Accounting 202 Home Show
Chapter 10-1A Name_________________________ Select the best answer. 1. A standard cost: Ans: B 2. The term "management by exception" is best defined as: Ans: D 3. Consider the following statements: Ans: E 4. Most companies base the calculation of the materials price variance on the: Ans: A 5. Thomas recently completed 24,000 units of a product that was expected to consume five pounds of direct material per finished unit. The standard price of the direct material was $6 per pound. If the firm purchased and consumed 110,000 pounds in manufacturing (cost = $605,000), the direct-materials quantity variance would be figured as: Ans: B 6. The individual generally responsible for the direct-material price variance is the: Ans: C 7. In which department would an investigation normally begin regarding an unfavorable materials quantity variance? Ans: D 8. Justin Company recently purchased materials from a new supplier at a very attractive price. The materials were found to be of poor quality, and the company's laborers struggled significantly as they shaped the materials into finished product. In a desperation move to make up for some of the time lost, the manufacturing supervisor brought in more-senior employees from another
part of the plant. Which of the following variances would have a high probability of arising from this situation? Ans: E 9. Which of the following is a criticism of standard costing, as applied to today's manufacturing environment? Ans: E 10. To assess how customers perceive a company's products, management may study: Ans: E Accounting 202 Home In managerial accounting, variance means deviation of actual costs from standard costs. Materials price variance is the result of deviation of
actual price paid for materials from what has been set as standard. Direct materials price and quantity standards are set after keeping in mind the current market prices and anticipated changes in materials prices in near future. However things do not always happen as expected and therefore, the actual price of materials purchased and used may significantly
deviate from standard price. Moreover, the expenses associated with the order (like freight, duties, handling expenses etc.) may increase or reduce the ultimate price of materials available for use in a manufacturer’s stock. A business may, therefore, have to pay more or less price than what has been considered as normal at the time of setting standards (see direct
materials price and quantity standards article). If the actual price paid for materials is more than the standard price, an unfavorable materials price variance occurs. On the other hand, if the actual price paid for the materials is less than the standard price, a favorable materials price variance occurs. The formula of direct materials price variance is given below: Direct materials price variance = (Actual quantity purchased × Actual rate) – (Actual quantity purchased ×
Standard rate) The Aptex company manufactures and sells small speakers that are used in mobile phones. The speakers are sold in bulk to mobile manufacturing companies where complete mobiles are produced. The direct material of Aptex company is a thin copper coil. One meter of the copper coil is the standard requirement to manufacture one speaker. The standard cost to manufacture one speaker is as follows: Direct materials (1 meter × $1.50 per meter):
$1.50 During the month of June, 2016, Aptex purchased 5,000 meters of copper coil @ $1.70 per meter and produced 2,500 speakers using 3,000 meters of copper coil. Required: Calculate direct materials price variance for Aptex company for the month of June, 2016. Solution:Direct materials price variance = (Actual quantity purchased × Actual rate) – (Actual quantity purchased × Standard rate) = (5,000 × $1.70) – (5,000 × $1.50) Aptex has an unfavorable materials price variance for June because the actual price paid ($8,500) is more than the standard price allowed ($7,500) for 5,000 meters of copper coil. This variance can also be computed by using the factored form of above formula: =
AQ × (AR – SR) Reasons of direct materials price variance:A favorable or unfavorable materials price variance may occur due to one or more of the following reasons:
Responsibility of direct materials price variance:Purchasing department is responsible to place orders for direct materials so this variance is generally considered the responsibility of purchase manager. However, the above reasons clarify that the materials price variance may or may not be the result of inefficiencies of the purchasing department. The occurrence of variances is very normal in both manufacturing and service business. They occur for almost all cost elements and should not be used to find someone to blame. Sometimes they may not be very significant in amount and sometimes they may be the result of factors that are beyond the control of managers. Variances are tools to control costs and improve operating efficiencies They should, therefore, be used positively and in a broader sense. Who is responsible for the material price variance?The materials price variance is usually the responsibility of the purchasing manager. The materials quantity and labor efficiency variances are usually the responsibility of production managers and supervisors.
What causes unfavorable material price variance?An unfavorable variance can occur due to changing economic conditions, such as lower economic growth, lower consumer spending, or a recession, which leads to higher unemployment. Market conditions can also change, such as new competitors entering the market with new products and services.
Which department is usually responsible for a labor price variance?Hence, it is the production department that is responsible for the labor price variance.
Which of the following people is most likely responsible for an unfavorable materials usage variance?Questions from Exams 1-3. |