{"id":108,"date":"2021-01-26T22:07:49","date_gmt":"2021-01-26T22:07:49","guid":{"rendered":"https:\/\/courses.lumenlearning.com\/wm-managerialaccounting\/?post_type=chapter&#038;p=108"},"modified":"2021-05-12T23:57:07","modified_gmt":"2021-05-12T23:57:07","slug":"direct-materials-efficiency-variance","status":"publish","type":"chapter","link":"https:\/\/courses.lumenlearning.com\/suny-clinton-managerialaccounting\/chapter\/direct-materials-efficiency-variance\/","title":{"raw":"Direct Materials Efficiency Variance","rendered":"Direct Materials Efficiency Variance"},"content":{"raw":"<div class=\"textbox learning-objectives\">\r\n<h3>Learning Outcomes<\/h3>\r\n<ul>\r\n \t<li>Compute the direct materials efficiency variance<\/li>\r\n<\/ul>\r\n<\/div>\r\n<img class=\"size-medium wp-image-1593 alignleft\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12235205\/marissa-daeger-iW9iaL-gjX8-unsplash-300x200.jpg\" alt=\"Wood boards stacked\" width=\"300\" height=\"200\" \/>The <strong>Direct Materials Efficiency Variance<\/strong> isolates quantity issues from cost issues. Just as the Direct Materials Cost Variance reflects a deviation from the standard unit cost of raw materials, the efficiency variance reports when more or less than the <strong>standard amount<\/strong> of materials is used to produce a product or complete a process. This materials usage variance is calculated by subtracting the standard quantity (SQ) per unit from the actual (AQ) and then multiplying that difference by the Standard Cost (SC):\r\n\r\nDirect Materials Efficiency Variance = <strong>(AQ \u2013 SQ) x SC<\/strong>\r\n\r\nAlternatively, the Direct Materials Efficiency Variance could be calculated by multiplying Actual Quantity of raw materials (AQ) by the Standard Cost (SC) which would give the total cost of materials without regard to the price variance, and from that subtracting from that the product of the Standard Quantity of raw materials (AQ) and the Standard Cost (SC) which would give the total expected cost of materials if the conversion process used those materials exactly as expected.\r\n\r\n<strong>(AQ x SC) \u2013 (SQ x SC)<\/strong>\r\n\r\nFrom the accounting records, we know that the company purchased and used in production 6,800 BF of lumber to make 1,620 bodies. Based on a standard of 4BF per body, we expected raw materials usage to be 6,480 (1,620 bodies x 4BF per blank).\r\n\r\nWe can already see that we have an unfavorable variance. Let\u2019s do the calculation:\r\n\r\n<strong>(AQ \u2013 SQ) x SC<\/strong>\r\n\r\n(6,800-6,480) x $6.00 = $1,920.00\r\n\r\nAlternatively:\r\n\r\n(AQ * SC) - (SQ * SC) = (6,800 * $6.00) - (6,480 * $6.00) = $40,800 - $38,800= $1,920.00\r\n\r\nEven though the answer is a positive number, the variance is unfavorable because more materials were used than the standard quantity allowed to complete the job. If the standard quantity allowed had exceeded the quantity actually used, the materials usage variance would have been favorable.\r\n\r\nDetermine whether a variance is favorable or unfavorable by reliance on reason or logic. If more materials were used than the standard quantity, or if a price greater than the standard price was paid, the variance is unfavorable. If the reverse is true, the variance is favorable.\r\n\r\nLet\u2019s look at the two variances together:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Favorable or Unfavorable<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td>Direct Materials Cost Variance<\/td>\r\n<td class=\"r\">$(2,720.00)<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Direct Materials Efficiency Variance<\/td>\r\n<td class=\"r\">1,920.00<\/td>\r\n<td><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 $ (800.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"l highlight-green\">Favorable<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nAnd relate them back to the budget v. actual report:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\"><caption>Boulevard Blanks\r\nPartial Income Statement\r\nFor the month ended July 31, 20XX<\/caption>\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\"><\/th>\r\n<th class=\"r\" scope=\"col\">Actual<\/th>\r\n<th class=\"r\" scope=\"col\">Budget<\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td>Sales revenue<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 178,200.00<\/td>\r\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 178,200.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Variable manufacturing costs<\/strong><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td class=\"highlight\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct materials<\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 38,080.00<\/td>\r\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 38,880.