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Material Variances

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

Explanation

Material variances include two factors: (1) the quantity of materials that should have been used to produce one unit of output and (2) the prices that should have been paid in acquiring this quantity of materials. Hence the total material cost variance may result from difference between standard and actual quantities of materials used or between standard and actual prices paid for materials, or from a combination of these factors.

Formula to calculate Matrial Cost Variance and Material Price Variance

The following material variances are calculated:
Material Cost variance = (Standard quality for Actual Output X Standard price) – (Actual Quantity X Actual Price)
Material cost variance can be divided into Material Price Variance and Material Quantity variance.

Material Price variance = Actual Quantity (Standard price – Actual price)
= AS (SP – AP)
Material quantity = Standard Price (Standard quantity – Actual quantity)
= Sp (SQ – AQ)

Example

From the material related information given below calculate the various material variances for the XYZ Company for the month of October:

Solution

DMCV = DMPV + DMQV
DMPV = Actual Quantity (Standard Price – Actual Price)
x = 4 (3 – 3) = 0
Y = 4 (2 – 1) = 4 (Favorable)
Total = 4 (Favorable)
DMQV = Standard Price (Standard Quantity – Actual Quantity)
X = 3 (5 – 4) = 3 (Favorable)
Y = 2 (3 – 4) = 2 (Unfavorable)
Total = 1 (Favorbale)
DMCV = (Standard Price x Standard Quantity for Actual Output) – (Actual Price X Actual Quantity)
X = (3 x 5) – (3 x 4) = 15 – 12 = 3 (Favorable)
Y = (2 x 3) – (1 x 4) = 6 – 4 = 2 (Favorable)
OR
DMCV = DMPV + DMQV
DMCV = 4 + 1 = 5 (Favorable)