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What is material cost variance?

Material cost variance is the deviation from the standard direct material cost, of the actual production volume and the actual cost of direct material. Addition of the direct material usage and price variances can also be called material cost variance.

There are two kinds of variances:

  • Favourable – when actual cost is lower than the standard cost.
  • Unfavourable – when actual cost is higher than the standard cost.

This doesn’t include any thumb rule method to find direct material price variance.

FORMULA FOR DIRECT MATERIAL PRICE VARIANCE:

MCV = (SQ x SP) – (AQ x AP)

Standard quantity (SQ) must be revised if standard outputs and actual outputs differ.
Revised standard quantity (RSQ) = (SQ/SO x AO)

Where,
SQ = Standard Quantity, SP = Standard Price, AQ = Actual Quantity, AP = Actual Price, SO = Standard Output, AO = Actual Output

How is it represented?

Material cost variance represents the material price variance in total and material usage variances.
where, MCV = Material price variance (MPV) + Material usage variance(MUV)
When positive results are achieved, it’s denoted with ‘F’ i.e. Favourable and when the results are negative, it’s denoted by ‘U’ i.e. unfavourable.

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