Variance Analysis

Material Variance

Example – 1

Simple case :

In a factory, standard estimates for material for the manufacture of 1,000 units of
Product Zee is 400 kgs at Rs. 2.50 per kg. When 2,000 units of product Zee are
produced it is found that 825 kgs of materials are consumed at Rs. 2.70 per kg.
Calculate material variances.

Original Std – 1000 Actual output – 2000 Std for Actual output-2000
units units units
Qty Price Amount Qty Price Amount Qty Price Amount
400 Rs. 825 2.70 2227.50 (400/1000) Rs. Rs.
kgs 2.50 kg x 2000 = 2.50 2000
800 kgs

Material Cost Variance (MCV) = 2000 – 2227.50 = Rs. 227.50 (Adverse)

Material Price Variance (MPV) = 825 x (2.50 – 2.70) = Rs.165 (Adverse)
Material Usage Variance (MUV) = Rs.2.50 x (800 – 825) = Rs. 62.50 (Adverse) (A)

Standard Output – 10 units Actual output 1000 units

A – 8 kgs @ Rs. 6/- A – 750 kgs @ Rs. 7/-

B – 4 kgs @ Rs. 4/- B – 500 Kgs @ Rs. 5/-

Std Price/ Actual Actual output 1000 kgs

Material Std Rate Price/
Act Qty Std Qty
Rate
A 6 7 750 800
B 4 5 500 400
1250 1200

For producing 10 units – 4 kgs of B is required. So for producing 1000 units of output
how much B is required = (4/10) x 1000

Cost Variance {A – (800 kgs x Rs. 6) + B – (400 kgs x Rs. 4)}

[A – (750 kgs x Rs. 7) + B – (500 kgs x Rs.5)]
{Rs.4800 + Rs. 1600} (Standard Cost) – [Rs.5250 + Rs.2500] (Actual Cost)
= 6400 – 7750 = 1,350 (A)

Price Variance Usage Variance

A – 750 x (6 – 7) = 750 (A) A – Rs 6 x (800 – 750) = 300 (F)
B – 500 x (4 – 5) = 500 (A) B – Rs.4 x (400 – 500) = 400 (A)
= Rs.1250 (A) = Rs.100 (A)
Ex : Q-1:
The standard cost of a certain chemical mixture is as under:
40% of Material A at Rs. 20 per tonne. 60% of Material B at Rs.30 per tonne.
A standard loss of 10% is expected in production. The following actual cost data is
given for the period.
180 tonnes material A at a cost of Rs.18 per tonne
220 tonnes material B at a cost of Rs.34 per tonne
The weight produced is 364 tonne.
Calculate and present :
(a) Material Price Variance
(b) Material Mix Variance 60% +40% = 100% - 10% loss= 90%;
(c) Material Yield Variance So, 40/90*364
(d) Material Cost Variance 60/90*364
(e) Material Usage Variance

Example – 2

Modern Tiles Ltd makes plastic tiles of standard size of 6” x 6” x 1/8”. From the
following information you are required to calculate for direct materials:
(i) Cost variance in total;
(ii) Cost variance sub-divided into (a) Price and (b) Usage;
(iii) The usage variance analysed to show (a) mix and (b) yield
A Standard mix of the compound required to produce an output of 20,000 square
feet of tiles with 1/8” thickness is as under:
Direct Material Quantity (kg) Price per kg
A 600 Re. 0.90
B 400 0.65
C 500 0.40
During December, eight mixes were processed and actual materials consumed
were:

Direct Material Quantity (kg) Price per kg

A 5,000 Re. 0.85
B 2,900 0.60
C 4,400 0.45
Actual production for December was 6,20,000 tiles.

Example – 3

Common Brass is an alloy consisting of 70% Copper and 30% Zinc. In melting and
processing it is expected that a 4% loss of metal will occur. Standard prices are
Rs.40,000 per tonne for Copper and Rs. 15,000 per tonne for Zinc. From the
following information calculate (a) MPV (b) MUV (c) MMV (d) MYV and (e) MCV.

