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Sunday, January 16, 2011

Concept Of Material Price Variance (MPV) And Its Calculation

Material Price Variance (MPV)
Material price variance is the deviation of the actual price paid from the standard price specified. The material price variance can be calculated at the time of purchase or at the time of usage. It is generally preferred to calculate at the time of purchase.
Material price variance is calculated by using the following formula:
Material price variance (MPV) = AQx(SP-AP)
Where,
AQ = Actual Quantity
SP = Standard Price
AP = Actual Price
If the actual price is more than standard price, there will be an adverse or unfavorable variance and when the actual price is less than the standard price, the variance will be favorable.

Calculation Of Material Price Variance
Illustration
- Standard quantity of material Q for 500 units of output is fixed as 800 kg.
- Standard price per kg. of material Q is estimated to be $ 5
- Actual quantity of material Q was 800 kg.
- Actual price of material was $ 4.5 per kg.
- Actual output was 400 units.
Solution,
Material Price Variance(MPV) = Actual quantity x(Standard price-Actual price)
Or, MPV = AQ x (SP-AP) = 800 x(5-4.5) = $400 (F)
Since the resulting figure is positive the material price variance is favorable.