What are the causes of unfavorable material price variances?


Quick Answer

According to Accounting for Management, changes in the price of raw materials, variations in expenses such as duties and cost of shipping, inefficient or unreliable supplies and flawed standard setting processes all contribute to unfavorable material price variances. Inferior materials, employee theft and equipment breakdowns also contribute to the problem, according to Chron Small Business.

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Full Answer

Generally, some level of material price variation is to be expected in normal business operations, according to Accounting for Management. The organization partly blames operational factors that are beyond the control of business managers. For instance, wars or unpredictable natural disasters such as earthquakes can lead to sharp increases in the price of certain raw materials or even spark temporary scarcity. In such cases, businesses may be forced to quickly change suppliers, leading to higher costs. However, some problems contributing to unfavorable material price variances can be minimized or eliminated. Employee training helps reduce errors and spoilage, as can improved supervision and investment in proper equipment and regular equipment maintenance, according to Chron Small Business. Where possible, business can buy larger quantities of some items to take advantage of trade discounts, an advantage indirectly pointed out by Accounting for Management. The problem can also be solved by improving standard setting processes and changing to reliable suppliers, reports Accounting for Management.

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