Standard Actual
Details
Quantity Rate (Rs.) Quantity Rate (Rs.)
Copper 700 40000 600 50000
Zinc 300 15000 600 10000
Actual Loss 144
Example – 4

A Company is manufacturing a chemical product making use of 4 different types of

raw materials. The Standards and Actuals for the month of January 2023 are as per
the details given below. There is an inevitable normal loss of 10% during processing.

Standard Actual
Raw Material Share of Total Cost (Rs. Per Cost (Rs. Per
Quantity (Kg)
input (%) Kg) Kg)
A 40 50 42,000 48
B 30 80 31,000 80
C 20 90 18,000 92
D 10 100 9,000 110
Output obtained for the month 92,000 Kg

Calculate (a) MPV (b) MUV (c) MMV (d) MYV and (e) MCV. Calculate up to two
decimals.

Example – 5

From the following information calculate (a) MCV, (b) MPV and (c) MUV

Standard Material per unit - 3 kgs

Standard Price per kg - Rs. 2/-
Actual output - 80 Units
Actual Price - Rs. 2.50
Actual Materials used - 250 kgs

Example – 6

From the following information calculate (a) MCV, (b) MUV and (c) MPV

Quantity of materials purchased - 3,000 Units AR= 9000/3000

Value of materials purchased - Rs. 9,000
Std Qty of materials required per ton of finished product – 25 Units
Standard rate of materials - Rs.2 per unit
Opening stock of materials - NIL
Closing stock of materials - 500 units
Finished production during the period - 80 tons
Example – 7

Compute the missing data indicated by the question mark from the following:-

Particulars A B
Standard price per unit Rs. 12 Rs. 15
Actual Price per unit Rs. 15 Rs. 20
Standard Input (in Kgs) 50 ?
Actual Input ? 70
Material Price Variance ? ?
Material Usage Variance ? Rs.300 (A)
Material Cost Variance ? ?
Material Mix Variance Rs. 45 (A)

Example: Missing numbers (NMIMS – April 2019)

A company produces Product X using raw materials A and B. The standard mix of A
and B is 1:1 and the standard loss is 10% of input. You are required to compute the
missing information indicated by “?” based on the data given below:

Particulars A B Total
Standard price (Rs. per kg) 24 30
Actual Input (kg) ? 70
Actual Output (kg) ?
Actual price (Rs. Per kg) 30 ?
Standard input quantity (kg) ? ?
Yield variance 270 (A)
Mix variance ?
Usage variance ? ? ?
Price Variance ? ? ?
Cost Variance 0 ? 1300(A)

Solution:

Let Standard Input of A = x

Total input of A and B = x + x = 2x
Actual Input = 2x + 10 for the desired output
Therefore, Actual input for A = (2x + 10 – 70) = 2x - 60
Material Cost Variance for A = Nil(Standard Cost – Actual Cost)
(SQ x SP) – (AQ x AP)
Therefore; (x * 24) – ((2x – 60) x 30) = 0
24x – (60x – 1800) = 0
-36x + 1800 = 0
36x = 1800===============x = 1800/36 = 50

Std qty of inputs A & B = 50 and 50 (1:1 proportion as given)

Standard input = 100 + 10% = 110 kgs

Since actual input of B = 70 (given); therefore actual input of A = 110 – 70 = 40 kgs
Given Cost Variance = 1300 (A) & Material Cost Variance of A = 0
Obviously, Material cost variance of (B) has to be = 1300(A)

Assume Actual price of B = P

(SQ x SP) – (AQ x AP) = (50 x 30) – (70 x P) = -1300
= 1500 – 70P = -1300
70P = 2800
Therefore P = 40
Total Actual quantity = 40 +70 = 110 kgs

Hence Revised Actual quantity should be equal to 110 kgs but in the proportion of 55
and 55 (1 : 1proportion)
SP AP AQ SQ RSQ
A 24 30 40 50 55
B 30 40 70 50 55
110 100 110

