Variable cost variances

Direct material variances
The direct material total variance is the difference between what the output actually cost and what it should have cost, in terms of material.
From the example above the material total variance is given by:

	$
1,000 units should have cost (x $50)	50,000
But did cost	46,075
Direct material total variance	3, 925 (F)

It can be divided into two sub-variances
The direct material price variance
This is the difference between what the actual quantity of material used did cost and what it should have cost.

	$
4,850 kgs should have cost (x $10)	48,500
But did cost	46,075
Direct material price variance	2,425 (F)

The direct material usage variance
This is the difference between how much material should have been used for the number of units actually produced and how much material was used, valued at standard cost

1,000 units should have used (x 5 kgs)	5,000 kgs
But did use	4,850 kgs
Variance in kgs	150 kgs (F)
Valued at standard cost per kg	x $10
Direct material usage variance in $	$1,500 (F)

The direct material price variance is calculated on material purchases in the period if closing stocks of raw materials are valued at standard cost or material used if closing stocks of raw materials are valued at actual cost (FIFO).
Direct labour total variance
The direct labour total variance is the difference between what the output should have cost and what it did cost, in terms of labour.

	$
1,000 units should have cost (x $20)	20,000
But did cost	21,210
Direct material price variance	1,210 (A)

Direct labour rate variance
This is the difference between what the actual number of hours worked should have cost and what it did cost.

4200hrs should have cost (4200hrs x $5)	$21000
But did cost	$21210
Direct labour rate variance	$210(A)

The direct labour efficiency variance
The is the difference between how many hours should have been worked for the number of units actually produced and how many hours were worked, valued at the standard rate per hour.

	$
1,000 units should have taken (x 4 hrs)	4,000 hrs
But did take	4,200 hrs
Variance in hrs	200 hrs
Valued at standard rate per hour	x $5
Direct labour efficiency variance	$1,000 (A)

When idle time occurs the efficiency variance is based on hours actually worked (not hours paid for) and an idle time variance (hours of idle time x standard rate per hour) is calculated.