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Management Accounting · Standard Costing and Variance Analysis (Management Accounting)

Material Cost Variances: Price, Usage, Mix and Yield

Updated 10 October 2026 · Fact-checked

Material cost variance is the difference between the standard material cost for actual output and the actual material cost. You split it into price variance (AQ × (SP − AP)) and usage variance (SP × (SQ − AQ)). Usage splits further into mix and yield variances. A positive result is favourable; a negative result is adverse.

Understand Material Cost Variances

A material cost variance compares what the material should have cost for the output you actually made with what it really cost. The gap is split into parts so that each manager can be asked the right question.

There are two basic causes. You paid a different price from the standard: this is the price variance, usually the purchasing manager's concern. You used a different quantity from the standard allowed for actual output: this is the usage variance, usually the production manager's concern.

When a product uses two or more materials, the usage variance can be split again. The mix variance shows the effect of using materials in a different proportion from the standard mix. The yield variance shows the effect of getting more or less output than the standard from the total input. Mix plus yield equals usage.

A variance is favourable (F) when it raises profit and adverse (A) when it lowers profit. Always base the standard on actual output, not on budgeted output. This is the point most questions test.

Key rules to remember

Standard quantity (SQ)
SQ = standard quantity per unit of output × actual output
This is the quantity allowed for the actual output. It is the base for every usage-type variance.
Material cost variance (MCV)
MCV = (SQ × SP) − (AQ × AP)
Positive is favourable. It equals MPV + MUV.
Material price variance (MPV)
MPV = AQ × (SP − AP)
AQ is the actual quantity used. If the question asks for price variance on purchases, use the quantity purchased.
Material usage variance (MUV)
MUV = SP × (SQ − AQ)
Valued at standard price. It equals MMV + MYV when there is more than one material.
Revised standard quantity (RSQ)
RSQ of a material = total actual input of all materials × its standard mix proportion
It is the actual total input re-divided in the standard ratio.
Material mix variance (MMV)
MMV = SP × (RSQ − AQ), summed over all materials
It equals the standard cost of the revised standard mix minus the standard cost of the actual mix.
Material yield variance (MYV)
MYV = SP × (SQ − RSQ), summed over all materials
Equivalent form: standard cost per unit of output × (actual output − standard output for actual input).
Check relationships
MCV = MPV + MUV; MUV = MMV + MYV
Use these to check your answer before you write it.

How to solve Material Cost Variances questions

Use the same layout every time. It works for single-material and multi-material questions.

  1. 1Read the question and note standard quantity, standard price and standard mix per unit or per batch, then actual output, actual quantity and actual price.
  2. 2Compute SQ for each material from the actual output, not the budgeted output.
  3. 3For multi-material questions, find the total actual input and compute RSQ for each material in the standard ratio.
  4. 4Calculate the standard cost (SQ × SP) and actual cost (AQ × AP) of each material, and find MCV.
  5. 5Calculate MPV for each material as AQ × (SP − AP). A positive result is F and a negative result is A.
  6. 6Calculate MUV, or MMV and MYV, at standard price. Label every figure F or A.
  7. 7Add up the parts and check: MPV + MUV = MCV and MMV + MYV = MUV. Write a one-line reason and the person responsible for each major variance.

Quickest way: Three-column cost grid

When to use it: Use this for multi-material mix and yield problems when time is short.

  1. Draw three columns for each material: SQ × SP, RSQ × SP and AQ × SP. Add a fourth column for AQ × AP.
  2. Fill in the cost of each column and total it.
  3. Read the variances as differences between adjacent column totals. SQ×SP less RSQ×SP is yield. RSQ×SP less AQ×SP is mix. AQ×SP less AQ×AP is price.
  4. Sign rule: if the left column is bigger than the right, the variance is favourable; otherwise it is adverse.
  5. Add the three to get MCV and compare it with SQ×SP less AQ×AP.

Common mistakes in Material Cost Variances

  • Using budgeted output instead of actual output to find the standard quantity.

    Students are used to the budget figure from budgeting chapters.

    Fix: Always multiply the standard per unit by the actual output. Flexing the standard to actual output comes first.

  • Valuing the usage variance at actual price.

    Students mix the price and usage formulas.

    Fix: Price variance uses actual quantity. Usage, mix and yield variances use standard price. Remember: price on AQ, quantity at SP.

  • Getting the sign wrong and calling an adverse variance favourable.

    Students memorise the formulas in different directions.

    Fix: Think in terms of cost. Lower actual cost than standard is F. Higher actual cost than standard is A. Check the sign against this logic.

  • Computing mix variance using SQ instead of RSQ.

    Students forget that RSQ is based on actual total input.

    Fix: Mix compares RSQ with AQ, where both have the same total. Yield compares SQ with RSQ, where the mix is the same.

  • Ignoring normal loss when finding standard input for actual output.

    Students take the standard input per batch without adjusting for the standard loss.

    Fix: Standard input for actual output = actual output × standard input ÷ standard output. For a 20% loss, 100 kg input gives 80 kg output.

