Calculate and analyse the following variances: materials (total, usage and price)

Formulae for calculating variances

Direct materials

Material total cost variance

• the difference between the total actual material cost and the total standard material cost for the actual quantity 

Material price variance:

• Difference between standard price and actual price, for the actual quantity of material
AQ x (AP – SP) 

Material usage variance:

• Difference between standard quantity required for actual production and the actual quantity used, at standard purchase price:
SP x (AQ – SQ)

Razi’s Pie Shop

Standard Cost Card for Plum Pie

5kg flour:            £3.00 (60p per kg)
0.6 kg butter       £3.00 (£5 per kg)
4 litres milk         £2.00 (50p per litre)
200 grams sugar £0.20 (£1 per kg)
0.5 kg plums       £1.00 (£2 per kg)
Standard cost:    £9.20 per batch

Last month, 20 batches of pies were made using the following amounts of materials (ingredients)

Ingredient           Quantity              Cost (£)

Flour                    120kg                  66

Butter                  12kg                    60

Milk                     75 litres               31.50

Sugar                   4.0 kg                  4.40

Plums                  12kg                    24

1.Calculate materials price variances for each ingredient.

Flour: AQ x (AP – SP)

120kg x (£0.55 - £0.60)

So.. 120 x £0.05 = £6.00 FAV

I calculated the £0.55 by the total cost of the flour (£66.00) divided by the quantity bought (120kg)

The variance is favourable because the business spent less than the standard cost card would suggest it should for flour.

Why? Perhaps a different supplier or a special offer from our existing supplier. Or the price of flour could have fallen since the standard cost card was produced.

Can you calculate the other material price variances?.

2. Calculate materials usage variances for each ingredient.

Flour: SP x (AQ – SQ)

£0.60 x (120kg - 100kg)

So.. £0.60 x 20 = £12 ADV

The £0.60 came from the standard cost card.

The 100kg came from multiplying the standard quantity per batch (5kg) by the number of batches made (20).

The variance is adverse because we used more flour than the standard cost card suggested.

Why? Perhaps someone burnt a batch of pies and they had to be made again. We call this wastage.

Phil’s Meat Pie Shop

Standard Cost Card for batch of Meat Pies

3kg flour:                       £1.80 (60p per kg)
0.3 kg butter:                 £1.50 (£1.50 per kg)
2 litres milk:                   £1.00 (50p per litre)
800 grams meat:            £0.80 (£1 per kg)
0.5 kg vegetables:          £1.00 (£2 per kg)
Standard cost:               £5.50 per batch

Last month, 20 batches of pies were made using the following amounts of materials (ingredients)

Ingredient           Quantity              Cost (£)

Flour                    61 kg                  12.20

Butter                     6 kg                  30.60

Milk                     50 litres              17.50

Meat                    16 kg                   16.00

Vegetables           12 kg                   21.00

1. Calculate materials price variances for each ingredient.

2. Calculate materials usage variances for each ingredient.

3. Calculate total materials variance.