False1-Fancy Nail's monthly rent is $2,500. The company’s static budget is based on an activity level of 2,000manicures per month. It shows nail technician wages (a variable cost) of $20,000. Fancy Nails' flexiblebudget for 2,200 manicures will show ______.
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1-The difference between an actual and a normal cost system is how ______ are recorded.
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1-The amount a company should spend to produce a single unit of product based on expectedproduction and sales is shown on a(n)Standard/cost1-The process of comparing actual and budgeted results is ______.
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1-A budget that takes into account how costs are affected by changes in level of activity is
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Flex1-A flexible budget-------------------variance is calculated by comparing actual costs to the flexiblebudget.
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Variable/fixed1-A master budget calls for 3,000 units of production and budgeted fixed overhead of $6,000. Actualproduction was 3,500 units and total fixed overhead was $6,150. Which of the following statements istrue?
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1-A static budget shows variable supply cost of $6,250 based on 1,000 units. A flexible budget based on1,200 units should show ______ for supplies.
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1-A variance is labeled as favorable when the ______.
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What is a Material Quantity Variance?
A material quantity variance is the difference between the actual amount of materials used in the production process and the amount that was expected to be used. The measurement is employed to determine the efficiency of a production process in converting raw materials into finished goods. If there is a material quantity variance, one or more of the following is usually the cause:
Low quality of raw materials
Incorrect specification of materials
Raw materials obsolescence
Damage in transit to the company
Damage while being moved or stored within the company
Damage during the production process
Improper employee training
Inadequate packaging materials
Incorrect materials standard
How to Calculate the Material Quantity Variance
The formula for the material quantity variance is the actual usage in units minus the standard usage in units, multiplied by the standard cost per unit, or:
(Actual usage in units - Standard usage in units) x Standard cost per unit
Understanding the Material Quantity Variance
The material quantity variance can yield unusual results, since it is based on a standard unit quantity that may not be even close to actual usage. The material quantity is usually set by the engineering department, and is based on an expected amount of material that should theoretically be used in the production process, along with an allowance for a reasonable amount of scrap. If the standard is excessively generous, there will be a long series of favorable material quantity variances, even though the production staff may not be doing an especially good job. Conversely, a parsimonious standard allows little room for error, so there is more likely to be a considerable number of unfavorable variances over time. Thus, the standard used to derive the variance is more likely to cause a favorable or unfavorable variance than any actions taken by the production staff.
Of course, variances can be caused by production snafus, such as an excessive amount of scrap while setting up a production run, or perhaps damage caused by mishandling. It can even be caused by the purchasing department ordering materials that have an excessively low quality, so that more material is scrapped during the production process.
The material quantity variance is a subset of the quantity variance, since it only applies to materials (or, more accurately, direct materials) that are used in the production process.
Example of the Material Quantity Variance
ABC International expects to use 100 pounds of plastic resin to make a batch of plastic cups, but instead uses 120 pounds. The standard cost of the resin is $5 per pound. Therefore, the material quantity variance is:
(120 pounds actual usage - 100 pounds standard usage) x $5 per pound
= $100 Material quantity variance
Note: In rare cases, the material quantity variance can be used to track the usage of marketing materials during sales campaigns, where actual usage is compared to the expected total amount of usage. This situation usually applies only when the cost of marketing materials is quite high.
Terms Similar to Material Quantity Variance
The material quantity variance is also known as the material usage variance and the material yield variance.