Plain definition
A price variance measures the cost effect of paying a different price from the planned or standard price for a comparable actual quantity. It isolates price from quantity, quality, and mix.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A factory uses 5,000 kilograms of material. The standard price is per kilogram and the actual price is . The price variance is adverse: 5,000 × (4.60 − 4.00). Procurement finds the increase came from an emergency order after stock planning failed.
Why it matters
Price changes affect purchasing cash and margin, but action differs when the cause is an emergency order, supplier market movement, or an avoidable failure in planning.
Practical consequence
Use actual quantity with comparable specification and record freight, rebates, and currency effects consistently. A lower purchase price can be false economy if it changes quality or usage.