Accounting for Managers: Interpreting accounting information for decision-making

232 ACCOUNTING FOR MANAGERS

Standard quantity Actual quantity Actual quantity

×××

Standard price Standard price Actual price

Usage variance Price variance

Total variance

Figure 15.1 Price and usage variances

Table 15.7 Materials variance

Std cost

per unit

Original

budget

Std cost

per unit

Flexed

budget

Usage

qty

Act cost

per unit

Actual Variance

2 @ £1.50 2 @ £1.50
Plastic 30,000 27,000 19,000 1.4 26,600 400
Metal 1 @ £2 20,000 1 @ £2 18,000 10,000 2.1 21,000 −3,000
4 @ £0.75 4 @ £0.75
Wood 30,000 27,000 38,000 0.7 26,600 400

80,000 72,000 74,200 −2,200

Materials usage variance

Using the above formula we can calculate the usage variance for each of the three
materials. This is shown in Table 15.8. In each case, while holding the (standard)
price constant, there has been a higher than expected usage of materials. This is an
efficiency variance, which may be the result of:

žpoor productivity;
žout-of-date bill of materials;
žpoor quality materials.

Materials price variance

Using the formula, the price variance for each of the three materials is shown in
Table 15.9. While holding the (actual) quantity constant, we can see the effect of
price fluctuations. Both plastic and wood have been bought below the standard
price, while metal has cost more than standard. These variances may be the
result of:

žchanges in supplier prices not yet reflected in the bill of materials;
žpoor purchasing.

In total, the materials variance is £2,200. We can see that of the three materials,
metal contributes the greatest variance – an adverse £3,000 (£2,000 usage and