CIMA BA2 Syllabus C. PLANNING AND CONTROL - Materials Variances - Notes 3 / 9
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)
Therefore, we can see that our total material variance is:
Usage $10,000 Adverse +
Price $10,000 Favourable
= $0
This means that our expected material cost would have been exactly the same as our actual cost, however, when we investigate further, we saw that we have used more materials that our standard and we have paid less per kg in comparison to our standard.