By Kenneth Boyd, Lita Epstein, Mark P. Holtzman, Frimette Kass-Shraibman, Maire Loughran, Vijay S. Sampath, John A. Tracy, Tage C. Tracy, Jill Gilbert Welytok

Direct materials are raw materials traceable to the manufactured product, such as the amount of flour used to make a cake. To compute the direct materials standard price (SP), consider all the costs that go into a single unit of direct materials.

Because several different kinds of direct materials are often necessary for any given product, you need to establish separate direct materials standard prices and quantities for every kind of direct materials needed.

Suppose that the Band Book Company usually pays $10 per pound for paper. It typically pays $0.25 per pound for freight and another $0.10 per pound for receiving and handling. Therefore, total cost per pound equals $10.35.


Another standard to consider is the direct materials standard quantity (SQ) per unit. This number is the amount of direct materials needed to make a single unit of finished product. It includes not only the direct materials actually used but also any direct materials likely to get scrapped or spoiled in the production process.

Variance costing involves juggling many different figures and terms. To simplify matters, use abbreviations such as SP (for direct materials standard price) and SQ (for direct materials standard quantity). Doing so makes remembering how to calculate variances easier.

For example, assume that Band Book Company needs 25 pounds of paper to make a case of books. For every case, three pounds of paper are deemed unusable because of waste and spoilage. Therefore, the direct materials standard quantity per unit equals 28 pounds.