(Standard price-Actual price) *Actual Quantity =
AMaterial price variance
BMaterial cost variance
CMaterial quantity variance
DMaterial usage variance
Answer:
A. Material price variance
Read Explanation:
Material Price Variance (MPV)
- Formula: (Standard Price - Actual Price) × Actual Quantity.
- Definition: This metric measures the difference between the cost that should have been incurred for the materials purchased and the actual cost incurred.
- Favorable vs. Unfavorable:
- If the result is positive, it is a Favorable Variance (F), meaning materials were purchased at a price lower than the standard.
- If the result is negative, it is an Unfavorable Variance (U), indicating that materials were purchased at a price higher than the standard.
- Significance in Cost Accounting: It helps management identify the efficiency of the purchasing department and the impact of market price fluctuations on production costs.
- Related Concepts:
- Material Quantity Variance: Measures the efficiency of material usage (Standard Quantity - Actual Quantity) × Standard Price.
- Total Material Cost Variance: The sum of Material Price Variance and Material Usage Variance.
- Factors Influencing MPV: Changes in market supply and demand, bulk purchase discounts, fluctuations in transportation or freight charges, and the quality of raw materials sourced.