# What is Usage Variance?

## Usage Variance

Usage variance refers to the difference between the actual quantity of materials, labor, or other resources consumed in the production process and the standard or budgeted quantity that was expected to be consumed. This variance is generally calculated to analyze cost control and efficiency in a manufacturing or production setting. Usage variance can apply to various types of resources, including raw materials, labor hours, and machine time.

The formula for calculating the usage variance for materials can be represented as:

MaterialÂ UsageÂ Variance = (StandardÂ Quantity âˆ’ ActualÂ Quantity) Ã— StandardÂ Price

For labor, the formula could look like:

LaborÂ UsageÂ Variance = (StandardÂ Hours âˆ’ ActualÂ Hours) Ã— StandardÂ HourlyÂ Rate

A positive usage variance indicates that fewer resources were used than expected, which is generally favorable. Conversely, a negative usage variance suggests that more resources were consumed than planned, often considered unfavorable as it indicates inefficiency and higher costs.

## Example of Usage Variance

Let’s take the example of a bakery that specializes in making loaves of bread.

Standard Expectations

• The bakery expects to use 1 kg of flour to make each loaf of bread.
• The standard cost of flour is \$2 per kg.

Scenario 1: Favorable Usage Variance

• Actual Performance: The bakery ends up using only 0.9 kg of flour per loaf due to a new kneading technique that maximizes flour utilization.
• Usage Variance Calculation:
Usage Variance = (1 kg – 0.9 kg) x \$2 = 0.1 kg x \$2 = \$0.2
• Result: The bakery has a favorable usage variance of \$0.2 per loaf. This means the bakery used less flour than initially expected, leading to cost savings.

Scenario 2: Unfavorable Usage Variance

• Actual Performance: The bakery ends up using 1.1 kg of flour per loaf due to a slight inconsistency in the flour texture, which required more flour to achieve the desired consistency.
• Usage Variance Calculation:
Usage Variance = (1 kg – 1.1 kg) x \$2 = -0.1 kg x \$2 = -\$0.2
• Result: The bakery has an unfavorable usage variance of -\$0.2 per loaf. This means the bakery used more flour than initially expected, leading to higher costs.

### Actions:

• After noting the favorable usage variance in Scenario 1, the bakery might decide to make the new kneading technique a standard practice to maintain or improve the efficiency.
• In the case of the unfavorable usage variance in Scenario 2, the bakery might decide to look into the flour quality or examine the production process to identify the cause of the inefficiency.

This example shows how calculating usage variance can provide valuable insights into a business’s operational efficiency and cost control measures. It helps the management take timely corrective actions to ensure that resources are used optimally.