Question

Why do we calculate both a price variance and an efficiency variance?

Answer 1

>> Generally variances are done to calculate difference between actual cost and budgeted cost.

>> Price variance is done to know the difference but actual and budget cost which was occured due to price difference.

>> Price variance = ( Standard price - Actual price ) * Actual quantity.

>> Efficiency variance is done to know the difference between actual and budget cost which is occured due to output.

>> Efficiency variance = ( Standard Quantity - Actual Quantity ) * Standard Price.