The correct answer is: B. Standard unit price – actual unit price
Material price variance is the difference between the actual price paid for materials and the standard price that should have been paid. It is calculated by multiplying the actual usage of materials by the difference between the standard unit price and the actual unit price.
The standard unit price is the price that should be paid for a unit of material, based on the company’s purchasing policies and procedures. The actual unit price is the price that was actually paid for a unit of material.
The material price variance can be favorable or unfavorable. A favorable variance occurs when the actual price paid for materials is less than the standard price. An unfavorable variance occurs when the actual price paid for materials is more than the standard price.
The material price variance can be caused by a number of factors, including changes in the market price of materials, changes in the quantity of materials purchased, and changes in the quality of materials purchased.
The material price variance is an important measure of a company’s purchasing performance. It can be used to identify areas where the company can improve its purchasing practices.
Here is a brief explanation of each option:
- Option A: Standard price. The standard price is the price that should be paid for a unit of material, based on the company’s purchasing policies and procedures. It is not used in the calculation of the material price variance.
- Option B: Standard unit price – actual unit price. This is the correct answer. The material price variance is calculated by multiplying the actual usage of materials by the difference between the standard unit price and the actual unit price.
- Option C: Actual price. The actual price is the price that was actually paid for a unit of material. It is used in the calculation of the material price variance.
- Option D: Standard usage. The standard usage is the amount of material that should be used to produce a unit of product. It is not used in the calculation of the material price variance.