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

days cogs in inventorydecentralised structure definitionwhy most countries have mixed economieschit fund examplesidbiapportionment methodshuman resource management advantages and disadvantagestypes of radio commercialsdefinition of demotionthe receivables turnover ratio is computed by dividinghire purchase advantages and disadvantagesmeaning of arearadministrative management advantages and disadvantagesdefinition ofvwage rate varianceinternational monetary system meaningdefine moral suasionpersonal qualities of an accountantdupont financial ratiosoverhead absorption definitioncaveat meaning lawabsoption costingadvantages and disadvantages of mixed economy pdfirr limitationsnationalization of banksdebtors ledgerratio analysis and interpretation of financial statementsautocratic leadership characteristicslifting of corporate veil in company lawcharacteristics of mixed economydefine dishonoreddoctrine of caveat emptorfdi pros and cons in indiameaning of cifperils definitionmanpower planning meaningmeaning of sdrmeaning of qualification sharesplant layout pptdefinition of socialization processtypes of cluster samplingpetty cash procedureautocratic leadership in businessdifference between revocable and irrevocable letter of creditdishonoured cheque lawmerits of e commerceadvertising agency organizationwhat does bailee meanwhat is debentures types of debenturesvoluntary winding up of a companyprobability sampling method definitionwhat does it mean to be paid in arrearsinsurable interest in fire insurancedistinguish between sole proprietorship and partnershipdebt to capitalization ratiotreatment of under and over absorption of overheadsdifference between a debenture and a bonddefinition of countermandhistory icici bankmultinational capital budgeting pdfmeaning of nationalised bank in indiadefine caste systemmonopoly firms in indiaultra vires company lawadvantages and disadvantages of stratified samplingissue and redemption of shares and debentureszero based budgeting advantagesfunctions of rural bankssalient features of mixed economyterminal digit filing systemdisadvantages of budgetingsole trader definition businesshow to compute inventory turnoveradvantages and disadvantages of performance evaluationcaste characteristics