1. Standard Costing
Materials Price Variance Costing

2. Standard Costing
A control technique which compares standard costs and
revenues with actual results to obtain variances which
are used to simulate improved performance.
Standard costs
 Budgeted costs to manufacture a single unit of product
or perform a single service
 A predetermined cost which is calculated from
managements standards of efficient operations and the
relevant necessary expenditure.

3. Advantages of Standard
Costing
 1. Efficiency Measurement - The comparison of
actual costs with standard costs enables the
management to evaluate performance of various cost
centers.
 2. Finding of Variance - The performance variances
are determined by comparing actual costs with
standard costs. Management is able to spot out the
place of inefficiencies.

4.  3. Management by Exception - The targets of different
individuals are fixed if the performance is according to
predetermined standards.
 4. Cost Control - Every costing system aims at cost
control and cost reduction. The standards are being
constantly analyzed and an effort is made to improve
efficiency.
 5. Right Decisions - It enables and provides useful
information to the management in taking important
decisions. For example, the problem created by
inflating, rising prices.

5. Company Name: Zoom Bike
Product: Mountain Bike
Component ID#: WF-05
Quantity Required: 2
Description: Wheel Tire and Tube
Standard Cost: P500.00

6. Purchase Price Variance
-Arises when a standard purchase price has been set
and purchase of materials is at a different price.
(Actual Price - Standard Price) x Quantity Purchased
Example: 450 pcs of WF-05 are purchased at
P480.00. How much is the price variance?
Solution: (P480.00-P500.00) x 450pcs.
P9,000, Favorable

7. Purchase Price Variance Left
in Inventory
 In the example, assume that of the 450pcs ordered
413pcs are issued to the factory so that only 20pcs are
left in the inventory. What is the purchase price
variance left in the inventory?
 Answer: (P480-P500) x 20 = P740

8. Materials Cost Variance
Actual Materials Cost – (Std. materials qty. x
Standard Price)
*Standard Materials Quantity is equal to the quantity
allowed based on output.
Example: If the actual production is 200 units of
mountain bikes, making use of 413pcs purchased at
P480.00. What is the Materials cost variance?
Answer: (P480 x 413pcs) – (P500 x 400 pcs)
1,760, Favorable

9. Analysis of the Materials Cost Variance
(two-factor method)
Quantity (or usage) variance
This is due to making use of materials at a quantity
different from the standard.
(Actual Quantity - Std. Quantity) x Std. Price
Price (or price usage) variance
This is due to the difference between actual and
standard price of the materials used
(Actual Price – Std. Price) x Actual Quantity

10. Quantity Variance
(413pcs – 400pcs) x P500 = P6,500; Unfavorable
Price Variance
(P480.00 – P500.00) x 413 = P8,260; Favorable
Materials Price Variance = P1,760; Favorable

11. Alternative Solution
APxAQ SPxAQ SPxSQ
P480 x 413 P500 x 413 P500 x 400
P198,240 P206,500 P200,000
P8,260, F P6,500, U
Mat. Price Variance Mat. Qty. Variance
Total Material Variance
P1,760, F

12.  Matt Company uses a standard cost system.
Information for raw materials for Product RBI for the
month of October is as follows:
Standard unit price P1.60
Actual Purchase Price per unit P1.55
Actual Quantity purchased 2,000 units
Actual Quantity used 1,900 units
Standard Quantity allowed
for actual production 1,800 units
Required:
a. Purchase price variance
b. Materials Cost Variance
c. Materials Price Variance
d. Materias Quantity Variance