Java Gourmet Coffee Reports The Following Data

java Gourmet Coffee Reports The Following Data F

Java Gourmet Coffee reports the following data for April 2010, where 200,000 pounds of roasted gourmet coffee beans were actually produced. Standard costs do not allow for any wastage. The data provided includes actual and standard costs for direct materials, direct labor, and variable overhead, with specific details about quantities, rates, and hours. The assignment involves calculating the total direct materials variance, the direct materials price variance, and the direct materials efficiency variance based on the provided data.

Paper For Above instruction

The calculations of variances in cost accounting provide critical insights into the financial performance and efficiency of production processes. Specifically, the direct materials variance, comprising the price and efficiency variances, helps management understand deviations from standard costs and identify areas for cost control improvement. This paper analyzes the data provided for Java Gourmet Coffee in April 2010 and computes these key variances.

Total Direct Materials Variance

The total direct materials variance measures the overall difference between the actual cost of materials purchased and the standard cost expected for the actual quantity used. It can be broken down into the price (or rate) variance and the efficiency variance. First, the total variance is calculated by subtracting the standard cost of the actual quantity used from the actual cost incurred.

The actual cost of direct materials is calculated as:

  • Actual quantity of coffee beans used: 210,000 pounds
  • Actual cost per pound: $0.55
  • Actual total cost = 210,000 pounds * $0.55 = $115,500

The standard cost of the actual quantity used is based on the standard cost per pound:

  • Standard cost per pound: $0.50
  • Standard total cost for actual quantity = 210,000 pounds * $0.50 = $105,000

The total direct materials variance is therefore:

Total Variance = Actual cost – Standard cost of actual quantity = $115,500 – $105,000 = $10,500 unfavorable

This unfavorable variance indicates that the actual cost exceeded the standard cost for the actual quantity used, primarily due to higher purchase prices.

Direct Materials Price Variance

The price variance assesses the impact of paying a different price than the standard for materials purchased. It is calculated as:

Price Variance = (Actual price per pound – Standard price per pound) * Actual quantity purchased

Given data:

  • Actual price per pound: $0.55
  • Standard price per pound: $0.50
  • Actual quantity purchased: 210,000 pounds

Calculation:

Price Variance = ($0.55 – $0.50) 210,000 = $0.05 210,000 = $10,500 unfavorable

This indicates that the company paid $0.05 more per pound than the standard, leading to higher costs.

Direct Materials Efficiency Variance

The efficiency variance measures whether the actual quantity of materials used was more or less than the standard quantity allowed for the actual output. It is calculated as:

Efficiency Variance = (Standard quantity for actual production – Actual quantity used) * Standard price per pound

Standard quantity for actual production:

  • Actual production: 200,000 pounds
  • Standard quantity per pound: 1 pound per unit (assuming 1:1 ratio)
  • Standard quantity for actual production = 200,000 pounds

Actual quantity used: 210,000 pounds

Standard price per pound: $0.50

Calculation:

Efficiency Variance = (200,000 – 210,000) $0.50 = (–10,000) $0.50 = –$5,000

This is a unfavorable efficiency variance, meaning 10,000 pounds more material was used than standard for the level of output, increasing costs.

Summary and Implications

The total direct materials variance of $10,500 unfavorable aligns with the sum of the price and efficiency variances, confirming the consistency of the calculations. The company paid more per pound and used more material than planned, contributing to increased costs. To control costs, management should analyze procurement practices to reduce material prices and improve material handling efficiencies to avoid wastage and excess use.

Conclusion

Effective cost control in manufacturing involves monitoring variances and investigating their causes. The analysis of Java Gourmet Coffee's material variances reveals areas for potential negotiation with suppliers or process improvements. Future strategies could include bulk purchasing discounts, better inventory management, or process innovations to reduce wastage. Accurate variance analysis supports strategic decision-making in cost management, ultimately improving profitability and competitive advantage.

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