Question

Who does management consult in order to set standard costs for direct materials?

Usually management hires cost accountants.

Standard costs are established by repetitive process.

Management may have to consult purchase agents, product managers and quality controls engineers.

Only engineers are required to set standard costs for direct materials.

What are some of the causes of material variances?

Causes may be both internal and external.

Cause could be in the purchasing department.

Cause could arise from the supplier changing prices.

All of the above

Tidex Company is a manufacturer of cleaning detergent. Cleanx is manufactured on a weekly basis. The following standards have been established to produce 10,000 litres of Cleanx:

Standard direct materials used: 10,000 litres of detergent
Standard direct material price per litre $4
Actual direct materials used: 12,000 litres
Actual direct material price per litre: $4.35

Calculate the Total Direct Materials Budget Variance (TDMBV).

$12,200 Unfavourable.

$40,000 Favourable.

$12,200 Favourable.

$8,700 Unfavourable.

Answer 1

Answer 1 :

Direct materials are to be purchased in the market from various suppliers accepting quotations and thereby selecting best possible option.

Cost accountants will be appointed where there is a process involved and complexity in computation of cost of a product unlike materials whose price is readily available.

Setting standard may be a repetitive task but not revieweing them regularly might make the budgets unrealistic and vague.

Answer 2:All of the above

Cause of material variances maybe due to internal and as well as external

Few instances would be less expertise in using the materials by employees leading to larger wastages and external would be low quality materials recieved , hike in prices in the market etc..

Answer 3 : $12200 unfavourable

Total material purchase budget variance= (standard quantity X standard price) - ( Actual quantity X actual price)

=(10000*4)-(12000*4.35)= 12200 adverse or unfavourable