TOTAL DIRECT MATERIAL VARIANCE. · It is the difference between the standard material cost for the actual production and the actual costs.
· This variance consists of two part namely: ( Material Price Variance ) and ( Material Quantity Variance)
|
|
MATERIAL PRICE VARIANCE
|
Probable Causes Of Material Price Variance:
Purpose of this variance:
|
Formula for Material PRICE Variance |
Direct Material Price Variance = (Standard price less Actual price) x Actual Quantity purchased
|
Illustration Of Material PRICE Variance |
Assuming the following data:
Standard price per kg $1.20
Actual price per kg $1.10
Actual quantity 6,000 kg
Question: (a) Calculate the material price variance. (b) Show the accounting entries
Solution: (a) Material price variance = (standard price-actual price) x actual quantity =($1.20-$1.10) x 6,000 kg = $ 600 (F)
(b) Accounting entries as follows: Debit: Work In Progress $7,200 Debit: Material Price Variance $600 Credit: Creditor(6,000x 1.1) $6,600
|
MATERIAL QUANTITY VARIANCE
|
Probable Causes Of Material Quantity Variance:
Purpose of this variance:
|
Formula for Material QUANTITY Variance |
Direct Material QuantityVariance = (Standard quantity less Actual quantity) x Standard price |
Illustration Of Material QUANTITY Variance |
Assuming the following data:
Standard output 800 units
Actual output 900 units
Actual quantity used 4,500 kg
Standard material cost per unit 4 kg at $1.00 per kg =$4.00
Question: (a) Calculate the material usage variance. (b) Show the accounting entries
Solution: (a) Material quantity variance = (standard quantity-actual quantity) x standard price = (900 x 4 – 4,500kg) x $1 = $ 900 (A)
(b) Accounting entries as follows: Debit: Work In Progress (900×4 x$1) $3,600 Debit: Material Quantity Variance $900 Credit: Work in Progress(4,500x $1) $4,500
|