Question

1. Who is responsible for material cost variances

2. who is responsible for material usage variances

3. What are the variable overhead variances used for?

4. What advantage if any does a standard cost system have over a traditional system

Answer 1

(1) Who is responsible for Material cost variances :-

The Purchasing manager is responsible because he orders materials and negotiates prices from suppliers. He is sometimes able to change suppliers but often competitors have similar pricing. If a material price variance exists, the purchasing manager is consulted to try to determine the cause of the variance.

(2) Who is responsible for material usage variances :-

Because the Production supervisor oversees the production workers, he is responsible for monitoring the use of materials. If a material quantity variance exists, the production supervisor is consulted to determine the cause. However, if the purchasing manager purchased poor quality materials in order to obtain a cheaper price, the purchasing manager is responsible. Cheap materials often carry over to create unfavorable labor efficiency variances because the defective materials slow the production workers.

(3) What are the variable overhead variances used for:-

The two variances used to analyze this difference are the spending variance and efficiency variance. The variable overhead spending variance is the difference between actual costs for variable overhead and budgeted costs based on the standards. For a company that allocates variable manufacturing overhead to products based on direct labor hours, the variable overhead efficiency variance is the difference between the number of direct labor hours actually worked and what should have been worked based on the standards.

(4) What advantage if any does a standard cost system:-

It is extremely easy to print a report showing the period-end inventory balances (if you are using a perpetual inventory system), multiply it by the standard cost of each item, and instantly generate an ending inventory valuation. The result does not exactly match the actual cost of inventory, but it is close. However, it may be necessary to update standard costs frequently, if actual costs are continually changing. It is easiest to update costs for the highest-dollar components of inventory on a frequent basis, and leave lower-value items for occasional cost reviews.