Materials Quantity Variance (Materials Yield Variance)
Types of quantity variance
In the following areas, differences between standard and actual units are calculated using quantity variance analysis:
Direct materials
Direct materials are all the tangible components or raw materials used to create a product. For instance, leather, rubber, red yarn, and cork are examples of direct materials for a baseball manufacturer. Companies track the variations between the materials used in standard and actual products to create the most accurate supply order estimates. Variation in the materials also suggests possible problems with machine performance or too much waste. Managers can pinpoint specific areas to boost productivity and cut waste, saving money.
Labor
The amount of work required to produce a product is referred to as labor. You can calculate labor costs, such as wages, or labor hours. The most accurate labor costs are accounted for in budgets with the aid of labor variances, which also enable supervisors to determine which production areas may be understaffed or overstaffed.
Variable overhead
Overhead expenses like energy costs and machine usage costs that vary depending on production output are referred to as variable overhead. Monitoring variances in these areas help supervisors identify issues with:
Because so many variables are considered, calculating overhead variances is more difficult than calculating other variances. You can add up all the variable overhead standard quantities and contrast this number with the actual variable overhead quantities. Applying the same quantity variance principle, the variance is favorable if actual costs are lower than standard costs.
What is quantity variance?
You can use the measurement of quantity variance to examine the discrepancy between your standard quantity expectations and your actual quantity usage during the production process. Standard units are calculations based on bills for supplies or materials. To ensure that ordering and production are efficient, quantity variance is used for planning and budgeting as a quality assurance metric.
In the event that the actual units are less than the expected units, the variance is favorable and typically saves money. If the difference between the actual and standard units is unfavorable, it could result in a budget deficit. Business executives use these numbers to assess performance over a specific time period in key production areas.
Variances may be the result of:
Supervisors can identify the precise cause of each variation as they analyze variance information and create solutions. For instance, if supply managers are routinely making mistakes with their orders, they can streamline or simplify the ordering process to avoid these errors. If materials arrive damaged, the company may research alternate suppliers. Similar to this, if managers find consistently positive variances, they can identify the reason for the success and spread it throughout the division or business.
Companies frequently use standard costs and actual costs to determine price variance in addition to quantity variance.
How to calculate quantity variance
Standard units, actual units, and the standard cost per unit are all numbers that are used in the quantity variance formula. Follow these steps to calculate quantity variance:
Example of calculating quantity variance
Examining examples can help you comprehend quantity variance better so you can use it in your own work.
Let’s imagine that ComfyFeets manufactures three different styles of shoes with its patented insole technology: dress shoes, sneakers, and casual shoes. The business’s owners want to compute various quantity variances for casual shoes over the course of a month.
The typical monthly quantities for casual shoes, according to ComfyFeet, are 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. The company calculates that casual shoes needed 1,500 labor hours, 275 square feet of leather, and 195 yards of foam after a month of production.
First, using $10 as the standard price per square foot of leather, you can determine the quantity variance for leather.
Quantity variance (QV) is equal to the product of the standard cost per unit and the actual quantity used.
QV = (275 x 250 x 10 = 25 x 10 = 250 square feet of leather) x $10
This is an unfavorable variance because the actual quantity is higher than the standard quantity.
Next, calculate the quantity variance for the foam insole material. The typical price of foam insole material per square foot is $5.
QV = (195 – 200) x $5 = -5 x $5 = -$25.
This is a positive variance because the actual quantity used is lower than the standard quantity.
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.
For the month, ComfyFeet has a $250 unfavorable variance for leather. However, this loss is offset by a $1,025 positive variance for the month due to the favorable variances for the foam insole material and labor hours.
Lastly, the variance is favorable if ComfyFeets’ actual variable overhead costs are lower than $4,500. Actual costs exceeding $4,500 constitute an unfavorable variance.
FAQ
What is price and quantity variance?
- 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 calculated by multiplying the number of actual units purchased by the actual unit cost of the item less the standard cost. Price variance is a crucial factor in budget preparation.
What is the materials quantity variance formula?
The sales quantity variance is a crucial management tool that informs managers of the company’s historical performance. You can easily compare what is planned and what is accomplished using this information. The formula’s output is classified as either favorable or unfavorable.
What is quantity variance in cost accounting?
How to calculate materials quantity variance. By multiplying the standard cost by the difference between the standard and actual quantities, you can determine the materials quantity variance.
