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- This is the difference between the standard direct material cost of the actual production volume and the actual cost of direct material. This is the sum of material price variance and material usage variance.
(a) Material price variance
This is the difference between the standard price and actual purchase price for the actual quantity of material. It can be calculated at the time of purchase or the time of usage. Generally, the former is preferable. It is calculated as under:-
Actual x Actual quantity – (Standard price x Actual quantity)
- The main causes of this variance are:-
i) Rise or fall in prices.
ii) Buying inferior or superior quality instead of planned quality.
iii) The effects of quality discounts due to buying smaller or larger quantities instead of planned quantities.
(b) Material usage variance
- This is the difference between the standard quantity specified for the actual production and the actual quantity used, at standard purchase price. It is calculated as under:-
Standard price (Actual quantity – Standard quantity)
- The main causes of this variance are:-
(i) Greater or lower yield as compared to standard or expected yield.
(ii) Greater or lower quantity of scrap as compared to anticipated quantity.
(iii) The use of inferior or superior quality of material.
Wilfykil answered the question on August 6, 2019 at 11:27
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