Question

The standard quantity and standard price of material to produce ‘Product X’ are as follows:

Standard Quantity: 800 kgs

Actual Quantity: 900 kgs

Standard Price: AED 10 / kg

Actual Price: AED 12 / kg                                                                   

Calculate: a. Material Cost Variance                b. Material Price Variance         c. Material Usage Variance

Note : the Answer should be in Word Format and in Details

Answer 1

a) Material Cost Variance = Standard cost of material - Actual cost of material

Standard cost of material = Standard quantity x Standard price

Actual cost of material = Actual quantity x Actual price

Therefore, Material cost variance = (800*10) - (900*12)

= 8000-10800 = -2800

The negative figure shows that the variance is unfavourable.

b) Material Price Variance = (Standard price - Actual price ) x Actual quantity

= (10 - 12)*900 = -1800

The negative value shows that the variance is unfavourable because of more than estimated price.

c) Material Usage Variance = (Actual quantity x Standard price) - ( Standard quantity x Standard price )

= (900*10) - (800*10)

=9000-8000 = 1000

The positive figure is due to favourable varaince. It may due to good use of skilled labour or other factors.