Question

From the following information calculate (i) material cost variance (i) material price variance 2. (ii) Material Usage variance Quantity of material purchased 3000 units Value of material purchased AED. 9000 St. quantity of raw material req. p.u. 25 units Standard rate of material unit AED 2 per Nil Opening stock of material Closing stock of material 500 units Finished production during the period 80 units

Answer 1

Material Cost variance: it is the difference between the standard cost of materials specified for production and the actual cost of material used in the production.

Material Cost Variance = Standard Cost - Actual Cost    Standard Cost = Standard quantity for actual output

= SQ*SP - AQ*AP Actual output = 80 units, Standard quantity = 25 units

=25*80*2 - 3000*3 Actual Quantity = 3000 units

=4000 - 9000 Actual price = Value of Material/total quanity

=5000 (A) = 9000/3000 = AED 3 per   

Material Price Variance: it is the difference between standard price for material and actual pricce of a materia for actual quantityod materials used for production

Material Price Variance = (Standard price - Actual price) * Actual quantity

= (2-3) * 3000

= 3000(A)

Material Usage Variance: it is the difference between the standard quantity specified for actual production and the actual quantity used at standard price.

Material Usage Variance = (Standard Quantity - Actual Quantity) * standard price

= (80*25 - 3000) * 2

= (2000-3000) *2

= 2000 (A)