Distinguish between material price variance and material usage variance and give the formula for each.

• A. Price variance = (standard price − actual price) × actual quantity; Usage variance = (standard quantity − actual quantity) × actual price.
• B. Price variance = actual quantity × (standard price − actual price); Usage variance = (actual quantity − standard quantity) × standard price.
• C. Price variance = (actual quantity − standard quantity) × (standard price); Usage variance = actual quantity × (actual price − standard price).
• D. Price variance and usage variance both equal actual cost minus standard cost.

Answer: (B)

Material price variance looks at whether you paid more or less per unit than planned for what you actually bought, so it’s based on the actual quantity purchased and the difference between standard and actual prices. If the actual price is higher than the standard price, the variance is unfavorable; if lower, favorable. The way this is expressed is the standard price minus the actual price, multiplied by the actual quantity bought: SP − AP, all times AQ.

Material usage variance measures the efficiency of using material, valuing the difference between what was actually used and what should have been used for the actual output at the standard price. It uses the standard price to value the quantity difference, so (AQ − SQ) × SP. If more material was used than standard, it’s unfavorable; if less, favorable.

So, the correct pair is MPV = AQ × (SP − AP) and Usage variance = (AQ − SQ) × SP. This aligns with interpreting the cost impact of price deviations on what was purchased, and the efficiency deviation on what was used. For example, with SP = 5, AP = 6, SQ = 100, AQ = 110, you get MPV = 110 × (5−6) = −110 (unfavorable) and Usage = (110−100) × 5 = 50 (unfavorable).