Question

Direct material price variance = (AQxAP) – (AQxSP)

                                  = actual cost - standard cost

1kg=RM5                   = RM720,000 - (90,000kgs x RM5/kg)

                                  = RM720,000 - RM450,000

                                  = RM270,000 (A)

Please give two possible reasons for the discrepancy in the calculations.

Answer 1

1. Forces in demand and supply that make the cost of materials higher than the standard price such as increased demand of the material in the market against low supply.
2. Increased cost of labor to the material supplier that are passed on to the customer making the actual cost of the material higher than the standard market price.