Material Usage Variance Formula

Material Usage Variance Formula

Material usage variance formula is given below. Material usage variance formula can be explained with an example.

Material usage Variance = Standard Price x (Standard Quantity- Actual Quantity).

 

Material Usage Variance Formula Example

Quantity Consumed (Actual) = 12000 kg

Standard Price (Per unit) = $ 10

Units produced by Company=2000

Standard usage per unit = 8 kg

Actual Price of Material = 70,000

Calculate Material Price Variance

Solution

Standard consumption = Units produced x standard usage per unit

=2000 x 8

=16,000 kg

Material usage Variance = Standard Price x (Standard Quantity- Actual Quantity).

$ 10 x (16000-12000)

= $ 8 x 4000

= $32,000 (material usage variance)

Material Usage Variance Calculation

Material usage variance is primarily a difference between standard quantity of material (should have been used) and actual quantity of material and such difference is measured at standard cost. Material usage variance may be favorable or adverse. Adverse material usage variance suggests that more material used than expectation, where favorable material usage variance suggest that less material consumed than standard.

Significance of Material usage Variance

Material usage variance provides useful information about the usage of material in the production process. Such information can be used to take appropriate decision for improving the material usage during the production process.

Reasons for adverse material usage variance

Reasons for adverse material usage variance includes use of unskilled labour, old or outdated production techniques, and using low quality material. These factor or reasons would increase the material usage quantity and hence result in adverse material usage variance.

Reasons for favorable Material usage variance

Reasons for favorable material usage variance include using skilled labour, new or modern technology and using premium quality material. These factors will lower the material consumption and thus would result in favorable material usage variance.

Other name of material usage Variance

Other name of material usage variance is material quantity variance. Because this variance is related to consumption of material, therefore words like usage or quantity are used to describe this variance. (Material usage or material quantity variance)

Other Related Formulas

Material Price Variance Formula
Labour Efficiency Variance Formula
Labour Rate Variance Formula
Material Price Variance Formula