Reasons of Favorable Material Price Variance
Reasons
for favorable material price variance include deflation in the economy, price
negotiation with the supplier, high discount on bulk purchases etc. whenever
actual price fall below the standard price, the favorable price variance would
be achieved.
1. Deflation in the Economy
In
case of deflation in the economy the material prices would fall and thus
favorable price variance may be achieved by the company i.e. actual cost of
material used may be lower than standard cost.
2. Bulk Purchases Discount
In
case of discount on bulk purchases, a favorable material price variance would
be achieved by the company, because such price may lower the actual price below
the standard price.
3. Cost Reducing Negotiation
Effective
cost reducing negotiation or reviewing the supply chain for cost reduction
would also result in favorable material price variance. (Actual cost is lower
than standard cost).
4. Fall in Material Demand
Fall
in material demand may also lower the prices of material and such situation may
result in favorable material price variance.
5. Excess Supply of Material
Excess
supply of material may also push the price downward, which may produce
favorable material price variance for the company.
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