Cost Accounting

Direct Material Usage Variance

What is Direct Material Usage Variance?

The Direct Material Usage variance measures the difference between the actual quantity of direct material used and the budgeted quantity of direct material used.

Formula: (Actual Quantity of Direct Material Used - Budgeted/Standard Quantity of Direct Material Used) * Budgeted/Standard Purchase Price of Direct Materials

(Note: you do not need to remember this as it is included in your formula sheet)

Unfavourable and Favourable Direct Material Usage Variances

Favourable - when the actual quantity used is lower than the budgeted/standard quantity used, hence will result in negative answer

Unfavourable - when the actual quantity used is higher than the budgeted/standard quantity used, hence will result in a positive answer

Possible Explanations for Direct Material Usage Variances

Favourable:
- The business employed more skilled labour who used less direct material from less wastage
- The business produced a lower quantity of goods
- The business utilised more efficient machinery that used less direct material

Unfavourable:
- The business employed more junior, inexperienced employees who used more direct material from higher volumes of wastage
- The business produced a higher quantity of goods
- Rundown machinery produced more defected goods

Worked Example: Direct Material Usage Variance

Worked Example

Fab Pork Sausages Co. manufactures a variety of pork sausages using pork mince. In a financial year, the company expected to use 100 kg of pork mince at $10kg but instead used 90kg at $12 a kg.

Calculate the Direct Material Usage Variance


Solution Below:

Formula: (Actual Quantity of Direct Material Used - Budgeted/Standard Quantity of Direct Material Used) * Budgeted/Standard Purchase Price of Direct Materials

= (90-100) * $10

= -$100

= -$100 is negative, hence the variance is favourable.

=$100 Favourable

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