Material Cost Variance (MCV)

A – (50 x 24) – (40 x 30) = 1200 – 1200 = 0

B – (50 x 30) – (70 x 40) = 1500 – 2800 = 1300 (A) 1300 (A)

Material Price Variance (MPV)

A – (24 – 30) x 40 = 240 (A)

B – (30 – 40) x 70 = 700 (A) 940 (A)

Material Usage Variance (MUV)

A – (50 – 40) x 24 = 240 (F)

B – (50 – 70) x 30 = 600 (A) 360(A)

Material Mix Variance (MMV)

A – (55 – 40) x 24 = 360(F)

B – (55 – 70) x 30 = 450(A) 90 (A)

Missing Numbers

Following data is extracted from books of A Ltd for the month of Feb 2021.

Standard cost for 1500 kgs of out put

Amoun
Raw Material Quantity Price t
A 800 ? ?
B 600 30 18000
  1400    

Actual : 1500 kgs of output was produced

Amoun
Raw Material Quantity Price t
 A 900 ? ?
B   32.5 ?
      59825

Other details : Material Cost Variance = 2,975 (F)

Material Price Variance = 175 (F)

Solution
RM Cost Variance = SC – AC
2975 = (SQ x SR) – (59825)
Therefore (SQ x SR) = 59825 + 2975 = 62800
If total MCV = 62800 and MCVB = 18000; then MCVA = 62800 – 18000 = 44800
Therefore, Price of A = 44800 / 800 = 56

If MCV = 2975 and MPV = 175; MUV should be 2975 – 175 = 2800 (F)
MUV = (SQ – AQ) SR
A – (800 – 900) x 56 = 5600(A)
B – (600 – AQ) x 30 = ?????
Sum of A + B = 2800 (F); therefore MUVB = 5600 + 2800 = 8400 (F)

8400 = (600 – AQ) x 30 ==== 8400 = 18000 – 30AQ

30AQ = 18000 – 8400 ====== AQ = 320

MPVA = (56 – AP) x 900;

MPVB = (30 – 32.5) x 320 = 800(A)
Given Total MPV = 175 (F) and we calculated MPV B = 800(A);
therefore MPVA = 800 + 175 = 975 (F) = (56 – AP) x 900
56 – AP = 975/900 ==== 56 – AP = 1.083 ==== AP = 56 – 1.083 = 54.917

Example – 8

Following was the composition of the gang of workers in a factory during a particular
month in one of the production departments. The standard composition of workers
and wage rate per hour were as under:

Skilled : Two workers at a standard rate of Rs. 20 per hour

Semi-skilled : Four workers at a standard rate of Rs.12 per hour
Unskilled : Four workers at a standard rate of Rs. 8 per hour

The standard output of the gang was four units per hour of the product. During the
month the actual composition of the gang and hourly rates paid were as under:

Type of worker No. of workers Wage rate paid per worker

Per hour engaged
Skilled 2 20
Semi-skilled 3 14
Unskilled 5 10
The gang was engaged for 200 hours during the month which included 12 hours
when no production was possible due to machine breakdown. 810 units of the
product were recorded as output of the gang during the month.
You are required : (a) to compute the total variance in labour cost during the month
and (b) analyse the variances in (a) above in sub-variances.

Solution:

Standard (1 hr – 4 units) Actual (810 units)

200 hours / 12 h Idle

Skilled – 2 workers @ 20 2 workers @ Rs.20

Semi-Skilled – 4 workers @ 12 3 workers @ Rs.14
Un-skilled – 4 workers @ 8 5 workers @ Rs.10

Employees Std Act Rate Act Hours Act Hrs Std Hrs Revised
Rate paid Worked Std Hrs
Skilled 20 20 400 376 405 376
Semi-skilled 12 14 600 564 810 752
Unskilled 8 10 1000 940 810 752
2000 hrs 1880 hrs 2025 hrs 1880 hrs

