Material Cost Variance.
It represents the difference between actual cost of material used and standard cost of material specified for output achieved. Material cost variance arises due to variation in prices and usage of materials. Difference b
etween (actual quantity of materials used x actual rate) and (standard quantity of material required for the specified output x standard rate) will be material cost variance.
Material Price Variance.
It is the difference occurred between actual price paid and standard price specified for the material which leads to material cost variance. It is not controllable but it gives information for the purpose of planning and decision-making. It helps in making decision to increase the price of product, use of substitute materials.
Material Usage or Volume variance.
It is also called quantity variance. It is part of cost variance occurred due to difference between actual quantity used and standard quantity specified for output.
It helps to identify whether the materials are used in proper manner. A debit balance of material usage variance indicates that material used was in excess of standard requirements. Credit balance shows will show savings in the use of material.
Material usage variance consists of (a) Material mix variance, (b) Material yield variance.
Material Mix Variance.
The variance is that part of material usage variance which is due to difference between actual composition of mix and standard composition of mixing the different types of materials. Short supply is the most common reason for this variance.
Material Yield Variance.
In certain cases, output depends on input of material. In this circumstances, if 10% of input material in course of normal loss of production. Then, 90% of total input of material will be expected output. If actual yield obtained happens to be different from the standard yield specified, there will be a yield variance. Thus material yield variance is that portion of material usage variance, which due to difference between actual yield obtained and standard yield specified.
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