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:

Corner-point Method

A mathematical technique used in linear programming to find the optimum solution by evaluating the objective function at each corner point of the feasible region.

Dual Values

In linear programming, dual values represent the amount by which the objective function of an optimization model would improve with a one-unit increase in the right-hand side value of a constraint.

Objective Function

A mathematical expression that defines the goal of an optimization problem, e.g., to maximize profits or minimize costs.

Solved

A situation or problem that has been resolved, answered, or dealt with successfully.