## Direct Costs in Standard Costing

## 4.3. Summary for direct cost variance calculations

The summary of the standard variance analysis of direct costs is presented in the tables below.

For the direct material variances we show two tables. One is for the situation when the total direct materials variance is based on the same quantity of inventory purchased as the quantity of inventory used during the month. In such situations (which are rare in real life) the AQ x SP is the ending point for the efficiency variance and starting point for the price variance (refer to the center section in Illustration 4).

The other table (Illustration 5) shows a situation
(which is more common in real life) when the quantity of inventory purchased
does not equal the quantity of inventory used during the month. In such situations
the AQ x SP for the efficiency and price variances will be based on different
quantities and thus, efficiency and price variances must be calculated
separately (i.e., can't use the same AQ x SP). The *price variance* will be based on
the *quantity purchased* and the *efficiency variance* will be based on the *quantity used*.

**Illustration 4: Direct materials
variances (same quantity purchased and used)**

**Illustration 5: Direct materials
variances (different quantities purchased and used)**

**Illustration 6: Direct labor variances**

Having discussed the calculation of different direct cost variances, let's review the reasons for the variances.