ferences Mailing Review Vew Help View Help ssign enal Vanances Within the manufa
ID: 431035 • Letter: F
Question
ferences Mailing Review Vew Help View Help ssign enal Vanances Within the manufacturing processes there are differences that occur between what the official Accounting records show for materials used versus what the Production Departments report. These differences are referred to as "Material Variances. Variances are a valuable Operations Management tool for measurement analysis, waste/cost reduction, and control. Terms: Inventory Disappearance: Beginning physical inventory, plus receipts, minus ending physical inventory (official Accounting numbers). Reported Production Usage: Production records of materials used; reported by Production Departments to Accounting. Material Variance: The difference between Inventory Disappearance and Reported Production Usage. Variance can be either unfavorable or favorable. (Think about this.) Note: Variances can be calculated for labor and overhead as well as materials Material Variance Problem For a given month Konway Kola Kompany produced 93,872 cases of product (24 bottles each case) as reported by the Production Departments Empty bottles from official Accounting records: Beginning physical inventory Purchases during the month End of month physical inventory 115,865 2,304,000 99 450Explanation / Answer
1. Reported usage of bottles = 93,872 cases*24 bottles = 2,252,928 bottles
2. Inventory disappearance = 115,865+2,304,000-99,450
= 2,320,415
3. Empty bottle variance = Inventory disappearance - reported usage of bottles
= 2,320,415 – 2,252,928
= 67,487.
No. of bottles = 67,487
% of inventory disappearance = 67,487/2,320,415 = 2.91%
As inventory disappearance>reported usage the variance is unfavorable.
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