ACCA MA Syllabus E. Standard Costing - Materials price and usage variances - Notes 2 / 8
Materials Variances
The direct material total variance can be subdivided into the direct material price variance and the direct material usage variance.
| direct material total variance = | actual units should have cost | $x |
| actual units did cost | $x | |
| -------- | ||
| direct material total variance | $x (f/a) | |
| ===== | ||
| direct material price variance = | actual kgs should have cost | $x |
| actual kgs did cost | $x | |
| -------- | ||
| direct material price variance | $x (f/a) | |
| ===== | ||
| direct material usage variance = | actual units should have used | x kgs |
| actual units did use | x kgs | |
| --------- | ||
| usage variance in kgs | x kgs (f/a) | |
| x standard cost per kg | $x | |
| --------- | ||
| usage variance in $ | $x (f/a) | |
| ====== |
Illustration - Materials usage variance
Actual production 9,000 units
Standard usage/unit 5kg
Standard cost/kg $10
Actual material usage for actual production 46,000kg
What is the material usage variance?
Solution
Should use 9,000 x 5kg = 45,000kg
Did use 46,000kg
Materials usage variance 1,000kg x $10/kg = $10,000 Adverse (We did use more materials than we should use)
Illustration
Standard cost/kg $10
Actual material usage for actual production 46,000kg
Actual amount paid for actual usage $450,000
What is the material price variance?
Solution
46,000kg should pay 46,000 x $10 = $460,000
Did pay $450,000
Materials price variance is $10,000 Favourable (Paid less than should have)