Which of the following is a typical cause of price variance?

• A. Changes in production volume.
• B. Negotiated supplier price changes.
• C. Changes in depreciation method.
• D. Labor efficiency improvements.

Answer: (B)

Price variance comes from the actual price paid for inputs differing from the standard price set in the budget. When suppliers renegotiate prices, the cost per unit can move away from the standard, creating a price variance. If the actual price is higher, it’s adverse; if lower, it’s favorable. The other factors relate to different variances or accounting treatments rather than the price per unit: production volume changes affect the volume variance, depreciation method changes are about accounting allocations, and labor efficiency improvements affect labor usage variance.