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Circuit Booster Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated anytime the
Circuit Booster Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated anytime the amount exceeds the lesser of $12,000 or 10% of the standard cost. Reports for the past 5 weeks provided the following information: Standard Week Week 1 Week 2 Week 3 Week 4 Week 5 Material quantity variance $10,500 F $10,700 F $9,000 U $13,500 U $10,500 U $120,000 $100,500 $120,000 $127,500 $103,500 Required: Answer the following questions. Be as specific as possible. 1. Using the rule provided, identify the cases that will be investigated. 2. Suppose investigation reveals that the cause of an unfavorable materials usage variance is the use of lower-quality materials than are normally used. Who is responsible? What corrective action would likely be taken? 3. Suppose you are told by the purchasing manager that a cheaper source of material had been discovered and that this is the reason for the favorable materials price variance. Quite pleased, the purchasing manager suggests that the materials price standard be updated to reflect this new, less expensive source of leather strips. Should the plant manager update the materials price standard as suggested? Why or why not? 4. Suppose 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. Examination of the labor efficiency variance reveals that it is favorable and larger than the unfavorable materials usage variance. Who is responsible? What action should be taken
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