Direct material usage variance is the measurement of degree of change in the usage of material in a current accounting period for a desired level output. It can be defined as the difference between the actual material used and the standardize consumption of the material anticipated to achieve a desired output level. The formula of direct material usage variance can be defined as under:-
Direct Material Usage Variance = Actual quantity x Standard price – Standard quantity x Standard price
Or it can be further simplified as follows:-
(Actual Quantity of material used – Standard quantity) x Standard price of the material used
Material usage variance is always calculated by using the standard price as compared to the actual price.
A favorable figure of direct material usage variance shows that the business entity has utilized its material efficiently and intelligently. There may be several reasons behind direct material usage variance to be favorable such as purchase of high quality of materials, use of skilled and experienced labor, conducting training of the work force to increase productivity and related others.
On the other hand the adverse figure of direct material usage indicates that the material is not used efficiently and thus it indicates lower level of productivity. There may be a number of reasons behind this situation such as hiring or low skilled labor, low learning curve, de-motivated and uninterested staff, idle or halt of the production during regular production hours.
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