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solve both or skip Example 1. The standard cost of material for manufacturing a unit of a particular product is estimated as under: 16 kg
solve both or skip
Example 1. The standard cost of material for manufacturing a unit of a particular product is estimated as under: 16 kg of raw materials @ rs. 1 per kg. On completion of the unit it was found that 20 kg. Of raw material costing rs. 1.50 per kg. Have been consumed. Compute material cost variance: DMCV= (SP X SQ) - (AP X AQ) = (16 x 1) - (20 x 1.50) = Rs. 14 (Adverse) 270 Direct Material Price Variance (DMPV) It is that portion of material cost variance which is due to the difference between the standard prices specified and the actual price paid. This variance may be due to a number of reasons: change in price, inefficient buying, standard quality of materials not purchased, favorable discounts not obtained etc. The formula is: Dmpv = actual quantity (standard price - actual price) If the actual price is more than the standard price, the variance would be adverse and in case the standard price is more than the actual price, it would result in a favourable variance. Example 2. Use the information given in example 1 and compute the material price variance. DMPV = AQ (SP - AP) = 20 (1 - 1.50) = Rs. (10) Adverse. Direct Material Usage Or Quantity Variance (DMUV) It is the difference between the standard quantity specified and the actual quantity used. This variance may arise because of: careless handling of materials, wastage, spoilage, theft, pilferage, changes in product design, use of inferior materials, defective tools and equipment etc. The formula is: DMUV = Standard Price (Standard Quantity For Actual Output - Actual Quantity) 271/286 = SP (SQ - AQ)Step by Step Solution
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