In managerial accounting, price variance refers to the difference between the actual and standard price paid for production inputs or finished goods. It identifies variances in planned costs versus actual costs due to price fluctuations.
- Calculated for individual input and total production using a variance formula
- Standard price is the fixed budgeted price while actual refers to invoices
- A positive variance means actual price was lower than planned price
- A negative variance signals the reverse
Price variances help determine reasons for over/under spending in cost of goods sold and pinpoint supplier price performance issues.
Investigating variances reveals procurement execution gaps, budgeting inaccuracies, market supply/demand shifts and more.
Managers take corrective action by renegotiating contracts, qualifying alternative vendors, adjusting standard costs or production levels as needed.
Overall, regular price variance analysis aids cost management and planning by quantifying purchase price impacts on operations.