Dictionary / Price Variance
What does Price Variance mean in accounting?
Quick definition
Payroll & laborChange in the price of materials or labor. This term guides how bookkeepers record, classify, and explain related transactions in routine financial reporting.
Read more below
Examples
Quartz invoice above the $42 standard
You fabricate commercial countertops. Your cost standard for 3cm quartz is $42 a square foot. On August 12, a stone supplier invoices 48 square feet at $49 a square foot ($2,352) for a dental-office install, and the cut list used exactly 48 square feet. The extra $7 a foot ($336) is an unfavorable price variance on that bill, not extra waste; compare the invoice to the standard cost card and post the $336 to a price-variance line (or flag it on the job). Refresh the standard or call the supplier before the next slab.
More hops, same $14 pound
You run a small-batch brewery. The hop standard is 50 pounds of Cascade at $14 a pound per 10-barrel IPA. In March you finish a run and a hop grower still invoices $14 a pound, but the brew sheet shows 62 pounds used ($868 vs $700 standard). The extra $168 is usage, not a price variance, because the rate did not change. If you label that gap a price problem and start shopping a new hop broker, you will miss the over-dry-hopping that actually drove the overage.
Why it matters
Price variance is the gap between a cost standard and what you actually paid per unit of material or per labor hour, when the cause is a new vendor price or wage rate. You compute it when a bill or payroll run lands against a preset; a shop that never writes standards almost never needs this label. Efficiency variance is the other slice: you used more or fewer units or hours at the same rate. If you dump the whole overage into cost overruns, you may switch suppliers when the crew wasted stock, or coach the floor when a mill raised the per-unit price.
Further reading
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What is Price Variance in bookkeeping?
Change in the price of materials or labor.
When should I use Price Variance?
Use Price Variance when the transaction facts match its definition and you need the ledger and financial statements to reflect the correct account and period.
What is a common mistake with Price Variance?
Price Variance is used for price variance entries, while Paid-In Surplus covers a related but distinct bookkeeping purpose. Review both terms before posting unusual transactions. A common mistake is applying it by label only instead of checking the underlying transaction details.