Which type of variance is defined as the difference between the actual price per unit and the standard price per unit?

• A. Quantity variance
• B. Efficiency variance
• C. Volume variance
• D. Price variance

Answer: (D)

Verified step by step guidance

1. Understand the concept of variance: Variance analysis is a tool used in financial accounting to measure the difference between expected (standard) and actual performance. It helps identify areas where performance deviates from expectations.
2. Define price variance: Price variance specifically measures the difference between the actual price paid per unit and the standard price expected per unit. This variance focuses on cost differences rather than quantity or efficiency.
3. Differentiate price variance from other types of variances: Quantity variance relates to the difference in the number of units used versus expected, efficiency variance measures how efficiently resources are used, and volume variance deals with differences in production or sales volume. Price variance is solely concerned with price differences.
4. Recognize the formula for price variance: The formula is typically expressed as: $\mathrm{Price}\mathrm{Variance}=(\mathrm{Actual}\mathrm{Price}-\mathrm{Standard}\mathrm{Price})\times \mathrm{Actual}\mathrm{Quantity}$. This formula highlights the impact of price differences on total cost.
5. Apply the concept: To calculate price variance in practice, you would substitute the actual price, standard price, and actual quantity into the formula. This helps determine whether the variance is favorable (actual price is lower than standard price) or unfavorable (actual price is higher than standard price).