To manufacture one unit of product, the requirement is 2 Kgs of material @ 2 per Kg. Actual output is 400 units Actual quantity of materials used is 850 kgs 1.80 find out the material cost variance.
Solution:
First step is to find out the standard quantity for actual output Standard quantity of raw materials = 2Kg
Actual Production = 400 units
To have leveled comparison, the Standard quantity of materials for actual output to computed; then only the variance intend to encircle will be meaningful or vice-versa.
The computation of SQAO should be computed at first:
For the production of one unit of product 2 Kg of raw material was planned and finalized prior to the commencement of production process. The actual production of the firm during the cycle is 400 units. What would be the requirement of the firm in manufacturing 400 units to the tune of planned quantity of materials per unit 2 Kg? This is the standard quantity of materials for actual output computed for an effective comparison with the actual quantity of materials consumed by the firm in manufacturing the 400 units.
SQAO = 400 × 2Kg = 800 Kg
SP = Standard Price = 2 per Kg
AQ = Actual Quantity = 850 Kgs
AP = Actual Price = 1.80
Material Cost Variance = (SQAO × SP) – (AQ × AP)
= (800 Kg × 2) – (850 Kg × 1.8)
= 1600 – 1530
= 70 (F)
The material cost variance of the above problem is favourable due to lesser actual cost over the standard cost of materials.
