Coffs Fabricators Ltd Makes Extensive Use of Financial Performance Reports

question 35

Essay

Coffs Fabricators Ltd makes extensive use of financial performance reports for each of its departments.Most departments have been reporting favourable cost variances with the company's current inventory system.However,management is concerned about the overall performance of the purchasing department.For example,the following information is for the purchasing of materials for a product the company has been manufacturing for several years:
$$\begin{array} { | l | l | l | l | } \hline \text { Purchase Year } & \text { Quantity Used } & \begin{array} { l } \text { Average } \\\text { Inventory }\end{array} & \text { Price Variance } \\\hline 2013 & 5000 & 1000 & \$ 1000 \mathrm {~F} \\\hline 2014 & 10000 & 2500 & 10000 \mathrm {~F} \\\hline 2015 & 0000 & 3000 & 12000 \mathrm {~F} \\\hline 2016 & 7500 & 1875 & 30000 \mathrm { U } \\\hline 2017 & 3100 & 2700 & 3000 \mathrm {~F} \\\hline 2018 & 7000 & 2800 & 9750 \mathrm {~F} \\\hline\end{array}$$
Required:
a.Calculate the inventory turnover for each year.Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover?
b.Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.
c.What recommendations will improve the evaluation process?
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Definitions:

Family

A group made up of parents and their children, regarded as a unit, regardless of whether they live together.

Informed Decisions

Choices made based on a thorough understanding of the advantages, disadvantages, and potential outcomes of different options.

Conflict Theory

Conflict theory is a sociological perspective that emphasizes the role of competition and conflict between social groups over resources and power, shaping society's structure.

Have-nots

Individuals or groups who are perceived as disadvantaged, particularly in terms of economic or social resources.