Coffey Company Maintains a Very Large Direct Materials Inventory Because

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 $2.00 per gram. During February, 22,000 grams were purchased for $2.10 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 rate variance, assuming that all materials costs are the responsibility of the materials purchasing manager so rate variances are based on purchase quantities.
b. Determine the direct materials rate variance, assuming that all materials costs are the responsibility of the production manager so rate variances are determined as quantities are placed into production.
c. Discuss the issues involved in determining the rate variance at the point of purchase versus the point of consumption.