What is the normal balance of the direct materials variance accounts?

Harold Averkamp, CPA, MBA

I don't believe there is a normal balance. If a company pays exactly the standard cost of its direct materials, there will be no balance in the account Direct Materials Price Variance. If a company uses exactly the standard quantity of direct material for its output, there will be no balance in the account Direct Materials Usage Variance.

If the actual price per unit of direct materials is more than the standard cost per unit, the difference will be entered as a debit into the account Direct Materials Price Variance. If the actual price per unit of direct materials is less than the standard cost per unit, the difference will be entered as a credit into the price variance account.

The account Direct Materials Usage Variance will

have a debit entered when the actual quantity of direct material used is greater than the standard quantity for the good output. If the actual quantity of direct material is less than the standard quantity of direct material for the good output, a credit is entered into the usage variance account.

If the standards are realistic, a manufacturer would be pleased with a zero balance in its variance accounts. A credit balance in a variance account signifies that things were better than standard. A debit in a variance account indicates that things were worse than the standard.

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Source: www.accountingcoach.com

Category: Forex

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