following are the details of product phomex for the month of april 2013:
std qty of material required per unit 5 kg
actual output 1000 units
actual cost of material used 714000\-
material price variance 51000(fav)
actual price per kg of material is found to be less than std price per kg of material by 10\-
calculate:
1. act qty & act price of materials used.
2. material usage variance.
3. material cost variance.
Question 1(a) of May 2013 IPC Exam. For guideline answer, download the file attached herewith.
i cannot understand how shall i take std rate 150 & act rate 140.act cost given 714000.
1) Material Price Variance is given as 51,000(F)
.
(Standard Price – Actual Price) X Actual Quantity = 51,000(F)
.
Actual Price per kg of Material is found to be less than Standard Price per kg of Material by 10
i.e. If, standard price is x; then actual price is (x-10)
.
Hence, [x-(x-10)] X Actual Quantity = 51,000
.
or, (x-x+10) X Actual Quantity = 51,000
.
Therefore, Actual Quantity = 51,000/10 = 5,100 (Required)
2) Actual cost is given = 7,14,000
.
Cost is simply calculated by multiplying quantity with price per unit
.
Hence, Actual Cost = Actual Quantity X Actual Price
.
or, 7,14,000 = 5,100 (as calculated in step 1) X Actual Price
.
Therefore, Actual Price = 7,14,000/5,100 = 140 (Required)
.
As in step 1, If, standard price is x; then actual price is (x-10)
.
Hence, x-10 = 140
.
or, x = 140+10 = 150 i.e. standard price
.
Standard price is calculated because we will need the same for calculating the Material Usage Variance.
.
Material Usage Variance = (standard quantity – actual quantity) X standard price
.
(Whenever any variance is to be multiplied by price, we always consider standard price since while calculating one factor, other factor has to be kept constant. If we take actual price, then price variance will also be included.)
.
Hence, Material Usage Variance = (5000 – 5100) X 150 = 15000 (A) (Required)
3) Material Cost Variance = Material Price Variance + Material Usage Variance
.
or, Material Cost Variance = 51000 (F) + 15000 (A) = 36000 (F) (Required)
why 5kg is 5000?
If you use only 5 kg as standard quantity, then material usage variance will be derived for per unit only.
.
Material Usage Variance p/u = (standard quantity – actual quantity) X standard price
.
or, (5-5.1) X 150 = 15(A) [5100/1000 = 5.1]
.
But we need to calculate as a whole, i.e. what should have been used to produce the actual output i.e. 1000 units
.
Material Usage Variance per unit = 15(A)
.
Material Usage Variance for actual output = 15 X 1000 = 15000 (A)
.
That is the reason why standard quantity per unit was converted into standard quantity for actual output/production
.
Material Usage Variance = (5000 – 5100) X 150 = 15000 (A)
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