Material Variances

The total material variance is broken down into the usage variance and the price variance.

When dealing with the quantity of material used, the variance between the actual quantity used and the standard quantity produced is called the Usage variance.

When dealing with the quality, and therefore the price, of the material used, the difference between the actual price and the standard price is called the Price variance.

Material Cost Variances

The following are formulae that you can use for most standard costing problems:

Total Material Variance

standard material cost less actual material cost

This is broken down into:

Usage Variance:

(standard quantity produced
less

actual quanity used)
x standard price

Price Variance

(standard material price
less
actual
material price)
x actual quantity
of
material used

We can now look at an example. However, if you are not clear, before continuing, review the definitions of Standard costing in SU8-2, and Cost Variances in SU8-3.