To control operations, Sirius Company makes extensive and exclusive use of financial performance reports for each department. Although all departments have been reporting favorable cost variances in most periods, management is perplexed by the firm’s low overall return on investment. You have been asked to look into the matter. Believing the purchasing department is typical of the company’s operations, you obtained the following information concerning the purchases of parts for a product it started producing in 2012:

Required

a. Compute the inventory turnover for each year. What conclusions can be drawn from a yearly comparison of the purchase price variance and the inventory turnover?

b. Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.

c. Offer whatever recommendations you believe appropriate.

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Purchase Quantity Average Price Used Inventory Year Variance (units) (units) 2012 $3,000 F 20,000 4,000 2013. 21,000 F 30,000 6,000 2014 2015 24,000 F 35,000 7,750 40,000 U 25,000 5,000 2016 16,000 F 36,000 7,200 2017 19,000 F 29,000 5,800