What is Price and quantity variances?
In short
Variance analysis splits the difference between actual and standard costs into a price (rate) variance, (actual price − standard price) × actual quantity, and a quantity (efficiency) variance, (actual quantity − standard quantity allowed) × standard price.
Key takeaways
- A variance is favorable when actual cost is below standard.
- Purchasing usually answers for price variances and production for quantity variances.
- Significant variances are investigated, not just reported.
Example
10,000 pounds bought at $2.10 against a $2.00 standard, with 9,500 pounds allowed: price variance $1,000 unfavorable; quantity variance $1,000 unfavorable.
Where it's tested
BAR: Financial Forecasting, Budgeting & Valuation — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
A product sells for $80 with variable costs of $50 per unit. Fixed costs are $360,000. How many units must be sold to earn a target operating profit of $90,000?