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct Labor<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 46,500.00<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 43,740.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Allocated overhead<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,395.00<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,944.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Fixed manufacturing costs<\/strong><\/td>\r\n<\/tr>\r\n<tr>\r\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Allocated overhead<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 13,485.00<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 13,365.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Cost of Goods Manufactured and sold<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 99,460.00<\/td>\r\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 97,929.00<\/td>\r\n<\/tr>\r\n<tr>\r\n<td>Gross Profit<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 78,740.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 80,271.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nWe can double-check our work by reconciling the two variances to the overall variance in the budget:\r\n\r\n(actual quantity x actual cost) - (standard quantity x standard cost)\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<tbody>\r\n<tr>\r\n<th class=\"r\" scope=\"col\">AQ<\/th>\r\n<th class=\"r\" scope=\"col\">AP<\/th>\r\n<th class=\"r\" scope=\"col\">SQ<\/th>\r\n<th class=\"r\" scope=\"col\">SC<\/th>\r\n<th class=\"r\" scope=\"col\">TOTAL VAR<\/th>\r\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Favorable or Unfavorable<\/span><\/th>\r\n<\/tr>\r\n<\/tbody>\r\n<tbody>\r\n<tr>\r\n<td class=\"r\">\u00a0 \u00a0 6,800.00<\/td>\r\n<td class=\"r\">$\u00a05.60<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r highlight\">$ 38,080.00<\/td>\r\n<td>Actual total cost of materials<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r\">\u00a0 \u00a0 6,480.00<\/td>\r\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 6.00<\/td>\r\n<td class=\"r highlight\">\u00a0 38,880.00<\/td>\r\n<td>Budgeted total cost of materials<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>Variance<\/td>\r\n<td><\/td>\r\n<td><\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 (800.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"highlight-green\">Favorable<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nAgain, in reporting to our internal users, we would omit the parenthesis that we use in accounting to show a negative amount, since that may confuse non-financial managers who are relying on the report. We would show the variances as follows:\r\n<div align=\"left\">\r\n<table class=\"fin-table acctstatement fw\">\r\n<thead>\r\n<tr class=\"u-sr-only\">\r\n<th scope=\"col\"><\/th>\r\n<th scope=\"col\">Description<\/th>\r\n<th scope=\"col\">Amount<\/th>\r\n<th scope=\"col\">Favorable or Unfavorable<\/th>\r\n<\/tr>\r\n<\/thead>\r\n<tbody>\r\n<tr>\r\n<td><\/td>\r\n<td>Direct Materials Cost Variance<\/td>\r\n<td class=\"r\">$2,720.00<\/td>\r\n<td class=\"highlight-green\">Favorable<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>Direct Materials Efficiency Variance<\/td>\r\n<td class=\"r\">1,920.00<\/td>\r\n<td class=\"highlight-red\">Unfavorable<\/td>\r\n<\/tr>\r\n<tr>\r\n<td><\/td>\r\n<td>Overall Direct Materials Variance<\/td>\r\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 $ 800.00<span class=\"u-sr-only\">Double line<\/span><\/td>\r\n<td class=\"highlight-green\">Favorable<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<\/div>\r\nThis shows that we saved money by buying cheaper, but lost money because of material waste. It could be that the cheaper lumber has more knots, therefore forcing workers to throw more of the raw materials in the scrap heap. The responsible managers (e.g. purchasing and production) will have to get together to do more observations and research. It may also be that our expectations are unrealistic and we need to change our budget parameters.\r\n\r\nBefore we go on to explore direct labor variances, check your understanding of the direct materials efficiency variance.