Total materials variance

Let’s start by having a look at the direct material standard costs that we’re going to use for our example.

Budget data

Actual results

The original budget anticipated that each unit would use 1 metre of material to make, so the budgeted direct material cost was:

• 1,000 units × £5 per metre = £5,000

But look at the actual figures – quite a bit has changed compared with the budget!

• Production was more than budgeted – 1,200 units rather than 1,000 units.
• More material was bought and used – 1,320 metres rather than 1,000 metres.
• But the cost per metre was lower than budgeted – £4.70 per metre rather than £5.00 per metre.

Because so much has changed, it could be difficult to work out whether performance is better or worse than anticipated. This is where variance calculations ride to the rescue!

First we need to calculate the flexed budgeted figure using the originally budgeted cost price:

• budgeted materials cost × actual production = flexed total costs budget
• £5 per metre × 1,200 units = £6,000

Next we need to calculate the actual direct materials cost:

• actual materials cost × actual production = actual performance
• £4.70 per metre × 1,200 units = £6,204

Now that we have those two figures, we can sum them to see how they compare and get our total materials variance:

• £6,000 − £6,204 = £204 A

That’s an adverse total materials variance of £204 because the actual cost was higher than the flexed budget.