Material variances: cost, price, usage, mix and yield
Cost and Management Accounting · Unit III · Topic 12 of 18 · 4 min read
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1. Variance analysis
A variance is the difference between a standard cost and the actual cost. Variance analysis is the process of breaking the total cost variance into its parts (price, quantity, mix, yield, efficiency, expenditure, volume) and finding the reason and the person responsible. A variance is favourable (F) when actual cost is less than standard (or actual revenue more than budget) and adverse (A) when the reverse.
2. Formulas
SQ = standard quantity for actual output; AQ = actual quantity; SP = standard price; AP = actual price; RSQ = revised standard quantity (actual total input split in the standard ratio).
| Variance | Formula |
|---|---|
| Material cost (MCV) | (SQ × SP) − (AQ × AP) |
| Material price (MPV) | AQ × (SP − AP) |
| Material usage (MUV) | SP × (SQ − AQ) |
| Material mix (MMV) | SP × (RSQ − AQ) |
| Material yield (MYV) | SP × (SQ − RSQ), or standard cost per unit of output × (actual output − standard output from actual input) |
Checks: MCV = MPV + MUV, and MUV = MMV + MYV.
3. Solved (BBA, January 2026)
Standard for 1,000 kg of product: A 450 kg at Rs. 20, B 400 kg at Rs. 40, C 250 kg at Rs. 60; input 1,100 kg, standard loss 100 kg. Actual output 20,000 kg using A 10,000 kg at Rs. 19, B 8,500 kg at Rs. 42, C 4,500 kg at Rs. 65.
Step 1: standard for actual output. 20,000 kg is 20 batches of 1,000 kg, so SQ = 20 × the batch: A 9,000, B 8,000, C 5,000 (22,000 kg).
| Material | SQ | SP | SQ × SP | AQ | AP | AQ × AP | RSQ |
|---|---|---|---|---|---|---|---|
| A | 9,000 | 20 | 1,80,000 | 10,000 | 19 | 1,90,000 | 9,409.09 |
| B | 8,000 | 40 | 3,20,000 | 8,500 | 42 | 3,57,000 | 8,363.64 |
| C | 5,000 | 60 | 3,00,000 | 4,500 | 65 | 2,92,500 | 5,227.27 |
| Total | 22,000 | 8,00,000 | 23,000 | 8,39,500 | 23,000 |
RSQ: the actual 23,000 kg in the standard ratio 450 : 400 : 250 (A = 23,000 × 450 / 1,100, and so on).
(i) Material cost variance = 8,00,000 − 8,39,500 = Rs. 39,500 (A).
(ii) Material price variance = AQ (SP − AP): A 10,000 × 1 = 10,000 F; B 8,500 × (−2) = 17,000 A; C 4,500 × (−5) = 22,500 A. Total Rs. 29,500 (A).
(iii) Material usage variance = SP (SQ − AQ): A 20 × (−1,000) = 20,000 A; B 40 × (−500) = 20,000 A; C 60 × 500 = 30,000 F. Total Rs. 10,000 (A). Check: 29,500 A + 10,000 A = 39,500 A.
(iv) Material mix variance = SP (RSQ − AQ): A 20 × (−590.91) = 11,818.18 A; B 40 × (−136.36) = 5,454.55 A; C 60 × 727.27 = 43,636.36 F. Total Rs. 26,363.64 (F): the actual mix used less of the dearest material, C.
(v) Material yield variance = SP (SQ − RSQ): A 20 × (−409.09) = 8,181.82 A; B 40 × (−363.64) = 14,545.45 A; C 60 × (−227.27) = 13,636.36 A. Total Rs. 36,363.64 (A).
Check by the output method. Standard cost per kg of output = 40,000 / 1,000 = Rs. 40. 23,000 kg of input should yield 23,000 × 1,000 / 1,100 = 20,909.09 kg; actual yield 20,000 kg. Shortfall 909.09 × 40 = 36,363.64 A. And mix 26,363.64 F + yield 36,363.64 A = 10,000 A = usage variance.
4. Causes of material variances
Price variance (responsibility: purchase department): change in market prices; buying in smaller or larger lots than planned, losing or gaining discounts; emergency purchases at higher prices; change in freight or taxes; buying a different quality; poor negotiation.
Usage variance (responsibility: production foreman): inferior material causing more waste; careless handling, pilferage; inefficient or untrained workers; defective machines; change in design or method; more scrap or rejections than allowed; wrong standard.
Mix variance: shortage of one ingredient forcing a change in mix; deliberate change to cut cost. Yield variance: poor-quality inputs, abnormal process loss, inefficient operation.
How this is examined
Lay out the working table (SQ, SP, AQ, AP, RSQ) first; the examiner gives marks for it. Then each variance with formula, figures per material, total and (F) or (A), and the two checks. In theory answers pair each cause with the responsible department.
Now try the real questions: Cost and Management Accounting past question papers.