Julene Inc
Julene Inc manufactures semiconductors and uses a standard cost system for both planning and control purposes. Julene’s standard cost system records inventory at actual cost when purchased. In May, Julene purchased 40,000 grams of a particular silica substrate for $1,080,000 because it had no beginning inventory of this substrate. In July, all 40,000 grams of this silica substrate were used to produce a batch of memory chips. This batch of chips called for 38,000 grams of the silica substrate (i.e., the standard quantity for this batch). The standard price of this silica substrate is $30 per gram. Upon completion of this batch of memory chips, the standard cost system reported a favorable price variance of $114,000 and an unfavorable quantity variance of $54,000 for the silica substrate used in the batch of memory chips.
Required:
a. Provide the details of the calculations Julene used to arrive at a favorable price variance of $114,000 and an unfavorable quantity variance of $54,000. In other words, replicate Julene’s computations using the data provided above.
b. Critically evaluate the computational methodology Julene uses to compute the price and quantity variances of its raw materials. Would you recommend any changes in the way Julene computes price and quantity variances?
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