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If more than \(600\) tablespoons of butter were used, management would investigate to determine why. The same calculation is shown using the outcomes of the direct materials price and quantity variances. The combination of the two variances can produce one overall total direct materials cost variance. The material quantity variance is a cost accounting concept that measures the difference between the actual quantity of materials used in production and the standard quantity based on the achieved production level. It evaluates how effectively materials get utilized during manufacturing.

• As a result of this unfavorable outcome information, the company may consider using cheaper materials, changing suppliers, or increasing prices to cover costs.
• Because the company uses 30,000 pounds of paper rather than the 28,000-pound standard, it loses an additional $20,700.
• Thus, the standard used to derive the variance is more likely to cause a favorable or unfavorable variance than any actions taken by the production staff.
• The above material quantity variance formula has the following components.

How to Calculate the Material Quantity Variance

The total of both variances equals the total direct materials variance. The total direct materials cost variance is also found by combining the direct materials price variance and the direct materials quantity variance. By showing the total materials variance as the sum of the two components, management can better analyze the two variances and enhance decision-making. Like direct materials price variance, this variance may be favorable or unfavorable. If workers manufacture a certain number of units using a quantity of materials that is less than the quantity allowed by standards for that number of units, the variance is known as favorable direct materials quantity variance. On the other hand, if workers use the quantity that is more than the quantity allowed by standards, the variance is known as unfavorable direct materials quantity variance.

• The producer must be aware that the difference between what it expects to happen and what actually happens will affect all of the goods produced using these particular materials.
• This setup explains the unfavorable total direct materials variance of $7,200 — the company gains $13,500 by paying less for direct materials, but loses $20,700 by using more direct materials.
• In this case, the actual quantity of materials used is 0.50 pounds, the standard price per unit of materials is $7.00, and the standard quantity used is 0.25 pounds.
• The ultimate motive behind their calculation is to control costs and enhance improvement.
• How much is the direct materials quantity variance of Prime Furniture Inc. for the month of December 2022?
• Therefore, if the theater sells 300 bags of popcorn with two tablespoons of butter on each, the total amount of butter that should be used is \(600\) tablespoons.

Who is Responsible for Direct Materials Quantity

In this case, the actual quantity of materials used is 0.50 pounds, the standard price per unit of materials is $7.00, and the standard quantity used is 0.25 pounds. This is an unfavorable outcome because the actual quantity of materials used was more than the standard quantity expected at the actual production output level. As a result of this unfavorable outcome information, the company may consider retraining workers to reduce waste or change their production process to decrease materials needs per box.

The normal wastage and inefficiencies are taken into account while setting direct materials price and quantity standards. Variances are calculated and reported at regular intervals to ensure the quick remedial actions against any unfavorable occurrence. The producer must be aware that the difference between what it expects to happen and what actually happens will affect all of the goods produced using these particular materials. Therefore, the sooner management is aware of a problem, the sooner they can fix it. For that reason, the material price variance is computed at the time of purchase and not when the material is used in production.

Where there are two or more materials being used, formulae containing the expression AQ × SP should not be used for calculating the variance for the mix. The MQV should be favorable because the standard quantity of the fabric for making 10,000 shirts is 28,000 meters which is less than what was actually used (30,000 meters). The first step in the calculation is to figure out how much stuffing material should be used to manufacture 9000 teddy bears (standard quantity). Mark P. Holtzman, PhD, CPA, is Chair of the Department of Accounting and Taxation at Seton Hall University. He has taught accounting at the college level for 17 years and runs the Accountinator website at , which gives practical accounting advice to entrepreneurs.

Additionally using Q × P for C in the formulae may eliminate the need to build the cost column in the working table. Output (_O) is in units, Quantities (_Q) and Losses (_L) are in kgs, Prices (_P) are in monetary value per kg and Costs (_C) is debit positive or negative are in monetary values. Understanding the meaning of the variance helps derive the formula for calculating the variance even if we fail recollecting. Assuming the input and output are in kgs for the purpose of explanations. Output (_O) is in units of measurement of output, Quantities (_Q) are in units of measurement of input, Prices (_P) are in monetary value per unit input and Costs (_C) are in monetary values.

Illustration – Solution (without recalculating standards)

The standard quantity of 19,200 is computed by multiplying the standard quantity per unit of 2kgs. It means that following the standard quantity, the company should have used 19,200 kgs. The actual quantity used can differ from the standard quantity because of improved efficiencies in production, carelessness or inefficiencies in production, or poor estimation when creating the standard usage. The above material quantity variance formula has the following components. You can check this video of mine for more examples of the material quantity variance.

How to Compute Direct Materials Variances

If the actual quantity used is less than the standard quantity, the variance is favorable since the company was able to save on materials. Decreased usage might indicate that the production department is producing lower quality products as a result of trying to reduce the total cost of materials. When a company makes a product and compares the actual materials cost to the standard materials cost, the result is the total direct materials cost variance. On the other hand, a negative material quantity variance signals finance definition that the actual quantity of materials used exceeds the standard amount. This scenario suggests inefficient utilization of materials and can lead to increased material costs.

In this case, the actual quantity of materials used is \(0.50\) pounds, the standard price per unit of materials is \(\$7.00\), and the standard quantity used is \(0.25\) pounds. In this case, the actual quantity of materials used is 0.20 pounds, the standard price per unit of materials is $7.00, and the standard quantity used is 0.25 pounds. This is a favorable outcome because the actual quantity of materials used was less than the standard quantity expected at the actual production output level.

Negative variances might arise due to reasons such as material wastage, quality issues, inaccurate production processes, or unexpected disruptions. Direct material quantity variance is calculated to determine the efficiency of the production department in converting raw material to finished goods. In order to improve efficiency, wastage of raw material must be reduced. A negative value of direct material quantity variance is generally unfavorable and it implies that more quantity of direct material has been used in the production process than actually needed. A positive value of direct material quantity variance is favorable implying that raw material was efficiently converted to finished goods.

A material quantity variance of zero means the company uses the same quantity of materials as its established standards. However, that is rarely the case as this variance might be above or below zero. In other words, if the business has consumed fewer materials to produce a given level of output than expected, the material quantity variance is said to be favorable. When companies make things, they use different materials like ingredients in a recipe.

Each bottle has a standard material cost of \(8\) ounces at \(\$0.85\) per ounce. Studying and understanding the underlying factors contributing to material quantity variances is crucial. These factors can encompass elements such as material wastage, inconsistencies in production processes, shifts in material quality, and discrepancies in inventory management practices. Unearthing the root causes allows them to make informed decisions, initiate corrective measures, and optimize material utilization practices. The unit produced are the equivalent units of production for the materials cost being analyzed. The material quantity variance is a subset of the quantity variance, since it only applies to materials (or, more accurately, direct materials) that are used in the production process.

The material quantity variance in this example is favorable because the company manufactured the output using a lesser quantity of materials than what was planned in the budget. You can calculate the standard quantity of materials by multiplying the standard quantity of materials per unit of output by the actual units of output produced in a given period. Watch this video featuring a professor of accounting walking through what is а schedule the steps involved in calculating a material price variance and a material quantity variance to learn more.

It helps identify issues such as waste, spoilage, theft, or production inefficiencies that cause actual material usage to differ from expectations. The variance is most valuable when the business produces in large volumes or uses expensive raw materials, where even small deviations can lead to significant cost impacts. Regularly analyzing material quantity variance supports cost control, process improvements, and informed decision-making.