Direct Material Usage Variance


Definition

Direct Material Usage Variance is the measure of difference between the actual quantity of material utilized during a period and the standard consumption of material for the level of output achieved.

Formula

Direct Material Price Variance:

=Actual Quantity x Standard Price-Standard Quantity x Standard Price
=Standard Cost of Actual Quantity-Standard Cost of Standard Quantity
=(Actual Quantity - Standard Quantity)xStandard Price

Since the effect of any variation in material price from the standard is calculated in the material price variance, material usage variance is calculated using the standard price.


Example

Cement PLC manufactured 10,000 bags of cement during the month of January. Consumption of raw materials during the period was as follows:


MaterialQuantity UsedStandard Usage Per BagActual PriceStandard Price
Limestone100 tons11 KG$75/ton$70/ton
Clay150 tons14 KG$21/ton$20/ton
Sand250 tons26 KG$11/ton$10/ton

Material Usage Variance will be calculated as follows:

Step 1: Calculate Standard Quantity

Limestone:10,000 unitsx11 / 1000=110 tons
Clay:10,000 unitsx14 / 1000=140 tons
Sand:10,000 unitsx26 / 1000=260 tons

Step 2: Calculate the Variance

Material Usage Variance = [Actual Quantity - Standard Quantity (Step 2)] x Standard Price
Limestone:(100 - 110)x$70=($700)Favorable
Clay:(150 - 140)x$20=$200Adverse
Sand:(250 - 260)x$10=($100)Favorable
Total Usage Variance($600)Favorable

Note: Actual price paid for the acquisition of materials shall be ignored since the variation between standard price is already accounted for in the material price variance.


Analysis

A favorable material usage variance suggests efficient utilization of materials.

Reasons for a favorable material usage variance may include:

  • Purchase of materials of higher quality than the standard (this will be reflected in adverse material price variance)
  • Greater use of skilled labor
  • Training and development of workforce to improve productivity
  • Use and improvement of automated manufacturing tools and processes

An adverse material usage variance indicates higher consumption of material during the period as compared with the standard usage.

Reasons for adverse material usage variance include:

  • Purchase of materials of lower quality than the standard (this will be reflected in a favorable material price variance)
  • Use of unskilled labor
  • Increase in material wastage due to depreciation of plant and equipment

MCQ

Test Your Understanding

Fresh PLC is a manufacturer of toothpaste. One of the ingredients of Fresh Toothpaste is sodium fluoride powder. Fresh PLC purchased 10,000 KG of sodium fluoride at the cost of $20,000 ($2 per KG) out of which it utilized 9,000 KG during the period.

Further information includes the following:

-Standard price of sodium fluoride is $1.5 per KG
-Standard usage of fluoride is 10 grams per toothpaste
-Fresh PLC manufactured 1 million toothpastes during the period

What is the material usage variance?

Zero

-$1,500 Favorable

-$1,500 Adverse

-$2,000 Adverse