Follow us on LinkedIn
When companies make things, they use different materials like ingredients in a recipe. Sometimes, they use more or less of these materials than they thought. This can happen for various reasons, like mistakes, changes in how things get produced, or even the quality of the materials. Companies must determine why differences exist in material use, which can come from material quantity variance.
What is the Material Quantity Variance?
The material quantity variance is a cost accounting concept that measures the difference between the actual quantity of materials used in production and the standard quantity based on the achieved production level. It evaluates how effectively materials get utilized during manufacturing. The material quantity variance considers actual and standard measures for a specific production level.
Material quantity variance can arise due to the following factors.
- Material wastage
- Quality control issues
- Production variations
- Inaccurate measurements
- Changes in product specifications
- Employee training and skill
- Inventory management
- Machine efficiency
- External factors
Studying and understanding the underlying factors contributing to material quantity variances is crucial. These factors can encompass elements such as material wastage, inconsistencies in production processes, shifts in material quality, and discrepancies in inventory management practices. Unearthing the root causes allows them to make informed decisions, initiate corrective measures, and optimize material utilization practices.
How to calculate the Material Quantity Variance?
Companies can use the following formula for the material quantity variance.
Material quantity variance = (Actual quantity – Standard quantity) × Standard price
The above material quantity variance formula has the following components.
- Actual quantity: The actual quantity of materials used in the production process
- Standard quantity: The quantity of materials that should have been used based on the standard production level and the standard quantity required for each unit of production
- Standard price: The standard cost per unit of material
Example
Green Co. established a benchmark standard of utilizing 10 units for every product. However, during a recent production cycle, the actual material consumption per unit amounted to 9. The standard price of each item is $2. This variance from the standard quantity prompted an exploration of the material quantity variance.
Based on the above data, the material quantity variance for Green Co. will be as follows.
Material quantity variance = (Actual quantity – Standard quantity) × Standard price
Material quantity variance =(9 units – 10 units) × $2 per unit
Material quantity variance = -$2
How to interpret the Material Quantity Variance?
A material quantity variance of zero means the company uses the same quantity of materials as its established standards. However, that is rarely the case as this variance might be above or below zero. In each case, the interpretation will be as follows.
Positive Variance
A positive material quantity variance indicates that the actual quantity of materials used in production is less than the standard quantity. This outcome is often seen as favourable since it suggests that the company has used fewer materials than expected to achieve the same output level. It implies efficient material usage, leading to cost savings and improved profitability.
Negative Variance
On the other hand, a negative material quantity variance signals that the actual quantity of materials used exceeds the standard amount. This scenario suggests inefficient utilization of materials and can lead to increased material costs. Negative variances might arise due to reasons such as material wastage, quality issues, inaccurate production processes, or unexpected disruptions.
Conclusion
Material quantity variance represents the difference between the actual and standard quantities of material used for a specific product. This variance can either be positive or negative. Each case has its interpretation. However, the factors contributing to them are usually the same. Material quantity variance is crucial for companies to control costs and adhere to defined standards.
Further questions
What's your question? Ask it in the discussion forum
Have an answer to the questions below? Post it here or in the forum
DETROIT (AP) — Investors are punishing automakers’ stocks this week after second-quarter earnings reports exposed industrywide issues of slowing sales and high prices, just as the companies are having to spend huge sums to make new electric and gas vehicles. Each auto company has unique…
TORONTO, July 25, 2024 (GLOBE NEWSWIRE) — STORAGEVAULT CANADA INC. (“StorageVault” or the “Corporation”) (SVI-TSX) is pleased to congratulate Andre De Grasse on being named one of Canada’s flag bearers for Paris 2024. Iqbal Khan, CFO of StorageVault commented: “While working with Andre, we came…
TORONTO, July 25, 2024 (GLOBE NEWSWIRE) — Cronos Group Inc. (NASDAQ: CRON) (TSX: CRON) (“Cronos” or the “Company”) will hold its 2024 second quarter earnings conference call on Thursday, August 8, 2024 at 8:30 a.m. ET. Cronos’ senior management team will discuss the Company’s financial…
CALGARY, Alberta, July 25, 2024 (GLOBE NEWSWIRE) — Cenovus Energy Inc. (TSX:CVE) (NYSE: CVE) will release its second-quarter 2024 results on Thursday, August 1. The news release will provide consolidated second-quarter operating and financial information. The company’s financial statements will be available on Cenovus’s website,…
HOUSTON, July 25, 2024 (GLOBE NEWSWIRE) — NCS Multistage Holdings, Inc. (“NCS” or the “Company”) (NASDAQ:NCSM) will host a conference call to discuss its second quarter 2024 results on Thursday, August 1, 2024 at 7:30 a.m. Central Time (8:30 a.m. Eastern Time). NCS will issue…
