Your company regularly uses material X and currently has in inventory 500 kg for which it paid $1,500 two weeks ago. If this were to be sold as raw material, it could be sold today for $2.00 per kg. You are aware that the material can be bought on the open market for $3.25 per kg, but it must be purchased in quantities of 1,000 kg.
What is the relevant cost of 600 kg needed to be used in a job for a customer?
The correct answer is: $1,950.
The material is in regular use so the relevant cost is 500 kg in inventory at the replacement cost of $3.25. The other 100 will need to be purchased at a cost of $3.25.
The total is therefore 600 × 3.25 = $1,950.
If you selected $1,325 you valued the inventory at their resale value. The items are in regular use so they would not be resold.
$1,825 values the items at their original purchase price but this is a sunk cost.
$3,250 is the cost of the full 1,000 kg that must be purchased. However, as the material is regularly used it can be kept in inventory till needed.
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The following statements have been made about material price planning variances:
(1) The publication of material price planning variances should always lead to automatic updates of standard costs.
(2) The causes of material price planning variances do not need to be investigated by managers at any level in the organisation.
Which of the above statement(s) is/are true?
Leaf limited has had a mixed year. Its market share has improved two percentage points to 20% but the overall market had contracted by 5% in the same period. The budgeted sales were 504,000 units and standard contribution was $12 per unit.
What is the level of actual sales?
The finance director of Paint Mixers Ltd has produced the table below showing the variance results for the first three months of the year:
January February March
Material price variance $3,000 A $2,000 A $1,000 A
Material mix variance $2,000 A $750 A $100 F
Material yield variance $4,000 A $2,000 A $50F
Which of the following interpretations of the variances analysis exercise above is NOT correct?
The following statements have been made in relation to the use of standard costs in rapidly changing environments:
(1) Variance analysis results will take into account important criteria such as customer satisfaction or quality of production.
(2) Achieving standards is suitable in most modern manufacturing environments.
Which of the above statement(s) is/are true?
The following statements have been made about planning and control as described in the three tiers of Robert Anthony’ s decision-making hierarchy:
(1) Strategic planning is concerned with making decisions about the efficient and effective use of existing resources.
(2) Operational control is about ensuring that specific tasks are carried out efficiently and effectively.
Which of the above statements is/are true?
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