Quantity Variance: Definition and Examples

Reality doesn’t always line up with expectations. Think back to the last Big Mac you saw on a McDonald’s commercial and the last Big Mac you saw in person, and you’ll know what I mean.

A quantity variance is the difference between the actual usage of something and its expected usage. For example, if a standard quantity of 10 pounds of iron is needed to construct a widget, but 11 pounds are actually used, then there is a quantity variance of one pound of iron.

Materials Quantity Variance (Materials Yield Variance)

Types of quantity variance

Quantity variance analysis is used to calculate differences in standard versus actual units in the following areas:

Direct materials

Direct materials include all of the physical items or raw materials used in a product. For example, direct materials for a baseball manufacturer include leather, rubber, red yarn and cork. Companies monitor the differences between standard and actual materials used to develop the most accurate estimates for ordering supplies. Variance in materials also indicates potential issues with machine performance or excessive waste. Managers can identify specific areas to increase efficiency and reduce waste, thereby saving costs.

Labor

Labor refers to the amount of work necessary to produce a product. You can measure labor in expenses, such as wages, or quantity, such as hours. Labor variances help supervisors determine accurate and efficient schedules, account for the most accurate labor expenses in budgets and identify what production areas may be overstaffed or understaffed.

Variable overhead

Variable overhead refers to overhead costs that change based on production output, such as machine usage costs and energy costs. Monitoring variances in these areas help supervisors identify issues with:

Calculating overhead variances is more complicated than other variances due to the number of variables taken into account. You can add up all standard quantities for variable overhead and compare this figure to the actual variable overhead quantities. The same quantity variance principle applies: If actual costs are less than standard costs, the variance is favorable.

What is quantity variance?

Quantity variance is a measurement you can use to analyze the difference between what you expect to use (standard quantity) and what you actually use (actual quantity) in the production process. Standard units are estimates based on the bills for materials or supplies. Quantity variance is used for planning and budgeting as a quality assurance metric to ensure ordering and production remain efficient.

If the actual units are less than the standard units, the variance is favorable and generally results in savings. If the actual units are greater than the standard units, the variance is unfavorable and may lead to a budget deficit. Business leaders use these figures to analyze performance in key production areas for a specific time period.

Variances may be the result of:

As supervisors process variance information, they can pinpoint the specific cause of each variation and develop solutions. For example, if supply managers are consistently placing incorrect orders, they can simplify or streamline the ordering process to avoid these mistakes. If materials arrive damaged, the company may research alternate suppliers. Similarly, if managers discover consistently favorable variances, they can determine the cause of the success and replicate this throughout the department or company.

In addition to quantity variance, companies often determine price variance using standard costs and actual costs.

How to calculate quantity variance

The figures used in the quantity variance formula include standard units, actual units and standard cost per unit. Follow these steps to calculate quantity variance:

Example of calculating quantity variance

To better understand quantity variance so that you can apply it to your own work, it can help to look at examples.

Lets say that a company called ComfyFeet produces three types of shoes with its patented insole technology: casual shoes, sneakers and dress shoes. The company owners want to calculate several types of quantity variances for casual shoes for one month.

ComfyFeet determines the standard quantities for one month for casual shoes to include 250 square feet of leather, 200 yards of foam insole material and 1,600 labor hours. The standard expenses for variable overhead are $4,500. After a month of production, the company determines that casual shoes required 275 square feet of leather, 195 yards of foam and 1,500 labor hours.

First, you can calculate the quantity variance for leather using $10 as the standard cost per square foot of leather.

Quantity variance (QV) = (actual quantity used – standard quantity used) x standard cost per unit

QV = (275 square feet of leather – 250 square feet of leather) x $10 = 25 x $10 = $250

Because the actual quantity is greater than the standard quantity, this is an unfavorable variance.

Next, calculate the quantity variance for the foam insole material. The standard cost per square foot of foam insole material is $5.

QV = (195 – 200) x $5 = -5 x $5 = -$25

The actual quantity used is less than the standard quantity, making this a favorable variance.

Then, calculate the variance for labor hours. The standard cost per labor hour is $10.

QV = (1,500 – 1,600) x $10 = -100 X $10 = -$1,000

ComfyFeet has an unfavorable variance for leather of $250 for the month. However, the favorable variances for foam insole material and labor hours compensate for this loss with a $1,025 favorable variance for the month.

Finally, if ComfyFeets actual variable overhead expenses are less than $4,500, the variance is favorable. If actual expenses are greater than $4,500, the variance is unfavorable.

FAQ

What is price and quantity variance?

If there is a material quantity variance, one or more of the following is usually the cause:
  • 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.

Why is quantity variance important?

Price variance is the actual unit cost of a purchased item, minus its standard cost, multiplied by the quantity of actual units purchased. Price variance is a crucial factor in budget preparation.

What is the materials quantity variance formula?

The sales quantity variance is an important management tool which gives information to the managers about the previous performance of the company. On the basis of this information, you can easily compare, what is planned and what is achieved. The result coming out from the formula is term as favorable or unfavorable.

What is quantity variance in cost accounting?

How to calculate materials quantity variance. Find the materials quantity variance by multiplying the standard cost by the difference between the standard and actual quantities.

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