Reasons of Favorable Material Price Variance

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.