James Company uses a JIT system. The following standards are related to Materials A and B, which are used to make one unit of the company’s final product:
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Annual Material Standards |
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6 pounds of material A @ $2.25 |
$13.50 |
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8 pounds of material B @ $3.40 |
27.2 |
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Current Material Standards |
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7 pounds of material A @ $2.25 |
$15.75 |
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7 pounds of material B @ $3.40 |
23.8 |
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$39.55 |
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The current material standards differ from the original because of an engineering change made near the end of June. During July, the company produced 3,000 units of its final product and used 22,000 pounds of Material A and 20,500 pounds of Material B. All material is acquired at the standard cost per pound.
a. Calculate the material variance and the ENC material variance.
b. Explain the effect of the engineering change on product cost.