What Is Material Usage Variance?
Also known as: material quantity variance, material efficiency variance, yield variance
Definition
Material usage variance is the difference between the actual quantity of material consumed on a production order and the standard quantity allowed for the output produced, multiplied by the standard price. It shows scrap, waste and yield losses.
Material Usage Variance Explained
The standard quantity comes from the BOM, including its scrap or yield factor, multiplied by the units produced. The actual quantity is what was issued and consumed on the order, either by manual issue or by backflush. The variance equals (actual quantity - standard quantity) x standard price. Using standard price keeps it separate from the purchase price variance.
Common causes include scrap beyond the planned allowance, wrong BOM quantities, material substitution, spillage, over-issuing to a job, theft, or inaccurate backflushing when the BOM does not match how the shop really builds the item. Favorable variances can signal an inflated BOM rather than good performance.
ERPs calculate it when a production order is completed or settled. SAP determines production variances on the order with KKS1 for a single order or KKS2 for many, with input quantity variance separated from price variance. NetSuite and Business Central book usage differences between the standard roll-up and actual issues to a variance account on work order completion. SyteLine and Infor LN compare actual issued material to the planned job or production order material and report the difference.
Analysis works best by part family, work center and shift. A single large variance is often a data problem, while a steady small one is a process problem.
Why It Matters
- Material is often the largest share of product cost, so small yield losses add up quickly.
- It identifies BOM and scrap factor errors that also distort MRP planning.
- It points to specific machines, operators or suppliers causing material loss.
- Closing variances to the correct account keeps WIP and finished goods valued properly.
In Practice
A work order for 1,000 housings allows 2.0 kg of aluminum each, so 2,000 kg standard, at a standard price of 6 per kg. The order consumes 2,150 kg. Usage variance is (2,150 - 2,000) x 6 = 900 unfavorable. Investigation finds a tool wear issue producing extra scrap, not a BOM error, so the fix is maintenance rather than changing the standard.
Frequently Asked Questions
What is the formula for material usage variance?
(Actual quantity used - standard quantity allowed) x standard price. A positive number is unfavorable because more material was used than allowed.
How is it different from purchase price variance?
Purchase price variance measures what you paid per unit against standard. Usage variance measures how much material was consumed against what the BOM allows.
Can a favorable usage variance be a problem?
Yes. It can mean the BOM quantity is overstated or the actual consumption was not fully recorded, which hides real costs and misleads MRP.
Related Terms
Standard Cost
Standard cost is a predetermined per-unit cost for material, labor, and overhead, set in advance and used to value inventory and transactions. Differences between standard and actual are captured as variances that isolate where cost deviated.
Scrap Rate
Scrap rate is the percentage of production output discarded as unusable because it cannot be economically reworked to specification, calculated as scrapped units divided by total units produced over a defined period.
Backflush
Backflush in SyteLine is the automatic deduction of material and posting of labor when an operation or job is reported complete. Instead of issuing each component manually, the system relieves inventory at standard quantity based on the quantity reported.
BOM (Bill of Materials)
A BOM (bill of materials) is the structured, hierarchical list of components, sub-assemblies, and quantities required to produce one unit of a parent item, and it is the primary input MRP explodes to calculate material requirements.
First Pass Yield
First pass yield is the percentage of units that complete a process correctly the first time, without rework, repair, or retest. Units that eventually pass after rework are excluded, so the metric captures hidden factory loss.
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