{"id":107257,"date":"2021-02-10T14:06:11","date_gmt":"2021-02-10T08:36:11","guid":{"rendered":"https:\/\/www.vskills.in\/certification\/tutorial\/?page_id=107257"},"modified":"2024-04-12T14:29:27","modified_gmt":"2024-04-12T08:59:27","slug":"materials-yield-variance","status":"publish","type":"page","link":"https:\/\/www.vskills.in\/certification\/tutorial\/materials-yield-variance\/","title":{"rendered":"Materials Yield Variance"},"content":{"rendered":"\n<p>Yield variance is the difference between the standard yield specified and the actual yield obtained. In other words, the difference between actual yield of materials in manufacture and the standard yield (i.e. expected yield from a given standard input) valued at standard output price is known as materials yield variance. This variance is of great significance in processing industries, in which the output of one process becomes the input of the next process till the finished product is obtained at the final stage. The analysis of this variance helps effective control over usage. A low actual yield is unfavorable yield variance which indicates that consumption of materials was more than the standard. A high actual yield indicates efficiency, but a constant high yield is a pointer for the revision of the standard.<\/p>\n\n\n\n<p>Material Yield Variance = Standard cost per unit (Actual yield \u2013 Standard yield)<\/p>\n\n\n\n<p>i.e. SC p.u. (AY-SY)<\/p>\n\n\n\n<p>Note: AY will never change. SY will calculate for actual mix of quantity as under:<\/p>\n\n\n\n<p>New SY= Old SY x TAQ<\/p>\n\n\n\n<p>TSQ<\/p>\n\n\n\n<p>The yield variance may be caused by such factors as: defective methods of operation, sub-standard quality of materials purchased, lack of due care in handling, lack of proper supervision etc.<\/p>\n\n\n\n<p><strong>Illustration 1<\/strong><\/p>\n\n\n\n<p>For producing one unit of a product, the materials standard is:<\/p>\n\n\n\n<p>Material X : 6 kg. @ 8 per kg., and<\/p>\n\n\n\n<p>Material Y: 4 kg. @ 10 per kg.<\/p>\n\n\n\n<p>In a week, 1,000 units were produced the actual consumption of materials was:<\/p>\n\n\n\n<p>Material X : 5,900 kg. @ 9 kg., and<\/p>\n\n\n\n<p>Material Y: 4,800 kg. @ 9.50 per kg.<\/p>\n\n\n\n<p>Compute the various variances.<\/p>\n\n\n\n<p><strong>Solution:<\/strong><\/p>\n\n\n\n<p><strong>Standard cost of materials of 1,000 units:<\/strong><\/p>\n\n\n\n<p>Material X: 6,000 kg. @ 8&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 48,000<\/p>\n\n\n\n<p>Material Y: 4,000 kg. @ 10&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 40,000<\/p>\n\n\n\n<p>Total&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 88,000<\/p>\n\n\n\n<p>Actual cost: &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 53,100<\/p>\n\n\n\n<p>Material X 5,900 kg. @ 9&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 45,600<\/p>\n\n\n\n<p>Material Y 4,800 kg. @ 9.50 &nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 98,700<\/p>\n\n\n\n<p>Total&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,700(A)<\/p>\n\n\n\n<p>Total materials cost variance<\/p>\n\n\n\n<p>Analysis<\/p>\n\n\n\n<p><strong>Material Price Variance: Actual Quantity (Standard Price &#8211; Actual Price)<\/strong><\/p>\n\n\n\n<p>X = 5900 ( 8 &#8211; 9)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp; &nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 5,900 (A)<\/p>\n\n\n\n<p>Y = 4800 ( 10 &#8211; 9.50)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 2,400 (F)<\/p>\n\n\n\n<p>3,500 (A)<\/p>\n\n\n\n<p><strong>Material Usage Variance: Standard Price (Standard Quantity &#8211; Actual Quantity)<\/strong><\/p>\n\n\n\n<p>X = 8 (6,000 &#8211; 5,900)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; =800(F)<\/p>\n\n\n\n<p>Y = `10 (4,000 &#8211; 4,800)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; =8,000 (A)<\/p>\n\n\n\n<p>= 7,200 (A)<\/p>\n\n\n\n<p>Verification<\/p>\n\n\n\n<p>Material Cost Variance = Materials price variance [3,500 (A)] + Material Usage Variance<\/p>\n\n\n\n<p>10,700 (A) = 3500 (A) + 7200 (A)<\/p>\n\n\n\n<p>Material Mix Variance = SP (RSQ \u2013 AQ)<\/p>\n\n\n\n<p>For Material X= 8 (6420 \u2013 5900)<\/p>\n\n\n\n<p>= 4160 (F)<\/p>\n\n\n\n<p>For Material Y= 10 (4280 \u2013 4800)<\/p>\n\n\n\n<p>= 5200 (A)<\/p>\n\n\n\n<p>4160 (F) + 5200 (A) = 1040 (A)<\/p>\n\n\n\n<p><strong>Note:<\/strong> RSQ&nbsp;&nbsp;&nbsp;&nbsp; = TSQ x \uf020SQ<\/p>\n\n\n\n<p>TSQ<\/p>\n\n\n\n<p>For X&nbsp; = 10700 x \uf0206 = 6420 kg.