Direct Materials Variance Analysis

Jerry’s Ice Cream is concerned about cost overruns of direct materials. This section examines the "causation" of direct materials variance. The master budget amount allocated to direct materials is made up of two estimated parts, the quantity (Q) of materials included and the price (P) of those materials. Any variance in this cost category from the master budget can be accounted for by an increase or decrease in P and/or Q. Attribution of the variance to its cause(s) is critical to management decisions.