Joint Direct Materials Variance Acme Mfg. produces corrugated board containers that the ne...

Joint Direct Materials Variance Acme Mfg. produces corrugated board containers that the nearby wine industry uses to package wine in bulk. Acme buys kraft paper by the ton, converts it to heavy-duty paperboard on its corrugator, and then cuts and glues it into folding boxes. The boxes are opened and filled with a plastic liner and then with the wine.

Many other corrugated board converters are in the area and competition is strong. Acme is eager to keep its costs under control. The company has used a standard cost system for several years. Responsibility for variances has been established. For example, the purchasing agent is responsible for the direct materials price variance, and the general supervisor answers for the direct materials usage variance.

Recently, the industrial engineer and the company’s management accountant participated in a workshop sponsored by the Institute of Management Accountants (IMA) at which there was some discussion of variance analysis. They noted that the workshop proposed that the responsibility for some variances was properly dual. The accountant and engineer reviewed Acme’s system and were not sure how to adapt the new information to it.

Acme has the following standards for its direct materials:

During May, the accountant assembled the following data about direct materials:

Required Determine the following for Acme:

1. Direct materials price variance, calculated at point of production.

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2. Direct materials efficiency (usage) variance.

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3. Direct materials joint price-quantity variance (defined as: [AP – SP] × [AQ – SQ]).

(CMA Adapted)