Direct Material Variances (Cambridge (CIE) A Level Accounting): Revision Note

For the total direct material variance and direct material usage variance, make sure you flex the budgeted data so that it reflects the actual number of units produced.

Also remember, the actual and standard quantity is referring to the quantity of material needed and not the quantity of units.

Brakes Ltd make brake pads. Here is the annual budgeted and actual information:

Calculate:

(i) direct material price variance

(ii) direct material usage variance

(iii) total direct material variance

Answer:

(i) Direct Material Price Variance

Find the actual quantity used

12 000 × 6 kg = 72 000 kg

Use the formula

• actual quantity used × (standard price – actual price)

• It is favourable because the actual price on direct materials is less than budgeted

72 000 × ($6.50 - $6.00)

$36 000 Favourable

(ii) Direct Material Usage Variance

Find the budgeted quantity of materials for the amount produced

• Ignore the budgeted units

• Multiply the actual number of units by the budgeted materials per unit

12 000 × 5 kg = 60 000 kg

Use the formula

• standard price × (standard quantity for actual production – actual quantity used)

• It is adverse because the actual quantity of materials used is more than budgeted

$6.50 × (60 000 - 72 000)

$78 000 Adverse

(iii) Total Direct Material Variance

Combine the variances

Alternatively, you can use the formula

• (standard quantity for actual production × standard price) - (actual quantity used × actual price)

(60 000 × $6.50) - (72 000 × $6.00)

$42 000 Adverse