variance analysis (accounting) In budgeting (or management accounting in general), a variance is the difference between a budgeted, planned, or standard cost and the actual amount incurred/sold. Variances can be computed for both costs and revenues. The concept of variance is ...

direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material. Direct material total variance can be divided into two components: *the

direct material price variance In variance analysis (accounting) direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material purchased. It is one of the two components (the other is direct material usage v ...

, *the

direct material usage variance In variance analysis, direct material usage (efficiency, quantity) 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 use ...

Example

Let us assume that standard direct material cost of widget is as follows: :2 kg of

unobtainium Unobtainium is a term used in fiction, engineering, and common situations for a material ideal for a particular application but impractically hard to get. Unobtainium originally referred to materials that do not exist at all, but can also be used ...

at $ 60 per kg ( = $ 120 per unit). Let us assume further that during the given period, 100 widgets were manufactured, using 212 kg of

which cost $ 13,144. Under those assumptions direct material total variance can be calculated as: Direct material total variance can be reconciled to

and

by: See direct material usage variance#Example and direct material price variance#Example for computations of both components.

Example

See also