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Understanding the Complicated Theory of Direct Material Variance
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What is direct material variance?
To understand this topic, even with direct material variance homework help, it is important that you first understand standard costing. Standard costing is the broad heading under which all variance falls. When company accountants are trying to formulate a budget they use the standard costing of items instead of actual costs since that information is not easy to gather at the time. Standard costing allows a company to exercise cost control in order to maximise their funds and resources, and minimize their losses.
There are times when the actual cost of labour or raw material does not match the estimate or standard cost; this is known as variance. When the actual costs exceed standard costs it is unfavourable variance, and when the actual cost is lower it is favourable variance. This topic can get confusing, so it is important that you find direct material variance assignment help, which breaks up the topic into simple to understand parts.
Types of direct material variance
As you go through the direct material variance homework help that you avail of you will notice that the topic has been segregated into different parts. It is necessary that you have a basic understanding of each section.
They are as follows:
- Direct material price variance
To put it simply, price variance refers to the amount of actual product that is used and the difference between the standard cost of this product and the actual cost. The formula for this is rather simple:
Direct material price variance = (standard cost – actual cost) x actual quantity
Or,
DM price variance = (SC – AC) x AQ
Calculating this sort of variance helps establish the efficiency of a purchasing department in terms of obtaining material at low rates.
- Direct material quantity variance
The quantity variance refers to the standard price of the direct material and the difference between the standard quantity that is allowed by the department and the actual quantity used in production. In other words,
Direct material quantity variance = (standard quantity – actual quantity) x actual cost
Or,
DM quantity variance = (SQ – AQ) x AC
There are other subdivisions you will come across in your direct material variance assignment help.
This includes:
- Direct material mix variance
- Direct material yield variance
However, the most beneficial ones to remember are direct material price quantity variance. So, come to our website and get help from us.
