10A purchasing manager was able to acquire a large quantity of direct materials from a new supplierat a discounted price. The inventory supervisor is concerned because the warehouse has become crowded and somethings had to be rearranged. The vice president of production is concerned about the quality of the discountedmaterials. However, the Engineering Department tested the new materials and indicated that they are of acceptablequality. At the end of the month, the corporation experienced a favorable direct materials usage variance, a favorabledirect labor usage variance, and a favorable direct materials price variance. The usage variances were solely theresult of a higher yield from the new material.

This variance is usually the responsibility of the purchasing department. Thus, thepurchasing manager has an incentive to obtain the best price possible. 16In a standard cost system, the investigation of an unfavorable materials usage variance should beginwith theA. Production manager or the purchasing manager.

Adjusting Accounting Records

By the time the paperwork wasfound, it was too late to order from the company’s regular supplier. A new supplier was located, and that vendorquoted a very attractive price. The materials arrived and were rushed into production, bypassing the normalinspection processes (as directed by the Production Department supervisor) to make up for lost time. Unfortunately,the goods were of low quality and created considerable difficulty for the assembly-line personnel. Which of thefollowing best indicates the responsibility for the materials usage variance in this situation?

Bureau of Labor Statistics track wholesale price trends, offering context for these market-driven changes that often lie outside a single company’s control. The business has received bulk discounts from suppliers because of an increase in the average order size. The standard price was set too high in the budget.

• Thus, it may be the responsibility of the production department becauseexcess usage would occur while the materials are in that department.
• By isolating the financial impact of price deviations from the standard, it provides specific feedback on purchasing performance and market effects on material costs.
• Currency exchange rate shifts alter the cost of imports, while broader economic conditions like inflation influence overall demand and production expenses.
• Commodity markets for materials like metals or oil are subject to volatility driven by global supply and demand.
• Both the direct materials usage variance and the direct materials price variance.B.

The materials usage (or materials quantity) variance, when unfavorable, is oftenattributable to waste, shrinkage, or theft in the production areas. The excess usage occurs under thesupervision of the production department. Determining the price or cost to be used as the standard cost is often difficult, because the price used are controlled more by external factors than by a company’s management. Prices selected should reflect current market prices and are generally used throughout the forthcoming fiscal period. The standard price for direct materials should reflect the final, delivered cost of the materials, net of any discounts taken. Answer (D) is correct.The materials price variance is the difference between the standard price and the actual price paid formaterials.

In evaluating the performance within a company, a materials efficiency variance can be caused by all ofthe following except theA. Performance of the workers using the material.B. Actions of the purchasing department.C.

Analyzing a Favorable DM Price Variance

The action management should take regarding this situation should be toA. Negatively evaluate the performance of the purchasing manager.B. Negatively evaluate the performance of the production manager.C. Change the raw material price standard.D. Ask the production manager to lower the material usage standard to compensate for higher material costs.

Standard Price

These influences often relate to purchasing activities, supplier relationships, and broader market conditions. When actual price paid for the materials is more or less than the standard price of the materials, the difference is called direct materials price variance. Answer (B) is correct.The production control supervisor has the most control over the materials usage variance. Thematerials usage variance measures the excess amount of materials used over the amount specified inthe standards.

Who is responsible for the cost variance analysis?

This adjustment typically happens when materials are purchased. Answer (C) is correct.A favorable price variance indicates that the materials were purchased at a price less than standard. Theunfavorable quantity variance indicates that the quantity of materials used for actual productionexceeded the standard quantity for the good units produced. Purchasing materials in larger quantities often enables companies to obtain lower per-unit prices through volume discounts. When utilized, these discounts can result in an actual price below the standard, generating a favorable variance.

• Information for use in controlling the cost of production.
• Unfortunately,the goods were of low quality and created considerable difficulty for the assembly-line personnel.
• 13Which one of the following variances is most controllable by the production control supervisor?
• This is generally favorable to the company; however, further analysis is needed since lower price is often attributed to lower quality.

The actual price is the amount paid per unit for materials purchased during a specific period, documented on supplier invoices. It reflects the results of purchasing activities, including negotiations and supplier selection, along with any market shifts. The difference between this actual price and the standard price drives the variance. Direct materials price variance refers to the variance that arises due to the difference in the actual and standard purchase price of raw materials used in production. 18When items are transferred from stores to production, an accountant debits work-in-process andcredits materials accounts. During production, a materials quantity variance may occur.

The feasibility of bulk buying depends on storage which department is often responsible for the price paid for direct materials capacity, cash flow, and predictable production needs. Conversely, failing to meet discount thresholds could lead to paying a higher unit price than planned, contributing to an unfavorable variance. Strategic inventory management is necessary to optimize these decisions. Several factors can cause the actual price paid for direct materials to differ from the standard price, creating a price variance.

The favorable direct materials price variance is considered theresponsibility of theA. 2A manufacturer planned to produce 5,000 units of its single product during November. The standardspecifications for one unit include ten pounds of materials at $.50 per pound. Actual production in November was5,200 units.

Reasons of Direct Materials Price Variance

The top management, cost accounting, and budgeting team need to work in liaison with the procurement team to make sure the best results are achieved. Answer (D) is correct.If 1.5 yards remain in each unit after spoilage of 25% of the direct materials input, the total per unitinput must have been 2 yards (1.5 ÷ 75%). The standard unit direct materials cost is therefore $4.00 (2yards × $2). Allowances have also been made for handling and discounts. If every thing proceeds according to these expectations, the net cost of a pound of pewter should therefore be $4.00. This calculation shows the financial impact solely due to the difference between the actual and standard price paid for the materials bought.

who is responsible for direct materials price variance

However, interpretation requires care; a favorable variance from buying cheaper, lower-quality materials might cause problems elsewhere, like increased production waste. The direct materials price variance is a diagnostic tool within cost analysis. By isolating the financial impact of price deviations from the standard, it provides specific feedback on purchasing performance and market effects on material costs. In a standard costing system, the direct materials price variance is recorded to reconcile the difference between actual spending and standard expectations for materials.

The accountant computed a favorable direct materials purchase pricevariance of $380 and an unfavorable direct materials quantity variance of $120. Based on these variances, one couldconclude thatA. More materials were purchased than were used.B. More materials were used than were purchased.C. The actual cost of materials was less than the standard cost.D. The actual usage of materials was less than the standard allowed.