Material Cost Variance

The difference between the standard cost of direct

materials specified for production and the actual cost
of direct materials used in production is known as
Direct Material Cost Variance. Material Cost Variance
gives an idea of how much more or less cost has
been incurred when compared with the standard
cost. Thus, Variance AnalY.sis is an important tool to
keep a tab on the deviations from the standard set by
a company.
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I
'-

Material Cost Variance Formula

Formula for Material Cost Variance = Standard Cost

- Actual Cost

Material Cost Variance can be due to less purchase

price being paid than the standard or because of
change in the quantity of material used. Thus,
Material Cost Variance is made up of two
components namely; Material Price Variance and
Material Usage Variance.
Material Price Variance

Material Price Variance is the difference between the

standard price and the actual price for the actual
quantity of materials used for production. The cause
for material price variance can be many including
changes in prices, poor purchasing procedures,
deficiencies in price negotiation, etc.

Material Cost Variance

The difference between the standard cost of direct materials specified for
production and the actual cost of direct materials used in production is known as
Direct Material Cost Variance.
MCV Formula = Standard Cost - Actual Cost
Material Price Variance
Material Price Variance is the difference between the standard price and the actual
price for the actual quantity of materials used for production.
MPV Formula= (Standard Price - Actual Price) x Actual Quantity

Material Usage Variance

Material Usage Variance is the difference between the standard quantity specified
for actual production and the actual quantity used at the standard purchase price.
MUV = (Standard Quantity- Actual Quantity) x Standard Price
Material Cost Variance Formula

Standard Cost - Actual Cost

In other words, (Standard Quantity x Standard Price)

- (Actual Quantity x Actual Price)

= (200 X 10) - (1 50 X 8)

= 800 (F)

Favorable, since the actual cost is less than the

standard cost. If the actual cost is more than the
standard cost, the result is Adverse (A).

MCV= MPV+ MUV

= 300 (F) +500 (F)

= 800 (F)
 ~laterial Cost Varianct:
MCV
I
(SMC AMC)

f"- 1.Hcri,11 I b,1gc/()uantiry Variance

l
Material Price Variance
(~() - A() ) SP (SP - AP)AQ ;

I
! "¼..
t\·l.-tt e r1.i l Sub Usage Varin.nc.c:'.: Material Mix Variance
( S<) - RSQ) SP (RSQ - AQ) SP

I( A l ways e4ual 10)

~1atenal Yield Variance

(AY - SY) SRO

I lcr<.: S l\lC = Standard ~1aterial Cost for Actual Output

A ~1C = Actual Material Cost
SQ ,,_ Standard Input used for Actual Production
A<) = Actual ()uantity Used
SP = Standard Price
A I' - Actual Price
R S() -= Revi seJ Standard Quantity (Total Actual Quantity divided into SQ Ratio)
AY =Actual Yield or Output
SY Actual l11put used
= Sta ndard Yie ld based on
SRO = Standard Rate pt!r Unit of Output
Figure 2: Diagram of Direct Materials Variance
Analysis

AcnlAL DIRECT MATERIALS WORlt IN PllocE55

MATOIALS PutlCHA5ED INVENTORY INVENTORY

(Actual prke (Siandard prke (Standard price

X X X
actual quantity) actual quantity) standard quantity)
$5.90 per ft. X 760 ft. $6.00 .,_r ft. X 760 ft. S6.00 per ft. x 720 ft.
: $4,484 = $◄,560 =54,320

Diffe,ence Diffe,ence
equals equals
l l
DIRECT MATERIALS DIRECT MATERIALS
PRICE VARIANCE QUANTITY VARIANCE

([Standard price (Standard price X

- actual price] [standard quantity
X actua l quantity) - actual quantity])
$0.10 X 760 ft. $6.00 per ft. x 40ft.
= lli (F}

Diffe1ence
~quals
l
I = $240 (U)

TOTAL DIRECT M ATERIALS COST VARIANCE

(Net of direct materials price variance

and direct materials quantity variance)
$76 (F)- $240 (U) = $164 (U)

Computing and Analyzing Direct Materials

Variances

• Total direct materials cost variance is the sum of

the direct materials price variance and the direct
materials quantity variance.
Direct Materials Price Variance = (Standard Price -
Actual Price) x Actual Quantity
Direct Materials Quantity Variance= Standard Price x
(Standard Quantity Allowed - Actual Quantity)