Total direct materials cost variance

Definition

Total direct materials cost variance is the difference between the actual cost incurred for direct materials and the standard cost expected for those materials. This variance helps in assessing whether a company is spending more or less on direct materials than planned.

5 Must Know Facts For Your Next Test

1. Total direct materials cost variance can be broken down into price variance and quantity variance.
2. A favorable variance indicates that the actual costs are less than the budgeted costs.
3. An unfavorable variance means that the actual costs exceed the budgeted costs.
4. The formula for total direct materials cost variance is (Actual Quantity x Actual Price) - (Standard Quantity x Standard Price).
5. Identifying variances helps management take corrective actions to control future costs.

Review Questions

• What does a favorable total direct materials cost variance indicate?
• How do you calculate total direct materials cost variance?
• Why is it important to break down total direct materials cost variance into price and quantity variances?

Related terms

Direct Materials Price Variance: The difference between the actual price paid per unit of material and the standard price, multiplied by the actual quantity purchased.

Direct Materials Quantity Variance: The difference between the actual quantity of material used and the standard quantity expected to be used, multiplied by the standard price.

Standard Cost: The pre-determined or estimated cost of manufacturing a single unit of product, including both material and labor costs.