Definition of Materials Usage Variance
The materials usage variance or materials quantity variance is associated with a standard costing system. This variance results when the actual quantity of materials used is different from the quantity of materials that should have been used to make the good output. In other words, the actual quantity of materials used to make the good output was different from the standard quantity of materials that should have been used.
The materials usage variance is unfavorable when the actual quantity of materials used exceeded the standard quantity of materials. The materials usage variance is favorable when the actual quantity of materials used was less than the standard quantity. In the U.S. the materials usage cost variance is expressed in dollars, which is the favorable or unfavorable quantity (such as pounds) times the standard cost per pound (or some other unit of measure such as gallons, liters, etc.)
Variances direct management’s attention to areas where the company’s operations are deviating from the company’s budgets and profit plans.
Example of Materials Usage Variance
Assume that a company’s standard costing system specifies that the standard quantity of direct materials to manufacturer one unit of output is 5 pounds. The system also specifies that the standard cost per pound of the material is $3 per pound.
If the company produced 100 units of good output, the company should have used 500 pounds of materials (100 units of good output X 5 pounds of materials per unit of output). If the company actually used 530 pounds of materials, the materials usage variance will be $90 unfavorable (30 additional pounds of materials X the standard cost per pound of $3). The $90 unfavorable materials usage variance can be explained by the following: $1,590 (530 actual pounds used X $3 standard cost) vs. the standard of $1,500 (100 units of output X 5 standard pounds = 500 standard pounds x $3 standard cost).
