Dynamic Industrial is a relatively young company, with an unsophisticated accounting system. Dynamic
Industrial manufactures two products, X370A, and Z410B. Each of the products has multiple components
and materials (identified by SKU number), but assembly is relatively quick leaving no work in process
inventory at the end of the period. Invoices are only approved for payment if the full quantity of the SKU
has been received.
1) (80 points) Using the information provided, calculate the Materials Price Variance and Materials
Efficiency Variance for each component/material for 2018.
2) (20 points) Dynamic Industrial purchasing manager has a friend who owns the company (COMP Inc) that
produces some of the components that go into the X370A. COMP Inc. has been losing money in recent
years.
To save money, COMP Inc. has begun using a lower quality component and selling their components at a
lower price to the public. However, the Dynamic Industrial’s purchasing manager has not renegotiated the
contract and continues to purchase the components at an above-market rate to help the friend. Is the
purchasing manager’s behavior in this situation ethical? Why or why not?
The beginning and ending inventory accounts for each product (units of output) for 2018 are provided
below:
Beginning Inventory Count Ending Inventory Count Units Sold
X370A 5,040 4,040 18,220
Z410B 3,130 2,005 17,000
Sample Solution
