Management Accounting · Variance calculations and analysis

Material Price and Usage Variances: Formulas and Examples

Updated 11 October 2026 · Fact-checked

The material price variance compares the actual cost of materials with what that quantity should have cost at standard price. The material usage variance values the difference between actual and standard quantity allowed at standard price. Calculate both, then label each Adverse (A) or Favourable (F).

Understand Material Price and Usage Variances

Standard costing sets a planned cost for each unit of output. For materials, the standard cost card states how many kilograms or litres each unit should use and the price you expect to pay per kilogram or litre. A variance is the gap between what happened and what the standard said should happen.

Two things can go wrong with materials. You can pay a different price from the standard, or you can use a different quantity from the standard. The material price variance isolates the first problem. The material usage variance isolates the second. Splitting them lets you see who is responsible and what to fix.

The price variance is linked to purchasing. It asks: for the quantity we bought (or used), what did we pay compared with what we should have paid? The usage variance is linked to production. It asks: for the output we actually made, how much material did we use compared with how much we should have used? The usage difference is always valued at the standard price, so price changes do not distort it.

The price variance can be measured at the time of purchase or at the time of use. This depends on how inventory is valued. If inventory is recorded at standard cost, the price variance is calculated on the quantity purchased. If the exam says there is no inventory or that materials are used as they are bought, purchased and used quantities are the same. If the question says the variance is based on usage, use the quantity used.

A favourable variance means actual cost was below standard. An adverse variance means it was above. Neither is automatically good or bad. A cheap, poor-quality material may give a favourable price variance but an adverse usage variance through extra waste.

Key formulas to remember

Material price variance: (Actual quantity × standard price) − (Actual quantity × actual price); Equivalent to AQ × (SP − AP). Positive = Favourable, negative = Adverse. AQ is the quantity purchased if inventory is held at standard cost, or the quantity used if the price variance is measured on usage.
Material usage variance: (Standard quantity for actual output − actual quantity used) × standard price; Equivalent to (SQ − AQ) × SP. Positive = Favourable, negative = Adverse. Always valued at standard price.
Standard quantity for actual output: Actual units produced × standard quantity per unit; Use actual output, not budgeted output. This is the most common source of lost marks.
Total material cost variance: (Standard quantity for actual output × standard price) − (Actual quantity × actual price); Equals the price variance plus the usage variance, when price is measured on the quantity used.

How to solve Material Price and Usage Variances questions

Use the same routine for every material variance question. It keeps the order clear and stops you mixing quantities.

1Write down the standard price and standard quantity per unit from the standard cost card.
2Find the actual output and calculate the standard quantity allowed: actual units × standard quantity per unit.
3Identify the actual quantity used, the actual quantity purchased, and the actual price paid per unit of material.
4Check whether the question measures price on purchases or on usage. Choose the quantity for the price variance accordingly.
5Calculate the price variance: (SP − AP) × the chosen actual quantity.
6Calculate the usage variance: (SQ − AQ used) × SP.
7Label each as Favourable (F) if the result is positive, or Adverse (A) if negative. Check that the answer type (number entry or multiple choice) asks for the label.

Quickest way: Variance by comparison

When to use it: Use this in Section A objective test questions where you need one variance quickly and the numbers are simple.

For price: compare actual cost paid with actual quantity × standard price. If you paid less, it is Favourable. If you paid more, it is Adverse.
For usage: compare actual quantity used with standard quantity allowed. If you used less, it is Favourable. If you used more, it is Adverse.
Multiply the quantity gap by the standard price for usage, or the price gap per unit by the actual quantity for price.
Check that price variance plus usage variance equals the total cost variance when both are measured on the quantity used.

