Reasons for Adverse Material Price Variance

Reasons for Adverse Material Price Variance

Adverse material price variance would result when actual prices are more than standard prices, Therefore reasons of raise in price are reasons of adverse material price variance. Those reasons include poor negotiation with supplier, inflation, and discount withdrawal by the supplier, shortage in market, and increase in demand of material.

1.    Inflation in the Economy

In case of inflation (situation of rising prices) material price variance would be unfavorable or adverse, because material prices would have rising tendency i.e. actual expenditure would be more than expected expenditure.

2.    Discount withdrawal

Discount withdrawal by the supplier would also result in unfavorable material price variance because cost would rise, and actual expenditure on material would be higher than expected expenditure.

3.    Shortage of Material

Shortages in material supply would also raise the prices, which would ultimately impact the material price variance adversely.

4.    More Demand

Raise in demand of material would also push the prices upward and such upward trend may result in adverse material price variance.