Question

Gross profit margins for the year improved to 20.9% of sales compared to last year’s 18.5%. All operations reported improved margins due in large part to improved operating efficiencies as a result of cost reduction measures implemented during the second and third quarters of the fiscal year and increased manufacturing throughout due to higher unit volume sales. Contributing to the improved margins was a favorable materials price variance due to competitive pricing by suppliers as a result of soft demand for petrochemical-based products. This favorable variance is temporary and will begin to reverse itself as stronger worldwide demand for commodity products improves in tandem with the economy. Partially offsetting these positive effects on profit margins were competitive pressures on sales prices of certain product lines. The company responded with pricing strategies designed to maintain and/or increase market share.

1) Is it apparent from the information whether Glassmaster utilizes standard costs? Why or why not?

2) Do you think the price variance experienced should or should not lead to changes in standard costs for the next fiscal year? Why or why not?

Answer 1

solution :

Is it apparent from the information whether Glass Master uses Standard Costs?

Truly, it is clear that Glass Master is utilizing standard expenses. This is on the grounds that the case discusses anticipated that costs analyzed would real expenses and their related differences. When we see this correlation alongside fluctuations referenced with regards to the case, we realize that standard costing is being utilized by Glass Master.

Do you think the price variance experienced should lead to changes in standard costs for the next fiscal year?

No, it ought not prompt changes in the standard expenses for the following financial year in light of the fact that the differences are viewed as transitory and will invert themselves soon. To decide this, we have to take a gander at the purpose behind the value difference. For this situation, the value fluctuation was because of good evaluating of materials from providers because of week request in petrochemical based items. Since this is required to just be brief and invert itself in the coming year, this wellspring of fluctuation ought not prompt changes in the standard expenses for the following monetary year. The second purpose behind the value difference was the weight on deals costs from clients. In spite of the fact that it isn't 100% clear, the organization additionally trusts that this pattern will begin to turn around itself in the coming years.