\r\n<div class=\"textbox tryit\">\r\n<h3>Practice Question<\/h3>\r\n[ohm_question hide_question_numbers=1]217936[\/ohm_question]\r\n\r\n<\/div>","rendered":"<div class=\"textbox learning-objectives\">\n<h3>Learning Outcomes<\/h3>\n<ul>\n<li>Compute the direct materials efficiency variance<\/li>\n<\/ul>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"size-medium wp-image-1593 alignleft\" src=\"https:\/\/s3-us-west-2.amazonaws.com\/courses-images\/wp-content\/uploads\/sites\/5469\/2021\/01\/12235205\/marissa-daeger-iW9iaL-gjX8-unsplash-300x200.jpg\" alt=\"Wood boards stacked\" width=\"300\" height=\"200\" \/>The <strong>Direct Materials Efficiency Variance<\/strong> isolates quantity issues from cost issues. Just as the Direct Materials Cost Variance reflects a deviation from the standard unit cost of raw materials, the efficiency variance reports when more or less than the <strong>standard amount<\/strong> of materials is used to produce a product or complete a process. This materials usage variance is calculated by subtracting the standard quantity (SQ) per unit from the actual (AQ) and then multiplying that difference by the Standard Cost (SC):<\/p>\n<p>Direct Materials Efficiency Variance = <strong>(AQ \u2013 SQ) x SC<\/strong><\/p>\n<p>Alternatively, the Direct Materials Efficiency Variance could be calculated by multiplying Actual Quantity of raw materials (AQ) by the Standard Cost (SC) which would give the total cost of materials without regard to the price variance, and from that subtracting from that the product of the Standard Quantity of raw materials (AQ) and the Standard Cost (SC) which would give the total expected cost of materials if the conversion process used those materials exactly as expected.<\/p>\n<p><strong>(AQ x SC) \u2013 (SQ x SC)<\/strong><\/p>\n<p>From the accounting records, we know that the company purchased and used in production 6,800 BF of lumber to make 1,620 bodies. Based on a standard of 4BF per body, we expected raw materials usage to be 6,480 (1,620 bodies x 4BF per blank).<\/p>\n<p>We can already see that we have an unfavorable variance. Let\u2019s do the calculation:<\/p>\n<p><strong>(AQ \u2013 SQ) x SC<\/strong><\/p>\n<p>(6,800-6,480) x $6.00 = $1,920.00<\/p>\n<p>Alternatively:<\/p>\n<p>(AQ * SC) &#8211; (SQ * SC) = (6,800 * $6.00) &#8211; (6,480 * $6.00) = $40,800 &#8211; $38,800= $1,920.00<\/p>\n<p>Even though the answer is a positive number, the variance is unfavorable because more materials were used than the standard quantity allowed to complete the job. If the standard quantity allowed had exceeded the quantity actually used, the materials usage variance would have been favorable.<\/p>\n<p>Determine whether a variance is favorable or unfavorable by reliance on reason or logic. If more materials were used than the standard quantity, or if a price greater than the standard price was paid, the variance is unfavorable. If the reverse is true, the variance is favorable.<\/p>\n<p>Let\u2019s look at the two variances together:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Favorable or Unfavorable<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td>Direct Materials Cost Variance<\/td>\n<td class=\"r\">$(2,720.00)<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td>Direct Materials Efficiency Variance<\/td>\n<td class=\"r\">1,920.00<\/td>\n<td><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 $ (800.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"l highlight-green\">Favorable<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>And relate them back to the budget v. actual report:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<caption>Boulevard Blanks<br \/>\nPartial Income Statement<br \/>\nFor the month ended July 31, 20XX<\/caption>\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\"><\/th>\n<th class=\"r\" scope=\"col\">Actual<\/th>\n<th class=\"r\" scope=\"col\">Budget<\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td>Sales revenue<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 178,200.00<\/td>\n<td class=\"r\">$\u00a0 \u00a0 \u00a0 \u00a0 178,200.00<\/td>\n<\/tr>\n<tr>\n<td colspan=\"1\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Variable manufacturing costs<\/strong><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span><\/td>\n<\/tr>\n<tr>\n<td class=\"highlight\">\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct materials<\/td>\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 38,080.00<\/td>\n<td class=\"r highlight\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 38,880.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Direct Labor<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 46,500.00<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 43,740.00<\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Allocated overhead<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,395.00<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 1,944.00<\/td>\n<\/tr>\n<tr>\n<td colspan=\"3\"><span class=\"u-sr-only\">Subcategory, <\/span><strong>Fixed manufacturing costs<\/strong><\/td>\n<\/tr>\n<tr>\n<td>\u00a0\u00a0\u00a0\u00a0\u00a0\u00a0Allocated overhead<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 13,485.00<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 13,365.00<\/td>\n<\/tr>\n<tr>\n<td>Cost of Goods Manufactured and sold<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 99,460.00<\/td>\n<td class=\"r line-single\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 97,929.00<\/td>\n<\/tr>\n<tr>\n<td>Gross Profit<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 78,740.