Advanced Variance 5.7
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Transcript of Advanced Variance 5.7
Practice questions
38 Mix and yield variances
A chemical company has the following standard cost for producing 9 litres of a lubricant:
5 litres of material P at $0.70 per litre
5 litres of material Q at $0.92 per litre.
There are no inventories of materials, and all material price variances relate to materials used. Actual results showed that 100,000 litres of materials were used during a particular period as follows:
45,000 litres of material P: cost $36,000
55,000 litres of material Q: cost $53,350
During the period 92,070 litres of the lubricant were produced. Required
Calculate the total materials cost variance and analyse it into its price, usage, yield and mix components.
Answers
© EWP Go to www.emilewoolfpublishing.com for Q/As, Notes & Study Guides 501
38 Mix and yield variances
$
5 litres of material P should cost (× $0.70) 3.50
5 litres of material Q should cost (× $0.92) 4.60
10 litres of input material should cost 8.10
= 9 litres of finished product (lubricant) Standard material cost per litre of lubricant = $8.10/9 litres = $0.90 per litre.
Standard average cost per litre of input = $8.10/10 litres = $0.81 per litre. Total material cost variance $
92,070 litres of lubricant should cost (× $0.90) 82,863
They did cost ($36,000 + $53,350) 89,350
Total material cost variance 6,487 (A)
SOLUTION TO QN 5.7
Paper F5: Performance management
Materials price variances $ $
45,000 litres of Material P should cost (× $0.70) 31,500
They did cost 36,000
Material P price variance 4,500 (A)
55,000 litres of Material Q should cost (× $0.92) 50,600
They did cost 53,350
Material Q price variance 2,750 (A)
Total material price variances 7,250 (A) Materials usage variances Material P Material
Q
litres litres
92,070 litres of lubricant should use (× 10/9 × 50%) 51,150 51,150
They did use 45,000 55,000
Material usage variance in kilos 6,150 (F) 3,850 (A)
Standard cost per kilo $0.70 $0.92
Material usage variance in $ $4,305 (F) $3,542 (A)
Total material usage variance = $4,305 (F) + $3,542 (A) = $763 (F)
Mix variance
Actual
mix
Actual total quantity in
standard mix
Mix
variance
Standard
cost per litre
Mix
variance
litres litres litres $ $
P 45,000 50,000 5,000 (F) 0.70 3,500 (F)
Q 55,000 50,000 5,000 (A) 0.92 4,600 (A)
100,000 100,000 1,100 (A)
Materials yield variance litres
92,070 litres of lubricant should use (× 10/9) 102,300
They did use (45,000 + 55,000) 100,000
Yield variance in litres 2,300 (F)
Standard average cost per litre of input $0.81
Materials yield variance in $ $1,863 (F)
Answers
Summary $ $
Materials price variances 7,250 (A)
Materials mix variance 1,100 (A)
Materials yield variance 1,863 (F)
Materials usage variance 763 (F)
Total materials cost variance 6,487 (A)