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Strategic Cost Management · Variance Analyses

Material Cost Variances: Price, Usage, Mix and Yield

Updated 11 October 2026 · Fact-checked

Material cost variance is the gap between the standard cost of material for actual output and the actual cost. Split it into price variance (rate) and usage variance (quantity). Split usage into mix variance (ratio of inputs) and yield variance (output from input). Compute each material separately, then total.

Understand Material Cost Variances

A standard cost tells you what material should cost for the output you actually made. The actual cost is what you really paid. The gap is the material cost variance (MCV). It is only a headline. Management needs to know why it arose, so you split it.

The first split is by cause. You paid a different rate than the standard: that is the material price variance (MPV). You used a different quantity than the standard allows for the actual output: that is the material usage variance (MUV). Price is the purchasing department's area. Usage is the production department's area.

The second split applies when a product uses two or more materials in a standard ratio, often with a normal loss. The usage variance then has two parts. If you used the materials in a different ratio from the standard, that is the mix variance (MMV). If the total input gave more or less output than the standard expects, that is the yield variance (MYV). Mix shows the effect of using a costlier or cheaper blend. Yield shows the effect of excess or lower wastage.

The key tool is the revised standard quantity (RSQ). It is the total actual input shared in the standard ratio. Comparing RSQ with actual quantity isolates mix. Comparing standard quantity for actual output with RSQ isolates yield. The identities are always: MCV = MPV + MUV and MUV = MMV + MYV. Use them as a check on every answer.

Key rules to remember

Material cost variance (MCV)
MCV = (SQ × SP) − (AQ × AP)
SQ is standard quantity for actual output. Positive means favourable, negative means adverse.
Material price variance (MPV)
MPV = (SP − AP) × AQ
AQ is the actual quantity purchased if price is isolated at purchase, or actual quantity used if isolated at consumption. Follow the question.
Material usage variance (MUV)
MUV = (SQ − AQ used) × SP
Valued at standard price. SQ is for actual output.
Revised standard quantity (RSQ)
RSQ of a material = Total actual input of all materials × (Standard quantity of that material ÷ Total standard input)
Same total as actual input, but in the standard ratio.
Material mix variance (MMV)
MMV = (RSQ − AQ) × SP
Calculated material by material. If the total actual input equals the total standard input for the output, this equals (SQ − AQ) × SP.
Material yield variance (MYV)
MYV = (SQ − RSQ) × SP, or (Actual output − Standard output for actual input) × Standard cost per unit of output
Both forms give the same answer.
Identities for checking
MCV = MPV + MUV; MUV = MMV + MYV
Use these to verify the answer. Signs must be added algebraically.

How to solve Material Cost Variances questions

Use the same grid for every question. It keeps the working tidy and the checks easy.

  1. 1Read what the standard is based on: per unit of output, per batch of input, and any normal loss. Note the standard price of each material.
  2. 2Compute the standard quantity (SQ) for the actual output for each material. If the standard is given for a batch, scale it by actual output ÷ standard output.
  3. 3Write the actual quantity (AQ) and actual price (AP) of each material. Add the total actual input.
  4. 4Compute the revised standard quantity (RSQ) by sharing the total actual input in the standard ratio.
  5. 5Compute MCV, MPV and MUV material by material. Check that MPV + MUV = MCV.
  6. 6Compute MMV as (RSQ − AQ) × SP and MYV as (SQ − RSQ) × SP. Check that MMV + MYV = MUV.
  7. 7Mark each variance Favourable (F) or Adverse (A) and total it.
  8. 8Add a line of comment on the likely cause and the department responsible if the question asks for interpretation.

Quickest way: Standard value grid

When to use it: Use it for two or more materials with a mix and yield split, where time is tight.

  1. Make one table with rows for each material and columns for SQ, RSQ and AQ in kg, and SP and AP in rupees.
  2. Multiply each quantity column by SP to get three values: SQ × SP, RSQ × SP and AQ × SP. Also get AQ × AP.
  3. Read the variances as differences between columns: MYV = (SQ × SP) − (RSQ × SP); MMV = (RSQ × SP) − (AQ × SP); MPV = (AQ × SP) − (AQ × AP).
  4. Add the three, which gives MCV = (SQ × SP) − (AQ × AP). If it matches the direct computation, you are done.
  5. Sign rule: if the actual column is higher than the standard in cost, the variance is adverse.

Common mistakes in Material Cost Variances

  • Using actual price to value usage, mix or yield variances.

    Students mix price and quantity effects.

    Fix: Value every quantity variance at standard price. Actual price appears only in the price variance.

  • Calculating RSQ with the standard total instead of the actual total input.

    The standard batch total looks like the obvious figure to use.

    Fix: RSQ always sums to the actual total input. Only the ratio comes from the standard.

  • Taking SQ from the standard batch without scaling it to actual output.

    Students forget that SQ is based on actual output, not budgeted output.

    Fix: First find what input the standard allows for the actual output, including normal loss, then compute SQ for each material.

  • Getting yield variance with the wrong cost per unit of output.

    Students divide the standard cost by the total input rather than by the standard output.

    Fix: Standard cost per unit of output = standard cost of the batch ÷ standard output of the batch. Or avoid this by using (SQ − RSQ) × SP.

  • Using the quantity used for price variance when the question gives purchases and issues separately.

    Students ignore the wording on stock.

