Olsen Company uses a standard cost system for its only product. The bickering between purchasing and production that occurs every month after the material variances are developed has the production vice president, Mr. Becker, at his wits end. He has checked the job descriptions of the individuals involved and notes that the purchasing department is responsible for the price at which materials and supplies are purchased and the manufacturing department is responsible for the quantity of material used. This seems very clear cut to him so he has gone to the cost accountant for some additional help.
Required:
As the cost accountant, explain to Mr. Becker why, or why not, this division of duties solves the conflict between price and quantity variances.

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The Answer of Olsen Company uses a standard cost system for its only product. The bickering between purchasing and production that occurs every month after the material variances are developed has the production vice president, Mr. Becker, at his wits end. He has checked the job descriptions of the individuals involved and notes that the purchasing department is responsible for the price at which materials and supplies are purchased and the manufacturing department is responsible for the quantity of material used. This seems very clear cut to him so he has gone to the cost accountant for some additional help.
Required:
As the cost accountant, explain to Mr. Becker why, or why not, this division of duties solves the conflict between price and quantity variances.

Olsen Company Uses a Standard Cost System for Its Only