Direct material price variance
Encyclopedia
In variance analysis direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material used or purchased. It is one of the two components (the other is direct material usage variance
) of direct material total variance
.
is as follows:
Let us assume further that during given period, 100 widgets were manufactured, using 212 kg of unobtainium
which cost € 13,144.
Under those assumptions direct material price variance can be calculated as:
Direct material price variance can be reconciled to direct material total variance
by way of direct material usage variance
:
See direct material total variance#Example and direct material usage variance#Example for computations of both components.
Direct material usage variance
In variance analysis direct material usage variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material...
) of direct material total variance
Direct material total variance
In variance analysis direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material...
.
Example
Let us assume that standard direct material cost of widgetWidget (economics)
The word widget is a placeholder name for an object or, more specifically, a mechanical or other manufactured device. It is an abstract unit of production. The Oxford English Dictionary defines it as "An indefinite name for a gadget or mechanical contrivance, esp. a small manufactured item" and...
is as follows:
- 2 kg of unobtainiumUnobtainiumIn engineering, fiction, and thought experiments, unobtainium is any extremely rare, costly, or impossible material, or device needed to fulfill a given design for a given application. The properties of any particular unobtainium depend on the intended use...
at € 60 per kg ( = € 120 per unit).
Let us assume further that during given period, 100 widgets were manufactured, using 212 kg of unobtainium
Unobtainium
In engineering, fiction, and thought experiments, unobtainium is any extremely rare, costly, or impossible material, or device needed to fulfill a given design for a given application. The properties of any particular unobtainium depend on the intended use...
which cost € 13,144.
Under those assumptions direct material price variance can be calculated as:
Direct material price variance can be reconciled to direct material total variance
Direct material total variance
In variance analysis direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material...
by way of direct material usage variance
Direct material usage variance
In variance analysis direct material usage variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material...
:
See direct material total variance#Example and direct material usage variance#Example for computations of both components.