Material Usage Variance

This is that portion of material cost variance which is due to the difference between the standard quantities of materials specified and the actual quantity used. Material usage variance is that portion of the direct material cost variance which is the difference between the standard quantity specified for the production achieved and the actual quantity used both valued at standard prices. The difference of actual quantity of materials used from the standard quantity set, multiplied by the standard price is known as the materials usage variance. The formula for the calculation of this variance is:

Material Usage Variance = Standard Price (Actual Quantity – Standard Quantity)

i.e. SP (AQ – SQ)

Causes of Material Usages Variance

The usage variance may have been caused by one or more of the undernoted factors:

• Lack of due care in the use of materials;
• Defective production necessitating additional materials for correction;
• Abnormal wastage through pilferage or other losses in the use of materials;
• Inefficiency in production due to improper method or lack of necessary skill in workmen;
• Use of a material-mix other than the standard mix; and
• Yield from materials in case excess of or less than that provided as the standard yield;
• Purchase of inferior materials or change in quality of materials;
• Rigid technical specifications and strict inspection leading to more rejections which require more materials for rectifications;
• Use of substitute material leading to poor quality;
• Improper maintenance of machine leading to breakdowns and more use of materials; and
• Poor inspection of raw materials.

A favorable variance may not always be advantageous for the concern. For instance, a saving in material usage may perhaps be effected by a reduction in wastage by slowing down the work but the resulting increase in the labour and overhead costs may far exceed the favorable materials usage variance.

Material usage variance may further classified into: