A manager is responsible for production quantities but has no authority over the prices the purchasing department negotiates. Which variance should be reported to the production manager as controllable?
Answer and explanation
Correct answer: B. The material usage variance
- Step 1: Responsibility accounting assigns variances to the manager who can influence them.
- Step 2: Usage of materials in production is the production manager's responsibility.
- Step 3: Price variances sit with purchasing and sales.
Answer
The material usage variance.
Why not the others: The material price variance: The purchasing department negotiates prices, so production cannot control them. The sales price variance: Sales pricing is outside production's authority. Head office costs are not under production's control.
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