5.The purchasing manager will generally have responsibility for materials pricevariance because they have control over the price paid for goods. However,someone other than purchasing manager could be responsible for a materialsprice variance. Production supervisors are generally responsible for labor ratevariance because labor rate variances generally arise as a result of how labor isused. The production department generally has responsibility for materialsquantity variance because they see that material usage is kept in line withstandards. However, sometimes the purchasing department may be responsiblefor an unfavorable materials quantity variance.6.The materials price variance can be computed either at the time of purchase ofdirect materials or at the time when the direct materials are used. Mostcompanies compute the materials price variance when materials are purchasedrather than when they are used in production. There are two reasons for thispractice. First, delaying the computation of the price variance until the materialsare used would result in less timely variance reports. Second, computing theprice variance when the materials are purchased allows materials to be carried inthe inventory accounts at their standard cost, which greatly simplifiesbookkeeping. Show
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What is the Direct Material Variance?The direct material variance is the difference between the standard cost of materials resulting from production activities and the actual costs incurred. The direct material variance is comprised of two other variances, which are noted below. It is customary to calculate and report these two variances separately, so that management can determine if variances are caused by purchasing issues or manufacturing problems. Purchase Price VarianceThe purchase price variance is the difference between the standard and actual cost per unit of the direct materials purchased, multiplied by the standard number of units expected to be used in the production process. This variance is the responsibility of the purchasing department. Material Yield VarianceThe material yield variance is the difference between the standard and actual number of units used in the production process, multiplied by the standard cost per unit. This variance is the responsibility of the production department. Accounting for the Direct Material VarianceThe direct material variance is usually charged to the cost of goods sold in the period incurred. Example of the Direct Material VarianceABC International produces 1,000 green widgets and records an unfavorable direct material variance of $700. Further investigation reveals that the cost to purchase the various components was $3.50 per unit, versus a budgeted amount of $4.00 per unit. This represents a favorable purchase price variance of $500, which is calculated as: ($3.50 actual cost - $4.00 standard cost) x 1,000 standard units In addition, ABC finds that the purchase price was so low because the raw materials were of unusually low quality, resulting in a great deal of scrap during the manufacturing process. As a result, the company used 1,300 units of raw material to produce 1,000 finished units. This represents an unfavorable material yield variance of $1,200, which is calculated as: (1,300 actual units - 1,000 standard units) x $4.00 standard cost Thus, by delving into the two types of variances, it is apparent that the purchasing manager of ABC is at fault; he saved money by purchasing raw materials of excessively low quality, and it resulted in a large unfavorable variance when units were scrapped during production. Terms Similar to Direct Material VarianceThe direct material variance is also known as the direct material total variance.
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) ExampleThe 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 a materials 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 of the following people is most likely responsible for an unfavorable materials usage variance?Questions from Exams 1-3. Which department is most likely responsible for price variance?
Which of the following departments is most likely responsible for a price ...mcqmate.com › discussion › which-of-the-following-departments-is-most-l...null Who is responsible for the unfavorable material price variance?In general, the purchasing agent is responsible for the material price variance. 5. When more hours of labor time are necessary to complete a job than the standard allows, the labor rate variance is unfavorable.
Who is responsible for material variances?The production department, and specifically the production manager is therefore held responsible for the material usage variance.
Which parties are responsible for material price variance?Which of the following parties are responsible for material price variances?. Production supervisors.. Purchasing managers.. Production schedules.. None of the above.. Which manager is usually held responsible for material price variances?Correct option and explanation: Production supervisor is usually held responsible for materials usage variances.
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Who usually takes the responsibility for the unfavorable materials price variances?
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