Question

Which of the following formulas is used to calculate the materials price variance? a.(Actual Price × Actual Quantity) – (Standard Price × Standard Quantity) b.(Actual Price × Actual Quantity) – (Standard Price × Actual Quantity) c.(Variable Price × Actual Quantity) – (Total Price × Actual Quantity) d.(Fixed Price × Average Quantity) – (Standard Price × Actual Quantity) e.None of these choices are correct.

Answer 1

Answer:

b.(Actual Price × Actual Quantity) – (Standard Price × Actual Quantity)

Explanation:

The material price variance shows how favourable or otherwise the  actual material price is compared to the standard price. Where the actual material price is higher than the standard price, it results in an unfavorable variance and when the standard price is higher than the actual price, it results in a favourable variance.

The formula for the material price variance

= (Actual price - Standard price) × Actual quantity

= (Actual price × Actual quantity) - (Standard price × Actual quantity)

Hence the right option is b.

Answer 2

To calculate the material price variance, the relevant formula is b.(Actual Price × Actual Quantity) – (Standard Price × Actual Quantity).

What is Material price variance?

It shows the difference in the actual amount that was spent on buying materials and the amount that was budgeted for buying materials.

The formula is:

= (Actual Price × Actual Quantity) – (Standard Price × Actual Quantity)

This is often shortened to:

= (Actual Price - Standard Price) × Actual Quantity

In conclusion, option B is correct.

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