Overview

direct materials price variance


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In a standard costing system, a variance arising as part of the direct materials total cost variance. There are two alternative points at which the materials price variance may be established: when the material is purchased or when it is issued to production. When established on issue to production, the variance compares the actual price paid for direct material used in a product with the standard purchase price of the material consumed. When established on purchase, it compares the actual price paid for the direct material purchased with the standard price allowed for the purchased material. The resultant adverse or favourable variance is the amount by which the budgeted profit is affected by differences in direct material prices. The formulae for this variance are:(standard price per unit of material – actual price per unit of material) × actual units consumed or purchased,

(standard price per unit of material – actual price per unit of material) × actual units consumed or purchased,

or alternatively:(standard price per unit of material × actual units consumed or purchased) – actual material cost.

(standard price per unit of material × actual units consumed or purchased) – actual material cost.

Subjects: Accounting.


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