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

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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)