1B1T JOHNSON INC. HAS ESTABLISHED PER UNIT STANDARDS FOR MATERIAL AND...

117. CSO: 1B1e LOS: 1B1t

Johnson Inc. has established per unit standards for material and labor for its production

department based on 900 units normal production capacity as shown below.

3 lbs. of direct materials @ $4 per lb. $12

1 direct labor hour @ $15 per hour 15

Standard cost per unit $27

During the year 1,000 units were produced. The accounting department has charged the

production department supervisor with the following unfavorable variances.

Materials Quantity Variance Material Price Variance

Actual usage 3,300 lbs. Actual cost $12,600

Standard usage 3,000 lbs. Standard cost 12,000

Unfavorable 300 lbs. Unfavorable $600

Bob Sterling, the production supervisor, has received a memorandum from his boss

stating that he did not meet the established standards for material prices and quantity and

corrective action should be taken. Sterling is very unhappy about the situation and is

preparing to reply to the memorandum explaining the reasons for his dissatisfaction. All

of the following are valid reasons for Sterling’s dissatisfaction except that the

a. material price variance is the responsibility of the purchasing department.

b. cause of the unfavorable material usage variance was the acquisition of

substandard material.

c. standards have not been adjusted to the engineering changes.

d. variance calculations fail to properly reflect that actual production exceeded

normal production capacity.