ACCA PM Syllabus D. Budgeting And Control - Materials total, price and usage variances - Notes 4 / 4
Materials total, price and usage 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) | |
| ====== |
The direct material total variance
is the difference between what the output actually cost and what it should have cost, in terms of material.
The direct material price variance
calculates the difference between the standard cost and the actual cost for the actual quantity of material used or purchased.
In other words, it is the difference between what the material did cost and what it should have cost.
The direct material usage variance
is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material.
In other words, it is the difference between how much material should have been used and how much material was used, valued at standard cost.
| Variance | Favourable | Adverse |
| Material price | unforeseen discounts received more care taken in purchasing change in material standard | price increase careless purchasing change in material standard |
| Material usage | material used of higher quality than standard more effective use made of material errors in allocating material to jobs | defective material excessive waste theft stricter quality control errors in allocating material to jobs |
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)