Underwood Company uses the following rule to determine whether materials usage variances ought to be investigated: A

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Underwood Company uses the following rule to determine whether materials usage variances ought to be investigated: A materials usage variance will be investigated anytime the amount exceeds the lesser of $8,000 or 10 percent of the standard cost. Reports for the past five weeks provided the following information: lop5 Week MUV Standard Materials Cost 1 $7,000 F $80,000 D 7,800 U 75,000 3 6,000 F 80,000 4 9,000 U 85,000 5 7,000 U 69,000 Required:

1. Using the rule provided, identify the cases that will be investigated.

2. Suppose that investigation reveals that the cause of an unfavorable materials usage variance is the use of lower-quality materials than are usually used. Who is responsible? What corrective action would likely be taken?

3. Suppose that investigation reveals that the cause of a significant unfavorable materials usage variance is attributable to a new approach to manufacturing that takes less labor time but causes more material waste. Upon examining the labor efficiency variance, it is discovered that it is favorable and is larger than the un- favorable materials usage variance. Who is responsible? What action should be taken?

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Management Accounting

ISBN: 9780324002263

5th Edition

Authors: Don R Hansen, Maryanne M Mowen

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