Direct material price variance

Let us assume that the standard direct material cost of widget is as follows:

2 kg of unobtainium at € 60 per kg ( = € 120 per unit).

Let us assume further that during the given period, 100 widgets were manufactured, using 212 kg of unobtainium which cost € 13,144.

Under those assumptions direct material price variance can be calculated as:

212 kg of unobtainium should have cost (× € 60)		€ 12,720
but did cost		€ 13,144
Direct material (unobtainium) price variance		€ 424	(A)

Direct material price variance can be reconciled to direct material total variance by way of direct material usage variance:

Direct material usage variance		€ 720	(A)
Direct material price variance		€ 424	(A)
Direct material total variance		€ 1,144	(A)

spending variance seen as per product cost (212*62)-(200*60) See direct material total variance#Example and direct material usage variance#Example for computations of both components.

• Variance analysis (accounting)