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Hello John,
Almost all questions on variance include a statement that the company holds no inventory and operates a JIT system. Is there any problem if they were holding inventory?
An example of a question is on the revision kit question 67 Bedco about materials operational and planning variance.
Kind Regards,
SleyimIt doesn’t create any specific variance problem – the ‘rules’ for calculating the variances stay the same.
If there are inventories, then inventories are always valued at standard cost (although that doesn’t affect applying the ‘rules’).
Where however you do have to be careful is in calculating the usage variance. If there is no inventory, then the actual usage is question to the actual purchases. However if there is inventory of raw materials then to get the actual usages means adjusting the actual purchases by the opening and closing inventory. The reason many (but certainly not all) questions state that there is no inventory is simply to make a bit less work for you 🙂
(Please do not refer to questions just by a number. Either say which exam it was in (if it is a past exam question) or say which revision kit you are using!! (There is more than one publisher 🙂 ))
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