Question

If the AMD Ryzen 16-Core CPU saves $1,000 per computer manufactured, how would computer manufacturers’ variances be impacted?

AMD is rumored to be releasing a new 16-core, 32 thread CPU, that would be significantly more powerful than its competitors – and it would be about $1,000 less expensive than the closest Intel CPU. This AMD chip is named “AMD Ryzen” and it has six more cores than Intel’s current primary desktop CPU – the Core i7 (technically, the “Core i7-6950x.) (This class of CPUs is for power users; these CPUs are much more powerful than standard desktop CPUs.)

Question

How, if at all, would the $1,000 cost savings per CPU impact a computer manufacturer’s direct materials price variance in the short run?

Answer 1

Answer)

The formula for direct material price variance:

(Standard price-actual price)×actual quantity where if standard price is more than actual price it is a favorable variance and if actual price is more than standard price then it is unfavorable variance.

In the question it is mentioned that there is cost saving of $1000 as compared to Intel CPU.Here,direct material price variance will be seen only between standard and actual prices of material used for producing AMD CPU only.

If there is favorable price variance,it indicates that company must see whether the quality of material is in line with standards or not.If there is Unfavorable price variance and still there is $1000 cost saving compared to Intel CPU then the company must see whether the quality of product is goods or not.