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:

Investment Income

Refers to the money earned from various investments, including dividends, interest, or capital gains from securities, real estate, and other assets.

Not-for-profit Organization

An entity that operates for purposes other than generating profit, focusing on social, educational, charitable, or other activities.

Contribution Receivable

An amount pledged to be paid to a company or organization as a donation or investment, but which has not yet been received.

Ultimate Collection

A term typically referring to the most complete or finest selection of items in a particular category or series.