Calculating the Price and Quantity Variances

Calculate the total direct material price variance and quantity variance for March

Ingredients Lamb Dinner Fish Fillets Chips Mixed veggies

Standard price k/g 40 60 30 25

Actual price k/g 42 63 25 27

Standard quantities k/g

Lamb Dinner 0.2 0.15 0.25

Fish Dinner 0.35 0.3

Dinners for March: Standard portion k/g

Lamb (standard q x 500 meals) 100 75 125

Fish (standard q x 800meals) 280 240

Dinners for March: Actual portion k/g

Lamb (500 meals) 105 107 120

Fish (800meals) 300 213

Price Variance: Actual quantity (Actual Price - Standard Price)

Lamb Dinner 250 (42-40)

500 unfavourable

Fish fillets 170 (63-60)

510 unfavourable

Chips 300 (25-30)

1500 favourable

Mixed veggies 200 (27-25)

400 unfavourable

Quantity Variance: Standard Price (Actual quantity - Standard Quantity)

Lamb Dinner 40 (105-100)

200 unfavourable

Fish fillets 60 (300-280)

1200 unfavourable

Chips 30 (320-315)

150 unfavourable

Mixed veggies 25 (120-125)

125 favourable

3.2. Critical discuss the variances

Price variance = total variance of all ingredients

= (500 + 510 -1500 + 400)

= -90 favourable

Quantity variance = total variance of all ingredients

= 200 + 1200 + 150 – 125

= 1425 unfavourable

Price variance show a favourable figure if looked at all the price variance combined for all the ingredients. Looking at the variances separately, chips purchasing process was particularly successful.

Quantity variance overshoot by far in the negative direction and attention should be given to the leaner meal portions, one of the factors that may influence the quantity process may be the quality of the ingredients that is bought.