What is Material Price Variance?
Material price variance is the difference between the actual price paid for raw materials and the standard price expected, multiplied by the actual quantity purchased or used. It isolates the price effect from the usage effect.
How It Works
- Set a standard price per unit of material at the start of the period.
- Capture the actual price paid for each purchase.
- Variance = (actual price − standard price) × actual quantity.
- Investigate causes — supplier pricing changes, FX, freight, contract terms.
- Decide whether to update the standard or address the procurement process.
Saudi Context
Saudi manufacturers exposed to FX volatility through imports of raw materials, especially from China and Europe, monitor material price variance to react to commodity and shipping cost swings. Trends feed into rolling cost-of-goods-sold forecasts.
Example
Standard price SAR 50/kg; actual price SAR 56/kg; actual quantity purchased 2,000 kg. Variance = (56 − 50) × 2,000 = SAR 12,000 unfavourable.