Materials Quantity Variance or
Materials Usage Variance:
Learning objectives of this article:
-
Define and explain materials quantity/usage
variance.
-
How is
it calculated?
-
What
are the reasons of unfavorable materials quantity
variance (excessive usage of materials in
production)?
-
Who is is
responsible for this variance?
Definition and Explanation:
Materials quantity variance is computed by
comparing the actual quantity of materials used with
the standard quantity of material allowed, both
priced at standard cost. If actual quantity used is
more than the standard quantity allowed to produce a
particular number of units, the variance is called
unfavorable materials quantity variance. An
if actual quantity of materials used is less than
the standard quantity allowed, the variance is
called favorable materials quantity variance.
The standard
quantity allowed is determined by multiplying the quantity
of materials that should be required to produce one unit
(the standard quantity per unit) times the actual number of
units produced during the period. The unit produced are the
equivalent units of production for the materials cost being
analyzed.
Formula:
The
following formula is used to calculate this
variance:
|
Materials quantity variance = (Actual
quantity used × Standard price) - (Standard
quantity allowed
× Standard price) |
Example:
Assume
that 3,550 pieces of item 5-489 (direct material)
are used in producing 1,750 units of finished
product. Standard quantity allowed to produce 1 unit
of finished product is 2 pieces of item 5-489 and
standard price per piece of 1 piece is $2.50.
Required: Calculate Direct materials
quantity
variance.
Solution:
| |
Pieces |
× |
Unit Cost |
= |
Amount |
|
Actual quantity used at
standard price |
3,550 |
|
$2.50 standard |
|
$8,875 |
|
Standard quantity allowed at
standard price |
3,500 |
|
$2.50 standard |
|
8,750 |
| |
|
|
|
|
|
| |
50 |
|
|
|
$(125) unfav. |
| |
|
|
|
|
|
|
The standard
quantity allowed is the result of multiplying 1,750
units of finished product by the standard quantity
of 2 pieces per unit. The $125 materials quantity
(or usage) variance is unfavorable because the
actual quantity used exceeded the standard
quantity by 50 pieces of direct materials (item
5-489).
Excessive usage of
materials can result from many reasons, including faulty
machines, inferior quality of materials, untrained workers,
poor supervision and theft of materials.
Who is Responsible for Direct Materials Quantity
Variance?
Generally, production department is responsible
to see that material usage is kept in line with standards. However, purchasing
department may be responsible for unfavorable materials quantity variance if it
is caused by poor quality of materials. If purchasing department obtains
inferior quality materials in effort to economize on price, the materials may be
unsuitable for use and may result in excessive waste. Thus purchasing department
rather than production department would be responsible for the quantity or usage
variance.
A word of caution
is in order. Variance analysis should not be used as
an excuse to conduct witch hunts or as a means of
beating line managers and workers over the head. The
emphasize must be on control in the sense of
supporting the line managers and assisting them in
meeting the goals that they have participated in
setting for the company. In short, the emphasize
should be positive rather than negative. Excessive
dwelling on what has already have happened,
particularly in terms of trying to find someone to
blame, can destroy morale and kill any cooperative
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