Plano Products manufactures a wide variety of chemical compounds and liquids for
ID: 2570266 • Letter: P
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:
There is a standard 20 percent loss in liquid volume during processing due to evaporation. The finished liquid is put into 29-liter containers for sale. Thus, the standard material cost for a 29-liter container is $1,286.44 [= ($4,436 ÷ 100 liters) × 29 liters per container].
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):
A total of 9,900 containers (287,100 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.)
Direct Material
mix variance yield variance efficiency variance purchase price variance
Chem A
Chem B
Chem C
Total
Input Quantity Cost Total Chemical (in liters) (per liter) Cost Chem-A 39 $ 47 $ 1,833 Chem-B 79 31 2,449 Chem-C 7 22 154 125 $ 4,436Explanation / Answer
Total direct material variance Purchased Direct Material AQ*AP - SQ*SP Variance Chem-A $ 1,004,248.00 - 111,969*47 (1) $ 4,258,295.00 F Chem-B $ 1,452,320.00 - 226,809*31 (2) $ 5,578,759.00 F Chem-C $ 1,468,220.00 - 20,097*22 (3) $ 1,026,086.00 U Working Note: 1) 287100/100*39 = 111,969 2) 287100/100*79 = 226,809 3) 287100/100*7 = 20,097 Direct material price and quantity variance Direct material AQ(AP-SP) Price variance SP(AQ-SQ) Quantity Variance Chem-A 26,360(38.10-47) 234,604 F 47(26,360-111,969) 4,023,623 F Chem-B 40,900(35.51-31) 184,459 U 31(40,900-226,809) 5,763,179 F Chem-C 27,540(53.31-22) 862,277 U 22(27,540-20,097) 163,746 U Working Note: a) 1,004,248/26,360 = $38.10 b) 1,452,320/40,900 = $35.51 c) 1,468,220/27,540 = $53.31 Direct material mix and yield variances: Direct material mix = SP(Actual input proportion for direct material - Standard input proportion for direct material)*Actual quantity of all direct materials used) Chem - A 47((26,360/94,800) - (39/125))*94,800 =151,227 F Chem - B 31((40,900/94,800) - (79/125))*94,800 = 589,422 F Chem - C 22((27,540/94,800) - (7/125))*94,800 = 489,086 U Direct material yield variance: Direct material yield = SP(Actual total quantity of all direct materials used - Standard allowed total quantity of all direct materials given actual output)*Standard input proportion for direct material. Chem - A 47(94,800-358,875)*39/125 = 3,872,396 F Chem - B 31(94,800-358,875)*79/125 = 5,173,757 F Chem - C 22(94,800-358,875)*7/125 = 325,340 F Working Note: 111,969+226,809+20,097 = 358,875