Direct materials price variance
Direct materials price variance measures the cost impact of paying more or less per unit of material than planned: (standard price − actual price) × actual quantity purchased. Adverse when actual price exceeds the standard.
FrameworkStandard costing and variance analysis
See it move
Standard price for the raw material is €4.00 a kilogram; the actual price paid comes to €4.50, on the same 10,000 kilograms purchased. Standard cost is €40,000 against an actual €45,000. The price variance, (€4.00 − €4.50) × 10,000 kg, is €5,000 adverse, measured at the point of purchase before the material reaches production.
The formula
Variables
- standard price per unit of material (€ per unit)
- actual price per unit of material paid during the period (€ per unit)
- actual quantity of material purchased (units)
Measured at purchase rather than use to flag price deviations at the earliest point. Positive result is favourable.
Check yourself
A company's standard price for Material X is €8.00 per kg. During April it purchased 3,000 kg at €7.50 per kg. Only 2,500 kg were used in production during the period. What is the direct materials price variance?