Question

The Standard material cost of produce 20 units of Almari Company is:

20 kg of Material A         @ SR 8 per kg

25 kg of Material B         @ SR 4 per kg

During a period, 80 units of mixture X was produced from the usages of:

82 kg of Material A @ SR 9 per unit

98 kg of Material B @ SR 5 per unit

Calculate :  Material Cost Variance (MCV)

	A.	188 (Adverse)
	B.	1040 (Favorable)
	C.	98 (Adverse)
	D.	90 (Adverse)
	E.	None of Above

Answer 1

Option A ; 188 Adverse

Direct Cost variance

It is otherwise called as Direct Material Variances. It is the difference between the standard cost of materials used for the actual output and the actual cost of materials used.

Working Notes;

The following formula is used to calculate Direct Material Cost Variance.

MCV = (SQx SP) -(AQxAP)

Where,

§ MCV = Material Cost Variance

§ SQ = Standard Quantity for Actual Output

§ SP = Standard Price

§ AQ = Actual Quantity

§ AP = Actual Price

The following formula is used for calculating SQ for actual output.

Standard Quantity for Actual Output = (Std. Input / Std. Output) x Actual Output

Given Standard input =material A=20Kgs

                                        Material B=25Kgs

       Standard output =20 units

Standard Quantity for Material A

=(Std. Input / Std. Output) x Actual Output

=(20/20)*80

=80kgs of A

Standard Quantity for material B=(25/20)*80

=100 KGS of B

So now computing material cost variance =Standard cost – Actual cost

                                 

Standard Cost = SQ x SP
Actual Cost = AQ x AP

now computing MCV as follows

SQ in above table is computed based on above working notes

If the standard cost is more than the actual cost, the variance will be favorable and on the other hand if the standard cost is less than the actual cost the variance will be unfavorable or adverse

Reference sheet for formula view in excel