Problem 17-38 Materials Mix and Yield Variances (LO 17-4) Houston Corporation ma
ID: 2800628 • Letter: P
Question
Problem 17-38 Materials Mix and Yield Variances (LO 17-4)
Houston Corporation manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for producing a single batch of 1,000 liters of Rust-Off is as follows:
There is a 20 percent loss in liquid volume during processing due to evaporation. The finished liquid is put into 5-liter bottles for sale. Thus, the standard material cost for a 5- liter bottle is $78 [= ($15,600 ÷ 1,000 liters) × 5 liters per bottle].
The actual quantities of direct materials and the cost of the materials placed in production during March were as follows (materials are purchased and used at the same time):
Calculate the total direct material variance for the liquid product for the month of March and then further analyze the total variance into:
Materials price and efficiency variances, materials mix and yield variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round your intermediate calculations. Round “Standard mix values” to 2 decimal places and the final answers to the nearest dollar amount.)
Houston Corporation manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for producing a single batch of 1,000 liters of Rust-Off is as follows:
Explanation / Answer
Question - a Total Material cost variance (MCV) = Standard cost - Actual cost
= 1248000 - 1241040 = 6960 Favorable
Question - b
Material price variance = AQ ( SP - AP)
Material efficiency variance = SP ( SQ - AQ)
Material Mix variance = SP ( RAQ - AQ)
RAQ = Revised actual quantities in standard mix = SQ / Total SQ * Total AQ
RAQ(Alpha) = 48000/100000 * 104400 = 50112
RAQ(Beta) = 36000 / 100000 * 104400 = 37584
RAQ(Gamma) = 16000/100000 *104400 = 16704
Material yield variance = SP ( SQ - RAQ)
SQ SP AMT($) AQ AP AMOUNT Alpha 48000 9 432000 50400 8.4 423360 Beta 36000 12 432000 37040 10.81166 400464 Gamma 16000 24 384000 16960 24.6 417216 Total 100000 Total 1248000 104400 Total 1241040