From the course: Accounting Foundations: Managerial Accounting
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Controlling materials and labor variances
From the course: Accounting Foundations: Managerial Accounting
Controlling materials and labor variances
- Materials price variances are usually under the control of the purchasing department. The purchasing function involves getting a variety of price quotations, buying in economic lot sizes to take advantage of quantity discounts, paying on a timely basis to obtain cash discounts and evaluating alternative forms of delivery to minimize shipping costs. Some of these factors will be less important when there are a few suppliers or when purchasing contracts with suppliers or for long periods of time. In any case, the existence of unfavorable price variances may suggest a problem that needs correcting. On the other hand, favorable price variances may also indicate that there's a problem in the purchasing process. Such as the purchase of low quality materials or purchasing too much material in order to get a larger both discount. The buyer responsible for purchases should be able to explain any variance from standard price…
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