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When we want find out “Usage” Variance we take : SQ*SP-AQ*SP
When we want “Price” Variance : AQ*SP-AQ*AP
If we analysis above, why so that in Usage variance we don’t compare actual price with actual price while usage is important as we compare actual quantity with actual quantity while working out Price variance.We are trying to look at the two effects separately.
We compare actual and standard quantities, both at standard price, and that looks at the effect of using the wrong quantity.
Then, since we are not at actual quantity, we compare actual cost with standard cost, both at actual quantity.
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