Bathurst Engineering Ltd makes extensive use of financial performance reports for each of its departments.Most departments have been reporting favourable cost variances with the company's current inventory system.However,management is concerned about the overall performance of the purchasing department.For example,the following information is for the purchasing of materials for a product the company has been manufacturing for several years:
$$\begin{array} { | l | l | l | l | }
\hline \text { Purchase Year } & \text { Quantity Used } & \begin{array} { l }
\text { Average } \
\text { Inventory }
\end{array} & \text { Price Variance } \
\hline 2013 & 00000 & 12000 & \$ 1000 \mathrm {~F} \
\hline 2014 & 90000 & 22500 & 10000 \mathrm {~F} \
\hline 2015 & 30000 & 30000 & 12000 \mathrm {~F} \
\hline 2016 & 75000 & 18750 & 30000 \mathrm { U } \
\hline 2017 & 31000 & 27000 & 3000 \mathrm {~F} \
\hline 2018 & 37000 & 34800 & 9750 \mathrm {~F} \
\hline
\end{array}$$
Required:
a.Calculate the inventory turnover for each year.Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover?
b.Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.
c.What recommendations will improve the evaluation process?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Question

Bathurst Engineering Ltd makes extensive use of financial performance reports for each of its departments.Most departments have been reporting favourable cost variances with the company's current inventory system.However,management is concerned about the overall performance of the purchasing department.For example,the following information is for the purchasing of materials for a product the company has been manufacturing for several years:
 $$\begin{array} { | l | l | l | l | } 
\hline \text { Purchase Year } & \text { Quantity Used } & \begin{array} { l } 
\text { Average } \
\text { Inventory }
\end{array} & \text { Price Variance } \
\hline 2013 & 00000 & 12000 & \$ 1000 \mathrm {~F} \
\hline 2014 & 90000 & 22500 & 10000 \mathrm {~F} \
\hline 2015 & 30000 & 30000 & 12000 \mathrm {~F} \
\hline 2016 & 75000 & 18750 & 30000 \mathrm { U } \
\hline 2017 & 31000 & 27000 & 3000 \mathrm {~F} \
\hline 2018 & 37000 & 34800 & 9750 \mathrm {~F} \
\hline
\end{array}$$ 
Required:
a.Calculate the inventory turnover for each year.Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover?
b.Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.
c.What recommendations will improve the evaluation process?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Quizplus · Accepted Answer

The Answer of Bathurst Engineering Ltd makes extensive use of financial performance reports for each of its departments.Most departments have been reporting favourable cost variances with the company's current inventory system.However,management is concerned about the overall performance of the purchasing department.For example,the following information is for the purchasing of materials for a product the company has been manufacturing for several years:
 $$\begin{array} { | l | l | l | l | } 
\hline \text { Purchase Year } & \text { Quantity Used } & \begin{array} { l } 
\text { Average } \
\text { Inventory }
\end{array} & \text { Price Variance } \
\hline 2013 & 00000 & 12000 & \$ 1000 \mathrm {~F} \
\hline 2014 & 90000 & 22500 & 10000 \mathrm {~F} \
\hline 2015 & 30000 & 30000 & 12000 \mathrm {~F} \
\hline 2016 & 75000 & 18750 & 30000 \mathrm { U } \
\hline 2017 & 31000 & 27000 & 3000 \mathrm {~F} \
\hline 2018 & 37000 & 34800 & 9750 \mathrm {~F} \
\hline
\end{array}$$ 
Required:
a.Calculate the inventory turnover for each year.Can any conclusions be drawn for a yearly comparison of the purchase price variance and the inventory turnover?
b.Identify problems likely to be caused by evaluating purchasing only on the basis of the purchase price variance.
c.What recommendations will improve the evaluation process?
_____________________________________________________________________________________________
_____________________________________________________________________________________________

Bathurst Engineering Ltd Makes Extensive Use of Financial Performance Reports