How Do You Calculate Material Price Variance?
Material price variance is the difference between actual costs to produce a product and the budgeted costs to produce the product. Material price variance is an important concept in cost and managerial accounting. Material price variance is important in tracking budgets and keeping a company on a budget. If the budget is not kept, a company will lose money. Determine the actual unit price for materials, the standard unit price for materials and the actual quantity produced. The standard unit price for materials is an estimate the company makes. For example, a company plans to pay for $5 in materials for each widget they produce, the actual cost is $6 per widget. The company makes 1,000 widgets. Subtract the standard price for materials from the standard price of materials. In our example, $6 – $5 equals $1. Multiply the difference between prices by the actual quantity produced. In our example, $1 * 1,000 widgets equals a material price variance of $1,000. Determine if the variance is f
