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  Material Variances

Introduction to Material Variances

In the material variances, the major objective is to find out the variation among the standard cost of material employed for actual production and actual cost of material employed. So the main variance in this category is the cost variance that is thereafter broken down into other variances. These variances are described as follow:

I] Material Cost Variance:

As explained above, this variance depicts the variation among the standard cost of material consumed for actual production and the actual cost. The following formula is used for computation of this variance.

Ø   Material Cost Variance:

Standard Cost of Material Consumed for Actual Production - Actual Cost

The variance is 'favourable 'If the actual cost of material consumed is less than the standard cost of material consumed, otherwise it is adverse.

Ø   Material Price Variance:

One of the reasons for variation among the standard material cost and actual material cost is the difference between the standard price and actual price. Material Price Variance measures the variation among the standard price and actual price along with reference to the actual quantity consumed.

Ø  Material Price Variance:

Actual Quantity [Standard Price - Actual Price]

Ø  Material Quantity [Usage] Variance:

This variance calculates the variation among the standard quantity of material consumed for actual production and the actual quantity consumed and similar is multiplied by standard price.

Ø  Material Quantity [Usage] Variance: 

Standard Price [Standard Quantity - Actual Quantity]

The total of Price Variance and Quantity Variance is equal to Cost Variance

Material Cost Variance = Material Price Variance + Material Quantity Variance

Ø  Material Mix Variance:

In case of various products, two or more types of raw materials are mixed to make the final product. In such types of cases, standard proportion of mixture is determined in advance. For instance, in manufacturing one unit of product 'P', material A and B might have to be mixed in a standard proportion of 3:2. This is termed as a standard mix. Though, when the actual production begins, the actual proportion of mix might have to be changed because of various reasons such as non- vailability of a specific material etc. In such cases material mix variance occurs. The mix variance is calculated in the following manner.

  • Material Mix Variance = Standard Cost of Standard Mix - Standard Cost of Actual Mix

Ø  Material Yield Variance:

In any manufacturing process, a number of unavoidable loss all the time takes place. So if the input is 100, output might be 95, 5 units being normal or unavoidable loss. The normal loss is all the time anticipated and taken into consideration when determining the standard quantity. Yield variance occurs while the actual loss is more or less than the normal loss. The computation of yield variance is as provided below.

  • Material Yield Variance = SYR [Actual Yield - Standard Yield]

SYR = Standard Yield Rate, i.e. standard cost per unit of standard output.

Reconciliation: Quantity Variance = Mix Variance + Yield Variance.

The following chart will explain the relationships between various material variances in a better manner.

2012_Material Variance Homework Help.jpg

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