Material Cost Variances: Price, Usage, Mix and Yield

Understand Material Cost Variances

Key rules to remember

Material cost variance (MCV)

MCV = (SQ × SP) − (AQ × AP)

SQ is the standard quantity for actual output. A positive result is favourable.

Material price variance (MPV)

MPV = AQ × (SP − AP)

Use AQ purchased if the question asks for price variance on purchase, and AQ used if it is on consumption. Read the question.

Material usage variance (MUV)

MUV = SP × (SQ − AQ)

AQ here is the quantity actually used. Valued at standard price.

Material mix variance (MMV)

MMV = SP × (RSQ − AQ), or Standard cost of standard mix for actual input − Standard cost of actual mix

RSQ (revised standard quantity) = total actual input × standard proportion of that material. Applies only when two or more materials are used.

Material yield variance (MYV)

MYV = SP × (SQ − RSQ), or Standard cost per unit of output × (Actual output − Standard output for actual input)

Also called sub-usage variance. Adverse when output is lower than the total input should have produced.

Checks

MCV = MPV + MUV, and MUV = MMV + MYV

Use these to verify your answer. Keep the same basis (consumption) for all of them.

How to solve Material Cost Variances questions

1. 1Write down the actual output and find the standard quantity (SQ) of each material for that output. Scale the standard per unit or per batch.
2. 2List the standard price (SP) and actual price (AP) for each material, and the actual quantity (AQ) used. Note whether the question gives quantity purchased and used separately.
3. 3Compute total standard cost (SQ × SP) and total actual cost (AQ × AP) for each material, then calculate MCV.
4. 4Compute price variance AQ × (SP − AP) and usage variance SP × (SQ − AQ) for each material. Mark each F or A.
5. 5If there are two or more materials, find RSQ = total AQ × standard proportion. Then compute mix variance SP × (RSQ − AQ) and yield variance SP × (SQ − RSQ).
6. 6Add up each variance across materials, keeping signs.
7. 7Verify that MCV = MPV + MUV and MUV = MMV + MYV. Fix any mismatch before moving on.
8. 8Add a one-line interpretation for each variance, such as a likely cause and the department responsible.

Quickest way: Three-row table method for mix and yield

Common mistakes in Material Cost Variances

• Using budgeted quantity instead of standard quantity for actual output

  Students take the standard given in the question without scaling it to actual production.

  Fix: Always start with: actual output × standard input per unit. Write SQ before anything else.

• Getting the sign wrong, especially in price variance

  Students subtract in the wrong order, such as AP − SP.

  Fix: Use the forms SP − AP and SQ − AQ. A positive answer is favourable and a negative answer is adverse. Think in terms of 'should have cost' minus 'did cost'.

• Using quantity purchased for usage variance

  Questions give both purchased and used quantities, and students pick the wrong one.

  Fix: Usage and mix variances use quantity used. Price variance uses quantity purchased if the question says price variance is on purchase. Otherwise use quantity used.

• Computing RSQ using the standard quantity totals instead of actual total input

  Students mix up the two totals.

  Fix: RSQ = total actual input × (standard quantity of the material ÷ total standard quantity). Total of RSQs must equal total AQ.

• Confusing mix and yield variance

  Both arise from usage and look similar.

  Fix: Mix compares proportions of inputs, at the same total input. Yield compares output with total input. If total AQ equals total SQ, yield is zero.

• Not interpreting the result

  Students stop once the numbers are done.

  Fix: Add a short line to each variance, such as 'adverse price variance due to market price rise; purchase department to review sourcing'. Keep it factual.

Worked examples