Olsen Company Uses a Standard Cost System for Its Only

question 61

Essay

Olsen Company uses a standard cost system for its only product. The bickering between purchasing and production that occurs every month after the material variances are developed has the production vice president, Mr. Becker, at his wits end. He has checked the job descriptions of the individuals involved and notes that the purchasing department is responsible for the price at which materials and supplies are purchased and the manufacturing department is responsible for the quantity of material used. This seems very clear cut to him so he has gone to the cost accountant for some additional help.
Required:
As the cost accountant, explain to Mr. Becker why, or why not, this division of duties solves the conflict between price and quantity variances.

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Definitions:

Materials Handling Cost

The expenses associated with moving, storing, and controlling materials used in the manufacturing process.

Material Moves

The process or sequence of logistics that involves the moving, handling, and storing of raw materials in a manufacturing or production facility.

Specialty Windows

Custom or unique window products designed to meet specific aesthetic, functional, or architectural requirements.

Overhead Cost

All indirect costs associated with running a business that cannot be directly attributed to a specific product or service, such as rent, utilities, and administrative expenses.