$[$LO $14-3]14-46$ Joint Direct Materials Variance Acme Manufacturing produces corrugated board containers

that the nearby wine industry uses to package wine in bulk. Acme buys kraft paper by the ton, con$-$

verts it to heavy$-$duty paperboard on its corrugator, and then cuts and glues it into folding boxes. The

boxes are opened and filled with a plastic liner and then with the wine.

Many other corrugated board converters are in the area, and competition is strong. Acme is eager

to keep its costs under control. The company has used a standard cost system for several years.

Responsibility for variances has been established. For example, the purchasing agent is responsible

for the direct materials price variance, and the general supervisor answers for the direct materials

usage variance.

Recently, the industrial engineer and the company's management accountant participated in a

workshop sponsored by the Institute of Management Accountants $($IMA$)$ at which there was some

discussion of variance analysis. They noted that the workshop proposed that the responsibility for

some variances was properly dual. The accountant and engineer reviewed Acme's system and were

not sure how to adapt the new information to it$.$

Acme has the following standards for its direct materials:

Standard direct materials cost per gross of finished boxes $=5$ tons of kraft paper at

$$10$ per ton $=$$$50\mathrm{.}00$

During May, the management accountant for the company assembled the following data:

Units of finished product: $5,000$ gross of finished boxes

Actual cost of direct materials used during the month: $$324,000$ for $27,000$ tons

Direct materials put into production $($used$)$: $27,000$ tons

Acme began and finished the month of May with no inventory of direct materials

Required Determine the following for Acme $($round all variances to the nearest whole dollar$)$:

Direct materials price variance, calculated at point of production. Was this variance favorable or

unfavorable?

Direct materials usage variance. Was this variance favorable or unfavorable?

"Pure" direct materials price variance $[$defined as $SQ(AP-SP)].$ Was this variance favorable or

unfavorable?

Direct materials joint price$-$quantity variance $[$defined as $(AP-SP)(AQ-SQ)].$ Was this variance

favorable or unfavorable? $($Hint: You can determine the sign of the joint price$-$quantity variance by

working backward from the total $DM$ variance $=(APAQ)-(SPSQ),$ subtracting the "pure"

price variance and the usage variance $[$both of which are calculated above$].)$

$($CMA Adapted$)$