Direct materials variance

Definition

Direct materials variance is the difference between the actual cost of direct materials and the standard cost expected for production. It helps businesses identify discrepancies and control costs effectively.

5 Must Know Facts For Your Next Test

1. Direct materials variance can be broken down into price variance and quantity variance.
2. A favorable direct materials variance occurs when actual costs are less than standard costs.
3. An unfavorable direct materials variance occurs when actual costs exceed standard costs.
4. Direct materials price variance focuses on the difference between actual and standard price per unit of material.
5. Direct materials quantity variance focuses on the difference between actual quantity used and standard quantity allowed for production.

Review Questions

• What are the two components that make up direct materials variance?
• What does a favorable direct materials variance indicate?
• How do you calculate direct materials price variance?

Related terms

Direct Materials Price Variance:

The difference between the actual price paid for direct materials and the standard price, multiplied by the actual quantity purchased.

Direct Materials Quantity Variance:

The difference between the actual quantity of direct materials used in production and the standard quantity allowed, multiplied by the standard price per unit.

Standard Costing:

An accounting method that assigns expected costs to products, which are then compared to actual costs to measure performance.