Direct Material Price Variance: It is that portion of the direct material cost variance which is due to the difference between the standard price specified and the actual price paid.

 Mathematically

DMPV = Actual Quantity x (Standard price- Actual price)

If the actual price is more than the standard price, the variance would be adverse and vice versa.

Direct Material Usage or Quantity Variance: It is caused due to the difference between the standard quantity specified (for the output achieved) and the actual quantity used.

 Mathematically

DMUV = Standard rate x (Standard quantity for actual output - Actual quantity)

The reasons leading to direct material usage variance are listed below:

• Inefficiency, lack of skill or faulty workmanship resulting in more consumption of raw materials.
• Improper maintenance of plant & equipment.
• Incorrect processing of materials resulting to wastage.
• Non recording of returns of material to stock.
• Improper inspection & supervision of workmen.
• Too strict supervision or inspection.
• Substitution of specified materials with unspecified materials causing greater consumption of the latter.
• Incorrect setting of standards, leading to variations.
• Excessive wastage, scrap, spoilage, leakage, etc.