<\/p>\n\n\n\n<p>10<\/p>\n\n\n\n<p>For Y&nbsp;&nbsp; 10700 x 4= 4280 kg.<\/p>\n\n\n\n<p>10<\/p>\n\n\n\n<p>Material Yield Variance = SC per unit x \uf020(AY \u2013 SY)<\/p>\n\n\n\n<p>= 88(1,000 \u2013 1,070)<\/p>\n\n\n\n<p>= 6,160<\/p>\n\n\n\n<p>SC per unit = TSC<\/p>\n\n\n\n<p>SY<\/p>\n\n\n\n<p>= 88 = 88 per unit<\/p>\n\n\n\n<p>TSC&nbsp;&nbsp;&nbsp;&nbsp; = Standard cost of material X and material Y<\/p>\n\n\n\n<p>= (6 x \uf0208) + (4 x \uf02010)<\/p>\n\n\n\n<p>= 48 + 40 = 88<\/p>\n\n\n\n<p>AY given in question i.e. 1000 kg.<\/p>\n\n\n\n<p>Old SY x TAQ<\/p>\n\n\n\n<p>New SY =&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;TSQ<\/p>\n\n\n\n<p><strong>Illustration 2<\/strong><\/p>\n\n\n\n<p>In a manufacturing process, the following standards apply:<\/p>\n\n\n\n<p>Standard Price: Raw material A 1 per kg.<\/p>\n\n\n\n<p>Raw materials B 5 per kg.<\/p>\n\n\n\n<p>Standard Mix 75% A; 25% B (by weight) Standard Yield : 90%<\/p>\n\n\n\n<p>In a period the actual costs, usage and output were as follows:<\/p>\n\n\n\n<p>Used:&nbsp;&nbsp;&nbsp;&nbsp; 4,400 kgs. of A costing 4,650<\/p>\n\n\n\n<p>1,600 kgs. of B costing 7,850<\/p>\n\n\n\n<p>Output:&nbsp;&nbsp; 5,670 kgs. of products<\/p>\n\n\n\n<p><strong>Solution:<\/strong><\/p>\n\n\n\n<p>Standard yield from 6,000, i.e. (4,400 + 1,600) kgs of output is<\/p>\n\n\n\n<p>6,000 kgs. \u00d7 90%, &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; i.e. 5,400 kgs.<\/p>\n\n\n\n<p>Material A (75%) &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 4,500 kgs. @ 1&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4500<\/p>\n\n\n\n<p>Material B (25%)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 1,500 kgs. @ 5&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,500<\/p>\n\n\n\n<p>6,000 kgs.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; ___<\/p>\n\n\n\n<p>Less:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,400 kgs.&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,000<\/p>\n\n\n\n<p>Output:<\/p>\n\n\n\n<p><strong>Standard cost of actual output (5,670 kgs.)<\/strong><\/p>\n\n\n\n<p>12000 x 5670 = 12,600<\/p>\n\n\n\n<p>5400<\/p>\n\n\n\n<p>Kgs.<\/p>\n\n\n\n<p><strong>Actual cost&nbsp;&nbsp;<\/strong><\/p>\n\n\n\n<p>Material A &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,400&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,650<\/p>\n\n\n\n<p>Material B&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,600&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,850<\/p>\n\n\n\n<p>6,000&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,500<\/p>\n\n\n\n<p>330&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; (loss)<\/p>\n\n\n\n<p>Less:&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,670&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,500<\/p>\n\n\n\n<p><strong>Variance Analysis<\/strong><\/p>\n\n\n\n<p>Material cost variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = Actual cost &#8211; Standard cost<\/p>\n\n\n\n<p>= 12,500 &#8211; 12,600 = 100 (F)<\/p>\n\n\n\n<p>Price Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = AQ (SP &#8211; AP)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>= (AQ x SP) \u2013 (AQ \uf0b4\uf020AP)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>= (AQ x \uf020SP) \u2013 AC<\/p>\n\n\n\n<p>Material A =(4400 x \uf0201) \u2013 4650&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 250 (A)<\/p>\n\n\n\n<p>Material B =(1600 x 5) \u2013 7850&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 150 (F)<\/p>\n\n\n\n<p>= 100 (A)<\/p>\n\n\n\n<p>Mix Variance = SP (RSQ \u2013 AQ)<\/p>\n\n\n\n<p>Material A =&nbsp;&nbsp;&nbsp; 1 (4500 \u2013 4400)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 100 (F)<\/p>\n\n\n\n<p>Material B = &nbsp;&nbsp; 5 (1500 \u2013 1600)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 500 (A)<\/p>\n\n\n\n<p>= 400 (A)<\/p>\n\n\n\n<p>RSQ for A, B is computed above in start.