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Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773

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BuyFindarrow_forward

Managerial Accounting: The Corners...

7th Edition
Maryanne M. Mowen + 2 others
ISBN: 9781337115773
Textbook Problem
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Sommers Company uses the following rule to determine whether materials usage variances should be investigated: A materials usage variance will be investigated anytime the amount exceeds the lesser of $12,000 or 10% of the standard cost. Reports for the past 5 weeks provided the following information:

Chapter 10, Problem 44E, Sommers Company uses the following rule to determine whether materials usage variances should be

Required:

  1. 1. Using the rule provided, identify the cases that will be investigated.
  2. 2. CONCEPTUAL CONNECTION Suppose investigation reveals that the cause of an unfavorable materials usage variance is the use of lower-quality materials than are normally used. Who is responsible? What corrective action would likely be taken?
  3. 3. CONCEPTUAL CONNECTION Suppose investigation reveals that the cause of a significant unfavorable materials usage variance is attributable to a new approach to manufacturing that takes less labor time but causes more material waste. Examination of the labor efficiency variance reveals that it is favorable and larger than the unfavorable materials usage variance. Who is responsible? What action should be taken?

1.

To determine

Analyze the cases that will be investigated with the help of rule.

Explanation

Variance:

The amount obtained when actual cost is deducted from budgeted cost is known as variance. Variance is calculated to find whether the cost is over applied or under applied.

Cases that should be investigated are given below:

  • Week 2...

2.

To determine

Identify who is responsible for the unfavorable usage variance. Also, explain the corrective actions for the unfavorable usage variance.

3.

To determine

Identify who is responsible for the favorable labor efficiency variance which is greater than the material usage variance. Also, explain the corrective actions for the favorable labor efficiency variance.

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