# Direct Materials Quantity Variance:

Learning Objective of the articles:

1. Define and explain “direct materials quantity variance” and its significance.
2. How is it calculated? How direct materials quantity variance is interpreted?
3. What are the reasons / causes of a favorable and unfavorable direct materials quantity / usage / efficiency variance?

Contents:

## Definition and Explanation of Direct Material Quantity Variance:

Direct materials quantity variance is also known as Direct materials efficiency variance and Direct materials usage variance. It measures the difference between the quantity of materials used in production and the quantity that should have been used according to the standard that has been set. Although the variance is concerned with the physical usage of materials, it is generally stated in dollar terms to help gauge its importance.

## Materials quantity | Usage variance Formula:

Following formula is used to calculate materials quantity variance or direct materials usage variance:

[Materials quantity variance = (Actual quantity used × Standard price) − (Standard quantity allowed × Standard Price)]

## Example:

Colonial Pewter Company provides the following data:

3.0 pounds of materials are required to produce a unit of product according to standards set by the management. The standard price of direct materials is \$4.00 per pound. During the period 2000 unit were completed with an actual consumption of 6,500 pounds of direct materials.

Calculate direct materials quantity variance or direct materials usage variance.

According to above information, the calculation of materials quantity variance is as follows:

Calculation of Materials Quantity Variance = (Actual quantity used × Standard price) − (Standard quantity allowed × Standard price)

=(6,500 pounds × \$4.00) − (6,000* pounds × \$4.00)

= \$26,000 − \$24,000

= 2000 Unfavorable

*Standard quantity allowed (3.00 per unit × 2,000 units)

 Colonial Pewter Company Performance Report – Production Department (1) (2) (3) (4) (5) Type of Materials Standard Price Actual Quantity Standard Quantity Allowed Difference in Quantity (2) – (3) Total Quantity Variance (1) × (4) Explanation Pewter \$4.00 6,500 Pounds 6,000 Pounds 500 Pounds \$2,000 Unfavorable Low quality materials unsuitable for production

Above calculation shows an unfavorable direct materials quantity variance. When materials are used more than what is allowed by standard an unfavorable quantity variance occurs. If materials used is less than the quantity allowed a favorable direct materials quantity variance occurs.

## Isolation of Variance:

The materials quantity variance is best isolated when materials are placed into production. Materials are drawn for the number of units to be produced, according to the standard bill of materials for each unit. Any additional materials are usually drawn with an excess materials requisition slip, which is different in color from the normal requisition slips. This procedure calls attention to the excessive usage of materials while production is still in process and provides an opportunity to correct any developing problem.

## Who is Responsible for Material Quantity Variance?

Excessive usage of materials that is usually a reason of unfavorable direct materials quantity variance may be due to inferior quality of materials,  untrained workers, poor supervision etc. Generally speaking production managers are held responsible for this variance. However purchasing department may also be held responsible for purchasing materials of inferior quality to economize on prices. Where purchasing department  purchases low grade direct materials at low prices to show a favorable materials price variance, the materials quantity variance is usually unfavorable due to inferior quality of direct materials.

A word of caution is in order. Variance analysis should not be used as an excuse to conduct which hunts or as a means of beating line managers and workers over the head. The emphasize must be on control in the sense of supporting the line managers and assisting them in meeting the goals that they have participated in setting for the company. In short, the emphasize should be positive rather than negative. Excessive dwelling on what has already happened, particularly in terms of trying to find someone to blame, can destroy morale and kill any cooperative spirit.

## Exercises:

Exercise 1: Materials Variance Analysis
The Schlosser Lawn Furniture Company uses 12 meters of aluminum pipe at \$0.80 per meter as standard for the production of its Type A lawn chair. During one month’s operations, 100,000 meters of the pipe were purchased at \$0.78 a meter, and 7,200 chairs were produced using 87,300 meters of pipe. The materials price variance is recognized when materials are purchased. Calculate materials quantity variance or direct materials efficiency variance.

Solution:

 Actual quantity used 87,300 \$0.80 standard \$69,840 Standard quantity allowed 86,400 \$0.80 standard \$69,120 ——— ——— ——— Materials quantity variance 900 \$0.80 \$720 unfav. ======= ======= =======