In Reviewing the Activities of the Mixing Department for the Month

question 176

Essay

In reviewing the activities of the Mixing Department for the month of June the manager of the department notices that there was an unfavorable materials price variance for the month and there was an unfavorable materials quantity variance. Under what circumstances if any can the responsibility for each variance be placed on (a) the purchasing department and (b) the production department?

---

Definitions:

Variable Cost

Financial obligations that are directly tied to the scale of manufacturing or sales, involving components such as labor and materials.

Fixed Cost

Costs that remain consistent regardless of the amount of goods produced or sold, including expenses like salaries or rent.

Capital Budgeting

The process by which a business evaluates and selects long-term investments that are expected to yield returns that exceed the costs of financing.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows, reflecting the time value of money and investment risk.