Direct Material Variances

Direct material  variance is the main type of variance.With material variances, we can decide to buy optimum quantity of raw material at optimum price in future because adverse direct material variances show that there is no effective  use of our resources in raw material. After knowing this fact, we improve our buying system and processing system for effective this. So, we have to study following material variances. 

1) Material Cost Variance 

Material Cost Variance = Standard Cost of Material of Actual Output - Actual cost of Actual Output

Or

MCV = Standard Usage X Standard Price - Actual Usage X Actual Price

Or

Material Cost Variance = Material Price Variance + Material Quantity Variance

Or

Material Cost Variance = Material Price Variance + Material Mix Variance + Material Yield Variance


2)  Material Price Variance

 Material Price variance happens due to difference between standard price of material at actual production and actual price per unit of material at actual production. If standard price per unit is more than actual price per unit, it will be favorable material price variance.



Material Price Variance = Standard per unit price of actual output - Actual per unit price of material at actual output 


or MPV = Actual Quantity X Standard per unit price - Actual Quantity X Actual per unit price


Or MPV = Actual Quantity ( Standard per unit price - Actual per unit price )



3) Material Usages or Quantity Variance 

It is that part of material cost variance which happens due to difference between standard quantity and actual quantity of raw material at standard price. If standard usages is more than actual usages, it will be favorable material usages variance.

Material Usage Variance = Standard Price ( Standard Quantity - Actual Quantity ) 

{ Remember : In material price variance, we have to take actual usages of material as common factor and in material usages variance,we have to take standard price per unit as common factor.}

From following information, calculate MPV, MUV and MCV.

	Standard Quantity	Standard Price (Per Unit)	Actual Quantity	Actual Price (Per Unit)
Material	10000	10$	15000	5$

 Material Price Variance = 15000 ( 10 -5) = $ 75000 ( Favorable)


Material Usages Variance = 10 ( 10000 - 15000 ) = $ 50000 ( Unfavorable)


Material Cost Variance = 10000 X 10 - 15000 X 5 = $ 25000 ( Favorable)


Verification = MPV + MUV = 75000 - 50000 = $ 25000 ( F)




4) Material Mix Variance 

When we use two or three type of material as mixture for production. At that time, we need to calculate material mix variance. Material Mix variance can be happened in following two situations.


First : When Actual and standard mixture of materials are same :


For example, we use two type of material for making any product. Material A's actual quantity is 160 units and Material B's actual quantity is 140 units. Standard units of material A and material N are 200 and 100. But there is no any difference between standard total and actual total. Both are 300 units. So, we use following formula


Standard Unit Cost ( Revised Standard Quantity - Actual Quantity) 


Second : When Actual and standard mixture of material are not same :


At that time, we use following formula

material mix variance formula

 5) Material Yield Variance 

Material yield variance measures abnormal loss of material. If actual abnormal loss is different from standard abnormal loss, at that time, material yield variance will happen. It is also called scrap variance. For calculating material yield variance, we first calculate standard rate.


Standard Rate = Standard Cost of revised standard mix / net standard output

MYV = Standard Rate ( Actual Yield - Revised Standard Yield)