TYPES price per unit. The material price variance is

TYPES
OF STANDARDS FOR VARIANCE ANALYSIS

 

1. MATERIAL VARIANCE-

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The cost of the material which are used in
a manufactured product are determined by two basic factors: the price paid for
the materials, and the quantity of materials used in production, this gives rise
to the possibility that the actual cost will differ from the standard cost because
the actual quantity of materials used will be different from the standard
quantity and/or that the actual price paid will be different from the standard
price. We can therefore calculate a material usage and a material price
variance.

Material
price variance :-

The starting point for calculating
this variance is simply to compare the standard price per unit of materials
with the actual price per unit.

The material price variance is
equal to the difference between the standard price(SP) and the actual price (AP)
per unit of materials multiplied by the quantity of materials purchased (QP):

                                   (SP-AP) x QP

POSSIBLE CAUSES

It is incorrect to assume that
the material price variance will always indicate the efficiency of the
purchasing department. actual prices may exceed standard prices because of a
change  in market conditions that causes
a general price increase for the type of materials used. The price variance
might therefore be beyond the control of the purchasing department. Alternatively,
an adverse price variance may reflect a failure by the purchasing department to
seek the most advantageous sources of supply. a favourable price variance might
be due to the purchase of inferior quality materials, which may lead to inferior
product quality or more wastage. For example: 
the price variance for material B is favourable, but we shall see in the
next section that this is offset by excess usage. If the reason for this excess
usage  is the purchase of inferior quality
materials then the material usage variance should be charged to the  purchasing department.