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>$\u00a0 \u00a0 \u00a0 \u00a0 80,271.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>We can double-check our work by reconciling the two variances to the overall variance in the budget:<\/p>\n<p>(actual quantity x actual cost) &#8211; (standard quantity x standard cost)<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<tbody>\n<tr>\n<th class=\"r\" scope=\"col\">AQ<\/th>\n<th class=\"r\" scope=\"col\">AP<\/th>\n<th class=\"r\" scope=\"col\">SQ<\/th>\n<th class=\"r\" scope=\"col\">SC<\/th>\n<th class=\"r\" scope=\"col\">TOTAL VAR<\/th>\n<th class=\"r\" scope=\"col\"><span class=\"u-sr-only\">Favorable or Unfavorable<\/span><\/th>\n<\/tr>\n<\/tbody>\n<tbody>\n<tr>\n<td class=\"r\">\u00a0 \u00a0 6,800.00<\/td>\n<td class=\"r\">$\u00a05.60<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r highlight\">$ 38,080.00<\/td>\n<td>Actual total cost of materials<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td><\/td>\n<td class=\"r\">\u00a0 \u00a0 6,480.00<\/td>\n<td class=\"r\">\u00a0 \u00a0 \u00a0 \u00a0 \u00a0 \u00a0 6.00<\/td>\n<td class=\"r highlight\">\u00a0 38,880.00<\/td>\n<td>Budgeted total cost of materials<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>Variance<\/td>\n<td><\/td>\n<td><\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 (800.00)<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"highlight-green\">Favorable<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>Again, in reporting to our internal users, we would omit the parenthesis that we use in accounting to show a negative amount, since that may confuse non-financial managers who are relying on the report. We would show the variances as follows:<\/p>\n<div style=\"text-align: left;\">\n<table class=\"fin-table acctstatement fw\">\n<thead>\n<tr class=\"u-sr-only\">\n<th scope=\"col\"><\/th>\n<th scope=\"col\">Description<\/th>\n<th scope=\"col\">Amount<\/th>\n<th scope=\"col\">Favorable or Unfavorable<\/th>\n<\/tr>\n<\/thead>\n<tbody>\n<tr>\n<td><\/td>\n<td>Direct Materials Cost Variance<\/td>\n<td class=\"r\">$2,720.00<\/td>\n<td class=\"highlight-green\">Favorable<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>Direct Materials Efficiency Variance<\/td>\n<td class=\"r\">1,920.00<\/td>\n<td class=\"highlight-red\">Unfavorable<\/td>\n<\/tr>\n<tr>\n<td><\/td>\n<td>Overall Direct Materials Variance<\/td>\n<td class=\"r line-single line-double\"><span class=\"u-sr-only\">Single Line<\/span>\u00a0 \u00a0 \u00a0 $ 800.00<span class=\"u-sr-only\">Double line<\/span><\/td>\n<td class=\"highlight-green\">Favorable<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<\/div>\n<p>This shows that we saved money by buying cheaper, but lost money because of material waste. It could be that the cheaper lumber has more knots, therefore forcing workers to throw more of the raw materials in the scrap heap. The responsible managers (e.g. purchasing and production) will have to get together to do more observations and research. It may also be that our expectations are unrealistic and we need to change our budget parameters.<\/p>\n<p>Before we go on to explore direct labor variances, check your understanding of the direct materials efficiency variance.<\/p>\n<div class=\"textbox tryit\">\n<h3>Practice Question<\/h3>\n<p><iframe loading=\"lazy\" id=\"ohm217936\" class=\"resizable\" src=\"https:\/\/ohm.lumenlearning.com\/multiembedq.php?id=217936&theme=oea&iframe_resize_id=ohm217936\" width=\"100%\" height=\"150\"><\/iframe><\/p>\n<\/div>\n\n\t\t\t <section class=\"citations-section\" role=\"contentinfo\">\n\t\t\t <h3>Candela Citations<\/h3>\n\t\t\t\t\t <div>\n\t\t\t\t\t\t <div id=\"citation-list-108\">\n\t\t\t\t\t\t\t <div class=\"licensing\"><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Original<\/div><ul class=\"citation-list\"><li>Direct Materials Efficiency Variance. <strong>Authored by<\/strong>: Joseph Cooke. <strong>Provided by<\/strong>: Lumen Learning. <strong>License<\/strong>: <em><a target=\"_blank\" rel=\"license\" href=\"https:\/\/creativecommons.org\/licenses\/by\/4.0\/\">CC BY: Attribution<\/a><\/em><\/li><\/ul><div class=\"license-attribution-dropdown-subheading\">CC licensed content, Shared previously<\/div><ul class=\"citation-list\"><li>Accounting Principles: A Business Perspective. <strong>Authored by<\/strong>: James Don Edwards, University of Georgia &amp; Roger H. 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