How is material usage variance calculated?

How is material usage variance calculated?

• A. (Actual quantity used - Standard quantity allowed) / Standard price per unit.
• B. (Actual quantity purchased - Standard quantity allowed) x Standard price per unit.
• C. (Actual quantity used - Standard quantity allowed) x Standard price per unit.
• D. (Actual quantity used - Standard quantity allowed) x Actual price per unit.

Answer: (C)

Material usage variance measures how efficiently material is used for the actual production. It is calculated as (actual quantity used − standard quantity allowed) × standard price per unit. The standard price is used to value the variance so you’re measuring efficiency, not price changes. For example, if actual usage is 210 units, the standard quantity allowed for the actual production is 200 units, and the standard price is $5 per unit, the usage variance is (210 − 200) × 5 = $50 adverse. If actual usage were 190 units, the variance would be (190 − 200) × 5 = −$50 favorable. Why the other forms don’t fit: using division by the standard price would not produce a variance in dollars; using actual price instead of the standard price mixes in price variance; and using the quantity purchased instead of quantity used conflates price/purchasing variance with usage efficiency.

Material usage variance measures how efficiently material is used for the actual production. It is calculated as (actual quantity used − standard quantity allowed) × standard price per unit. The standard price is used to value the variance so you’re measuring efficiency, not price changes.

For example, if actual usage is 210 units, the standard quantity allowed for the actual production is 200 units, and the standard price is $5 per unit, the usage variance is (210 − 200) × 5 = $50 adverse. If actual usage were 190 units, the variance would be (190 − 200) × 5 = −$50 favorable.

Why the other forms don’t fit: using division by the standard price would not produce a variance in dollars; using actual price instead of the standard price mixes in price variance; and using the quantity purchased instead of quantity used conflates price/purchasing variance with usage efficiency.