Price variance
Price variance measures the cost effect of the actual input price differing from the standard price, with actual quantity held constant.
Also known asrate variance
FrameworkStandard costing
See it move
A waterfall chart opens at the standard direct-material cost of €80,000, then adds a single adverse upward step of +€6,000 labelled Price adverse, closing at an actual cost of €86,000. The chart illustrates that paying €0.30 more per metre than the standard price on 20,000 metres purchased produces an unfavourable direct-material price variance of €6,000.
The formula
Variables
- Actual price paid per unit of input (€ per unit)
- Standard price per unit of input (€ per unit)
- Actual quantity of input purchased (units)
Positive result = adverse (actual exceeded standard); negative = favourable.
Check yourself
Aldos Manufacturing sets a standard material price of €5.00 per kg. In March, the purchasing department buys 8,000 kg at €5.40 per kg. The standard quantity allowed for actual production is 7,600 kg. What is the materials price variance?