Std Hours = (Std Input / Std output) x Actual output

Skilled = (2/4) x 810 = 405 ; Semi-skilled = (4/4) x 810 = 810

Revised Std Hrs = 2:4:4 or 1:2:2

(Actual Hrs worked / Std qty of workers) x Std qty of each category of worker

Skilled – (1880 / 5) x 1 = 376; Semi-skilled – (1880/5) x 2 = 752; Unskilled

(1880/5)x2

Direct Labour Cost Variance – (Standard Cost – Actual Cost)

(SH x SR) – (AH x AR)

Skilled – (405 x 20) – (400 x 20) = 100 (F)

Semi-skilled – (810x12) – (600x14) = 1320 (F)
Unskilled – (810x8) – (1000x10) = 3520 (A) 2100 (A)

Direct Labour Rate Variance - (SR – AR) x AHP

Skilled – (20 – 20) x 400 = NIL

Semi-skilled – (12 - 14) x 600 = 1200 (A)
Unskilled – (8 – 10) x 1000 = 2000 (A) 3200 (A)

Direct Labour Efficiency Variance – (SH – AH) x SR

Skilled – (405 – 400) x 20 = 100 (F)

Semi-skilled – (810 – 600) x 12 = 2520 (F)
Unskilled – (810 – 1000) x 8 = 1520(A) 1100 (F)
Direct Labour Idle Time Variance – (AHW – AHP) x SR

Skilled – (376 – 400) x 20 = 480(A)

Semi-skilled – (564 – 600) x 12 = 432(A)
Unskilled – (940 – 1000) x 8 = 480(A) 1392(A)

Direct Labour Yield Variance – (SH – RSH) x SR

Skilled – (405 – 376) x 20 = 580(F)

Semi-skilled – (810 – 752) x 12 = 696(F)
Unskilled – (810 – 752) x 8 = 464(F) 1740(F)

Direct Labour Mix / Gang Variance - (RSH – AHW) x SR

Skilled – (376 – 376) x 20 = NIL

Semi-skilled – (752 – 564) x 12 = 2256(F)
Unskilled – (752 – 940) x 8 = 1504(A) 752(F)

Example – 9

Following information is given regarding standard composition and standard rates of

a team of workers:
Standard composition Standard hourly rate
10 Skilled workers (A) Rs. 62.50
5 Semi Skilled workers (B) Rs. 40.00
5 Un-skilled workers (C) Rs. 35.00

According to given specifications, a week consists of 40 hours and standard

output for a week is 1000 units. In a particular week, a team of 13 Skilled, 4 Semi-
skilled and 3 un-skilled workers were employed and actual wages were paid as
follows:
Skilled @ Rs.60 per hour
Semi-skilled @ Rs.42.50 per hour
Un-skilled @ Rs. 32.50 per hour.

Two hours were lost in the week due to machine breakdown. Actual
production was 960 units in the week.

Find out (i) Labour rate variance; (ii) Labour mix variance; (iii) Labour idle time
variance; (iv) Labour yield variance; (v) Labour efficiency variance and (vi) Labour
Cost variance.
Solution

Std output – 1000 units/week Actual output – 960 units

Employees Std Act Rate Act Hours Act Hrs Std Hrs Revised
Rate paid Worked (for Std Hrs
actual
prodn)
Skilled 62.50 60 520 494 384 380
Semi-skilled 40 42.50 160 152 192 190
Unskilled 35 32.50 120 114 192 190
 800 760 768 760

Actual hours paid = 13 Skilled x 40 hrs; 4 Semi-skilled x 40 hrs; 3 unskilled x 40

Actual hours worked = Skilled (13 x 40)-(13x2) = 494; SS (4x40) – (4x2) = 152 and
US (3x40) – (3x2) = 114

Std hrs for actual production

10 skilled x 40hrs x 960 = 384 ; 5 Semi-skilled x 40hrs x 960 = 192
1000 1000

Revised Standard hours (10 skilled; 5 SS and 5 US ----- 10:5:5----2:1:1)

760 x 2/4 = 380; SS & US – 760 x ¼= 190

LCV : (Standard Cost – Actual Cost )= (SR x SH) – (AR x AHP)

