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It was the end of the third quarter for Blossom Industries. There had been some discussion in prior quarters about best practices related to carrying ending inventory of its key DM, acetic acid, for making vinegar. Per established standards, 6.4 ounces of acetic acid at a budgeted price of $0.30 per ounce were needed for each gallon of vinegar (128 ounces). The new production manager wants to follow lean practices and buy only what is needed for production, while the former production manager preferred to keep some inventory on hand for emergencies. For the third quarter, 264,000 ounces of acetic acid were purchased on account and used to make 40,000 gallons of vinegar. The purchase price was $76,560.

1. Suppose the company had instead purchased 278,200 ounces of the DM at the same price per ounce as determined in part (b) but still used 264,000 ounces for production. Recalculate the DM price and efficiency variances

DM price variance: 2782 F

DM efficiency variance 2400 UF

2.Using the details in part 1, assume there was a zero balance in the DM Inventory account to start the third quarter. What would the DM Inventory account balance be at the end of the quarter? How much acetic acid does that include? At what price per ounce?

What price per ounce?

The answer is not $0.29.

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