Direct materials price variance

Definition

Direct materials price variance is the difference between the actual cost of direct materials and the standard cost, multiplied by the quantity purchased. It measures how much more or less was spent on direct materials than expected based on standard costs.

5 Must Know Facts For Your Next Test

1. It is calculated as (Actual Price - Standard Price) x Actual Quantity.
2. A favorable variance occurs when the actual price is less than the standard price.
3. An unfavorable variance happens when the actual price exceeds the standard price.
4. This variance helps in assessing purchasing performance and cost control.
5. It is one component of total direct materials variance, along with direct materials quantity variance.

Review Questions

• How do you calculate direct materials price variance?
• What does a favorable direct materials price variance indicate?
• Why is it important to analyze direct materials price variances?

Related terms

Standard Cost: The predetermined cost of manufacturing a single unit or a number of units during a specific period.

Direct Materials Quantity Variance: The difference between the actual quantity of materials used and the standard quantity allowed, multiplied by the standard cost per unit.

Total Direct Materials Variance: The sum of direct materials price variance and direct materials quantity variance, indicating overall efficiency in material usage and cost control.