S - 7200(A)
SS - 880(F)
US - 2820(F) 3500(A)

LRV : (SR – AR) x AHP

S - 1300(F)
SS - 400 (A)
US - 300 (F) 1200 (F)

LEV : (SH – AHP) x SR

S - 8500 (A)
SS - 1280 (F)
US - 2520 (F) 4700(A)

LIV : (AHW – AHP) x SR

S - 1625 (A)
SS - 320 (A)
US - 210 (A) 2155(A)

LYV : (SH – RSH) x SR

S - 250 (F)
SS - 80(F)
US - 70(F) 400(F)

LMV : (RSH – AHW) x SR

S - 7125(A)
SS - 1520(F)
US - 2660(F) 2945(A)
Example – 10

In a factory, 100 workers are engaged and average rate of wages is Rs. 5 per hour.
Std working hours per week are 40 hours and the standard output is 10 units per
hour. During a week in December, wages were paid for 50 workers @ Rs. 5 per
hour, 10 workers @ Rs. 7 per hour and 40 workers @ Rs. 4 per hour. Actual output
was 380 units, The factory did not work for 5 hours due to breakdown on machinery.

Calculate Labour cost variance, Labour rate variance, Labour efficiency variance and
Idle time variance.

Example – 11

Standard hours for producing two products A and B are 15 hours and 20 hours per
unit respectively. Both products require identical type of labour and the standard
wage rate is Rs. 5 per hour. In a year 10,000 units of A and 15,000 units of B were
produced. The total labour hours actually worked were 4,50,500 and actual wage bill
came to Rs. 23,00,000. This included 12,000 hours paid for at Rs. 7 per hour and
9,400 hours paid for @ Rs. 7.50 per hour; the balance having been paid @ Rs. 5 per
hour.

You are required to compute Labour Cost variance, labour rate variance and labour
efficiency variance.

Example – 12

SB Ltd operates a system of standard costing. For one unit of product the std
material input is 20 liters at a std price of Rs. 2 per liter. The std wage rate is Rs. 6
per hour and 5 hours are allowed to produce one unit. Fixed production overhead is
absorbed at the rate of 100% of direct wages cost.
During the month just ended the following occurred:
Actual price paid for purchase of material - Rs. 1.95 per liter
Total direct wages cost - Rs. 1,56,000
Fixed production overhead incurred - Rs. 1,58,000

Variances Favorable(Rs Adverse

) (Rs)
Direct Material Price 8,000 -
Direct Material Usage - 5,000
Direct Labour Rate - 5,760
Direct Labour Efficiency 2,760 -
Fixed Production Overhead Expenditure - 8,000

Required :-
(i) Budgeted output in units
(ii) Number of liters purchased
(iii) Number of liters used above standard allowed
(iv) Actual units produced
(v) Actual hours worked
 (vi) Actual wage rate per hour

Example – 13 (a)

From the following information calculate Variable Overhead Variances:

Particulars Production (Units) Variable OH (₹) Hours worked

Budgeted 300 7,800 Std time for one
unit is 20 hours
Actual 250 7,000 4,500

Discuss if Actual hours of 4,500 includes 300 hours of Abnormal Idle Time. Budgeted
hour= 20(std)
Example – 13 (b) *300= 6000
SR=
Calculate Variable Overhead variances from the following information: 7800/6000

Actual variable overhead Rs. 10,000 AR=

Budgeted variable overhead Rs. 12,000 7000/4500
Budgeted production 500 units
Actual production 450 units
Actual hours 200
Standard time for one unit 30 minutes

Example – 14

From the following information of GSN Ltd., calculate variable overhead variances

Budgeted production 6000 units Std rate= 120000/(5900*2)=

Budgeted variable overhead Rs. 1,20,000 120000/11800
Standard time 2 hours for one unit AR= 122000/11600
Actual production 5900 units
Actual overhead incurred Rs. 1,22,000
Actual hours worked 11,600 hours

Example – 15

Following information was obtained from the records of a manufacturing unit using
standard costing system.

