The feasibility of bulk buying depends on storage 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.
Who is Responsible for Direct Materials Price Variance?
At a standard unit cost of$2.90, the 9,000 units will total $26,100. A) The accounting department.B) The production department.C) The purchasing department.D) The finance department.E) The budgeting department. Answer (D) is correct.All three departments bear responsibility for this fiasco.
Direct Materials Price Variance: Key Factors, Calculation, and Impact on Cost Analysis
Both the direct materials usage variance and the direct materials price variance.B. The direct materials usage variance but not the direct materials price varianceC. The direct labor price variance but not the direct labor efficiency variance.D.
The purchasing department is often responsible for the price paid for materials that may create a direct materials price variance. Insights from the variance inform decisions about supplier selection, contract renegotiations, or changes to purchasing strategies like order timing or quantity. Understanding variance trends also helps refine future budgets and set more accurate standard costs, improving financial planning.
Who is responsible for direct material variance?
Information for use in controlling the cost of production. Suppliers may alter their prices due to their own cost increases for inputs like energy, labor, or components. Conversely, suppliers with strong market positions or limited competition might impose increases, leading to unfavorable variances. Unexpected events, such as supplier financial issues or specific supply chain disruptions, can also trigger price adjustments. The DM price variance is unfavorable if the actual price of the materials is higher than the standard price.
Why is variance analysis important?
- Setting a realistic standard price is important, as an inaccurate standard can produce misleading variances.
- Answer (B) is correct.Shipping employees send out finished products to customers.
- Since the materials are purchased in larger quantities, it is possible to benefit from better rates from suppliers.
3Under a standard cost system, the materials efficiency variances are the responsibility ofA. Production and industrial engineering.B. Purchasing and industrial engineering.C. Sales and industrial engineering.
9A company planned to produce 3,000 units of its single product, Titactium, during November. Thestandard specifications for one unit of Titactium include 6 pounds of materials at $.30 per pound. Actual productionin November was 3,100 units of Titactium.
Responsibility of Direct Materials Price Variance
Since the materials are purchased in larger quantities, it is possible to benefit from better rates from suppliers. Different items of material can be standardized. Vaguely speaking the such analysis looks to be the responsibility of a purchase manager only, but if we analyze it in details different components affect such variance.
The direct labor efficiency variance but not the direct labor rate variance. This variance is the responsibility of the purchasing department. 26A company recently purchased 108,000 units of raw material for $583,200. Three units of rawmaterials are budgeted for use in each finished good manufactured, with the raw material standard set at $16.50 foreach completed product. The company manufactured 32,700 finished units during the period just ended and used99,200 units of raw material. Answer (A) is correct.A direct materials price variance is the actual quantity used times the difference between the standardand actual prices.
- The DM price variance is unfavorable if the actual price of the materials is higher than the standard price.
- The intent of variance entriesis to provideA.
- The vice president of production is concerned about the quality of the discountedmaterials.
- When utilized, these discounts can result in an actual price below the standard, generating a favorable variance.
- Unexpected events, such as supplier financial issues or specific supply chain disruptions, can also trigger price adjustments.
Bulk Discounts
It is normally considered the responsibility of the purchasing manager because noone else has an opportunity to influence the price. In this case, the purchasing which department is often responsible for the price paid for direct materials manager obtained thediscount that led to the favorable price variance. Businesses manufacturing products depend heavily on raw materials, making material costs a significant factor in profitability. Answer (A) is correct.The materials price variance is calculated by multiplying the difference between actual price andstandard price by the actual units purchased. The materials usage variance is calculated by multiplyingthe difference between the actual usage and the standard usage by the standard price.
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.