materials cost variance
materials cost variancethe difference between the standard DIRECT MATERIALS cost of a product (standard materials usage x standard materials price) and its actual direct materials cost (actual materials usage x actual materials price). This difference can be broken down into two parts:
- materials quantity variance, which involves calculating the difference between the standard quantity of materials specified and the actual quantity used, converted into money terms by multiplying by the standard materials price;
- materials price variance, which involves calculating the difference between the standard price of materials specified and the actual price paid, multiplied by the actual quantity of materials used.
With this distinction it is possible to trace whether an adverse direct materials cost variance is due to excess usage of materials or to higher materials prices. See STANDARD COST.
Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson