 Hello, in this lecture we're going to talk about variance analysis with regard to direct materials. We will be covering price variance and quantity variance. At the end of this we will be able to explain the use of variance analysis for direct materials and calculate price variance and quantity variance for direct materials. So when we think of variance analysis in terms of the direct materials what we're going to do is compare what actually happened to what we believe should have happened and in order to do that we need to have a flexible budget and the reason for that for example is that if we compared to the static budget that we have created and we produced at a different capacity level we will have a problem in terms of our cost will not be comparable. We won't have apples to apples as they say. So for example if we said that they fixed a budget had a 70% capacity and we thought we're going to produce 42,000 units and then we ran the process and we actually know that what actually happened is we produced at 90% capacity and we produced 54,000 units which is actually a good thing. We can't really compare that to the