There are a number of reasons for causinf DM Price Variance.
Adverse Price Variance
1) Demand > Supply (Low Supply, High Demand result in price to be material purchase to be more costly)
2) Change to a higher grade material quality.
3) Purchases made from oversea, exchange rate incurred
4) Purchases made in smaller quantity
As for favourable DM price variance, explanation will be opposite of the above given.
may be material price is higher than the stander ed price
Following are the causes of material price variance: 1.There could have been recent changes in purchase price of materials. 2.Price variance can be due to substituting raw materials different from the original material specification. 3.Price variance can be attributed to the non availability of cash discounts which was originally anticipated at the time of setting the price standards. 4.Changes in transportation costs and storekeeping costs can also be contributing factors to material price variance.
There are 7 variances associated with a budget ( which are generally calculated for controlling purposes) 1- Material Price variance 2- Material Quantity variance 3- Labor rate variance 4- Labor efficiency variance 5- Spending variance 6- Efficiency variance 7- Capacity variance
Negative price variance is when the cost is less than budgeted. Volume variance is a variance in the volume produce.
A favorable/unfavorable price variance does not effect your quantity variance. The reason you would see a favorable price variance and an unfavorable quantity variance is because you consumed more materials than your standard allows AND the price you paid for those material was less than your standard price. If you paid more than your standard price, you would have experienced an unfavorable variance in both quantity and price.
1.rise in price. if price will be higher than the budgeted price then unfavourable 2.shortage of suppliers. this led to increase in price
what are some of the causes of material quntity variance of favourable amount
a + or a-
Price Variance = (Actual Price/Unit - Budgeted Price/Unit) x Actual Quantity of Output = (AP - SP) x AQ
Material variance should be calculated to ensure that you are setting the right price for your products. When the price varies significantly, you may need to establish a new price for the product.
causes of labor rate variances
NO - Fixed Overhead Volume Variance