DIRECT COST VARIANCES (Actual Quantity x Standard Price)

Material Variances Less: (Standard Quantity Allowed x Standard Price

It is affected by two factors which are: Or
A.) Quantity Formula: (AQ-SQ)*SP
B.) Price
Actual Quantity < Standard Quantity = Favorable
1. Material Price Variance (MPV) Actual Quantity > Standard Quantity =Unfavorable

Total AC of Materials Purchased Possible causes of Material Quantity Variance

Less: AQ of Materials x SP a.) Defects in Direct Materials
Materials Price Variance b.) Inexperienced Workers
Or c.) Poor Supervision
Formula: d.) Lack of Proper Tools or Machines
MPV: (AP-SP)*SQ = Pxxx F/UF e.) Good or poor control over waste or spoilage

Actual Price < Selling Price = Favorable Three different methods in computing material
variances
Actual Price > Selling Price = Unfavorable
1. Formula Based
2. Cost Line Method
The Possible Causes of Material Variance are as
follows: 3. Three Way Analysis
a.) Fluctuation in Market Price of Materials
b.) Failure to take Purchase Discount Point of Purchase Model
c.) Transportation costs are higher than expected When the quantity of materials purchased and used
is not the same, there is a slight change of
d.) Different grade of DM purchases
computation.
e.) Favorable or Unfavorable Contract Terms
1. Material Purchase Price Variance
- Computed based on the quantity of materials
Material Quantity Variance purchased during the period.

The Standard Price is used to compute quantity - Referred to as the Point of Purchase Material
variance so that the production manager is not held Variance Model
responsible for the performance of purchasing
manager.
Cost Line Method:
(AP x AQ of Materials Purchased during the period)
- (SP x AQ of Mat. Purchased during the period)
Material Purchase Price Variance

2. Material Price Usage Variance

Computed based on the quantity of materials used
during the period

Solution
Problem 3-8
A.
Material Price Usage
(P278, 800- (17000m x P15.60/m))
= P 13,600 Unfavorable
Material Quantity
(16400m x P15.60/m)
Less: ((5.20m/u x 3280) (P15.60m)
P 10, 233.60 Favorable

Total Material Variance

P 13,600- P 10, 233.60
= P 3, 366.40 Favorable