What this calculator does
Standard costing sets a budgeted price for every material, then measures what actually happened against it. The price variance isolates one question: did we pay more or less per unit than planned.
Small per-unit gaps become large totals. Paying $4.20 against a $4.00 standard is only twenty cents, but across 10,000 units it is a $2,000 unfavourable variance that needs explaining.
The formula
Subtract the standard price from the actual price and multiply by the quantity actually purchased. A positive result is unfavourable, meaning more was paid than budgeted.
| Term | Meaning |
|---|---|
| Standard price | The budgeted cost per unit, set in advance. |
| Favourable variance | A negative figure: less was paid than standard. |
| Unfavourable variance | A positive figure: more was paid than standard. |
The inputs explained
| Field | What to enter |
|---|---|
| Actual price per unit ($) | The price per unit actually paid. |
| Standard price per unit ($) | The standard or budgeted price per unit. |
| Actual quantity purchased (units) | The quantity actually purchased, not the quantity used. |
When to use it
Reviewing purchasing performance
The variance isolates the price effect from how much material was consumed.
Investigating a cost overrun
Splitting price from usage shows whether buying or production caused the problem.
Updating standards
A persistent variance in one direction usually means the standard is out of date rather than that buying is failing.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
What does each price gap cost?
Four actual prices against the same standard.
| Actual price | Price variance | Actual total cost |
|---|---|---|
| $3.80 | −$2,000.00 | $38,000.00 |
| $4.00 | $0.00 | $40,000.00 |
| $4.20 | $2,000.00 | $42,000.00 |
| $4.60 | $6,000.00 | $46,000.00 |
Questions
Why use quantity purchased rather than quantity used?
Because the price was set when the material was bought, so the variance belongs to that transaction. Usage differences are captured separately in the quantity variance, which keeps the two causes apart.
Is a favourable variance always good?
Not necessarily. Cheaper material can mean lower quality, which shows up later as waste, rework or warranty claims. A favourable price variance paired with an unfavourable usage variance is a familiar pattern.
Who is accountable for it?
Normally purchasing, since they control the price paid. That said, a rush order forced by production planning will show as a purchasing variance even though the cause lies elsewhere.
What if the standard is simply wrong?
Then every period shows a variance in the same direction, which is a signal to revise the standard rather than to keep investigating. Standards are usually reset annually for this reason.
For splitting fixed from variable costs, see the high-low method calculator. For the volume where costs are covered, see the break-even calculator.