How is material price variance calculated?

How is material price variance calculated?

• A. (Actual price per unit - Standard price per unit) x Actual quantity used.
• B. (Actual price per unit - Standard price per unit) x Actual quantity purchased.
• C. (Standard price per unit - Actual price per unit) x Actual quantity purchased.
• D. (Actual price per unit - Standard price per unit) x Actual quantity purchased.

Answer: (B)

Material price variance measures how much more or less you paid for the materials you actually bought, compared to what you should have paid at the standard price. It uses the actual quantity purchased because the variance is driven by the price paid per unit applied to the number of units bought, not by how many units were used. The calculation is: (Actual price per unit minus Standard price per unit) × Actual quantity purchased. If the actual price is higher than the standard price, the variance is unfavorable; if it's lower, the variance is favorable. For example, paying $3.00 per unit when the standard is $2.50 for 1,000 units yields (3.00 − 2.50) × 1,000 = 500 unfavorable. Using actual quantity used would relate to usage variance, not price variance, and reversing the order (standard minus actual) would flip the sign and misrepresent the defined effect.

Material price variance measures how much more or less you paid for the materials you actually bought, compared to what you should have paid at the standard price. It uses the actual quantity purchased because the variance is driven by the price paid per unit applied to the number of units bought, not by how many units were used.

The calculation is: (Actual price per unit minus Standard price per unit) × Actual quantity purchased.

If the actual price is higher than the standard price, the variance is unfavorable; if it's lower, the variance is favorable. For example, paying $3.00 per unit when the standard is $2.50 for 1,000 units yields (3.00 − 2.50) × 1,000 = 500 unfavorable.

Using actual quantity used would relate to usage variance, not price variance, and reversing the order (standard minus actual) would flip the sign and misrepresent the defined effect.