Material Variances: Explanation

Material variances include two factors:

  1. The amount of materials needed to produce one unit of output
  2. The prices that should have been paid to acquire this quantity of materials

Hence, the total material cost variance may result from the difference between the standard and actual quantities of materials used, the difference between the standard and actual prices paid for materials, or from a combination of the two.

Formulas to Calculate Material 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. The formula for material price variance is the following:

Material price variance = Actual quantity (Standard price – Actual price)

In addition, the formula for material quantity variance is given as follows:

Material quantity = Standard price (Standard quantity – Actual quantity)

Example

Using the materials-related information given below, calculate the material variances for 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 (Favorable)
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)

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