CC-chem co manufactures a single product, product W, and have provided you with the following information which relates to the period which has just ended.
Standard cost per unit of product W
Materials:
Materials Price per kilo total
Kilos $ $
F 15 4 60
G 12 3 36
H 8 6 48
35 144
Labour: Rates per hour
Hours $
Department P 4 10 40
Department Q 2 6 12
196
Budgeted sales for the period are 4,500 units at $ 260 per unit. There were no budgeted opening or closing inventories of product W.
The actual materials and labour used was as follows
Materials:
Materials price per kilo total
Kilos $ $
F 59,800 4.25 254,154
G 53,500 2.80 149,800
H 33,300 6.40 213,120
Labour hours rate per hour
Department P 20,500 10.60 217,300
Department Q 9.225 5.40 51.660
4,100 units of product were produced and sold for $1,115,800.
Required
a) Calculate the following material variances
i) Material price variances
ii) material Mix variances
iii) Material usage variances.
iv) material Yield variances
b) Calculate the following labour variances for each of the production departments
i) Labour Cost
ii) Labour Efficiency
iii) labour Rate
c) Calculate the sales variances
d) Comment on your findings to help explain what has happened to the yield variance
To calculate the material variances, we need to compare the actual costs and quantities with the standard costs and quantities.
a) Material Variances:
i) Material Price Variances:
The material price variance measures the difference between the actual price paid for materials and the standard price.
Formula:
Material Price Variance = (Actual Quantity × Actual Price) - (Actual Quantity × Standard Price)
Given:
Actual Quantity of F = 59,800 kg
Actual Price per kilo of F = $4.25
Standard Price per kilo of F = $4
Material Price Variance for F = (59,800 × $4.25) - (59,800 × $4)
ii) Material Mix Variance:
The material mix variance measures the difference between the actual mix of materials used and the standard mix.
Formula:
Material Mix Variance = (Actual Mix Quantity - Standard Mix Quantity) × Standard Mix Price
Given:
Actual Mix Quantity for F = 59,800 kg
Standard Mix Quantity for F = 35 kg
Standard Mix Price for F = $4 per kg
Material Mix Variance for F = (59,800 - 35) × $4
iii) Material Usage Variances:
The material usage variance measures the difference between the actual quantity used and the standard quantity allowed.
Formula:
Material Usage Variance = (Actual Quantity × Standard Price) - (Standard Quantity × Standard Price)
Given:
Actual Quantity of F = 59,800 kg
Standard Price per kilo of F = $4
Standard Quantity of F = 35 kg
Material Usage Variance for F = (59,800 × $4) - (35 × $4)
iv) Material Yield Variances:
The material yield variance measures the difference between the actual output and the standard output, given the actual inputs.
Formula:
Material Yield Variance = (Standard Quantity × Standard Price) - (Actual Quantity × Standard Price)
Given:
Standard Price per kilo of F = $4
Standard Quantity of F = 35 kg
Actual Quantity of F = 59,800 kg
Material Yield Variance for F = (35 × $4) - (59,800 × $4)
b) Labour Variances:
For each production department, we need to calculate the following labour variances:
i) Labour Cost Variance:
The labour cost variance measures the difference between the actual labour cost and the standard labour cost.
Formula:
Labour Cost Variance = (Actual Hours × Actual Rate) - (Actual Hours × Standard Rate)
Given:
Actual Hours for Department P = 20,500 hours
Actual Rate per hour for Department P = $10.60
Standard Rate per hour for Department P = $10
Labour Cost Variance for Department P = (20,500 × $10.60) - (20,500 × $10)
ii) Labour Efficiency Variance:
The labour efficiency variance measures the difference between the actual hours worked and the standard hours allowed.
Formula:
Labour Efficiency Variance = (Actual Hours - Standard Hours) × Standard Rate
Given:
Actual Hours for Department P = 20,500 hours
Standard Hours for Department P = 196 hours
Standard Rate per hour for Department P = $10
Labour Efficiency Variance for Department P = (20,500 - 196) × $10
iii) Labour Rate Variance:
The labour rate variance measures the difference between the actual rate paid for labour and the standard rate.
Formula:
Labour Rate Variance = (Actual Hours × Standard Rate) - (Actual Hours × Actual Rate)
Given:
Actual Hours for Department P = 20,500 hours
Standard Rate per hour for Department P = $10
Actual Rate per hour for Department P = $10.60
Labour Rate Variance for Department P = (20,500 × $10) - (20,500 × $10.60)
c) Sales Variances:
To calculate the sales variances, we need to compare the actual sales revenue with the budgeted sales revenue.
Formula:
Sales Variances = Actual Sales Revenue - Budgeted Sales Revenue
Given:
Actual Sales Revenue = $1,115,800
Budgeted Sales Revenue = (4,500 units × $260)
d) Comment on your findings to help explain what has happened to the yield variance:
To analyze the yield variance further, we need to compare it to the material usage variance. If the yield variance is unfavorable, it indicates that the actual output obtained from the given inputs (materials) is lower than the standard output expected. This could be due to factors such as wastage, inefficiencies, or suboptimal production processes.
However, without specific values for the yield and material usage variances, it is difficult to provide a specific explanation. Further analysis and comparison with other factors such as actual production quantities achieved, quality control issues, or process inefficiencies would be required to gain a clearer understanding of the yield variance in this specific case.