le preceding data for the 2 Mix and Yield Variances ILO8 use

le preceding data for the 2 Mix and Yield Variances ILO8 uses three sec CISE se three secret materials-A. B. and C-to produce its product. called Corzon. Divistre mixed in the following standard proportions to yield 100 litres of Corzon: Secret Material Quantity (litres) Cost per Litre A. 80 400 $ 800 $2000 C. 30 It requires 50 hours of direct labour at $20.00 per hour to produce 100 litres of Corzon. On average, the division can produce and sell 200.000 litres of Corzon per month. In a recent month. the division used the following amounts of materials and labour to produce 175000 litres of Corzon: Total Actual Cost 647130 580204 Quantity (litres) Secret Material A. C. 2097,334 $1380000 91000 hours Calculat a. Price. e the following materials variances for Corzon: b. Quantity C. Mix d. Yield. standa visor of the Corzon product line argued that the workers were operatin The supervisor of the Corzo standard, if no ter despite a large unfavourable labour efficiency variance of $52.0 (SMAC, Adapte supervisor correct? Why o

Solution

Part 1

a) Material Price Variance = (Standard Price- Actual Price)Actual Quantity

Material A = ($4-$647,130/159,000)159,000 = $11,130 Unfavorable

Material B = ($8-$580,204/72,000)72,000 = $4,204 Unfavorable

Material C = ($20-$870,000/44,000)44,000 = $10,000 Favorable

Overall Price Variance = $5,334 Unfavorable

b) Material Quantity Variance = (Standard Quantity-Actual Quantity)Standard Price

Material A = (80*175,000/100-159,000)$4 = $76,000 Unfavorable

Material B = (40*175,000/100-72,000)$8 = $16,000 Unfavorable

Material C = (30*175,000/100-44,000)$20 = $170,000 Favorable

Overall Quantity Variance = $78,000 Favorable

c) Material Mix Variance = (Standard Mix for Actual Quantity-Actual Mix for Actual Quantity)Standard Price

Material A = (275,000*80/150-159,000)$4 = $49,333 Unfavorable

Material B = (275,000*40/150-72,000)$8 = $10,667 Favorable

Material C = (275,000*30/150-44,000)$20 = $220,000 Favorable

Overall Mix Variance = $181,334 Favorable

d) Material Yield Variance = Material Quantity Variance-Material Mix Variance

Material A = $76,000 Unfavorable-$49,333 Unfavorable = $26,667 Unfavorable

Material B = $16,000 Unfavorable-$10,667 Favorable = $26,667 Unfavorable (These have been added because one is favorable and other one is unfavorable)

Material C = $170,000 Favorable-$220,000 Favorable = $50,000 Unfavorable

Overall Yield Variance = $103,334 Unfavorable

Part 2 Labour Efficiency Variance = (Standard Hours-Actual Hours)Standard Price

= (50*175,000/100-91,000)$20

= $70,000 Unfavorable

Labour Rate Variance = (Standard Rate-Actual Rate)Actual Hours

= ($20-$1,380,000/91,000)91,000

= $440,000

Overall Labour cost variance = $370,000 Favorable

The labour efficiency variance is unfavorable. However, labour rate variance is favorable. Therefore, overall labour cost variance is favorable. The unfavorable labour efficiency variance shows that labour is not working efficiently. Workers are operating standard because of Favorable Rate Variance. The efficiency has to be improved.