 Financial Terms material quantity variance

# Definition of material quantity variance ## material quantity variance

(actual quantity X standard price) - (standard quantity allowed  standard price);
the standard cost saved (favorable) or expended (unfavorable)
due to the difference between the actual quantity
of material used and the standard quantity of material
allowed for the goods produced during the period

# Related Terms:

## Materials quantity variance

The difference between the actual and budgeted quantities
of material used in the production process, multiplied by the standard cost per
unit.

Very early orders for materials before the completion
of a product design, given the long lead times required to supply some items.

## Bill of materials

A listing of all the materials and quantities that go to make up a completed product.

## bill of materials

a document that contains information about
the product materials components and their specifications
(including quality and quantities needed)

## Bill of materials

An itemization of the parts and subassemblies required to create a
product, frequently including assumed scrap rates that will arise as part of the production
process.

## Bill of materials (BOM)

A listing of all parts and subassemblies required to produce one
unit of a finished product, including the required number of units of each part
and subassembly.

## Breeder bill of materials

A bill of material that accounts for the generation and
cost implications of byproducts as a result of manufacturing the parent item. ## budget variance

the difference between total actual overhead
and budgeted overhead based on standard hours allowed
for the production achieved during the period; computed
as part of two-variance overhead analysis; also
referred to as the controllable variance

## controllable variance

the budget variance of the two variance approach to analyzing overhead variances

## Covariance

A statistical measure of the degree to which random variables move together.

## Covariance

A measure of the degree to which returns on two assets move in
tandem. A positive covariance means that asset returns move together; a
negative covariance means they vary inversely.

## direct material

a readily identifiable part of a product; the cost of such a part

## Direct materials cost

The cost of all materials used in a cost object, such as finished goods.

## Direct materials mix variance

The variance between the budgeted and actual mixes of
direct materials costs, both using the actual total quantity used. This variance isolates
the unit cost of each item, excluding all other variables.

## Earmarked material

Inventory that has been physically marked as being for a
specific purpose.

## economic order quantity

Order size that minimizes total inventory costs. ## Economic order quantity (EOQ)

The order quantity that minimizes total inventory costs.

## economic order quantity (EOQ)

an estimate of the number
of units per order that will be the least costly and provide
the optimal balance between the costs of ordering
and the costs of carrying inventory

the difference between the total actual fixed overhead and budgeted fixed overhead;
it is computed as part of the four-variance overhead analysis

see volume variance

## Indented bill of material

A bill of material reporting format under which successively
lower levels of components are indented farther away from the left
margin.

## labor efficiency variance

the number of hours actually worked minus the standard hours allowed for the production
achieved multiplied by the standard rate to establish
a value for efficiency (favorable) or inefficiency (unfavorable)
of the work force

## Labor efficiency variance

The difference between the amount of time that was budgeted
to be used by the direct labor staff and the amount actually used, multiplied
by the standard labor rate per hour.

## labor mix variance

(actual mix X actual hours X standard rate) - (standard mix X actual hours X standard rate);
it presents the financial effect associated with changing the
proportionate amount of higher or lower paid workers in production

## labor rate variance

the actual rate (or actual weighted average rate) paid to labor for the period minus the standard rate multiplied by all hours actually worked during the period;
it is actual labor cost minus (actual hours X standard rate)

## Labor rate variance

The difference between the actual and standard direct labor rates
actually paid to the direct labor staff, multiplied by the number of actual hours
worked.

## labor yield variance

(standard mix X actual hours X standard rate) - (standard mix X standard hours X standard rate);
it shows the monetary impact of using more or fewer total hours than the standard allowed

## material mix variance

(actual mix X actual quantity X standard price) - (standard mix X actual quantity X standardprice);
it computes the monetary effect of substituting a nonstandard mix of material

## material price variance

total actual cost of material purchased
minus (actual quantity of material  standard
price); it is the amount of money spent below (favorable)
or in excess (unfavorable) of the standard price for the
quantity of materials purchased; it can be calculated based
on the actual quantity of material purchased or the actual
quantity used

## Material requirements planning

A computerized system used to calculate material
requirements for a manufacturing operation.

## Material requirements planning (MRP)

A computer-driven production methodology
that manufactures products based on an initial demand forecast. It tends to result in
more inventory of all types than a just-in-time (JIT) production system.

## material requisition form

a source document that indicates
the types and quantities of material to be placed into production
or used in performing a service; it causes materials
and its cost to be released from the Raw material Inventory
warehouse and sent to Work in Process Inventory

## Material review board

A company committee typically comprising members representing
multiple departments, which determines the disposition of inventory
items that will not be used in the normal manufacturing or distribution process.

## material yield variance

(standard mix X actual quantity X standard price) - (standard mix X standard quantity X standard price);
it computes the difference between the
actual total quantity of input and the standard total quantity
allowed based on output and uses standard mix and
standard prices to determine variance

## Materiality

The proportional size of a financial misstatement. It can be construed as
the net impact on reported profits, or the percentage or dollar change in a specific
line item.

## Materiality

A characterization of the magnitude of a financial statement item's effect on a
company's overall financial condition and performance. An item is material when its size is
likely to influence decisions of investors or creditors.