<\/p>\n\n\n\n<p>Yield Variance = Standard cost per unit (Actual yield &#8211; Standard yield)<\/p>\n\n\n\n<p>12000 (5670 \u2013 5400) = 600 (F)<\/p>\n\n\n\n<p>5400<\/p>\n\n\n\n<p><strong>Total Material Cost Variance<\/strong><\/p>\n\n\n\n<p>Price Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 100 (A)<\/p>\n\n\n\n<p>Mix Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 400 (A)<\/p>\n\n\n\n<p>Yield Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 600 (F)<\/p>\n\n\n\n<p>100 (F)<\/p>\n\n\n\n<p><strong>Reconciliation<\/strong><\/p>\n\n\n\n<p>Standard cost of materials&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,600<\/p>\n\n\n\n<p>Price Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 100 (A)<\/p>\n\n\n\n<p>Mix Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 400 (A)<\/p>\n\n\n\n<p>Yield Variance&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 600 (F)<\/p>\n\n\n\n<p>Actual Cost&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 12,500<\/p>\n\n\n\n<p><strong>Illustration 3<\/strong><\/p>\n\n\n\n<p>The standard material input required for 1,000 kgs. of a finished product are given below:<\/p>\n\n\n\n<p><strong>Material&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Quantity (Kg.)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; St. Rate per Kg.<\/strong><\/p>\n\n\n\n<p>P&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 450&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 20<\/p>\n\n\n\n<p>Q&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 400&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 40<\/p>\n\n\n\n<p>R&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 250&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; &nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 60<\/p>\n\n\n\n<p>1,100<\/p>\n\n\n\n<p>Standard loss&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 100<\/p>\n\n\n\n<p>Standard output&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 1,000<\/p>\n\n\n\n<p>Actual production in a period was 20,000 kg. of finished product for which the actual quantities of material used and the prices paid therefore were as under:<\/p>\n\n\n\n<p>Material&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Quantity (Kg.)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; Purchase price per Kg. (Rs.)<\/p>\n\n\n\n<p>P&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 10,000&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 19<\/p>\n\n\n\n<p>Q&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 8,500&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 42<\/p>\n\n\n\n<p>R&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,500&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 65<\/p>\n\n\n\n<p>Calculate:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Material cost variance;<\/li><li>Material price variance;<\/li><li>Material usage variance; and<\/li><li>Material yield variance.<\/li><\/ul>\n\n\n\n<p>Also show a reconciliation of the variances.<\/p>\n\n\n\n<p><strong>Solution<\/strong><\/p>\n\n\n\n<figure class=\"wp-block-table\"><table><tbody><tr><td><strong>Material&nbsp;&nbsp; &nbsp; &nbsp; Standard for 20,000 kg.&nbsp;&nbsp; &nbsp; &nbsp; Output Actual for 20,000 kg. Output<\/strong><\/td><\/tr><tr><td><\/td><td>Qty. (kg.)<\/td><td>Rate (Rs.)<\/td><td>Amount<\/td><td>Qty. (kg.)