NOVOMAT manufactures and sells a single product from a single raw material. In its production budget, the company had planned to manufacture 1,200 units of this product for May. According to the previously observed consumption, when using its usual supplier, it had planned that manufacturing each unit of the product would consume 5 kg of raw material at €7.30 per kg. That is, the cost of raw material is €36.50 per unit of the product. In fact, the company produced 1,100 units in May. It used a new supplier and consumed 5,800 kg of raw material for €40,600. QUESTION: Calculate the total raw material variance for May and break it down into sub-variances. How do you interpret the results of your calculations? Do you recommend keeping the new supplier?
NOVOMAT manufactures and sells a single product from a single raw material. In its production budget, the company had planned to manufacture 1,200 units of this product for May. According to the previously observed consumption, when using its usual supplier, it had planned that manufacturing each unit of the product would consume 5 kg of raw material at €7.30 per kg. That is, the cost of raw material is €36.50 per unit of the product. In fact, the company produced 1,100 units in May. It used a new supplier and consumed 5,800 kg of raw material for €40,600. QUESTION: Calculate the total raw material variance for May and break it down into sub-variances. How do you interpret the results of your calculations? Do you recommend keeping the new supplier?
Principles of Cost Accounting
17th Edition
ISBN:9781305087408
Author:Edward J. Vanderbeck, Maria R. Mitchell
Publisher:Edward J. Vanderbeck, Maria R. Mitchell
Chapter8: Standard Cost Accounting—materials, Labor, And Factory Overhead
Section: Chapter Questions
Problem 17P: Shinto Corp. uses a standard cost system and manufactures one product. The variable costs per...
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Master Budget
A master budget can be defined as an estimation of the revenue earned or expenses incurred over a specified period of time in the future and it is generally prepared on a periodic basis which can be either monthly, quarterly, half-yearly, or annually. It helps a business, an organization, or even an individual to manage the money effectively. A budget also helps in monitoring the performance of the people in the organization and helps in better decision-making.
Sales Budget and Selling
A budget is a financial plan designed by an undertaking for a definite period in future which acts as a major contributor towards enhancing the financial success of the business undertaking. The budget generally takes into account both current and future income and expenses.
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NOVOMAT manufactures and sells a single product from a single raw material. In its production budget, the company had planned to manufacture 1,200 units of this product for May. According to the previously observed consumption, when using its usual supplier, it had planned that manufacturing each unit of the product would consume 5 kg of raw material at €7.30 per kg. That is, the cost of raw material is €36.50 per unit of the product. In fact, the company produced 1,100 units in May. It used a new supplier and consumed 5,800 kg of raw material for €40,600. QUESTION: Calculate the total raw material variance for May and break it down into sub-variances. How do you interpret the results of your calculations? Do you recommend keeping the new supplier?
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