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What is direct material variance?
To know more about subject, even with direct material variance assignment help, first of all we need to understand what is standard costing. Under standard costing which is a broad subject all the variance falls. Standard costing of items are used by company accountants who are trying to formulate a budget instead of actual costs since that information is difficult to gather at the time. Standard costing lets a business to manage cost control in order to make the most of their resources and funds, and limit their losses.
In situations when the actual cost of raw material or labour does not match the estimate or average cost; this situation is known as variance. When the actual cost is lower than standard cost it is favorable variance and if actual costs exceed standard costs it is unfavorable variance, and. This is a confusing topic, so it is for you reach us at direct material variance assignment help, where we will break up the topic into easy to understand parts.
Types of direct material variance
Types of direct material variance are as follows
• Direct material price variance
To explain in simple words, price variance refers to the amount of actual product that is used and the difference between the standard cost of this product and the actual cost. The formula for this is rather simple:
Direct material price variance = (standard cost – actual cost) x actual quantity
- DM price variance = (SC – AC) x AQ
Calculation of this sort of variance helps to establish the effectiveness of a purchasing department in order to obtain material at low rates.
The quantity variance talks about the standard price of the direct material and the difference between the standard quantity that is permissible by the department and the actual quantity used in production. In other words,
Direct material quantity variance = (standard quantity – actual quantity) x actual cost
- DM quantity variance = (SQ – AQ) x AC
There are further subdivisions you will come across in your direct material variance assignment help.
This includes, Direct material yield variance, Direct material mix variance; however, the most important one is to remember direct material price quantity variance.
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