Common mistakes in Material Price and Usage Variances

Using budgeted output instead of actual output to find the standard quantity.
The budget figures are the first numbers you see in the question.
Fix: Always multiply actual units produced by standard quantity per unit. Budgeted output is only needed for flexing the budget, not for these variances.
Valuing the usage variance at the actual price.
Students mix price and quantity effects in one step.
Fix: Value the usage difference at the standard price only. The price effect belongs in the price variance.
Using quantity used for the price variance when the question says materials are recorded at standard cost on purchase.
Students assume used and purchased quantities are always equal.
Fix: Read the question for inventory details. Use quantity purchased for the price variance when inventory is held at standard cost. The usage variance still uses quantity used.
Getting the sign wrong and labelling Favourable as Adverse.
Subtraction is done in the wrong order, or the sign is not checked.
Fix: Ask in plain words: did we pay less or use less than standard? If yes, Favourable. Use that to check your final label.
Assuming a favourable variance is always good news.
The word favourable sounds positive.
Fix: Think about causes. A cheap material can lead to extra waste, and a favourable price variance may cause an adverse usage variance.

Worked examples

Example 1

A product has a standard of 4 kg of material at $6 per kg. In April, 1,000 units were made. 4,300 kg of material were bought and used, at a total cost of $27,950. Calculate the material price and usage variances.

Show the solution

Standard quantity for actual output = 1,000 × 4 kg = 4,000 kg.
Actual price per kg = $27,950 ÷ 4,300 = $6.50.
Price variance: 4,300 kg should cost 4,300 × $6 = $25,800. Actual cost was $27,950. Variance = $25,800 − $27,950 = $2,150 Adverse.
Usage variance: (4,000 − 4,300) × $6 = −300 × $6 = $1,800 Adverse.
Check: total cost variance = (4,000 × $6) − $27,950 = $24,000 − $27,950 = $3,950 Adverse. Also $2,150 + $1,800 = $3,950.

Answer: Material price variance $2,150 Adverse; material usage variance $1,800 Adverse.

Example 2

A company holds inventory at standard cost. The standard is 2 kg of material per unit at $10 per kg. In May, 5,000 units were made. 11,000 kg were purchased at a cost of $105,600. 10,200 kg were used in production. Calculate the material price variance (measured on purchases) and the material usage variance.

Show the solution

Standard quantity for actual output = 5,000 × 2 kg = 10,000 kg.
Price variance is measured on purchases: 11,000 kg should cost 11,000 × $10 = $110,000. Actual cost was $105,600. Variance = $110,000 − $105,600 = $4,400 Favourable.
Usage variance uses quantity used: (10,000 − 10,200) × $10 = −200 × $10 = $2,000 Adverse.
Note that the 800 kg increase in inventory (11,000 − 10,200) does not affect the usage variance.

Answer: Material price variance $4,400 Favourable; material usage variance $2,000 Adverse.

Exam tips

Check the question for inventory details. Whether price is measured on purchases or usage changes the quantity you use.
In multiple response and number entry questions, give the label (A or F) if asked. A correct number with the wrong sign may score nothing.
Do the standard quantity calculation first on scrap paper. It is needed for every usage variance question.
Use the check that price plus usage equals total cost variance, when both are measured on the quantity used. It catches most errors in seconds.
Expect Section B questions to ask for reasons. Link price variances to purchasing decisions and usage variances to quality, waste or machine problems.

Practice questions from Variance calculations and analysis

Material Price and Usage Variances in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Material Price and Usage Variances: frequently asked questions

What is the difference between material price variance and usage variance?

The price variance shows the effect of paying a different price per unit of material from the standard. The usage variance shows the effect of using a different quantity from that allowed for actual output, valued at standard price. One relates to purchasing and the other to production.

Do I use actual or budgeted output for material usage variance?

Use actual output. Multiply actual units produced by the standard quantity per unit to get the standard quantity allowed. Then compare it with the actual quantity used.

When is the material price variance calculated on purchases?

It is calculated on purchases when inventory is held at standard cost, so the price difference is recognised when the material is bought. The question usually gives separate purchased and used quantities. If it does not, treat them as equal.

Can a material price variance and usage variance be related?

Yes. Buying cheaper, lower-quality material can give a favourable price variance but more waste and an adverse usage variance. Buying higher-quality material can do the reverse. Exam questions often ask you to spot this link.