FREE IGNOU MCO-05 SOLVED ASSIGNMENT 2023

Q4 – Standard Cost of Chemical mixture ‘PQ’:

• 40% of material P @ Rs. 400 per kg.
• 60% of material Q @ Rs. 600 per kg.
• A standard loss of 10% is normally anticipated in production.

Actual Data for the month of March 2024:

• 180 kgs of material P have been used @ Rs. 680 per kg.
• 220 kgs of material Q have been used @ Rs. 360 per kg.
• The actual production of ‘PQ’ was 369 kgs.

Let’s calculate the following variances:

a) Material Price Variance b) Material Usage Variance c) Material Mix Variance d) Material Yield Variance

a) Material Price Variance:

Material Price Variance measures the difference between the standard cost and the actual cost of materials, considering the actual quantity used.

Material Price Variance = (Standard Price – Actual Price) x Actual Quantity

For Material P: Standard Price for P = Rs. 400 per kg Actual Price for P = Rs. 680 per kg Actual Quantity of P = 180 kgs

Material Price Variance for P = (400 – 680) x 180 = -Rs. 32,400 (Adverse)

For Material Q: Standard Price for Q = Rs. 600 per kg Actual Price for Q = Rs. 360 per kg Actual Quantity of Q = 220 kgs

Material Price Variance for Q = (600 – 360) x 220 = Rs. 52,800 (Favorable)

b) Material Usage Variance:

Material Usage Variance measures the difference between the actual quantity used and the standard quantity allowed for the actual production.

Material Usage Variance = (Standard Quantity – Actual Quantity) x Standard Price

For Material P: Standard Quantity for P = 40% of 369 kgs (Actual Production) = 147.6 kgs Standard Price for P = Rs. 400 per kg Actual Quantity of P = 180 kgs

Material Usage Variance for P = (147.6 – 180) x 400 = -Rs. 13,360 (Adverse)

For Material Q: Standard Quantity for Q = 60% of 369 kgs (Actual Production) = 221.4 kgs Standard Price for Q = Rs. 600 per kg Actual Quantity of Q = 220 kgs

Material Usage Variance for Q = (221.4 – 220) x 600 = Rs. 840 (Favorable)

c) Material Mix Variance:

Material Mix Variance measures the variance due to the difference in the actual proportion of materials used compared to the standard mix.

Material Mix Variance = (Standard Mix Proportion – Actual Mix Proportion) x Standard Quantity x Standard Price

Standard Mix Proportion for P = 40% Standard Mix Proportion for Q = 60% Actual Mix Proportion for P = 180 kgs / (180 kgs + 220 kgs) ≈ 0.45 Actual Mix Proportion for Q = 220 kgs / (180 kgs + 220 kgs) ≈ 0.55

Material Mix Variance = ((0.4 – 0.45) x 369 x 400) + ((0.6 – 0.55) x 369 x 600) ≈ -Rs. 16,830 (Adverse)

d) Material Yield Variance:

Material Yield Variance measures the variance due to the difference between the actual output obtained and the standard output expected from the actual quantity used.

Standard Output = 100% (As standard loss is 10%) Actual Output = Actual Production = 369 kgs

Material Yield Variance = (Standard Output – Actual Output) x Standard Price

Material Yield Variance = (1 – 1) x 369 x 400 = Rs. 0 (No Variance)

In summary, the variances are as follows:

• Material Price Variance: Rs. -32,400 (Adverse)
• Material Usage Variance: Rs. -13,360 (Adverse)
• Material Mix Variance: Rs. -16,830 (Adverse)
• Material Yield Variance: Rs. 0 (No Variance)