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Another Meaning For A Positive Variance

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The materials price variance is due strictly to differences in cost per unit. If unfavorable, the cost per unit is higher than the standard (or expected) cost. Either the standard is too low, or the purchase price is higher than expected.

Can a positive materials price variance be a bad thing? Explain. Can it affect the efficiency variance for material and/or labor?

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Solution Summary

This solution discusses whether a positive material price variance be a bad thing, as well as its effect on the materials efficiency variance.

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This is the danger in variance analysis. The main cause of a favorable price variance is that materials or labor were purchased at a lower per-unit price than was anticipated. Frequently, the resource ...

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