What is the Direct Materials Quantity Variance?
The direct materials quantity variance is the difference between the actual quantity of materials used in production and the expected quantity. It's also referred to as the efficiency variance. This measure of efficiency is used to determine the effectiveness of your production department.
There are many reasons why your company may have an unfavorable materials price variance. For example, your purchase manager might have bought low quality materials. If you have a large number of variances, you should consider investigating the cause.
The standard costing system uses a separate account for variances. These variance accounts have a zero balance at year-end. However, you might want to look into apportioning large unfavorable variances to your inventory account. Doing so would likely increase the value of your inventory.
The amount of variances that your company has will be determined by the amount of materials you purchased. A small number of variances aren't worth apportioning to your inventory account.
Variances are also credited or debited from your standard costing system. They can also be used to show you how much you spend on materials and how much you actually use them.
You can use a general model to compute the variances. An obvious example is the materials price variance. At the time you purchase your materials, you should be aware of this.
The cost of direct materials is $289,800. That is the standard price for a kilogram of raw material. Your company might have to pay less than this to save money.
