If the price paid per unit differs from the standard price per unit for direct materials, the variance is a Price variance.
What does "price variance" mean?
- The price variance is calculated by multiplying the number of real units actually purchased by the actual unit cost of the item less its standard cost.
- The estimated or planned cost of an item based on engineering or manufacturing data is known as its standard cost.
- The difference between an item's predicted cost and its actual cost at the moment of purchase is referred to as price variance in cost accounting.
- This formula is used to determine price variance: Vmp is calculated as (Actual unit cost - Standard unit cost) x Actual Quantity Bought.
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