<\/td><td>Rate (Rs.)<\/td><td>Amount<\/td><\/tr><tr><td>P<\/td><td>9,000<\/td><td>20<\/td><td>1,80,000<\/td><td>10,000<\/td><td>19<\/td><td>1,90,000<\/td><\/tr><tr><td>Q<\/td><td>8,000<\/td><td>40<\/td><td>3,20,000<\/td><td>8,500<\/td><td>42<\/td><td>3,57,000<\/td><\/tr><tr><td>R<\/td><td>5,000<\/td><td>60<\/td><td>3,00,000<\/td><td>4,500<\/td><td>65<\/td><td>2,92,500<\/td><\/tr><tr><td><\/td><td>22,000<\/td><td>&nbsp;<\/td><td>8,00,000<\/td><td>23,000<\/td><td>&nbsp;<\/td><td>8,39,000<\/td><\/tr><tr><td>Less: Loss<\/td><td>2,000<\/td><td>&nbsp;<\/td><td>&nbsp;<\/td><td>3,000<\/td><td>&nbsp;<\/td><td>&nbsp;<\/td><\/tr><tr><td><\/td><td><strong>20,000<\/strong><\/td><td>&nbsp;<\/td><td>&nbsp;<\/td><td><strong>20,000<\/strong><\/td><td>&nbsp;<\/td><td>&nbsp;<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<p>Calculation of Variances<\/p>\n\n\n\n<p>(i) Material Cost Variance = Standard Cost \u2013 Actual Cost<\/p>\n\n\n\n<p>= 8,00,00 \u2013 8,39,500 = 39,500 (A)<\/p>\n\n\n\n<p>(ii) Material price variance = Actual quantity (Standard price \u2013 Actual price)<\/p>\n\n\n\n<p>P = 10,000 (20 \u2013 19)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 10,000 (F)\\<\/p>\n\n\n\n<p>Q = 8,500 (40 \u2013 42)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 17,000 (A)<\/p>\n\n\n\n<p>R = 4,500 (60 \u2013 65)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 22,500 (A)<\/p>\n\n\n\n<p>=29,500 (A)<\/p>\n\n\n\n<p>(iii) Material usage variance = Standard price (Standard price \u2013 Actual quantity)<\/p>\n\n\n\n<p>P = 20 (9,000 \u2013 10,000)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 20,000 (A)<\/p>\n\n\n\n<p>Q = 40 (8,000 \u2013 8,500)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 20,000 (A)<\/p>\n\n\n\n<p>R = 60 (5,000 \u2013 4,500)&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; = 30,000 (F)<\/p>\n\n\n\n<p>= 10,000 (A)<\/p>\n\n\n\n<p>(iv) Material yield variance = Standard cost per unit (Actual yield \u2013 Standard yield)<\/p>\n\n\n\n<p>Standard cost per unit&nbsp; = 8,00,000&nbsp;&nbsp; =40<\/p>\n\n\n\n<p>20,000<\/p>\n\n\n\n<p>New Standard Yield&nbsp;&nbsp;&nbsp; = 20,000 x23,000 = 20,909<\/p>\n\n\n\n<p>22,000<\/p>\n\n\n\n<p>Material yield variance = Rs. 40 (20,000 \u2013 20,909) = 36,360 (A)<\/p>\n\n\n\n<p><strong>Reconciliation:<\/strong><\/p>\n\n\n\n<p>Material Cost Variance = Material Price Variance + Material Usage Variance<\/p>\n\n\n\n<p>39,500 (A) = 29,500 (A) + 10,000 (A)<\/p>\n\n\n\n<p>Labour Variance<\/p>\n\n\n\n<p>Classification of labour variances as under:<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" src=\"http:\/\/www.vskills.in\/lms\/wp-content\/uploads\/2016\/06\/materials-yield-variance.png\" alt=\"materials-yield-variance\" class=\"wp-image-34406\"\/><\/figure><\/div>\n\n\n\n<p><strong>Labour Cost Variance (LCV)<\/strong><\/p>\n\n\n\n<p>Labour cost variance (also termed as direct wage variance) is the difference between the standard direct wages specified for the activity achieved and the actual direct wages paid. The formula for labour cost variance is:<\/p>\n\n\n\n<p>LCV = (Standard Hours x Standard Rate) &#8211; (Actual Hours x Actual Rate)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>LCV = (SH x SR) \u2013 (AH x AR)<\/p>\n\n\n\n<p>As the cost of labour is determined by labour time and wages, the labour cost variance is composed of either or both of variances relating to labour time and labour rate. As such, labour cost variance is analyzed into two separate variances, viz., wages (labour) rate variance and labour efficiency variance.<\/p>\n\n\n\n<p><strong>Labour Rate Variance<\/strong><\/p>\n\n\n\n<p>This is that portion of the wages variance which is due to the difference between the actual rate and standard rate of any specified. It is calculated like the materials price variance.