Definition§
Standard Materials Usage refers to the preset amount of materials expected to be used in producing a product. This standard is established based on historical data, engineering studies, or management’s judgment. The actual material usage is subsequently compared against this standard to facilitate material control and identify variances for management to act upon.
Examples§
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Widget Ltd.: If Widget Ltd. produces widgets, the standard materials usage for one widget may be set at 2 kilograms of steel. If in producing 100 widgets, they use 220 kilograms of steel, the variance will be calculated to identify any inefficiencies.
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Textiles Inc.: Textiles Inc. establishes that 5 meters of fabric are needed to produce one dress. If they have produced 50 dresses but ended up using 260 meters of fabric, their actual usage exceeds the standard by 10 meters, indicating possible issues in the production process.
Frequently Asked Questions (FAQs)§
What is the purpose of setting standard materials usage?§
The primary purpose is to establish benchmarks for material consumption, which helps in controlling costs, maintaining production efficiency, and identifying areas for improvement.
How is standard materials usage determined?§
It can be determined based on historical consumption data, standardized production approaches, or time and motion studies conducted by industrial engineers.
What is a materials usage variance?§
This is the difference between the standard materials usage and the actual materials used in production. It helps in identifying inefficiencies or efficiencies within the production process.
How can businesses benefit from monitoring standard materials usage?§
Businesses can better predict production costs, control inventory levels, optimize material procurement processes, and ensure products are manufactured within budget.
What actions can a business take if there’s a significant materials usage variance?§
They may need to revise the standard usage, investigate inefficiencies, retrain labor, improve machinery maintenance, or even revise the design of the product to minimize waste.
Related Terms§
Material Control§
An area of cost accounting that focuses on managing the costs associated with materials used in production, ensuring optimal usage, and minimizing waste.
Standard Costing§
An accounting method that uses cost standards for valuing manufacturing costs, including materials, labor, and overhead, to better manage and control expenses.
Direct Materials Usage Variance§
The variance that arises when there is a difference between the standard quantity of materials allowed for actual production and the actual quantity used.
Manufacturing Efficiency§
A measure of the extent to which a manufacturer uses resources (materials, labor, machines) effectively to produce goods within the expected standards.
Online Resources§
- Investopedia
- Accounting Tools
- American Accounting Association
- The Journal of Management Accounting Research
Suggested Books for Further Studies§
- Cost Accounting: A Managerial Emphasis by Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan
- Management and Cost Accounting by Alnoor Bhimani, Charles T. Horngren, Srikant M. Datar, George Foster
- Advanced Management Accounting by Robert S. Kaplan, Anthony A. Atkinson
- Accounting for Decision Making and Control by Jerold Zimmerman
Accounting Basics: “Standard Materials Usage” Fundamentals Quiz§
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