If the actual input price is $150 and the budgeted input price is $80, the price variance is ___________?
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Answer: B. $70
Explanation
The price variance is calculated by finding the direct difference between the actual input price and budgeted price. Subtracting the budgeted input price of 80 from the actual input price of 150 yields 70. Standard cost formulas confirm that the price variance equals the unit price discrepancy for acquired resources. Price variance measures the financial effect of paying different prices for material inputs than originally anticipated. Purchasing departments are typically held responsible for unfavorable or favorable material price variances. Calculating input price variances helps organizations negotiate better contracts with suppliers in future periods.
Supply chain managers track price variances closely to evaluate the financial performance of purchasing agents and vendors. Sudden spikes in raw material costs create unfavorable price variances that can severely impact company profitability. Analyzing input prices enables businesses to adjust product pricing strategies in response to broader market inflation. Alternative choices display the standalone input prices rather than the calculated variance between them. Other incorrect options result from failing to perform the required subtraction between actual and budgeted prices. Selecting wrong answers indicates a fundamental misunderstanding of basic cost variance computation methods.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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