Calculation of Material and Labour Variances in Finance Management

FINANCE MANAGEMENT

Table of Contents
QUESTION.....................................................................................................................................3
(a) Calculation of material price and usage variance for Flour...................................................3
(b) Calculation of material price and usage variance for Cocoa.................................................3
(c) Interrelationship between Material Variance.........................................................................3
(d) Calculation of labour rate and efficiency variance................................................................3
(e) Interrelationship between labour variance.............................................................................4
(f) Causes for labour idle time variances.....................................................................................4
REFERENCES................................................................................................................................1

QUESTION
(a) Calculation of material price and usage variance for Flour
Formula of Material Price Variance = Actual Quantity* (Standard Price – Actual Price*)
Flour price variance = 17910Kg* (€15 - €15.16) = (€2865.6) Adverse
*Actual Price = €271,450/ 17910Kg = €15.16 per kg
Formula of Material Usage Variance = Standard Price* (Standard Quantity for actual output* –
Actual Quantity)
Flour material variance = €15* (18000Kg – 17910Kg) = 90Kg Favourable
*Standard Quantity = 900 cake* 20kg =18000kg
(b) Calculation of material price and usage variance for Cocoa
Formula of Material Price Variance = Actual Quantity* (Standard Price – Actual Price*)
Cocoa price variance = 4635Kg* (€20 - €16.69) = €15341.85 Favourable
*Actual Price = €77335/ 4635Kg = €16.69 per kg
Formula of Material Usage Variance = Standard Price* (Standard Quantity for actual output*-
Actual Quantity)
Cocoa material variance = €20* (4500Kg – 4635Kg) = (135Kg) Adverse
*Standard Quantity = 900 cake* 5kg =4500kg
(c) Interrelationship between Material Variance
In the above question, the variance arises in the direct material because of the change in
price and usage both. The adverse flour price variance indicate that the actual price is more than
standard price while the favourable usage of flours indicate that the standard quantity usage is
less than the actual (Ayres and et.al., 2018). And the favourable cocoa price variance state that
the actual price is less than standard and adverse cocoa material usage indicate actual material
usage is high than standard (Du, Huang and Zhou, 2020). So, the interrelationship between the
above state than the overall material variance depends upon various factors rather than one.
(d) Calculation of labour rate and efficiency variance
Formula of Labour Rate Variance = Actual Hours* (Standard Rate – Actual Rate*)
LRV = 5310hours* (€7 – €7.5) = (€2655) Adverse