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.
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