Material Price Variance | Meaning | Formula | Causes

What is Material Price Variance?

Material Price Variance is the part of direct material cost variance.

According to ICMA, London,

“It is that portion of the direct material cost variance which is due to the difference between the standard price specified and the actual price paid”.

Formula to calculate material price variance

The following formula is used to calculate material price variance.

Material Price Variance = AQ (SP — AP)


  • AQ = Actual Quantity
  • SP = Standard Price
  • AP = Actual Price

If standard price is more than actual price, the variance will be favorable and on the other hand if standard price is less than the actual price, the variance will be unfavorable or adverse.

Causes for Direct Material Price Variance

The causes for direct material price variances are classified into two categories such as

  1. causes beyond the control of management and
  2. causes within the control of management.

Causes Beyond the Control of Management

1. Changes of Prices (increase / decrease) in the market.

2. Agreement with suppliers as to raise or reduce the price.

3. Govt. may interfere the price of materials as a policy.

4. High or low transportation cost.

Causes within the control of Management

1. Efficiency or inefficiency in purchasing.

2. Loss of cash discount since the payment is not made within specified period.

3. Purchase of small quantities with high price.

4. Purchase of large quantities with low price.

5. Economic ordering quantity is not followed.

6. Purchase of sub-standard quality of materials.

7. Careless, shortsightedness and manipulative practices by the purchase department.

8. Emergency purchase.

9. Failure to secure trade discount on purchase.

10. Failure to purchase materials at proper time.

11. Incorrect setting of standards.

Leave a Reply

Recent Posts

Related pages

redeem preference sharesmeaning of corporate ethicscapitalist market economy definitionoptimal cash balance definitiondefinition sole traderitinerant traders definitionself liquidating premiumsadvantages and disadvantages of probability samplingpetty cash account definitionaccounting petty cashimportance of capital budgeting techniqueswhat is a major disadvantage of a centrally planned economyquick ratio formularbi recent monetary policyadvantage of a mixed economycif vs fobtarget costing definitiondefinition of job costingadvantages and disadvantages of magazinesscope of marginal costingdematerialized formaccounting rate of return definitionarrears calculatorexplain budgetary controlcluster sampling methodmeaning of bonds and debenturesadvantages and disadvantages of leasing assetsmoa & aoacalculate finished goods inventorywhat is causing the increase in urbanizationdifference between continuous audit and periodic auditdefinition of irdawhat is autocratic meanbudjectingdimeritshow to find acid test rationon probability convenience samplingauditing booksconvertible preference sharesfinancial gearing ratioservicescapecomparative common size income statementeffects of caste systempurposive judgmental samplingchit fund company meaningvires definitionaccounts payable turnover dayscooperative banks definitiondishonour of a billmanagement diseconomiesbenefits of scientific management theorybill of exchange specimendefine alphabetical filingimportance of non banking financial institutionsapportionment of costsnpa assetsleasing and hire purchase differenceprecis noteswhat is voluntary winding upbailee formwhat is the difference between managerial accounting and financial accountingguidelines for effective delegationspeculator definitiontypes of cluster samplingtqm approachcost sheet proformacash voucher wikipediafinancial intermediaries functionsuncertain meaning in teluguadvantages and disadvantages of cooperative learningcartel characteristicsrole of entrepreneur in economic growthpurpose of a flexible budgetexplain payback perioddisadvantages of monopolistic competition