Direct-materials variances, long-term agreement with supplier. Yamazaki Mazak manufactures large-scale machining systems that are sold to other industrial companies.

Each machining system has a sizable direct materials cost, consisting primarily of the purchase price for a metal compound. For its Montreal, Quebec, manufacturing facility, Mazak has a long-term contract with Fuji Metals. Fuji will supply to Mazak up to 2,400 kilograms of metal per month at a fixed purchase price of $144 per kilogram for each month in 2006. For purchases above 2,400 kilograms in any month, Mazak rene¬

gotiates the price for the additional amount with Fuji Metals (or another supplier).

The standard price per kilogram is $144 for each month in the January to December 2006 period.

Production data, direct materials actual usage in dollars, and direct materials actual price per kilogram for the January to May 2006 period, are Number of Machining Systems Produced Total Actual Direct Materials Usage Average Actual Direct Materials Purchase Price per Kilogram ofMetal January 10 $290,880 $144.00 February 12 343,872 144.00 March 18 530,712 151.20 April 16 474,317 153.60 May 11 304,128 144.00 The average actual direct materials purchase price is for all units purchased in that month.

Assume that

(a) the direct materials purchased in each month are all used in that month and

(b) each machining system is started and completed in the same month.

The Montreal facility is one ofthree plants that Mazak operates to manufacture large-scale machining systems. The other plants are in Worcester, U.K., and Tokyo,Japan.

Required !• Assume that Mazaks standard materials input per machining system is 198 kilograms of metal. Compute the direct materials price variance and direct materials efficiency variance for each month ofthe January to May 2006 period.
2. How does the signing of a long-term agreement with a supplier—an agreement that includes a fixed-purchase-price clause—affect the interpretation of a materials price variance?