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 used, valued at the
standard cost per unit of material. It is one of the two components (the other is
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 ...
) of
direct material total variance
In variance analysis (accounting) 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 com ...
.
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 given period, 100 widgets were manufactured, using 212 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 ...
which cost € 13,144.
Under those assumptions direct material usage variance can be calculated as:
Direct material usage variance can be reconciled to
direct material total variance
In variance analysis (accounting) 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 com ...
by way of
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 ...
:
See
direct material total variance#Example and
direct material price variance#Example for computations of both components.
See also
*
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 i ...
{{DEFAULTSORT:Direct Material Usage Variance
Management accounting