Which formula correctly defines cost variance?

Which formula correctly defines cost variance?

• A. Cost variance = (AQ x AP) - (SQ x SP)
• B. Cost variance = (SQ x SP) - (AQ x AP)
• C. Cost variance = (AQ x SP) - (SQ x AP)
• D. Cost variance = (AQ - SQ) x (AP - SP)

Answer: (A)

Cost variance measures how much actual spending differs from what standard costing expects. To get the actual cost, multiply the actual quantity used by the actual price per unit. To get the standard cost, multiply the standard quantity allowed by the standard price per unit. The variance is the difference between these two totals: Actual cost minus Standard cost, which is (AQ × AP) − (SQ × SP). If this result is positive, spending ran over the standard cost (unfavorable); if negative, it spent less than standard (favorable). The other forms mix the components incorrectly or reverse the subtraction, so they don’t reflect the true gap between actual and standard costs.

Cost variance measures how much actual spending differs from what standard costing expects. To get the actual cost, multiply the actual quantity used by the actual price per unit. To get the standard cost, multiply the standard quantity allowed by the standard price per unit. The variance is the difference between these two totals: Actual cost minus Standard cost, which is (AQ × AP) − (SQ × SP). If this result is positive, spending ran over the standard cost (unfavorable); if negative, it spent less than standard (favorable). The other forms mix the components incorrectly or reverse the subtraction, so they don’t reflect the true gap between actual and standard costs.