## Materials price variance

The difference between the actual and budgeted cost to
acquire materials, multiplied by the total number of units purchased.

## Materials requirement planning

Computer-based systems that plan backward from the production schedule
to make purchases in order to manage inventory levels.

## materials requirements planning (MRP)

a computerbased information system that simulates the ordering and
scheduling of demand-dependent inventories; a simulation
of the parts fabrication and subassembly activities that are
required, in an appropriate time sequence, to meet a production
master schedule

## Materials requisition

A document listing the quantities of specific parts to be withdrawn
from inventory.

## Matrix bill of material

A bill of materials chart listing the bills for similar products,
which is useful for determining common components.

## Mean-variance analysis

Evaluation of risky prospects based on the expected value and variance of possible outcomes.

## Mean-variance criterion

The selection of portfolios based on the means and variances of their returns. The
choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for
a given expected return.

## Mean-variance efficient portfolio

Related: Markowitz efficient portfolio

## Minimum-variance frontier

Graph of the lowest possible portfolio variance that is attainable for a given
portfolio expected return.

## Minimum-variance portfolio

The portfolio of risky assets with lowest variance.
Minority interest An outside ownership interest in a subsidiary that is consolidated with the parent for
financial reporting purposes.

## Modular bill of material

A bill of material format in which components and subassemblies
are clustered by product option, so one can more easily plan for the
assembly of finished goods with different configurations.

## Multilevel bill of material

An itemization of all bill of material components, including
a nested categorization of all components used for subassemblies.

## Nonconforming material

Any inventory item that does not match its original design
specifications within approved tolerance levels.

## noncontrollable variance

it is computed as part of the two-variance approach to overhead analysis

## Offal material

The waste materials resulting from a production process.

the difference between total budgeted overhead at actual hours and total budgeted
overhead at standard hours allowed for the production
achieved; it is computed as part of a three-variance analysis;
it is the same as variable overhead efficiency variance

the difference between total actual overhead and total budgeted overhead at actual
hours; it is computed as part of three-variance analysis; it
is equal to the sum of the variable and fixed overhead
spending variances

## Phantom bill of material

A bill of materials for a subassembly that is not normally
kept in stock, because it is used at once as part of a higher-level assembly or
finished product.

## Portfolio variance

Weighted sum of the covariance and variances of the assets in a portfolio.

## Production yield variance

The difference between the actual and budgeted proportions
of product resulting from a production process, multiplied by the standard unit cost.

A firm that reacts to excess supply or excess demand by adjusting quantity rather than price. Contrast with price adjuster.

## Quantity Theory of Money

Theory that velocity is constant, and so a change in money supply will change nominal income by the same percentage. Formalized by the equation Mv = PQ.

## Raw material

Base-level items used by the manufacturing process to create either
subassemblies or finished goods.

## Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.

## Raw materials

Unprocessed goods bought for manufacture, part of inventory.

## Raw materials inventory

The total cost of all component parts currently in stock that
have not yet been used in work-in-process or finished goods production.

## Repair bill of material

A special bill itemizing changes needed to refurbish an
existing product.

## Reprocessed material

material that has been reworked and returned to stock.

## Reserved material

material that has been reserved for a specific purpose.

## Selling price variance

The difference between the actual and budgeted selling price for
a product, multiplied by the actual number of units sold.

## Serial covariance

The covariance between a variable and the lagged value of the variable; the same as
autocovariance.

## Single-level bill of material

A list of all components used in a parent item.

## standard quantity allowed

the quantity of input (in hours or some other cost driver measurement) required at standard for the output actually achieved for the period

## Summarized bill of materials

A bill of materials format showing the grand total
usage requirement for each component of a finished product.

the difference between total actual overhead and total applied overhead; it is the amount of underapplied or overapplied overhead

## total variance

the difference between total actual cost incurred
and total standard cost for the output produced during
the period

the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production

the difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity

## Variance

A measure of dispersion of a set of data points around their mean value. The mathematical
expectation of the squared deviations from the mean. The square root of the variance is the standard deviation.

## Variance

The weighted average of the squared deviations from the
expected value

## variance

a difference between an actual and a standard or
budgeted cost; it is favorable if actual is less than standard
and is unfavorable if actual is greater than standard

## Variance

The dispersion of a variable. The square of the standard deviation.

## variance

Average value of squared deviations from mean. A measure of volatility.

## Variance analysis

A method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved.

## variance analysis

the process of categorizing the nature (favorable or unfavorable) of the differences between standard and actual costs and determining the reasons for those differences

## Variance minimization approach to tracking

An approach to bond indexing that uses historical data to
estimate the variance of the tracking error.

## Variance rule

Specifies the permitted minimum or maximum quantity of securities that can be delivered to
satisfy a TBA trade. For Ginnie Mae, Fannie Mae, and Feddie Mac pass-through securities, the accepted
variance is plus or minus 2.499999 percent per million of the par value of the TBA quantity.

## volume variance

a fixed overhead variance that represents
the difference between budgeted fixed overhead and fixed
overhead applied to production of the period; is also referred
to as the noncontrollable variance