See Also:

Direct Cost vs Indirect Cost

Direct Materials

Variance Analysis

Direct Labor Variance Formulas

Cost Driver

Commonly used variance formulas for direct materials include the direct material price variance and the direct material quantity variance. Below are the formulas for calculating each of these variances.

Direct material price variance measures the cost of the difference between the expected price of materials required for the operations and the actual price of materials required for the operations.

If the variance demonstrates that the actual price of materials required was higher than expected price of materials required, the variance will be considered unfavorable. If the variance demonstrates that the actual price of materials required was less than expected price of materials required, the variance will be considered favorable.

Using the formula shown below, a positive DMPV would be unfavorable and a negative DPMV would be favorable.

**DMPV = PQ (AP – SP)**

DMPV = Direct material price variance

PQ = Actual quantity of materials purchased

AP = Actual price paid for materials

SP = Standard price, or the estimated price of materials required for the operations

Direct material quantity variance measures the cost of the difference between the expected quantity of materials required for the operations and the actual quantity of materials required for the operations.

If the variance demonstrates that the actual quantity of materials required was higher than expected quantity of materials required, the variance will be considered unfavorable. If the variance demonstrates that the actual quantity of materials required was less than expected quantity of materials required, the variance will be considered favorable.

Using the formula shown below, a positive DMQV would be unfavorable and a negative DPQV would be favorable.

**DMQV = SP (AQ – SQ)**

DMQV = Direct material quantity variance

SP = Standard price, or the estimated price of materials required for the operations

AQ = Actual quantity of materials required for the operations

SQ = Standard quantity, or the estimated quantity of materials required for the operations

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**Source:**

Hilton, Ronald W., Michael W. Maher, Frank H. Selto. “Cost Management Strategies for Business Decision”, Mcgraw-Hill Irwin, New York, NY, 2008.

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