Jonas Materials Science (JMS) purchases its materials from several countries. As part of its cost-control program, JMS uses a standard cost system for all aspects of its operations, including materials purchases. The company establishes standard costs for materials at the beginning of each fiscal year. Pat Butch, the purchasing manager, is happy with the result of the year just ended. He believes that the purchase-price variance for the year will be favorable and is very confident that his department has at least met the standard prices. The preliminary report from the controller's office confirms his jubilation. Following is a portion of the preliminary report:

Problem Information

Total quantity purchased ………………………………………………………………………………	40000 kilograms
Average price per kilogram …………………..……………………………………………………….	$50.00
Standard price per kilogram …………………………………………………………………………..	$60.00
Budgeted quantity per quarter ……………...…………………………………………………………	5000 kilograms

In the fourth quarter, the purchasing department increased purchases from the budgeted normal volume of 5,000 to 25,000 kilograms to meet increased demands, which was a result of the firm's unexpected success in a fiercely competitive bidding. The substantial increase in the volume to be purchased forced the purchasing department to search for alternative suppliers. After frantic searches, it found suppliers in several countries that could meet the company's needs and could provide materials with higher quality than that of JMS's regular supplier. The purchasing department, however, was very reluctant to make the purchase because the negotiated price was $77.00 per kilogram, including shipping and import duty. However, the actual cost of the purchases was much lower because of currency devaluations before deliveries began, which was the result of the financial turmoil of several countries in the region. Patricia Rice, controller, does not share the purchasing department's euphoria. She is fully aware of the following quarterly purchases:

Requirements
1. Calculate purchase price variances for the fourth quarter and for the year. How much of the price variance is attributable to changes in foreign currency exchange rates?
2. Evaluate the purchasing department's performance.

Transcribed Image Text:

Ist Quarter 2n Quarter rd Quarter4th Quarter Quantity 5,000 S68.00 5,000 69.00 5,000 74.00 25,000 Negotiated price, inchuding shipping 77.00