Material quantity variance M.VIJAYASEKARAM A material quantity variance is the difference between the actual amount of materials used in the production process and the amount that was expected to be used. The measurement is employed to
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Material quantity variance M.VIJAYASEKARAM<br>
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A material quantity variance is the difference between the actual amount of materials used in the production process and the amount that was expected to be used. The measurement is employed to determine the efficiency of a production process in converting raw materials into finished goods. If there is a material quantity variance, one or more of the following is usually the cause:<br>
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Low quality of raw materials
Incorrect specification of materials
Raw materials obsolescence
Damage in transit to the company
Damage while being moved or stored within the company
Damage during the production process
Improper employee training
Inadequate packaging materials
Incorrect materials standard<br>
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The formula for the material quantity variance is the actual usage in units minus the standard usage in units, multiplied by the standard cost per unit, or:
(Actual usage in units - Standard usage in units) x Standard cost per unit
For example, ABC International expects to use 100 pounds of plastic resin to make a batch of plastic cups, but instead uses 120 pounds. The standard cost of the resin is $5 per pound. Therefore, the material quantity variance is:
(120 pounds actual usage - 100 pounds standard usage) x $5 per pound
= $100 Material quantity variance<br>
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The material quantity variance can yield unusual results, since it is based on a standard unit quantity that may not be even close to actual usage. The material quantity is usually set by the engineering department, and is based on an expected amount of material that should theoretically be used in the production process, along with an allowance for a reasonable amount of scrap. If the standard is excessively generous, there will be a long series of favorable material quantity variances, even though the production staff may not be doing an especially good job. Conversely, a parsimonious standard allows little room for error, so there is more likely to be a considerable number of unfavorable variances over time. Thus, the standard used to derive the variance is more likely to cause a favorable or unfavorable variance than any actions taken by the production staff.<br>
