When a company experiences an unfavorable materials quantity variance, there are likely a variety of reasons for this. The purchasing department may be responsible for the difference, or the production manager may not have properly set up the production equipment. Regardless of the reason, it’s important to take action quickly to correct any issues.
The most common cause of a materials quantity variance is a change in the cost of raw materials. The cost of raw materials will affect this amount, and an unfavorable variance means that the actual cost is lower than the estimated price. In addition, poor quality materials can contribute to a material price variance.
Another common cause of an unfavorable materials quantity variance is a miscalculation in the amount of materials that are needed. For instance, if you’re using lower-quality materials, you may have to use more units of one material than planned. An unfavorable materials quantity variance can also be the result of miscalculations in budgeting and accounting for materials.
Another cause of a materials quantity variance is a lack of efficiency in the manufacturing process. During the production process, your factory workers may not be trained properly, and this can lead to material waste. Material quantity variance can be calculated by multiplying the actual quantity of materials by the standard cost.
If a material price variance is unfavorable, your managerial accountant is likely to look into the reasons behind it. He will likely discuss the situation with the purchasing department. This investigation is part of the control phase of budgeting and is an important step in identifying and correcting cost problems.
Unfavorable direct material quantity variance means that your company used more materials than the standard, resulting in an increase in cost. This could be the result of waste in the production process or inefficient labor. An unfavorable labor price variance, on the other hand, means that you paid your employees more than planned. In either case, the cause of the variance could be a problem with your supplier.
Whether your company’s sales surpassed expectations or not, an unfavorable variance should be analyzed closely. While it may be difficult to determine the precise reason for an unfavorable variance, it’s vital to identify the root cause so that you can correct it.