Direct Material Quantity Variance

Direct material quantity variance (also called the direct material usage/efficiency variance) is the product of standard price of a unit of direct material and the difference between standard quantity of direct material allowed and actual quantity of direct material used. The formula to calculate direct material quantity variance is:

DM Quantity Variance = ( SQ − AQ ) × SP

Where,
   SQ is the standard quantity allowed
   AQ is the actual quantity of direct material used
   SP is the standard price per unit of direct material

Standard quantity allowed (SQ) is calculated as the product of standard quantity of direct material per unit and actual units produced.

Analysis

Direct material quantity variance is calculated to determine the efficiency of production department in converting raw material to finished goods. In order to improve efficiency, wastage of raw material must be reduced. A negative value of direct material quantity variance is unfavorable and it implies that more quantity of direct material has been used in the production process than actually needed. A positive value of direct material quantity variance is favorable implying that raw material was efficiently converted to finished goods.

Example

Use the following information to calculate direct material quantity variance. Also specify whether the variance is favorable or unfavorable.

Standard Price of a Unit of Direct Material$ 4
Standard Quantity of Direct Material Per Unit2
Actual Units Produced During the Period620
Actual Quantity Used During the Period1,200
 
Solution
 
Actual Units Produced620
× Standard Quantity of Direct Material Per Unit2
Standard Quantity Allowed1,240
 
Standard Quantity Allowed1,240
− Actual Quantity1,200
Difference40
× Standard Price of a Unit of Direct Material$ 4
Direct Material Quantity Variance$ 160

In this case the production department performed efficiently and saved 40 units of direct material. Multiplying this by standard price per unit yields a favorable direct material quantity variance of $160.

Written by Irfanullah Jan