Which statement best describes a price variance?

Which statement best describes a price variance?

• A. The difference between the actual cost and the budgeted cost
• B. The difference between the actual price per unit and the standard price per unit
• C. The difference between the actual quantity and the standard quantity
• D. The difference between the actual total cost and the standard total cost

Answer: (B)

Price variance focuses on how much the price paid per unit differs from what was planned. It captures the effect of paying more or less for each unit, independent of how many units were bought or used. The key idea is comparing actual price per unit to the standard price per unit, and then applying that difference to the actual quantity purchased. Price variance = (Actual price per unit − Standard price per unit) × Actual quantity purchased. Interpretation: if the actual price per unit is lower than the standard price, the variance is favorable because you saved money on each unit. If the actual price per unit is higher, the variance is unfavorable. For example, buying 1,000 units with a standard price of $5.00 and an actual price of $4.80 per unit yields a price variance of (4.80 − 5.00) × 1,000 = −$200, which is favorable (you saved $200). Other choices describe different types of variances: differences in total cost or in quantity used, rather than the per-unit price difference.

Price variance focuses on how much the price paid per unit differs from what was planned. It captures the effect of paying more or less for each unit, independent of how many units were bought or used. The key idea is comparing actual price per unit to the standard price per unit, and then applying that difference to the actual quantity purchased.

Price variance = (Actual price per unit − Standard price per unit) × Actual quantity purchased.

Interpretation: if the actual price per unit is lower than the standard price, the variance is favorable because you saved money on each unit. If the actual price per unit is higher, the variance is unfavorable.

For example, buying 1,000 units with a standard price of $5.00 and an actual price of $4.80 per unit yields a price variance of (4.80 − 5.00) × 1,000 = −$200, which is favorable (you saved $200).

Other choices describe different types of variances: differences in total cost or in quantity used, rather than the per-unit price difference.