Example
Let us assume that the standard direct material cost of widget is as follows:
- 2 kg of unobtainium at € 60 per kg ( = € 120 per unit).
Let us assume further that during the given period, 100 widgets were manufactured, using 212 kg of unobtainium which cost € 13,144.
Under those assumptions direct material price variance can be calculated as:
| 212 kg of unobtainium should have cost (× € 60) | € 12,720 | ||
| but did cost | € 13,144 | ||
| Direct material (unobtainium) price variance | € 424 | (A) |
Direct material price variance can be reconciled to direct material total variance by way of direct material usage variance:
| Direct material usage variance | € 720 | (A) | |
| Direct material price variance | € 424 | (A) | |
| Direct material total variance | € 1,144 | (A) |
See direct material total variance#Example and direct material usage variance#Example for computations of both components.
Read more about this topic: Direct Material Price Variance
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