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CMA Intermediate · Cost Accounting · Standard Costing and Variance Analysis

Sundaram Fabrics set a standard price of Rs 40 per kg for a raw material. During the month it bought and used 500 kg at an actual price of Rs 42 per kg. The standard quantity allowed for the actual output was 400 kg. What is the material price variance?

The material price variance is Rs 1,000 Adverse. It is calculated as (standard price minus actual price) multiplied by the actual quantity, so (40 - 42) x 500 = 1,000. The result is negative because the firm paid more than the standard price.

  1. ARs 1,000 AdverseCorrect
  2. BRs 1,000 Favourable
  3. CRs 800 Adverse
  4. DRs 2,000 Adverse

Explanation

Material price variance = (Standard price - Actual price) x Actual quantity = (40 - 42) x 500 = Rs 1,000 Adverse. Using the standard quantity of 400 kg gives Rs 800, which uses the wrong base. Reversing the sign would wrongly show it as favourable.

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