EXERCISE 10-15 (CONTINUED) ALTERNATIVE SOLUTION

2. a. In general, the purchasing manager is held responsible for unfavor-able material price variances. Causes of these variances include the following: • Incorrect standards. • Failure to correctly forecast price increases. • Purchasing in nonstandard or uneconomical lots. • Failure to take available purchase discounts. • Failure to control transportation costs. • Purchasing from suppliers other than those offering the most fa-vorable terms. However, failure to meet price standards may be caused by a rush of orders or changes in production schedules. In this case, the responsi-bility for unfavorable material price variances should rest with the sales manager or the manager of production planning. Variances may also be caused by external events that are uncontrollable, e.g., a strike at a supplier’s plant. Problem 10-32 (continued) b. In general, the production manager or foreman is held responsible for unfavorable labor efficiency variances. Causes of these variances in-clude the following: • Poorly trained labor. • Substandard or inefficient equipment. • Inadequate supervision. • Machine breakdowns from poor maintenance. • Poorly motivated employees. • Fixed labor force with demand less than capacity. Failure to meet labor efficiency standards may also be caused by the use of inferior materials or poor production planning. In these cases, responsibility should rest with the purchasing manager or the man-ager of production planning. Variances may also be caused by exter-nal events that are uncontrollable, e.g., low unemployment leading to the inability to hire and retain skilled workers. (Unofficial CMA Solution, adapted) Case 10-33 (60 minutes)