CA Intermediate · Cost and Management Accounting · Standard Costing
Which statement about a favourable material price variance is correct?
A favourable material price variance arises when the actual price paid per unit of material is lower than the standard price. It is computed on actual quantity and is unrelated to how much material was used or produced.
- AActual price paid was lower than the standard priceCorrect
- BActual quantity used was lower than standard quantity
- CActual output exceeded budgeted output
- DActual price paid was higher than the standard price
Explanation
Material price variance = (SP - AP) x AQ. It is favourable when the actual price is below the standard price. Lower quantity relates to usage variance, and output relates to volume.
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