8 u 4 the purchasing point is where responsibility

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Applied Calculus for the Managerial, Life, and Social Sciences
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Chapter 2 / Exercise 61
Applied Calculus for the Managerial, Life, and Social Sciences
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8-U
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Applied Calculus for the Managerial, Life, and Social Sciences
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Chapter 2 / Exercise 61
Applied Calculus for the Managerial, Life, and Social Sciences
Tan
Expert Verified
4.The purchasing point is where responsibility for price variances is found most often. Theproduction point is where responsibility for efficiency variances is found most often. TheSchuyler Corporation may calculate variances at different points in time to tie in with thesedifferent responsibility areas.7-30Materials and manufacturing labor variances, standard costs.Dawson, Inc., is aprivately held furniture manufacturer. For August 2017, Dawson had the following standards forone of its products, a wicker chair:Standards per ChairDirect materials3 square yards of input at $5.50 per squareyardDirect manufacturing labor0.5 hour of input at $10.50 per hourThe following data were compiled regarding actual performance: actual output units (chairs)produced, 2,200; square yards of input purchased and used, 6,200; price per square yard, $5.70;direct manufacturing labor costs, $9,844; actual hours of input, 920; labor price per hour, $10.70.1.Show computations of price and efficiency variances for direct materials and directmanufacturing labor. Give a plausible explanation of why each variance occurred.2.Suppose 8,700 square yards of materials were purchased (at $5.70 per square yard), eventhough only 6,200 square yards were used. Suppose further that variances are identified attheir most timely control point; accordingly, direct materials price variances are isolated andtraced at the time of purchase to the purchasing department rather than to the productiondepartment. Compute the price and efficiency variances under this approach.SOLUTION(2030 min.) Materials and manufacturing labor variances, standardcosts.1.Direct MaterialsActual CostsIncurred(Actual Input Qty.×Actual Price)Actual Input Qty.×Budgeted PriceFlexible Budget(Budgeted InputQty. Allowed for Actual Output ×Budgeted Price)(6,200 sq. yds. × $5.70)$35,340(6,200 sq. yds. × $5.50)$34,100(2,200 × 3 × $5.50)(6,600 sq. yds. × $5.50)$36,300$1,240 U$2,200 FPrice varianceEfficiency variance$960 FFlexible-budget variance8-U
The unfavorable materials price variance may be unrelated to the favorable materials efficiency variance. For example, (a) the purchasing officer may be less skillful than assumed in the budget, or (b) there was an

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