# Direct Material Quantity Variance

Direct material quantity variance (also called the direct material usage or efficiency variance) is the difference between the standard cost of standard material allowed for actual production, and the standard cost of material actually used in production.

This is the same as the product of:

• standard price of a unit of direct material; and
• the difference between standard quantity of direct material allowed and actual quantity of direct material used.

Material quantity variance may be further sub-divided into:

## Formula

The formula to calculate direct material quantity variance is:

Direct Material Quantity Variance
= Standard Quantity at Standard Price – Actual Quantity at Standard Price
= SQ × SP – AQ × SP
= (SQ − AQ) × SP

Where,
SQ is the standard quantity allowed,
AQ is the actual quantity of direct material used, and
SP is the standard price per unit of direct material.

## Analysis

Direct material quantity variance is calculated to determine the efficiency of the production department in converting raw material to finished goods. In order to improve efficiency, wastage of raw material must be reduced. A negative value of direct material quantity variance is generally unfavorable and it implies that more quantity of direct material has been used in the production process than actually needed. A positive value of direct material quantity variance is favorable implying that raw material was efficiently converted to finished goods.

As is the case when analyzing other variances, the direct material price variance needs to be assessed in the context of other relevant variances and factors, such as direct material price variance and direct labor variances. A highly favorable direct material quantity variance may be at the expense of, for example, an unfavorable material price variance (high quality expensive material has less chance of wastage) or an unfavorable labor rate variance i.e. highly skilled workers who are paid more will waste less material in production. The management therefore needs to assess performance while taking all these relevant factors into account.

## Example

Use the following information to calculate direct material quantity variance. Also describe whether the variance is favorable or unfavorable.

 Standard Price of a Unit of Direct Material \$ 4 Standard Quantity of Direct Material Per Unit 2 Actual Units Produced During the Period 620 Actual Quantity Used During the Period 1,200

### Solution

 Actual Units Produced 620 × Standard Quantity of Direct Material Per Unit 2 Standard Quantity Allowed 1,240 − Actual Quantity 1,200 Difference 40 × Standard Price of a Unit of Direct Material \$ 4 Direct Material Quantity Variance \$ 160

In this case, the production department performed efficiently and saved 40 units of direct material. Multiplying this by the standard price per unit yields a favorable direct material quantity variance of \$160.