Question

In reviewing the activities of the Mixing Department for the month of June, the manager of the department notices that there was an unfavorable materials price variance for the month and there was an unfavorable materials quantity variance. Under what circumstances, if any, can the responsibility for each variance be placed on:

(a) the purchasing department and (b) the production department?

Answer 1

Answer -

		Explanation
(a)	Purchasing department	The investigation of a materials price variance usually begins with this department. If the price standard has been properly set, purchasing is responsible. However, it should be recognized that in a period of inflation, prices may rise faster than expected. Also, there may be extenuating circumstances such as oil cartel price increases. The purchasing department may be responsible for an unfavorable quantity variance if it purchased raw materials of inferior quality.
(b)	Production department	Ordinarily, responsibility for an unfavorable quantity variance rests with the department. For example, production is responsible if the variance is caused by inexperienced workers, faulty machinery, or carelessness. The production department may be responsible for an unfavorable price variance when the materials must be ordered on a rush basis at a higher price than planned.