    Fix: If the question says price variance is calculated at the time of purchase, use the quantity purchased. Otherwise use the quantity used.

  • Wrong sign: calling a variance favourable when actual is higher than standard.

    Students reverse the subtraction.

    Fix: Use the formulas as written. Positive means favourable and negative means adverse. Then check with MPV + MUV = MCV.

Worked examples

Example 1

The standard for 90 kg of output of a chemical is: Material A 60 kg at ₹50 per kg, Material B 40 kg at ₹30 per kg (total input 100 kg, normal loss 10 kg). In a month, 1,800 kg were produced. Actual consumption: A 1,300 kg at ₹52 per kg (₹67,600) and B 800 kg at ₹28 per kg (₹22,400). Calculate the material cost, price, usage, mix and yield variances.

Show the solution
  1. Standard input for 1,800 kg of output = 1,800 × 100 ÷ 90 = 2,000 kg. So SQ of A = 1,200 kg and SQ of B = 800 kg.
  2. Standard cost = 1,200 × 50 + 800 × 30 = ₹60,000 + ₹24,000 = ₹84,000. Actual cost = ₹67,600 + ₹22,400 = ₹90,000.
  3. MCV = 84,000 − 90,000 = ₹6,000 (A).
  4. MPV: A = (50 − 52) × 1,300 = ₹2,600 (A). B = (30 − 28) × 800 = ₹1,600 (F). Total MPV = ₹1,000 (A).
  5. MUV: A = (1,200 − 1,300) × 50 = ₹5,000 (A). B = (800 − 800) × 30 = nil. Total MUV = ₹5,000 (A). Check: 1,000 + 5,000 = 6,000.
  6. Total actual input = 2,100 kg. RSQ of A = 2,100 × 60% = 1,260 kg. RSQ of B = 840 kg.
  7. MMV: A = (1,260 − 1,300) × 50 = ₹2,000 (A). B = (840 − 800) × 30 = ₹1,200 (F). Total MMV = ₹800 (A).
  8. MYV: A = (1,200 − 1,260) × 50 = ₹3,000 (A). B = (800 − 840) × 30 = ₹1,200 (A). Total MYV = ₹4,200 (A).
  9. Check: 800 + 4,200 = 5,000 = MUV. Cross-check of yield: standard output for 2,100 kg input = 1,890 kg; actual 1,800 kg; shortfall 90 kg × ₹4,200 ÷ 90 = ₹4,200 (A).

Answer: MCV ₹6,000 (A); MPV ₹1,000 (A); MUV ₹5,000 (A); MMV ₹800 (A); MYV ₹4,200 (A).

Example 2

A single material is used. Standard: 4 kg per unit at ₹25 per kg. In a month, 5,000 units were produced. The firm purchased 22,000 kg at ₹26.50 per kg and used 20,800 kg. Calculate the price variance at the time of purchase, the usage variance, and the price variance on the quantity used.

Show the solution
  1. SQ for actual output = 5,000 × 4 = 20,000 kg.
  2. MPV at purchase = (25 − 26.50) × 22,000 = −₹33,000, so ₹33,000 (A).
  3. MUV = (20,000 − 20,800) × 25 = −₹20,000, so ₹20,000 (A).
  4. MPV on quantity used = (25 − 26.50) × 20,800 = −₹31,200, so ₹31,200 (A).
  5. Check on a consumption basis: standard cost = 20,000 × 25 = ₹5,00,000. Actual cost of material used = 20,800 × 26.50 = ₹5,51,200. MCV = ₹51,200 (A) = 31,200 + 20,000.
  6. The extra ₹1,800 of price variance in the purchase-basis figure (33,000 − 31,200) relates to the 1,200 kg bought but not yet used, which is in closing stock.

Answer: MPV at purchase ₹33,000 (A); MUV ₹20,000 (A); MPV on usage ₹31,200 (A); MCV on usage basis ₹51,200 (A).

Exam tips

  • In MCQs, first decide whether the question wants a total or a material-wise variance, and whether it is favourable or adverse. Options often differ only in sign.
  • With a single material, mix variance does not exist. Usage variance is the whole quantity variance.
  • Check the wording on normal loss. If the standard has a normal loss, yield variance usually appears in the question.
  • In the written questions, show the SQ, RSQ and AQ table first. Marks are given for each correct step even if the final figure is wrong.
  • Add a short comment on cause and responsibility. For example, adverse mix may mean a costlier material was substituted because of a shortage.

Practice questions from Variance Analyses

Material Cost Variances in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Material Cost Variances: frequently asked questions

What is the difference between material mix variance and material usage variance?

Usage variance compares the standard quantity for actual output with the actual quantity used. Mix variance is only one part of it. It shows the effect of using the materials in a different ratio from the standard. Usage variance equals mix variance plus yield variance.

How do I calculate material yield variance?

Find the standard quantity for actual output and the revised standard quantity, then take (SQ − RSQ) × standard price for each material and total it. You can also take the difference between actual output and the standard output for actual input, and multiply by the standard cost per unit of output.

What is the revised standard quantity?

It is the total actual input of all materials divided in the standard ratio. It has the same total as actual input but the proportions of the standard mix. It is the benchmark for the mix variance.

Should price variance be based on purchase or usage quantity?

Follow the question. If it says that price variance is isolated at the time of purchase, use the quantity purchased. If no purchase figure is given, or it says on consumption, use the quantity used.