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Dear Mr John,
How are you?
I hope you are doing well,
In regard to material variance in case of material price variance we do multiply the difference between actual price charged and the budgeted price per unit of material by the actual total quantity of materials used.
And material quantity variance equals to the difference between actual quantity used of material and the budgeted material should have been used by the standard price OK.
My question is why do we multiply the difference in case of material price variance by actual quantity and in case of material quantity variance by standard price?
I mean why don’t we multiply the difference in case of material price variance by standard quantity and actual price in case of material quantity variance.We are keeping the two separate changes separate. The usage variance accounts for the change in the quantity used if the price stayed at standard. Having changed to the actual quantity at standard price, then any further change is due to having paid for the actual quantity at an amount different to the standard price.
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