Coffey Company Maintains a Very Large Direct Materials Inventory Because

question 14

Essay

Coffey Company maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Item A contains hard-to-get material Y. Currently, the standard cost of material Y is $4.25 per gram. During February, 22,000 grams were purchased for $4.40 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y.
Required:
a.Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager.
b.Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager.
c.Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption.

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Definitions:

Balance Sheet

A financial statement that provides a snapshot of a company's financial condition at a specific point in time, showing assets, liabilities, and shareholders' equity.

Income Statement

A financial document that reports a company's financial performance over a specific accounting period, outlining revenues, expenses, and net profit or loss.

Perpetual Inventory System

A system for managing inventory that instantly logs transactions of buying or selling inventory via computerized point-of-sale systems and software for enterprise asset management.

FIFO

"First In, First Out," an inventory valuation method where goods purchased or produced first are sold or used first.