OSCM Assignment 9 - Material Variances

Within manufacturing processes there are differences that occur between what the official accounting records show for materials used versus what the Production Departments report. These differences are referred to as "Material Variances". Variances are a valuable Operations Management tool for measurement, analysis, waste/cost reduction, and control.

Terms:

Inventory Disappearance: Beginning physical inventory, plus receipts, minus ending physical inventory (official Accounting numbers).

Reported Production Usage: Production records of materials used; reported by Production Departments to Accounting.

Material Variance: The difference between Inventory Disappearance and Reported Production Usage.

Variance can be either unfavorable or favorable. (Think about this.)

Note: Variances can be calculated for labor and overhead as well as materials

Material Variance Problem

Last month the Konway Kola Kompany produced 93,972 cases of product (24 bottles contained in each case), as reported by the Production Departments.

Empty bottles from official Accounting records:

Beginning physical inventory 114,966

Purchases during the month2,300,100

End of month physical inventory99,150

DKI rev Apr 2020 copyright

Your assignment is to calculate:

1. The reported usage of bottles, based upon reported Production records.

1. The inventory disappearance, per Accounting numbers?

1. The empty bottle variance for the month - calculate both the number of bottles and the percentage of inventory disappearance?

D. What is your best guess as a possible cause for the variance? Explain your answer, in detail.

E. In addition to material variance, what other variances might we experience in the production processes?