What is a purchase price variance and what does its analysis aim to identify in standard costing?

• A. The total purchases for the period
• B. The difference between standard labor cost and actual labor cost
• C. Difference between standard cost and actual cost; analyzed to identify efficiency or price variances
• D. The budgeted selling price versus actual selling price

Answer: (C)

Purchase price variance is the difference between what standard costing says the material should cost for the actual quantity purchased and what was actually paid. In standard costing, you compare the standard cost for the actual purchases (standard price per unit × actual quantity) to the actual cost incurred. The analysis aims to determine whether the variance comes from paying a price per unit that's higher or lower than standard (price variance) and from using more or less material than planned (usage or efficiency variance). This helps pinpoint pricing issues with suppliers and efficiency in material usage.