Price Variance - Explained
What is Price Variance?
Written by Jason Gordon
Updated at April 7th, 2022
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Table of Contents
What is Price Variance?How is Price Variance Used?Academic Research for Capacity Usage VarianceWhat is Price Variance?
Price Variance is the difference in the actual amount for which an item is purchased and the standard price of the item, the multiplied by the total quantity purchased. The Formula for calculating price variance is:
Price variance = (actual price - standard price) x actual quantity
A positive price variance shows that prices for purchasing items exceeded the expectations or budget for those items. A negative price variance indicates that goods cost less than expected.
Management will keep an eye on price variance when creating budgets.
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