Direct materials total variance, Cost Accounting

Direct Materials Total Variance

Direct materials total variances refer to the difference between the standard direct material cost of the actual production volume and the actual cost of the direct material.  The direct materials total variances are a sum of two sub-variances, that is:

i. Direct Material Usage Variance, and

ii. Direct Material Price Variance.

i. The Direct Material Price Variance Refers to the difference between the actual purchase price and the standard price for the actual quantity of materials. It can be calculated at the time of purchase or time of usage.  The latter is exact to the quantity of material employed in production.  However, in the calculation of direct material price variance, generally the quantity purchased is employed as the basis of the variance.

Diagrammatically, the direct material price variance can be illustrated as follows:

1211_Direct Materials Total Variance.png

    Actual Quantity of  Direct Material Purchased                  Actual quantity of Direct Material Purchased 

                           x  Actual Price                                                         x  Standard Price

The above diagram can be summarized the details in the form of an equation given as:

Direct material = (Actual Quantity x Actual Price) - (Actual Quantity x Standard Price)

Price Variance = (AQ.AP) - (AQ.SP)

Factoring out the actual quantity from the equation, we receive:

Direct Material Price Variance = AQ (AP - SP)

From the above equation, it is clear that the direct material price variance is as a consequence of the actual purchase price of direct materials being different from the standard p rice of the direct materials.

Posted Date: 2/7/2013 6:35:23 AM | Location : United States







Related Discussions:- Direct materials total variance, Assignment Help, Ask Question on Direct materials total variance, Get Answer, Expert's Help, Direct materials total variance Discussions

Write discussion on Direct materials total variance
Your posts are moderated
Related Questions
Methods of Cost Estimation We will consider given cost estimation methods commonly employed, namely as: a. High Low Activity method b. Engineering Analysis c. Account


Describe briefly the possible causes of: (i)   the material usage variance, (ii)  the labour rate variance, (iii)  the sales volume profit variance.

what is the procedure of purchase of materials in large organisation?

Q. Let a firm's production function be given by K 0.3 L 0.7 . (i) Sketch (without specific numbers) the shape of the long run average and long-run marginal cost curves of the fir

Elements of Non - Manufacturing costs Non-Manufacturing costs are costs incurred via all activities such support the production of services and goods. They are selling costs

is sale of salvage from capital project recorded as gain/loss or applied back to project costs

Assume that you are the purchaser of the building at the end of the construction period, and you have paid the developer an amount which gives you a 7% annual return on net revenue

raw an organization chart of any actual or hypothetical manufacturing organization to show the position of management/cost accounting department within an organization and discuss

cite some example on how to to calculate variable cost