A company calculates volume variances to determine how efficiently it used a resource relative to budgeted expectations. The term quantity variance most often refers to the quantity variance of direct materials used during the production process. To calculate material quantity variance, subtract the budgeted quantity of direct materials from the actual quantity used and multiply by the budgeted cost of direct materials per unit.
Quantity Variance Calculation Example
Say that a clothing company budgeted that it would need 500 yards of fabric to meet its production needs, and the budgeted price of fabric was $10 per yard. Instead, the company only used 400 yards of fabric to produce the budgeted amount of product. The material quantity variance is the 500 budgeted yards less the 400 actual yards -- or 100 yards -- multiplied by $10 per yard for a quantity variance of $1,000.
Favorable and Unfavorable Quantity Variances
Material quantity variances can be either favorable variances or unfavorable ones. Whenever actual costs are less than expected, the variance is favorable. In this example, the company used fewer materials and spent less money, so the $1,000 quantity variance is favorable. If actual material quantity had exceeded the budgeted amount, it would have been unfavorable.
Understanding Quantity Variance
The quantity variance formula can tell a business how much of a variance occurred, but it doesn't explain why it occurred. Unfavorable material variances can occur because of low quality materials, damage in transit, inefficient machinery, poor employee training or materials becoming obsolete. The reverse is also true -- if raw materials were higher quality than expected, fewer of them might be needed to produce the same product. For example, maybe a purchasing manager paid $15 per yard instead of $10 per yard to obtain thicker materials and thus needed to use less of them. In this case, he might have produced more products than budgeted, but he also spent more money to do so. To better understand the reasons for a quantity variance, price variance should also be calculated.