<\/p>\n\n\n\n<p>Labour Rate Variance = Actual Hours (Standard Rate &#8211; Actual Rate)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>LRV = AH x (SR \u2013 AR)<\/p>\n\n\n\n<p><strong>Causes of Wages (Labour) Rate Variance<\/strong><\/p>\n\n\n\n<p>Wage rate variance occurs due to the following causes:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Change in basic wage structure or change in piece work rate.<\/li><li>Overtime work in excess of that provided in the standard rate.<\/li><li>Employment of one or more workers of a different grade than the standard grade.<\/li><li>Payment of guaranteed wages to workers who are unable to earn their normal wages if such guaranteed wages form part of direct labour cost.<\/li><li>New workers not being allowed full normal wage rates.<\/li><li>Use of different method of payment i.e. payment of day rates while standards are based on piece work method of remuneration.<\/li><li>Higher wages paid on account of overtime for urgent work.<\/li><li>The composition of a gang as regards the skill and rate of wages being different from that laid down in the standard.<\/li><\/ul>\n\n\n\n<p>Wage rates are usually determined by factors beyond the control of the personnel department such as conditions in the labour market, wage awards by wage boards, etc. Wage rate variances are therefore, mostly uncontrollable except for the portion which arises due to deployment of wrong grade of labour for which the departmental executive may be held responsible.<\/p>\n\n\n\n<p><strong>Labour Time or Efficiency Variance<\/strong><\/p>\n\n\n\n<p>Also termed as labour efficiency variance, is that portion of the direct wages variance which is due to the difference between the standard labour hours specified and the actual labour hours expended. Obviously, this variance provides a key to the control of workers\u2019 efficiency and labour cost. In effect, it is a usage variance. The computation of variance is as follows:<\/p>\n\n\n\n<p>Labour Efficiency Variance = Standard Wage Rate (Standard Hours of Production \u2013 Actual Hours Worked)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>LEV = SR x (SH \u2013 AHW)<\/p>\n\n\n\n<p><strong>Causes of Labour Efficiency Variance<\/strong><\/p>\n\n\n\n<p>The causes giving rise to labour efficiency variance are as follows:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Lack of proper supervision or stricter supervision than specified;<\/li><li>Poor working conditions;<\/li><li>Defective machinery and equipment;<\/li><li>Discontentment in workers due to unsatisfactory personnel relations;<\/li><li>Increase in labour turnover;<\/li><li>Use of non-standard material requiring more or less operation time;<\/li><li>Basic inefficiency of workers due to insufficient training, faulty instructions, incorrect scheduling of jobs, etc.<\/li><li>Wrong selection of workers.<\/li><\/ul>\n\n\n\n<p><strong>Labour Cost Variance = Labour Efficiency Variance + Labour Rate Variance<\/strong><\/p>\n\n\n\n<p><strong>OR<\/strong><\/p>\n\n\n\n<p><strong>LCV = LEV + LRV<\/strong><\/p>\n\n\n\n<p>Calculation of wage variance is illustrated below:<\/p>\n\n\n\n<p><strong>Example:<\/strong><\/p>\n\n\n\n<p><strong>Assuming<\/strong><\/p>\n\n\n\n<p>Actual hours worked&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 5,600<\/p>\n\n\n\n<p>Actual wage paid&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 7,840<\/p>\n\n\n\n<p>Standard rate per hour&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 2<\/p>\n\n\n\n<p>Standard hours produced&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp; 4,000<\/p>\n\n\n\n<p><strong>Answer:<\/strong><\/p>\n\n\n\n<p>Wages variance = Standard cost \u2013 Actual cost<\/p>\n\n\n\n<p>(4,000 \u00d7 2) = 8,000 \u2013 7,840 = 160 (F)<\/p>\n\n\n\n<p>Wages rate variance = Actual hours (Standard rate &#8211; Actual rate)<\/p>\n\n\n\n<p>= 5600 (2-1.4)<\/p>\n\n\n\n<p>= 3,360 (F)<\/p>\n\n\n\n<p>Actual Rate = 7840 = 1.4<\/p>\n\n\n\n<p>5600<\/p>\n\n\n\n<p>Labour