The cost accountant for a drug company has informed you thatthe company\'s mater

Question

The cost accountant for a drug company has informed you thatthe company's materials quality variance for a Allegra was exactly equal to its materials price variance forthe year. The company's normal level of prodcution is 50 batchesof Allegra per year. However due to uncertantiesregarding foundation funding, it produced only 25 batches duringthe currnet year. Other cost information regarding Allegra'sdirect materials are as follows: Standard price per gram ofmaterial..........................................$60    Actual kilograms purchased & used drungthe year................100 kg    Actual cost of materials purchased duringthe year..................$6,000,000 Number of grams perkilogram.................................................. 1,00grams a. Compute the compnay's material price variance b. Compute the standard quality of materials allowed perbatch of Allegra produced. c. Why would you not expect the company to have a largequantity variance The cost accountant for a drug company has informed you thatthe company's materials quality variance for a Allegra was exactly equal to its materials price variance forthe year. The company's normal level of prodcution is 50 batchesof Allegra per year. However due to uncertantiesregarding foundation funding, it produced only 25 batches duringthe currnet year. Other cost information regarding Allegra'sdirect materials are as follows: Standard price per gram ofmaterial..........................................$60    Actual kilograms purchased & used drungthe year................100 kg    Actual cost of materials purchased duringthe year..................$6,000,000 Number of grams perkilogram.................................................. 1,00grams a. Compute the compnay's material price variance b. Compute the standard quality of materials allowed perbatch of Allegra produced. c. Why would you not expect the company to have a largequantity variance

Explanation / Answer

Materials PriceVariance      =   (ActualQuantity Used x Standard Price) - (Actual Qunatity used xActual Price)                                           =   (100Kg x 1,000 grams per Kg x$60)   -   $6,000,000   =   0 Materials Quantity Variance =================== 0   =   (Actual Quantity Used xStandard Price) - (Standard Qunatity Allowed x StandardPrice)     =   (100 Kg x 1,000grams per Kg x $60)   -   (SQ x$60) 0   =   $6,000,000 -60SQ   or SQ = 6,000,000 /60   =   100,00 grams or 100,000 /1,000 = 100kg same as actual b) 100,000 / 25 = 4,000grams or 4,000 / 1,000 = 4 Kg. perbatch c)   Material quantity variance may be dueto inferior quality of materils used, untrained workers, poorsupervison etc.           Using inferior orsubstandard materials is not expected for drug manufacturingas they are regulated with prescribed       standards by thegovernement. b) 100,000 / 25 = 4,000grams or 4,000 / 1,000 = 4 Kg. perbatch c)   Material quantity variance may be dueto inferior quality of materils used, untrained workers, poorsupervison etc.           Using inferior orsubstandard materials is not expected for drug manufacturingas they are regulated with prescribed       standards by thegovernement.

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