Material Quantity Variance
Material Quantity Variance (also known as Material Usage Variance) is a financial metric that helps companies understand the difference between the actual amount of material used in production and the standard amount that should have been used, all other things being equal. This variance is then multiplied by the standard cost per unit of material to assign a dollar value to the variance.
Material Quantity Variance is calculated as follows:
Material Quantity Variance = (Actual Quantity – Standard Quantity) x Standard Cost
A positive variance indicates that more materials were used than expected (inefficiency or waste), resulting in higher costs. A negative variance indicates that fewer materials were used than expected (efficiency), resulting in lower costs.
Analyzing Material Quantity Variance helps managers identify inefficiencies or improvements in the production process, which can then be addressed to optimize costs. It’s important to note that this metric only looks at quantities and not the cost of materials. If the price of materials changes, that would affect the Material Price Variance, not the Material Quantity Variance.
The Material Quantity Variance is a subcomponent of the total direct materials variance, which also includes the Material Price Variance (the difference between the actual cost of materials and the standard cost).
Example of Material Quantity Variance
Suppose a furniture company makes wooden chairs. The standard material quantity for each chair is 10 boards of wood. The standard cost of one board is $5.
In a given month, the company manufactures 200 chairs. According to the standard, they should have used 2,000 boards (200 chairs x 10 boards/chair). However, due to inefficiencies in the production process, they actually used 2,100 boards.
The Material Quantity Variance would be calculated as follows:
Material Quantity Variance = (Actual Quantity – Standard Quantity) x Standard Cost
Material Quantity Variance = (2,100 boards – 2,000 boards) x $5/board
Material Quantity Variance = 100 boards x $5/board
Material Quantity Variance = $500
In this case, the Material Quantity Variance is positive, meaning the company used more wood than anticipated, leading to an unfavorable variance of $500. This indicates an area where the company could potentially improve efficiency and reduce costs. The reasons for the variance could be many, including waste, poor quality materials, inefficient processes, or lack of training for employees. Management would need to investigate further to identify the cause and determine appropriate actions.