efficiency rate variance<\/p>\n\n\n\n<p>2 (4,000 \u2013 5,600) = 3,200 (A)<\/p>\n\n\n\n<p>Labour Cost Variance= Labour Rate Variance + Labour Efficiency Variance<\/p>\n\n\n\n<p>= 3360 (F) + 3200 (A)<\/p>\n\n\n\n<p>= 160 (F)<\/p>\n\n\n\n<p>Labour efficiency variance is sub-divided into the following variances:<\/p>\n\n\n\n<ul class=\"wp-block-list\"><li>Idle time variance<\/li><li>Labour mix variance<\/li><li>Labour yield variance (or Labour revised-efficiency variance)<\/li><\/ul>\n\n\n\n<p><strong>Idle Time Variance<\/strong><\/p>\n\n\n\n<p>This variance which forms a portion of wages efficiency variance, is represented by the standard cost of the actual hours for which the workers remain idle due to abnormal circumstances.<\/p>\n\n\n\n<p>Labour Idle Time Variance (LITV) =<\/p>\n\n\n\n<p>(Actual hours paid for x Standard rate) \u2013 (Actual hours worked x Standard rate)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>Idle Hours x Standard rate.<\/p>\n\n\n\n<p>It is always adverse. Suppose in the example given above the actual time includes 1,000 idle hours. The Idle Time Variance will then be 2,000 (A); the efficiency variance will be then 1,200 (A), making a total of 3,200 (A).<\/p>\n\n\n\n<p><strong>Labour Mix Variance<\/strong><\/p>\n\n\n\n<p>It is also known as Gang Composition Variance. This is a sub-variance which arises due to change in the composition of a standard gang or combination of labour force.<\/p>\n\n\n\n<p>Labour mix variance =<\/p>\n\n\n\n<p>(Actual hours at standard rate of actual gang \u2013 Actual hours at standard rate of standard gang)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>Standard rate (Revised standard labour hours &#8211; Actual labour hours)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>LMV = (RSH \u2013 AHW) x SR<\/p>\n\n\n\n<p>Total actual time<\/p>\n\n\n\n<p>Revised labour hours = Total standard time x Standard time<\/p>\n\n\n\n<p>The calculation is just like that the materials. It is included in the efficiency or time variance discussed above.<\/p>\n\n\n\n<p><strong>Labour Yield Variance<\/strong><\/p>\n\n\n\n<p>This is due to the difference in the standard output specified and the actual output obtained. This is computed as follows:<\/p>\n\n\n\n<p>Labour yield variance =<\/p>\n\n\n\n<p>Standard labour cost unit (Actual output \u2013 Standard output)<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>(Standard loss of actual total input \u2013 Actual loss) x Average standard rate per unit.<\/p>\n\n\n\n<p>OR<\/p>\n\n\n\n<p>LYV = SC p.u. (AY &#8211; SY)<\/p>\n\n\n\n<p>Note: AY will never change. SY will calculate for actual mix of hour as under:<\/p>\n\n\n\n<p>New SY = Old SY x \uf020TAH<\/p>\n\n\n\n<p>TSH<\/p>\n\n\n\n<p>If the actual output is more than standard output, it is favorable variance and vice versa.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Yield variance is the difference between the standard yield specified and the actual yield obtained. In other words, the difference between actual yield of materials in manufacture and the standard yield (i.e. expected yield from a given standard input) valued at standard output price is known as materials yield variance. This variance is of great&#8230;<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-107257","page","type-page","status-publish","hentry"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v24.5 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Materials Yield Variance - Tutorial<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.vskills.in\/certification\/tutorial\/materials-yield-variance\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Materials Yield Variance - Tutorial\" \/>\n<meta property=\"og:description\" content=\"Yield variance is the difference between the standard yield specified and the actual yield obtained. 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