: Material Cost Variance = (SQ x SP) – (AQ x AP) where, AQ = Actual Quantity AP = Actual Price SQ = Standard Quantity for the actual output SP = Standard Price This variance results from differences between quantities consumed and quantities of materials allowed for production and from differences between prices paid and prices predetermined. Material Cost Variance Material Cost Variance is the difference between the actual cost of direct materials used and standard cost of direct materials specified for the output achieved.Classification Variances are broadly classified into the following:.
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