Materials price variance arises due to the standard price specified and the actual price paid. It may also arise due to:
- Changes in basic prices of materials,
- failure to purchase the quantities anticipated at the time when standards were set,
- failure to secure discount on purchases,
- failure to make bulk purchases and incurring more on freight, etc.,
- failure to purchase materials at the proper time, and
- Not taking a cash discount when setting standards.
Materials Price Variance= Actual Quantity (Standard price–Actual price)
In this case actual quantity of materials used is taken. The price of materials is taken per unit. If the answer is in plus, the variance will be favorable and it will be unfavorable if the result is negative.