Standard Actual
Production 4,000 units 3,800 units
Working days 20 21
Machine hours 8,000 hours 7,800 hours
Fixed overhead Rs.4,00,000 Rs. 3,90,000
Variable overhead Rs. 1,20,000 Rs. 1,20,000

You are required to calculate the following Actual foh= 390000; Budgeted foh= 400000;
(a) Fixed overhead variances Bud Adj= 400000/20*21 (for days)
Bud Adj for time= 400000/8000*7800
Bud Adj for output= 400000/4000*3800
 (b) Variable overhead variances

Example – 16 (a)

In department X of a plant, the following data are submitted for a particular week:
Standard output for 40 hours per week 1,400 units
Budgeted Fixed Overhead ₹ 1,400 Actual foh= 1500; budgeted
Actual Output 1,200 units foh=1400;
Actual hours worked 32 Bud adj for days= 1400/0=0
Actual Fixed Overhead ₹ 1,500 Bud adj for time= 1400/40*32
Calculate variances Bud adj for output=
1400/1400*1200
Example – 16 (b)

Eajjie Ltd has furnished the following information for the month of August

Budget Actual
Output (Units) 30,000 32,500
Hours 30,000 33,000
Fixed Overhead (₹) 45,000
Variable overhead (₹) 60,000
Total Factory Overhead (₹) --- 1,12,500

Calculate the variances

Homework
A company operates a standard costing system and showed the following data for a
particular month:
Actual Budgeted
No of working days 22 20
Man-hours 4,300 4,000
Overhead rate per hour ---- ₹ 0.50
Hours per unit of output ----- 10
Fixed overhead incurred ₹ 1,800 -----
No of units produced 425 ----

Calculate (a) Overhead cost variance (b) Budget/Expenditure Variance (c) Volume
Variance (d) Capacity Variance (e) Calender Variance and (f) Efficiency Variance

[Ans – (a) 325 (F); (b) 200 (F); (c) 125 (F); (d) 50(A); (e) 200 (F); (f) 25(A)]

Example – 17

From the following information calculate (i) Total Sales Variance; (ii) Sales Price
Variance; (iii) Sales Volume Variance; (iv) Sales Mix Variance and (v) Sales Qty
Variance.
Standard Actual
Product
Units Rate (Rs) Units Rate (Rs)
A 5000 5 6000 6
B 4000 6 5000 5
C 3000 7 4000 8
Example : Class Practice

From the following information calculate the Sales Variances

Standard Actual
Product
Units Rate (Rs) Units Rate (Rs)
X 600 10 650 9
Y 400 15 450 13

Example – 18

A Company uses standard costing system. The sales data for a particular period are
as under:

Product Budgeted Budgeted Annual Sales Actual Sales

Sales (Units) Selling price Units Value (Rs)
per unit (Rs)
A 1,280 20 650 12350
B 3,200 12 3,900 50,700
C 1,920 16 1,950 29,250

The Cost data are as follows:

Standard Cost per unit : A – Rs.16; B – Rs.10; C – Rs.13
Actual Cost per Unit : A – Rs.18; B – Rs.12; C – Rs.13

You are required to calculate the following for the period:

(i) Gross Margin Total Sales Variance;
(ii) Gross Margin Sales Volume Variance
(iii) Gross Margin Sales Mix Variance;
(iv) Gross Margin Sales Quantity Variance;
(v) Sales Price Variance and
(vi) Total Cost Variance

Ex – 19 : Sales Variances – Missing Values

Compute the missing data indicated by the question marks from the following:

Sales Quantity Product R Product S

Standard (units) ? 400

Actual (units) 500 ?
Price per Unit
Standard Rs. 12 Rs. 15
Actual Rs. 15 Rs. 20
Sales Price Variance ? ?
Sales Volume Variance 1200 (F) ?
Sales Value Variance ? ?

Sales Mix variance for both the products together was Rs. 450 (F).