Question

If the AMD Ryzen 16-Core CPU saves $1,000 per computer manufactured, how would computer manufacturers’ variances be impacted?

AMD is rumored to be releasing a new 16-core, 32 thread CPU, that would be significantly more powerful than its competitors – and it would be about $1,000 less expensive than the closest Intel CPU. This AMD chip is named “AMD Ryzen” and it has six more cores than Intel’s current primary desktop CPU – the Core i7 (technically, the “Core i7-6950x.) (This class of CPUs is for power users; these CPUs are much more powerful than standard desktop CPUs.)

Questions

How, if at all, would the $1,000 cost savings per CPU impact a computer manufacturer’s direct materials price variance in the short run?

How, if at all, would the $1,000 cost savings per CPU impact a computer manufacturer’s direct materials quantity variance in the short run?

What will a computer manufacturer do to its cost standards as a result of this less expensive CPU, assuming it starts using this AMD Ryzen CPU?

Answer 1

How, if at all, would the $1,000 cost savings per CPU impact a computer manufacturer’s direct materials price variance in the short run?

The formula for direct material price variance:

(Standard price-actual price)×actual quantity where if standard price is more than actual price it is a favorable variance and if actual price is more than standard price then it is unfavorable variance. Since the standard price is calculated based upon the cost of the similar products in the market, here we may not take the cost of intel processor as it is well below in specs than of AMD. However since the cost is less and the product is more advanced, it will be sensible to draw conclusion that the change has lead to favourable price variances even if we take standard cost as per Intel processor.

How, if at all, would the $1,000 cost savings per CPU impact a computer manufacturer’s direct materials quantity variance in the short run?

In my opinion, there is no material qty variance in the short run here.

What will a computer manufacturer do to its cost standards as a result of this less expensive CPU, assuming it starts using this AMD Ryzen CPU?

Computer manufacturer like HP and Dell shall lower their cost standards.