At the End of the Current Year,Bowman Products Has the Following

question 98

Essay

At the end of the current year,Bowman Products has the following information available comparing the cost of direct materials on its flexible budget with the actual cost of direct materials:
$\begin{array}{lr} &\underline{ \text { Flexible budget}} &\underline{\text {Actual results} } &\underline{ \text { Difference} } &\\ \text { Direct materials } &\$24000&\$30000&(6000)\\\end{array}$

Sally Vincent,the company's controller,has requested a meeting with Hank Rowland,the operations manager,asking him to explain why direct materials costs were more than what had been budgeted.
What two kinds of variance analysis should Hank do before his meeting with Sally? What would each of these variances measure?

---

Definitions:

Merchandise Purchases Budget

An estimate detailing the amount of goods a company plans to purchase over a certain period to meet its sales and inventory needs.

Selling Expenses Budget

A financial plan estimating the costs associated with promoting, selling, and distributing a product or service for a future period.

Sales Budget

An estimate of the sales revenue a company aims to achieve in a certain period, often used for planning and performance evaluation purposes.

Key Raw Material

Essential materials required in the production of goods, critically influencing the manufacturing process.