A material quantity variance is the difference between the actual amount of materials used in the production process and the amount that was expected to be used. The measurement is employed to determine the efficiency of a production process in converting raw materials into finished goods. If there is a material quantity variance, one or more of the following is usually the cause:
- Low quality of raw materials
- Incorrect specification of materials
- Raw materials obsolescence
- Damage in transit to the company
- Damage while being moved or stored within the company
- Damage during production processing
- Improper employee training
- Inadequate packaging materials
- Incorrect materials standard
The formula for the material quantity variance is the actual usage in units minus the standard usage in units, multiplied by the standard cost per unit, or:
(Actual usage in units - Standard usage in units) x Standard cost per unit
For example, ABC International expects to use 100 pounds of plastic resin to make a batch of plastic cups, but instead uses 120 pounds. The standard cost of the resin is $5 per pound. Therefore, the material quantity variance is:
(120 pounds actual usage - 100 pounds standard usage) x $5 per pound
= $100 Material quantity variance
The material quantity variance can yield unusual results, since it is based on a standard unit quantity that may not be even close to actual usage. The material quantity is usually set by the engineering department, and is based on an expected amount of material that should theoretically be used in the production process, along with an allowance for a reasonable amount of scrap. If the standard is excessively generous, there will be a long series of favorable material quantity variances, even though the production staff may not be doing an especially good job. Conversely, a parsimonious standard allows little room for error, so there is more likely to be a considerable number of unfavorable variances over time. Thus, the standard used to derive the variance is more likely to cause a favorable or unfavorable variance than any actions taken by the production staff.
Of course, variances can be caused by production snafus, such as an excessive amount of scrap while setting up a production run, or perhaps damage caused by mishandling. It can even be caused by the purchasing department ordering materials that have an excessively low quality, so that more material is scrapped.
The material quantity variance is a subset of the quantity variance, since it only applies to materials (or, more accurately, direct materials) that are used in the production process.
Note: In rare cases, the material quantity variance can be used to track the usage of marketing materials during sales campaigns, where actual usage is compared to the expected total amount of usage. This situation usually applies only when the cost of marketing materials is quite high.
The material quantity variance is also known as the material usage variance and the material yield variance.