Direct Materials Quantity Variance

If more than 600 tablespoons of butter were used, management would investigate to determine why. Some reasons why more butter was used than expected (unfavorable outcome) would be because of inexperienced workers pouring too much, or the standard was set too low, producing unrealistic expectations that do not satisfy customers. Together with the price variance the quantity variance forms part of the total direct materials variance.

Direct materials quantity variance is also known as direct material usage or volume variance. The debits and credits would be reversed for favorable materials quantity variances. Note 10.26 “Business in Action 10.2” illustrates just how important it is to track direct materials variances accurately. In a multi-product company, the total quantity variance is divided over each of the products manufactured. In this example, the variance is negative (unfavorable), as the actual quantity of sheet used (1,200) was higher than the standard quantity (1,000), and therefore it cost the business more to produce the 500 items than it should have done.

Direct Materials Quantity Variance

1. Material variance is the difference between the actual cost of direct materials and the expected cost of those materials.
2. Note that both approaches—the direct materials price variance calculation and the alternative calculation—yield the same result.
3. Thus, the standard used to derive the variance is more likely to cause a favorable or unfavorable variance than any actions taken by the production staff.
4. Don’t immediately blame inferior raw materials or your factory workers for an unfavorable materials quantity variance.
5. If the outcome is a favorable outcome, this means the actual costs related to materials are less than the expected (standard) costs.

Suppose, for example, a manufacturer uses plastic sheets in the manufacture of a product. Additionally each sheet has a standard price of 4.00, and a standard requirement of 2.00 sheets per item manufactured. Using the materials-related information given below, calculate the material variances for XYZ company for the month of October. Before the year is out, you want to clear out all variance accounts to the cost of goods sold. Variances are temporary accounts, meaning they must have a zero balance at the end of the accounting period. GR Spring and Stamping, Inc., a supplier of stampings to automotive companies, was generating pretax profit margins of about 3 percent prior to the increase in steel prices.

What is your current financial priority?

Review this figure carefully before moving on to the next section where these calculations are explained in detail. Direct materials quantity variance is a part of the overall materials cost variance that occurs due to the difference between the actual quantity of direct materials gary cogley used and the standard quantity allowed for the output. The variance is calculated using the direct materials quantity variance formula, which takes the difference between the standard quantity and the actual quantity, and multiplies this by the standard price per unit of material.

Total Direct Materials Cost Variance

Say you’re a professional baker who’s famous for your delectable peach cobbler. You expect about 5% of the peaches you order from a local farm to go bad between purchasing and baking day. Double Entry Bookkeeping is here to provide you with free online information to help you learn and understand bookkeeping and introductory accounting. We need just a bit more info from you to direct your question to the right person. Ask a question about your financial situation providing as much detail as possible. Our mission is to empower readers with the most factual and reliable financial information possible to help them make informed decisions for their individual needs.

If the actual quantity of materials used is less than the standard quantity used at the actual production output level, the variance will be a favorable variance. A favorable outcome means you used fewer materials than anticipated, to make the actual number of production units. If, however, the actual quantity of materials used is greater than the standard quantity used at the actual production output level, the variance will be unfavorable. An unfavorable outcome means you used more materials than anticipated to make the actual number of production units. Angro Limited, a single product American company, employs a proper standard costing system.

Variances occur in most of the manufacturing processes and for almost all cost elements. The ultimate motive behind their calculation is to control costs and enhance improvement. A material quantity variance is the bookkeeping jackson ga difference between the actual amount of materials used in the production process and the amount that was expected to be used. The measurement is employed to determine the efficiency of a production process in converting raw materials into finished goods. Where,SQ is the standard quantity allowed,AQ is the actual quantity of direct material used, andSP is the standard price per unit of direct material.

Multiply the difference by the standard cost

In this case, the production department performed efficiently and saved 40 units of direct material. Multiplying this by the standard price per unit yields a favorable direct material quantity variance of $160. The same calculation is shown using the outcomes of the direct materials price and quantity variances. If the actual price paid per unit of material is lower than the standard price per unit, the variance will be a favorable variance.