Materials price variance definition - AccountingTools

The materials price variance is the difference between the actual and budgeted cost to acquire materials, multiplied by the total number of ... AccountingTools CPECourses CPECourses CPELogIn HowtoTakeaCourse StateCPERequirements Books CollegeTextbooks AccountingBooks FinanceBooks OperationsBooks CPAExamStudyGuides Articles Articles TopicsIndex SiteArchive Podcast AccountingBestPractices PodcastIndex PodcastSummary Dictionary FAQs About About Contact EnvironmentalCommitment Home AccountingTools CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooksCPAExamStudyGuides Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ AccountingTools AccountingCPECourses&Books Articles AccountingTools CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooksCPAExamStudyGuides Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ RelatedCoursesCostAccountingFundamentals WhatistheMaterialsPriceVariance?Thematerialspricevarianceisthedifferencebetweentheactualandbudgetedcosttoacquirematerials,multipliedbythetotalnumberofunitspurchased.Thevarianceisusedtospotinstancesinwhichabusinessmaybeoverpayingforrawmaterialsandcomponents.Theformulais:(Actualprice-Standardprice)xActualquantityused=MaterialpricevarianceThekeypartofthiscalculationisthestandardprice,whichisdecideduponbytheengineeringandpurchasingdepartments,basedonestimatesofusage,probablescraplevels,requiredquality,likelypurchasingquantities,andseveralotherfactors.Politicscanenterintothestandard-settingdecision,whichmeansthatstandardsmaybesetsohighthatitisquiteeasytoacquirematerialsatpriceslessthanthestandard,resultinginafavorablevariance.Thus,thedecision-makingprocessthatgoesintothecreationofastandardpriceplaysalargeroleintheamountofmaterialspricevariancethatacompanyreports.CausesoftheMaterialsPriceVarianceIfthestandardpriceisreasonable,thenamaterialspricevariancemaybecausedbysuchvalidfactorsasthefollowing:RushdeliveriesMarket-drivenpricingchanges,suchaschangesinthepricesofcommoditiesBargainingpowerchangesbysuppliers,whomaybeabletoimposehigherpricesthanexpectedBuyinginunusuallylargeorsmallvolumesincomparisontowhatwasexpectedwhenthestandardwascreatedAchangeinthequalityofthematerialspurchasedExampleoftheMaterialsPriceVarianceThepurchasingstaffofABCManufacturingestimatesthatthebudgetedcostofapalladiumcomponentshouldbesetat$10.00perpound,whichisbasedonanestimatedpurchasingvolumeof50,000poundsperyear.Duringtheyearthatfollows,ABConlybuys25,000pounds,whichdrivesupthepriceto$12.50perpound.Thiscreatesamaterialspricevarianceof$2.50perpound,andavarianceof$62,500forallofthe25,000poundsthatABCpurchases. Marketvaluedefinition Materialsledgercarddefinition CPECourses/CPECoursesCPELogInHowtoTakeaCourseStateCPERequirements Books/CollegeTextbooksAccountingBooksFinanceBooksOperationsBooksCPAExamStudyGuides Articles/ArticlesTopicsIndexSiteArchive Podcast/AccountingBestPracticesPodcastIndexPodcastSummary Dictionary/ FAQs/ About/AboutContactEnvironmentalCommitment Home/ AccountingTools CollegeTextbooksAccountingBooksFinanceBooksOperationsBooksCPAExamStudyGuides Sendusyoure-mailaddresstoreceivemonthlycoursediscounts * Thankyou! Copyright2022