Performance Management · Standard costing

How to Calculate Material Price and Usage Variances

Updated 11 October 2026 · Fact-checked

Material price variance compares the actual cost of materials with what the actual quantity should have cost at standard price. Material usage variance values the difference between actual and standard quantity for actual output, at standard price. Together they make the total material cost variance.

Understand Material Price and Usage Variances

A standard cost card says how much material one unit should use and what each kilogram or litre should cost. At the end of a period you compare this with what actually happened. The gap is the total material cost variance. It is split in two, because two different managers influence the result.

The material price variance shows the effect of paying a different price from standard. The purchasing manager usually controls it. The material usage variance shows the effect of using more or less material than the standard allows for the output achieved. The production manager usually controls it.

The usage variance is always valued at the standard price. This keeps the two variances separate. If you used actual price, price effects would leak into usage.

The price variance can be calculated at the point of purchase or at the point of usage. If the company records materials in inventory at standard price, the price variance is calculated on the quantity purchased. The usage variance is based on the quantity used. If purchases and usage differ, you must use the right quantity for each variance. If the question does not mention inventory, purchases equal usage.

A favourable (F) variance means actual cost is lower than standard. An adverse (A) variance means it is higher. Always label the answer, and think about causes: cheaper material may be poorer quality and raise waste.

Key rules to remember

Material price variance: (Actual quantity × standard price) − (Actual quantity × actual price); Equivalent: AQ × (SP − AP). Positive is favourable. Use quantity purchased if inventory is held at standard price; otherwise quantity used.
Material usage variance: (Standard quantity for actual output − actual quantity used) × standard price; Positive is favourable. Standard quantity = actual output units × standard quantity per unit.
Total material cost variance: (Standard quantity for actual output × standard price) − (Actual quantity × actual price); Equals price variance plus usage variance, when purchases equal usage.
Standard quantity for actual output: Actual units produced × standard kg per unit; Never use budgeted units here.
Inventory movement: Opening inventory + purchases − closing inventory = quantity used; Use this when a question gives purchases and inventory but not usage.

How to solve Material Price and Usage Variances questions

Use the same layout every time. It stops you mixing quantities and prices.

1Read the question and note whether materials inventory is held at standard price. If it is, the price variance uses purchases.
2Find the actual output and calculate the standard quantity allowed: actual units × standard quantity per unit.
3Identify the quantity used and the quantity purchased. Use the inventory formula if one is missing.
4Calculate the usage variance: (standard quantity − actual quantity used) × standard price. Label it F or A.
5Calculate the price variance: actual quantity (purchased or used) × (standard price − actual price). Label it F or A.
6Add the two variances and check against the total variance if you can work it out. Mind the quantity basis if inventory changes.
7Add a short comment on the likely cause and who is responsible, if the question asks for interpretation.

Quickest way: Price and usage boxes

When to use it: Use it for any numerical question where you must find both variances quickly.

Draw a line of three figures: actual quantity at actual price, actual quantity at standard price, standard quantity at standard price.
The difference between the first two is the price variance. The difference between the last two is the usage variance.
If actual cost is higher than the standard-priced figure on the right, the variance is adverse. If lower, favourable.
If inventory is at standard price, use purchased quantity for the first two figures in the price variance and used quantity for the usage variance.

Common mistakes in Material Price and Usage Variances

Valuing the usage variance at the actual price.
Students value the extra kilograms at what they actually paid.
Fix: Always use the standard price for usage. Actual price belongs only in the price variance.
Using budgeted output to find the standard quantity.
The budget figures appear first in the question.
Fix: Use actual units produced × standard quantity per unit. The standard is flexed to actual output.
Using quantity used for the price variance when inventory is at standard price.
Students apply one quantity to everything.
Fix: When inventory is held at standard price, calculate the price variance on the quantity purchased.
Getting the sign wrong.
Students subtract in a fixed order without thinking about which is better.
Fix: Ask whether actual cost is lower than standard. If so it is favourable. Check the sign at the end.
Mistaking opening or closing inventory for usage.
Purchases are given and students assume all were used.
Fix: Work out usage as opening inventory plus purchases less closing inventory, in quantity terms.

Worked examples

Example 1

A product has a standard material cost of 4 kg at $5 per kg. In the period 1,000 units were made. 4,300 kg were bought and used at a total cost of $20,210. Calculate the material price, usage and total variances.

Show the solution

Standard quantity for actual output = 1,000 × 4 = 4,000 kg.
Usage variance = (4,000 − 4,300) × $5 = −300 × $5 = $1,500 adverse.
Actual quantity at standard price = 4,300 × $5 = $21,500.
Price variance = $21,500 − $20,210 = $1,290 favourable.
Standard cost of actual output = 4,000 × $5 = $20,000.
Total variance = $20,000 − $20,210 = $210 adverse.
Check: $1,500 adverse + $1,290 favourable = $210 adverse.

Answer: Price variance $1,290 favourable; usage variance $1,500 adverse; total variance $210 adverse.

Example 2

A company holds material inventory at standard price of $8 per litre. Standard usage is 3 litres per unit. In the period 2,000 units were made. 6,400 litres were purchased for $49,920. Opening inventory was 500 litres and closing inventory was 800 litres. Calculate the price and usage variances.

Show the solution

Litres used = 500 + 6,400 − 800 = 6,100 litres.
Standard quantity = 2,000 × 3 = 6,000 litres.
Usage variance = (6,000 − 6,100) × $8 = $800 adverse.
Inventory is at standard price, so the price variance uses purchases.
Purchases at standard price = 6,400 × $8 = $51,200.
Price variance = $51,200 − $49,920 = $1,280 favourable.

Answer: Material price variance $1,280 favourable (on purchases); material usage variance $800 adverse.

Exam tips

In objective test questions, write down the standard quantity first. Many wrong options are built from budgeted output.
Check whether the question says inventory is held at standard cost. This decides whether price is based on purchases or usage.
Always state F or A. In objective tests the label is part of the correct option.
In written parts, link the variances. A favourable price with an adverse usage may point to poorer quality material.
Do not give a variance a cause unless the scenario supports it. Offer likely reasons and say further investigation is needed.

Practice questions from Standard costing

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 and usage variance?

The price variance measures the effect of paying more or less than the standard price. The usage variance measures the effect of using more or less material than the standard for the actual output. Usage is valued at standard price.

When is the price variance calculated on purchases?

When materials inventory is recorded at standard price. The price difference is then isolated as soon as materials are bought, so you use the quantity purchased.

Why is the usage variance valued at standard price?

So that it shows only the effect of quantity. Using actual price would mix price effects into it and the two variances would not add up properly.

Can both material variances be adverse at the same time?

Yes. You can pay more than standard and also use more than standard. Then the total variance is the sum of both adverse figures.