Michigan Pharma Co. maintains a very large direct materials inventory because of critical demands placed upon it for rush orders from large hospitals. Its main product contains hard-toget material Y. Currently, the standard cost of material Y is $4.00 per gram. During February, 22,000 grams were purchased for $4.10 per gram, while only 20,000 grams were used in production. There was no beginning inventory of material Y. Required:
a. Scenario 1: Determine the direct materials price variance, assuming that all materials costs are the responsibility of the materials purchasing manager. In other words, the company records the direct material price variance at the time of the purchase.
b. Scenario 2: Determine the direct materials price variance, assuming that all materials costs are the responsibility of the production manager. In other words, the company records the price variance for direct material used for production.
c. Discuss the issues involved in determining the price variance at the point of purchase versus the point of consumption.