Plano Products manufactures a wide variety of chemical compounds and liquids for

Question

Plano Products manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for producing a single batch of 100 liters of its biggest selling product is as follows: Input Total in Iiters) per iner) 28 Chem-B Chem-c 1,360 232 $2.292 20 125 There is a standard 20 percent loss in liquid volume during processing due to evaporation. The finished liquid is put into 18-liter containers for sale. Thus, the standard material cost for a 18-liter container is $412.56 [3($2.292 +100 liters) liters per container] 18 The actual quantities of direct materials and the cost of the materials placed in production during September were as follows (materials are purchased and used at the same time) Input Quantity (in Total Cost 509.248 23.360 46.400 33.040 102.800 957,320 138220 $2,604,788 A total of 8,800 containers (158,400 liters) were produced during September Required Calculate the total direct material variance for the liquid product for the month of September and then further analyze the total variance into: a. & b. Materials price and efficiency variances, materials mix and yield variances. (Do not round intermediate calculations. Round "Standard mix values" to 3 decimal places. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.) Chem-C Total

Explanation / Answer

Solution:

Standard input quantity required for 8800 containers = 8800*18 *125/100 = 198000 litre

SQ of chemical A = 198000*28/125 = 44352 Litre

SQ of Chemical B = 198000*68/125 = 107712 litre

SQ of Chemical C = 198000*29/125 = 45936 litre

Actual price of material :

Chemical A = $509,248 / 23360 = $21.80 per litre

Chemical B = $957,320 / 46400 = $20.632 per litre

Chemcial C = $1,138,220 / 33040 = $34.45 per litre

Direct material purchase price variance = (SP – AP) * AQ

Chemical A = (25 - 21.80) * 23360 = $74,752 F

Chemical B = (20 – 20.632) * 46400 = $29,320 U

Chemical C = (8 – 34.45) * 33040 = $873,900 U

Direct Material efficiency variance = (SQ – AQ) * SR

Chemical A = (44352 - 23360) * $25 = $524,800 F

Chemical B = (107712 – 46400) * $20 = $1,226,240 F

Chemical C = (45936 – 33040) * $8= $103,168 F

Standard mix of actual Quantity:

Chemical A = 102800*28/125 = 23027.20 Litre

Chemical B = 102800*68/125 = 55923.20 lite

Chemical C = 102800*29/125 = 23849.60 litre

Direct material mix variance = (Standard Mix – Actual Mix) * SP

Chemical A = (23027.20 - 23360) * $25 = $8,320 U

Chemical B = (55923.20 – 46400) * $20 = $190,464 F

Chemical C = (23849.60 – 33040) * $8 = $73,523.20 U

Standard yield of actual quantity = 102800/125*100 = 82240 litre

Actual yield = 158400 litre

Standard cost of 100 litre production

Chemical A = $700

Chemical B = $1,360

Chemical C = $232

Yield variance = (Actual Yield – Standard Yield) * SP

Chemical A = (158400 - 82240) * 700/100 = $533,120 F

Chemical B = (158400 - 82240) * 1360/100 = $1,035,776 F

Chemical C = (158400 - 82240) * 232/100 = $176,691.20 F

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