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. The material quantity variance considers actual and standard measures for a specific production level. One must consider the circumstances under which the variances resulted and the materiality of amounts involved. One should also understand that not all unfavorable variances are bad. For example, buying raw materials of superior quality (at higher than anticipated prices) may be offset by reduction in waste and spoilage.

Before the year is out, you want to clear out all variance accounts to the cost of goods sold. Variances are temporary accounts, meaning they must have a zero balance at the end of the accounting period. To make a batch of carrot cakes, you expect to use 60 pounds of carrots.

1. In this case, the actual price per unit of materials is $6.00, the standard price per unit of materials is $7.00, and the actual quantity purchased is 20 pounds.
2. Material quantity variance is favorable if the actual quantity of materials used in manufacturing during a period is lower than the standard quantity that was expected for that level of output.
3. On the other hand, it is possible that the company’s productive efficiency drove the variances (a variable overhead efficiency variance).
4. Standard costs are compared to actual costs, and mathematical deviations between the two are termed variances.
5. 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.

To save time in the exam, copy down the mix variance table – but take care to make sure it is then set up correctly as there are some differences. It may be possible for the production manager to deviate from this standard mix and use slightly different proportions of each input material. The production manager may be tempted to replace some Beta for the cheaper Gamma as this would reduce the overall production cost. You can check this video of mine for more examples of the material quantity variance. Now that we know the standard quantity, we can use the DMQV formula to calculate the variance.

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This is an unfavorable outcome because the actual price for materials was more than the standard price. As a result of this unfavorable outcome information, the company may consider using cheaper materials, changing suppliers, or increasing prices to cover costs. In this case, the actual price per unit of materials is $9.00, the standard price per unit of materials is $7.00, and the actual quantity purchased is 20 pounds.

Understanding the Material Quantity Variance

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 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.

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The direct materials quantity variance of Blue Sky Company, as calculated above, is favorable because the actual quantity of materials used is less than the standard quantity allowed. Variance analysis should also be performed to evaluate spending and utilization for factory overhead. Overhead variances are a bit more challenging to calculate and evaluate. As a result, the techniques for factory overhead evaluation vary considerably from company to company. To begin, recall that overhead has both variable and fixed components (unlike direct labor and direct material that are exclusively variable in nature).

In cells B4 to D4, calculate the amount of materials Alpha, Beta and Gamma that would have been used if the total quantity of 5,620kg had been input using the standard mix. In many production processes, it may be possible to combine different levels (use a different mix) of the input materials to make the same product. This, in turn, may result in differing yields, depending on the mix of materials that has been used.

Also, as they are out of date (they were calculated five years ago), this could be contributing to the variances calculated. If we add together the material mix and yield variances, we get a favourable usage variance of $580 ($913 – $333). The main differences to note is in cell E14 which is now the sum of cells B14 to D14 and the heading for Actual quantity in standard mix is now on the top row of the table in cell A13. The standard cost per kg of Alpha is $2, of Beta is $5 and of Gamma is $1. From this it can be seen that the more Beta used, the more expensive the final product will be.

In this case, the production department performed efficiently and saved 40 units of direct material. Multiplying this by the standard price per unit yields a favorable direct material quantity variance of $160. In this case, the actual price per unit of materials is $6.00, the standard price per unit of materials is $7.00, and the actual quantity used is 0.25 pounds. This is a favorable outcome because the actual price for materials was less than the standard price. In this case, the actual price per unit of materials is $6.00, the standard price per unit of materials is $7.00, and the actual quantity purchased is 20 pounds. With either of these formulas, the actual quantity purchased refers to the actual amount of materials bought during the period.

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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 https://simple-accounting.org/ the steps involved in calculating a material price variance and a material quantity variance to learn more. To complete the table, the actual quantity in the standard mix needs to be calculated using the standard proportions given in the question.

If more than 600 tablespoons of butter were used, management would investigate to determine why. Some reasons why more butter was used than expected (unfavorable outcome) would be because of inexperienced workers pouring too much, or the standard was set too low, producing unrealistic expectations that do not satisfy customers. Under the standard costing system, you record inventory at its standard quantity and use a separate account to show variances. Prepare a journal entry once you finish the materials quantity variance calculation. A materials quantity variance compares the actual and expected direct material used in manufacturing a product. You have an unfavorable materials quantity variance when you use more material than expected.

Conversely, a parsimonious standard allows little room for error, so there is more likely to be a considerable number of unfavorable variances over time. 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. 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 donating through crowdfunding, social media, and fundraising platforms 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. 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.

The management therefore needs to assess performance while taking all these relevant factors into account. Generally, the production managers are considered responsible for direct materials quantity variance because they are the persons responsible for keeping a check on excessive usage of production inputs. However, purchase managers may purchase low quality, substandard or otherwise unfit materials with an intention to improve direct materials price variance. In such cases, the responsibility of any unfavorable quantity variance would lie on the purchasing department. Irrespective of who appears to be responsible at first glance, the variance should be brought to the attention of concerned managers for quick and timely remedial actions.