Direct Material Cost Variance | Meaning | Formula | Causes

Direct Material Cost Variance

It is otherwise called as Direct Material Variances. It is the difference between the standard cost of materials used for the actual output and the actual cost of materials used.

According to ICMA, London,

“It is the difference between the standard cost of direct materials specified for the output achieved and the actual cost of direct materials used”.

The direct material cost variances including material price variance, material usage variance, material mix variance and material yield variance. The following chart depicts the divisions of Direct Material Cost Variances very clearly.

Formula to calculate Direct Material Cost Variance

The following formula is used to calculate Direct Material Cost Variance.

MCV = (SQx SP) -(AQxAP)


  • MCV = Material Cost Variance
  • SQ = Standard Quantity for Actual Output
  • SP = Standard Price
  • AQ = Actual Quantity
  • AP = Actual Price

The following formula is used for calculating SQ for actual output.

Standard Quantity for Actual Output = (Std. Input / Std. Output)  x Actual Output

Standard Cost = SQ x SP
Actual Cost = AQ x AP

If the standard cost is more than the actual cost, the variance will be favorable and on the other hand if the standard cost is less than the actual cost the variance will be unfavorable or adverse.


1. Standard cost has to be calculated with reference to standard quantity for actual output. In such case, the information regarding standard output to be ignored.

2. If the problem is silent in respect of standard output and actual output, it will be assumed that standard output for which the standard was fixed has actually been achieved i.e. SO = AO

Causes for Direct Material Cost Variance

Direct material cost variance is caused due to the following reasons.

1. Change (increase / decrease) in the price of materials

2. Change (increase / decrease) in the quantity of materials used. This is happened due to

  1. Change in the mix of more than one type of materials in the process of manufacture.
  2. Change (increase / decrease) in the output.

Related Post

Zero based budgeting | Stages | Advantages | Disadvantages Understanding Zero based budgeting Zero based budgeting is used as a managerial tool to control the costs. It got popularity since the early 1970's. ...
Yardsticks for ratio analysis An efficiency of an individual can be assessed only by fixing the standard. If not so, the concerned individual has no option of knowing his level of ...
Working capital | Operating Cycle or Circular Flow Concept Working Capital Working capital refers to a part of sources of funds of a business concern used for financing short term purposes or current assets s...
Working capital | Meaning | Needs | Balance Sheet Concept What is working capital? Working capital is the amount used to meet the day to day operation activities of a business. In the broad sense, the term w...
Who is a Management Accountant | Role in Management The management accounting system provides highly useful economic and financial data to the management. A channel is used to transmit the information e...
Who is a Budget Officer? | What are his Duties or Functions? Who is a Budget Officer? Budget Officer is a head of Budgetary Control Organization. He/she may be otherwise called as the Budget Director or Budget ...

Leave a Reply