  • Not interpreting the answer.

    Students stop after the arithmetic.

    Fix: Add a short comment, for example that a favourable price variance may come from a cheaper, lower-quality material that raises wastage.

Worked examples

Example 1

A company's standard for one unit is 4 kg of material at ₹50 per kg. In a month it produced 2,000 units. It used 8,300 kg of material, costing ₹52 per kg. Calculate the material cost, price and usage variances.

Show the solution
  1. SQ = 4 kg × 2,000 units = 8,000 kg.
  2. Standard cost = 8,000 × ₹50 = ₹4,00,000.
  3. Actual cost = 8,300 × ₹52 = ₹4,31,600.
  4. MCV = ₹4,00,000 − ₹4,31,600 = ₹31,600 (A).
  5. MPV = AQ × (SP − AP) = 8,300 × (50 − 52) = ₹16,600 (A).
  6. MUV = SP × (SQ − AQ) = 50 × (8,000 − 8,300) = ₹15,000 (A).
  7. Check: ₹16,600 + ₹15,000 = ₹31,600 (A).

Answer: MCV ₹31,600 (A), MPV ₹16,600 (A), MUV ₹15,000 (A). Both purchasing and production caused the overspend.

Example 2

The standard mix for a product is 60 kg of A at ₹20 per kg and 40 kg of B at ₹30 per kg, a 100 kg input with 20% normal loss (80 kg output). In a period, actual input was 700 kg of A at ₹21 per kg and 500 kg of B at ₹28 per kg. Actual output was 920 kg. Calculate the material cost, price, usage, mix and yield variances.

Show the solution
  1. Standard input for 920 kg output = 920 × 100 ÷ 80 = 1,150 kg. SQ of A = 690 kg and SQ of B = 460 kg.
  2. Total actual input = 1,200 kg. RSQ of A = 1,200 × 60% = 720 kg and RSQ of B = 1,200 × 40% = 480 kg.
  3. Standard cost of SQ = 690 × 20 + 460 × 30 = 13,800 + 13,800 = ₹27,600. Actual cost = 700 × 21 + 500 × 28 = 14,700 + 14,000 = ₹28,700.
  4. MCV = 27,600 − 28,700 = ₹1,100 (A).
  5. MPV: A = 700 × (20 − 21) = ₹700 (A). B = 500 × (30 − 28) = ₹1,000 (F). Total MPV = ₹300 (F).
  6. MUV: A = 20 × (690 − 700) = ₹200 (A). B = 30 × (460 − 500) = ₹1,200 (A). Total MUV = ₹1,400 (A).
  7. MMV: A = 20 × (720 − 700) = ₹400 (F). B = 30 × (480 − 500) = ₹600 (A). Total MMV = ₹200 (A).
  8. MYV: A = 20 × (690 − 720) = ₹600 (A). B = 30 × (460 − 480) = ₹600 (A). Total MYV = ₹1,200 (A).
  9. Checks: 300 (F) and 1,400 (A) give 1,100 (A). 200 (A) and 1,200 (A) give 1,400 (A). Yield check: standard output for 1,200 kg input is 960 kg, so the shortfall is 40 kg at ₹30 per kg of output (27,600 ÷ 920) = ₹1,200 (A).

Answer: MCV ₹1,100 (A); MPV ₹300 (F); MUV ₹1,400 (A); MMV ₹200 (A); MYV ₹1,200 (A). Cheaper purchases were outweighed by a poor mix and a lower yield than standard.

Exam tips

  • In the MCQ section, most questions ask for one variance with its sign. Compute only that variance and check F or A by asking whether actual cost is below standard.
  • In written answers, show SQ, RSQ and AQ in a small table first. Step marks are given for correct quantities even if a later sign is wrong.
  • Always label F or A and show the check MCV = MPV + MUV. Examiners reward the reconciliation.
  • Read whether the price variance is on quantity used or quantity purchased. If a question gives opening and closing stock, this decides your answer.
  • Write one line of interpretation for the largest variance, naming the likely cause and the department responsible.

Practice questions from Standard Costing and Variance Analysis (Management Accounting)

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 price variance and usage variance?

Price variance measures the effect of paying a different price from the standard on the actual quantity. Usage variance measures the effect of using a different quantity from the standard allowed for actual output, valued at standard price. The two add up to the material cost variance.

How is material mix variance different from yield variance?

Mix variance isolates the effect of a change in the proportion of materials, with total input held constant. Yield variance isolates the effect of getting more or less output from the total input, with the mix held at standard. Together they equal the usage variance.

How do I calculate revised standard quantity?

Add up the actual quantities of all materials used. Multiply this total by each material's standard proportion. For example, if the total is 1,200 kg and the standard mix is 60:40, RSQ is 720 kg and 480 kg.

Is a favourable price variance always good?

No. It may come from buying cheaper, lower-quality material, which can cause wastage and a worse usage or yield variance. Always read the price and usage variances together.