Materials price and usage variances

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Materials Variances

The direct material total variance can be subdivided into the direct material price variance and the direct material usage variance.

ACCA MA D2b Total Materials Variance graph
direct material total variance = actual units should have cost $x
actual units did cost $x
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direct material total variance $x (f/a)
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direct material price variance = actual kgs should have cost $x
actual kgs did cost $x
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direct material price variance $x (f/a)
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direct material usage variance = actual units should have used x kgs
actual units did use x kgs
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usage variance in kgs x kgs (f/a)
x standard cost per kg $x
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usage variance in $ $x (f/a)
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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)

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