ECONOMICS

Detailed explanation-1: -The materials price standard is based on the purchasing department’s best estimate of the cost of raw materials. Ideal standards will generally result in favorable variances for the company. A standard is a unit amount, whereas a budget is a total amount.

Detailed explanation-2: -If there is no difference between the standard price and the actual price paid, the outcome will be zero, and no price variance exists. If the actual price paid per unit of material is lower than the standard price per unit, the variance will be a favorable variance.

Detailed explanation-3: -When the materials price variance is recorded at the time of purchase, raw materials are recorded as inventory at standard cost. Material price variances are often isolated at the time materials are purchased, rather than when they are placed into production, to facilitate earlier recognition of variances.

Detailed explanation-4: -Answer and Explanation: The price variance can occur concerning material prices or labor costs.

Detailed explanation-5: -If more materials were used than the standard quantity, or if a price greater than the standard price was paid, the variance is unfavorable. If the reverse is true, the variance is favorable.