Direct material usage variance
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In variance analysis, direct material usage (efficiency, quantity) variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material. It is one of the two components (the other is direct material price variance) of direct material total variance.
Example
Let us assume that standard direct material cost of widget is as follows:
- 2 kg of unobtainium at € 60 per kg ( = € 120 per unit).
Let us assume further that during given period, 100 widgets were manufactured, using 212 kg of unobtainium which cost € 13,144.
Under those assumptions direct material usage variance can be calculated as:
| 100 units should have used (× 2 kg) | 200 | kg | |
| but did use | 212 | kg | |
| Usage variance in kg | 12 | kg A | |
| × standard cost per kg | × € 60 | ||
| Usage variance in € | € 720 | (A) |
Direct material usage variance can be reconciled to direct material total variance by way of direct material price variance:
| Direct material usage variance | € 720 | (A) | |
| Direct material price variance | € 424 | (A) | |
| Direct material total variance | € 1,144 | (A) |
See direct material total variance#Example and direct material price variance#Example for computations of both components.
Usefulness
Material usage variance is useful to monitor, control and reduce material cost, more so in the industries where raw materials cost is significant in proportion to total cost. The variance is generally prepared periodically, summarized and reported. If the variance value is significant, its reasons are looked into. The variance is broken down by date, by batch, by raw materials, by products, by processes, etc. so that it is known where the consumption was higher / lower than standard. Those exceptional cases are further studied to know reasons of the same and take necessary actions to reduce raw material consumption, wastage, rejection, loss, poor yield, etc. The variance can also pinpoint pilferage / theft of materials, lower quantity received from supplier as compared to invoiced quantity, unaccounted rejections, substandard quality of material received etc. and take corrective & preventive actions.