Direct Material Cost Variance | Meaning | Formula | Causes

Direct Material Cost Variance

It is otherwise called as Direct Material Variances. It is the difference between the standard cost of materials used for the actual output and the actual cost of materials used.

According to ICMA, London,

“It is the difference between the standard cost of direct materials specified for the output achieved and the actual cost of direct materials used”.

The direct material cost variances including material price variance, material usage variance, material mix variance and material yield variance. The following chart depicts the divisions of Direct Material Cost Variances very clearly.

Formula to calculate Direct Material Cost Variance

The following formula is used to calculate Direct Material Cost Variance.

MCV = (SQx SP) -(AQxAP)

Where,

  • MCV = Material Cost Variance
  • SQ = Standard Quantity for Actual Output
  • SP = Standard Price
  • AQ = Actual Quantity
  • AP = Actual Price

The following formula is used for calculating SQ for actual output.

Standard Quantity for Actual Output = (Std. Input / Std. Output)  x Actual Output

Standard Cost = SQ x SP
Actual Cost = AQ x AP

If the standard cost is more than the actual cost, the variance will be favorable and on the other hand if the standard cost is less than the actual cost the variance will be unfavorable or adverse.

NOTE:

1. Standard cost has to be calculated with reference to standard quantity for actual output. In such case, the information regarding standard output to be ignored.

2. If the problem is silent in respect of standard output and actual output, it will be assumed that standard output for which the standard was fixed has actually been achieved i.e. SO = AO

Causes for Direct Material Cost Variance

Direct material cost variance is caused due to the following reasons.

1. Change (increase / decrease) in the price of materials

2. Change (increase / decrease) in the quantity of materials used. This is happened due to

  1. Change in the mix of more than one type of materials in the process of manufacture.
  2. Change (increase / decrease) in the output.

Leave a Reply

Recent Posts




Comments


Related pages


advantages of co operativestypes of middlemenunited nations conference on trade and development unctadperils definitionoperating vs financing leasemeaning of mechanisationexamples of horizontal mergerdays debtors ratioprivate ltd company meaningbusiness process reengineering processaccrued expenses and outstanding expensesdirect quote and indirect quote foreign exchangelong term debt to capital ratiomixed branding strategy exampleoperating lease vs financing leasewhat is idle time in cost accountingpreferential allotment of sharesdebtor collection days ratiofor a price skimming strategy to be successfuldifference between stratified sampling and cluster samplingsales aid definitionconcentrated marketing strategy exampledisadvantages of consolidationspecialized small business investment companycompetitive parity method definitionzero based budgeting advantagesliquidity ratio meaningdefine departmental storedisadvantages of irrcost variance definitionreasons for studying entrepreneurshipnationalise the banksmeaning of formal organisationadvantages of registration of partnership firmsuccession planning advantages and disadvantagesretained profits advantages and disadvantagessecondary market research advantages and disadvantagesadvantages and disadvantages of open plan officecapitalist economy definebankers lienintroduction of sole proprietorshipfdi factorsadvantages and disadvantages of command economyscm flowadvantages and disadvantages of market penetration strategywhat is sundry creditorsspecific voyage policydifference between financial accounting and managerial accountingexample of horizontal mergermeaning of cooperative managementvoidable contractwhat is a decentralised structureforms of business organization and their advantages and disadvantagesadvantages of democratic leadershipmanagement accounting variancespay back calculationpurchasing price variancedefinition of autocraticfunction of gattbuyer beware principlecriticisms of scientific managementretail marketerwhat is budgeting controlsubhiksha storesmarginal costing accountingdefinition of primary market and secondary marketunethical issues in marketing and advertisinghow to evade income tax in indiasub broker in stock marketnet present value formulasaudit procedures for debtorspro forma accounting definitionregistered mortgage debenturewhy is tqm important