Calculate a direct-material price variance
Measure whether the actual price paid for material differs from its standard price, using the actual quantity purchased or used required by the question.
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. Topic 4.2 teaches standard costing, the listed material, labour, fixed-overhead and sales variances, their causes and relationships, and evidence-based business decisions. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use Topic 2.1–2.2 cost behaviour, contribution and absorption-costing ideas. In each question, identify the period, actual output, budget and standard before calculating a variance.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
A price variance measures the difference between…
What you will learn
- Apply the direct-material price-variance formula
- Keep price and quantity units consistent
- Interpret the result without assuming its cause
Compare the same actual quantity at two prices
Material price variance = (standard price − actual price) × actual quantity, using a convention where a positive cost saving is labelled favourable. Equivalently, compare standard cost of that actual quantity with the actual amount paid. State whether the question uses quantity purchased or quantity used; follow the supplied data and convention.
If the actual price is higher, actual cost exceeds the standard cost for that same quantity and the price variance is adverse. If the actual price is lower, it is favourable on price alone.
Explain, then investigate
Price can change because of supplier terms, bulk discounts, market prices, delivery charges, exchange rates or a change in material specification. The calculation does not identify which explanation applies.
If price is calculated on quantity purchased while usage is based on quantity consumed, the variances may cover different timing or quantities. Read the question carefully and avoid combining results that do not share a basis.
Pause and explain
SP is $5.20/kg, AP is $5.00/kg and AQ is 900 kg. What is the price direction?
Worked example
Standard price is $8 per kg. A business buys 1,250 kg at $8.40 per kg. Calculate the price variance.
Show the worked solution
- Standard cost of the actual quantity = 1,250 × $8 = $10,000.
- Actual cost = 1,250 × $8.40 = $10,500.
- Actual cost is $500 higher, so the price variance is adverse.
Answer $500 adverse. Equivalently, (8.00 − 8.40) × 1,250 = −$500, interpreted as adverse.
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Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
SP is $6/kg; actual quantity is 2,400 kg; AP is $6.25/kg. Calculate the price variance.
Give me a hint
Compare both prices for the same 2,400 kg.
Compare my reasoning
- Standard cost = 2,400 × 6 = $14,400.
- Actual cost = 2,400 × 6.25 = $15,000.
- Actual cost is $600 above standard.
$600 adverse.
Look for these in your work
- Use actual quantity 2,400 kg
- Compare costs $14,400 and $15,000
- Label the $600 overspend adverse
SP is $3.50 per metre, AP is $3.36, and actual quantity is 1,800 metres. Calculate the variance.
Give me a hint
A lower actual price is favourable for a cost when quantity is held constant.
Compare my reasoning
- Price saving per metre = 3.50 − 3.36 = $0.14.
- Multiply by 1,800 metres: 0.14 × 1,800 = $252.
- The actual purchase cost is below standard for this quantity.
$252 favourable.
Look for these in your work
- Price difference is $0.14
- Multiply by actual metres
- Interpret as favourable cost direction
A supplier cuts the price by 8% but adds a delivery fee and switches to thinner packaging. Which records should be checked before explaining the price variance?
Give me a hint
Separate invoice price, landed cost, specification and quantity/quality outcomes.
Compare my reasoning
- Check the invoice price and delivery charge included in actual material cost.
- Confirm whether the material specification changed and whether the standard still matches it.
- Review returns, defects and usage to see whether a lower purchase price affected consumption or quality.
Check the landed purchase cost, the standard specification, actual quantity and quality evidence. The price variance alone cannot show whether the apparent saving improved total performance.
Look for these in your work
- Landed cost checked
- Standard specification checked
- Usage and quality linked
Common mistakes
- Using the standard quantity allowed instead of the actual quantity
- Multiplying price difference by output units without converting to material quantity
- Treating a favourable purchase price as proof of lower total cost
What can you explain now?
Which quantity is multiplied by the material price difference?
Compare with the explanation
The relevant actual material quantity
The variance compares standard and actual price for an actual quantity.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
State the material price variance formula and the actual quantity it uses.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.