In a manufacturing company, which department is typically responsible for the price paid for direct materials when calculating variances in the cost of goods sold?

• A. Human Resources Department
• B. Production Department
• C. Purchasing Department
• D. Sales Department

Answer: (C)

Verified step by step guidance

1. Understand the concept of cost variances: Variances in the cost of goods sold occur when there is a difference between the standard cost and the actual cost incurred. These variances can be due to price differences, quantity differences, or efficiency differences.
2. Identify the role of the Purchasing Department: The Purchasing Department is responsible for sourcing and procuring direct materials. They negotiate prices with suppliers, manage contracts, and ensure the company gets the best value for its purchases.
3. Connect the Purchasing Department to price variances: Since the Purchasing Department determines the price paid for direct materials, any variance in the price of materials (e.g., higher or lower than expected) is directly linked to their activities.
4. Eliminate other departments: The Human Resources Department handles employee-related matters, the Production Department oversees the manufacturing process, and the Sales Department focuses on selling products. None of these departments are responsible for negotiating or determining the price of direct materials.
5. Conclude that the Purchasing Department is responsible for price variances in direct materials: Variances in the cost of goods sold related to direct material prices are typically attributed to the Purchasing Department's decisions and actions.