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Direct Material Usage Variance
Refers to the difference among the actual quantity utilized and the standard quantity particular for the actual production, all valued at the standard purchase price. Again it is represented given as diagrammatically:
Actual Quantity x Standard Price Standard Quantity x Standard Price
The above diagram can be signifying using equations given as:
Direct Material = (Actual Quantity x Standard Price) - (Standard Price Usage x Standard Variance Quantity)
= (AQ x SP) - (SP x SQ)
Factoring out the standard price (SP) from the above equation provides us the specified equation as:
Direct material usage variance = (AQ - SQ) SP
This is again clear about the direct material usage variance arises because of the production department utilizing more materials than expected the standard.
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