Direct material variances

To illustrate variance analysis, refer to the standard cost card for Speeds, Inc.’s jogging suit. The following data are for last month’s production:

  • Number of suits completed 5,000 units
  • Cost of material purchased
  • (20,000 yds. @ $5.40) $108,000
  • Yards of material used 20,000 yds.

Using these data and the data from the standard cost card, the material price and quantity variances are:

  • 5,000 suits ´ 3.5 yds. per suit = 17,500 yds.

F = Favorable

U = Unfavorable

The direct material variances can also be computed as follows:


MPV = AQ (AP — SP)

= 20,000 yds. ($5.40/yd. — $6.00 per yd.) = $12,000 F

The material price variance should be recorded at the time materials are purchased. This permits:

  • Early recognition of the variance.

  • Recording materials at standard cost.


MQV = SP (AQ — SQ)

= $6.00 per yd. (20,000 yds. — 17,500 yds.) = $15,000 U

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