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In variance analysis (accounting) direct material total variance is the difference between the actual cost of actual number of units produced and its budgeted cost in terms of material. Direct material total variance can be divided into two components: the direct material price variance, the direct material usage variance.
In variance analysis, direct material usage (efficiency, quantity) variance is the difference between the standard quantity of materials that should have been used for the number of units actually produced, and the actual quantity of materials used, valued at the standard cost per unit of material.
Price variance (Vmp) is a term used in cost accounting which denotes the difference between the expected cost of an item (standard cost) and the actual cost at the time of purchase. [1] The price of an item is often affected by the quantity of items ordered, and this is taken into consideration.
In variance analysis (accounting) direct material price variance is the difference between the standard cost and the actual cost for the actual quantity of material purchased. It is one of the two components (the other is direct material usage variance ) of direct material total variance .
Variance analysis can be carried out for both costs and revenues. Variance analysis is usually associated with explaining the difference (or variance) between actual costs and the standard costs allowed for the good output. For example, the difference in materials costs can be divided into a materials price variance and a materials usage variance.
Materials and labor may be allocated based on past experience, or standard costs. Where materials or labor costs for a period fall short of or exceed the expected amount of standard costs, a variance is recorded. Such variances are then allocated among cost of goods sold and remaining inventory at the end of the period.
Material efficiency is a description or metric ((Mp) (the ratio of material used to the supplied material)) which refers to decreasing the amount of a particular material needed to produce a specific product. [1] Making a usable item out of thinner stock than a prior version increases the material efficiency of the manufacturing process.
For a business which produces clothing, variable cost would include the direct material, i.e., cloth, and the direct labor. If the business uses a room, a sewing machine , and 8 hours of a laborer's time with 6 yards of cloth to make a shirt, then the cost of labor and cloth increases if two shirts are produced, and those are the variable costs.