Study Surgery

A. There are two possible causes of a materials variance. Firstly, a price variance: this is where the price paid is different to the expected (standard) price. Secondly, a usage variance: this is where the amount of material actually used is different to that expected to have been used (standard). Below is an example to illustrate this:

The standard price for material X is £2.00 per metre. Five metres of this material are required to make product Z. The standard price of material for product Z is therefore £10.00. During the past week you have been given the following information for actual production of product Z:

Units produced: 60
Material X used: 308 metres
Cost of materials: £585.20

The total variance for materials will be £14.80. This is on the basis that 60 units of product Z have a standard cost (60 x £10.00) of £600.00, and the actual cost of materials used was £585.20. The variance is favourable; i.e., the actual cost is less than the (expected) standard cost. We now need to split the variance between that due to price and that due to usage.

Price: How much did the material cost (actual – £1.90 per metre) compared with how it was expected to cost (standard – £2.00 per metre)?

Actual (308 metres x £1.90 per metre) 585.20
Standard (308 metres x £2.00 per metre) 616.00

30.80 (favourable)

Usage: How much material did we use in production (actual) compared with how much we were expected to have used (standard)?

Actual (308 metres x £2.00) 616.00
Standard (60 product Z x 5 metres = 300 metres x £2.00) 600.00

16.00 (adverse)

The price and usage net off to give the total materials variance of £14.80 (favourable). What has been shown is that the materials variance can be broken down to establish whether the cause of the variance is down to price, amount used, or a combination of both. Further reading on materials and other variances can be found in manuals dedicated to Unit 8 of the Technician stage.