Chemco: material mix, yield, planning and operational variances

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Price variance for A = (4.00 - 4.20) x 6,500 = $1,300 adverse.
• Price variance for B = (10.00 - 9.60) x 3,500 = $1,400 favourable.
• Total material price variance = $100 favourable (1,400 F less 1,300 A).
• The standard price is compared with the actual price multiplied by the actual quantity purchased and used.

Marks counted: 0 of 4

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Standard mix of the actual input of 10,000 kg: A 7,000 kg and B 3,000 kg.
• Mix variance for A = (7,000 - 6,500) x $4 = $2,000 favourable.
• Mix variance for B = (3,000 - 3,500) x $10 = $5,000 adverse.
• Total mix variance = $3,000 adverse.
• Standard cost per kg of input = (70 x 4 + 30 x 10) / 100 = $5.80.
• Standard input for the actual output of 9,400 kg = 9,400 / 0.95 = 9,895 kg.
• Yield variance = (9,895 - 10,000) x $5.80 = $611 adverse.
• Check: the mix and yield variances together (3,000 adverse + 611 adverse = $3,611 adverse) equal the total usage variance.

Marks counted: 0 of 8

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Planning variance = (original standard $4.00 - revised standard $4.30) x 6,500 kg = $1,950 adverse.
• Operational variance = (revised standard $4.30 - actual $4.20) x 6,500 kg = $650 favourable.
• Together they equal the traditional price variance for A of $1,300 adverse.
• The planning variance is outside the production manager's control, and the operational variance shows that the manager bought better than the revised standard.

Marks counted: 0 of 4

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The mix variance is adverse, because less of the cheaper material A and more of B was used than the standard, which could be because of the shortage of A.
• Using more B may have helped to maintain quality, but it added cost.
• The yield variance is adverse, so output was lower than expected for the input, which could be due to waste, poor-quality material or mistakes in the process.
• The price variance for A is mostly a planning matter, and the manager should not be penalised for it, though the standard should be revised if the change is permanent.
• Investigation should consider the cost of the investigation against the benefit, and the size and cause of the variances.
• Variances are linked, so the cause of one (such as the shortage of A) may explain others.

Marks counted: 0 of 4