What is Material Price Variance?
Material price variance measures the cost impact of paying a different price than planned for direct materials. It isolates the purchasing department's performance from usage efficiency, which is captured separately by the material quantity variance.
Material price variance equals the actual quantity purchased times the difference between actual price and standard price: MPV = AQ × (AP − SP). A positive result is unfavorable (paid more than standard); a negative result is favorable.
- •Actual price paid is below standard
- •Reduces total material cost
- •May signal good purchasing negotiation
- •Could also mean lower quality materials
- •Actual price paid is above standard
- •Increases total material cost
- •May signal a supplier price increase
- •Could also mean rush orders or small lot buys
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Step-by-step worked examples
A company buys 5,000 kg of material at an actual price of $4.20 per kg. The standard price is $4.00 per kg. Find the material price variance.
MPV = AQ × (AP − SP) MPV = 5,000 × ($4.20 − $4.00) MPV = 5,000 × $0.20 = $1,000 Unfavorable
10,000 units of material are purchased at $2.85 each; standard price is $3.00. Find the material price variance.
MPV = AQ × (AP − SP) MPV = 10,000 × ($2.85 − $3.00) MPV = 10,000 × (−$0.15) = −$1,500, so $1,500 Favorable
A factory buys 2,500 liters of chemical at $12.50 per liter versus a $12.00 standard. Find the material price variance.
MPV = AQ × (AP − SP) MPV = 2,500 × ($12.50 − $12.00) MPV = 2,500 × $0.50 = $1,250 Unfavorable
Flashcards
Quick quiz
Q1.The formula for material price variance is...
Q2.5,000 units bought at $3.10 actual vs $3.00 standard price. What is the variance?
Q3.A negative material price variance is considered...
Q4.Material price variance is typically controlled by...
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Common mistakes
Using standard quantity instead of actual quantity in the formula. — Correct: Material price variance always uses actual quantity purchased (AQ), not standard quantity.
Assuming a favorable variance is always good news. — Correct: A favorable variance might come from lower-quality materials or a risky one-time deal — investigate the cause.
Mixing up material price variance with material quantity (usage) variance. — Correct: Price variance isolates the price paid; quantity variance isolates how much material was used.
Forgetting to label the variance as favorable or unfavorable. — Correct: Always state the direction: positive (AP>SP) is unfavorable, negative (AP<SP) is favorable.
FAQ
What is material price variance?
It's the cost difference caused by paying an actual price different from the standard price for materials purchased.
What is the material price variance formula?
MPV = Actual Quantity Purchased × (Actual Price − Standard Price).
What are examples of material price variance?
Paying $4.20/kg instead of a $4.00/kg standard for 5,000 kg creates a $1,000 unfavorable variance.
How do you calculate material price variance?
Multiply the actual quantity purchased by the difference between the actual price and the standard price per unit.