How this calculator works
A standard cost sets the price a business expects to pay for each unit of material. The price variance compares that standard with what was actually paid, multiplied by the quantity purchased. Paying less than standard is favourable, because cost is lower than planned; paying more is unfavourable. Quantity is the amount bought in the period, which may differ from the amount used in production, so this measures purchasing performance rather than usage efficiency.
Formula
Direct material price variance = (standard price - actual price) × quantity purchased. A positive result is favourable and a negative result is unfavourable.
Worked example
A standard price of $5 against an actual price of $5.50 on 2,000 units gives ($5.00 - $5.50) × 2,000 = -$1,000. The negative result is an unfavourable variance. The same materials at standard would cost $10,000 and at actual cost $11,000.
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Frequently asked questions
Should the variance use quantity purchased or quantity used?
Price variance is normally measured on the quantity purchased so purchasing performance is isolated at the moment of buying. If you use quantity consumed instead, the result mixes price and inventory timing. Say which quantity you used.
Is a favourable variance always good?
Not necessarily. Buying cheaper material can lower quality, raise waste or cause production delays. A favourable price variance alongside an unfavourable usage or quality variance often means the saving was paid for elsewhere.
How does this relate to the high-low method?
The high-low method estimates a variable cost per unit from observed cost points. This page compares a set standard with the actual price. Both feed cost control, but only one uses a pre-set standard.