# Standard Costing-Total Direct Material Variance

 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 The result of buying an actual quantity of materials at an ACTUAL price that is different from the STANDARD price. Probable Causes Of Material Price Variance: Market shortages or excesses (bad weather,etc); Unpredictable fluctuation of market prices; Material substitution; Changes in supply chain -higher logistic costs; Increases in duties like import duties,etc Efficient or inefficient buying; Differences in quality; Cash discount taken or not taken and Standard price set unrealistically. Purpose of this variance: Control the cost of direct materials; Evaluate the performance of the purchasing department and Measure the impact of prices increases or decreases on the company’s profit 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 The result of buying an actual quantity of materials at an ACTUAL price that is different from the STANDARD price. Probable Causes Of Material Quantity Variance: Changes in product specification; Higher defective materials; Quality of materials; Handling of materials; Careless/reckless use by workers; Use of substitutes; Material mix; Materials substitution; Condition of machinery; Machine settings operating at non-standard level; Workmanship and Breakages during handling of materials Purpose of this variance: Control the quantity of direct materials; Evaluate the performance of the production (foreman, production manager) department and Measure the impact of usage of materials on the company’s profit. 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

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