INVESTIGATION OF VARIANCES
Sommers 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 $12,000 or 10 percent of the standard cost. Reports for the past five weeks provided the following information:
|
Week
|
MUV ($)
|
Standard Materials Cost ($)
|
|
1
|
10,500 F
|
120,000
|
|
2
|
10,700 U
|
100,500
|
|
3
|
9,000 F
|
120,000
|
|
4
|
13,500 U
|
127,500
|
|
5
|
10,500 U
|
103,500
|
Required:
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 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?