What is Material Price Variance?
Material Price Variance is the difference between the standard price and the actual price per unit of material input, multiply by actual quantity of material used.
It is a direct material variance. All the direct material variances takes into consideration actual output quantity of a period. Therefore MPV is as follows –
Material Price Variance (MPV) = (Standard Price – Actual Price) * Actual quantity
= Δ Price * Actual Quantity
MPV = (SP – AP)×AQ
Favorable and Unfavorable Price Variance
If Actual Price is less than the standard price, then the price variance is said to be favorable. On the contrary, if standard price exceeds the actual price, then the price variance is unfavorable. In other words,
SP> AP = Favorable price variance
SP<AP = Unfavorable price variance
Material Price Variance Example
Each unit of Product X requires 9 kg of direct material costing Rs. 4 per kg. Now assume business produces 100 units of X in March which results in consumption of 825 kg of material costing Rs. 5 per kg. Calculate the Material Price Variance.
Now applying the above formula,
MPV = 1* 825
= 825
Now the standard price is less than the actual price, hence the material price variance unfavorable 825.
