Standard Costing

Material Variances

Material Variances

Abbreviations:

• SQ = Standard Quantity (total for all units produced)
• AQ = Actual Quantity (total for all units produced)
• SP = Standard Price per unit of material
• AP = Actual Price per unit of material

SQ and AQ are total quantities for all units produced — NOT per unit

Formulas

Key notes:

• Total variance = price variance + usage variance
• For price variance: quantity is held constant at AQ (isolates the change in price only)
• For usage variance: price is held constant at SP (isolates the change in quantity only)
• Either formula version is acceptable; choose based on the data given (if actual cost = AQ × AP is given directly, use the first form)

Worked example

ABC Ltd for August:

Actual output = budgeted output (no flexing needed).

Total variance:   (7 000 × 2.50) − (6 900 × 2.70) = 17 500 − 18 630 = £1 130 A
                  (Adverse because actual cost exceeds standard cost)

Price variance:   (6 900 × 2.50) − (6 900 × 2.70) = 17 250 − 18 630 = £1 380 A
                  or: 6 900 × (2.50 − 2.70) = 6 900 × 0.20 = £1 380 A
                  (Adverse: paid £0.20 more per kg)

Usage variance:   (7 000 × 2.50) − (6 900 × 2.50) = 17 500 − 17 250 = £250 F
                  or: 2.50 × (7 000 − 6 900) = 2.50 × 100 = £250 F
                  (Favourable: used 100 kg less)

Materials reconciliation statement

Check: Total variance = 1 380A + 250F → net £1 130A ✓

Reconciliation rules for cost statements

• Favourable variances = cost under-spend → deducted from standard cost
• Adverse variances = cost over-spend → added to standard cost