The correct answer is: A. Actual quantity of materials used
Material price variance is the difference between the standard price of materials and the actual price of materials multiplied by the actual quantity of materials used.
The standard price of materials is the price that a company expects to pay for a unit of material. The actual price of materials is the price that a company actually pays for a unit of material. The actual quantity of materials used is the number of units of material that a company actually uses.
Material price variance can be favorable or unfavorable. A favorable material price variance occurs when the actual price of materials is less than the standard price of materials. An unfavorable material price variance occurs when the actual price of materials is more than the standard price of materials.
Material price variance can be caused by a number of factors, including changes in the market price of materials, changes in the quality of materials, changes in the quantity of materials used, and changes in the efficiency of the production process.
Material price variance is an important measure of a company’s purchasing efficiency. A company with a favorable material price variance is likely to be purchasing materials at a good price. A company with an unfavorable material price variance is likely to be purchasing materials at a high price.
Here is a brief explanation of each option:
- A. Actual quantity of materials used. This is the correct answer. The material price variance is calculated by multiplying the difference between the standard price of materials and the actual price of materials by the actual quantity of materials used.
- B. Budgeted quantity of materials used. This is not the correct answer. The budgeted quantity of materials used is not used in the calculation of the material price variance.
- C. Standard quantity of materials used. This is not the correct answer. The standard quantity of materials used is not used in the calculation of the material price variance.
- D. Either A or B. This is not the correct answer. Only option A is correct.