What is Variance analysis and how do you calculate Material Usage variance?

Question

Accepted Answer

Variance analysis is a technique used to identify and analyze the difference between planned and actual performance.

Variance analysis helps in understanding the reasons for deviations from expected outcomes.
Material Usage variance is calculated by subtracting the actual quantity of materials used from the standard quantity, and then multiplying the result by the standard price per unit.
Formula: Material Usage Variance = (Standard Quantity - Actual Quantity) x Standard Price per unit
For example, if the standard quantity of material for production is 100 units, but the actual quantity used is 90 units, and the standard price per unit is $2, the material usage variance would be (100 - 90) x $2 = $20 favorable variance.

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