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 Price per kilo total
Kilos $ $
F 15 4 60
G 12 3 36
H 8 6 48
totals
35
144
Labour: Rates per hour
Hours $
Department P 4 10 40
Department Q 2 6 12
total
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 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 standard costs with the actual costs.
a) Material Variances:
i) Material Price Variances: This variance compares the standard price with the actual price.
Formula: (Standard Price - Actual Price) x Actual Quantity
For Material F: (4 - 4.25) x 59,800 = -$14,500 (Favorable)
For Material G: (3 - 2.80) x 53,500 = $10,800 (Unfavorable)
For Material H: (6 - 6.40) x 33,300 = -$13,320 (Favorable)
ii) Material Mix Variances: This variance analyzes the cost difference due to the difference in actual and standard mix ratios.
Formula: Standard Mix Ratio x (Actual Quantity - Standard Quantity) x Standard Price
For Material F: (15 / 35) x (59,800 - 144 / 35) x 4 = $7,942.86 (Unfavorable)
For Material G: (12 / 35) x (53,500 - 144 / 35) x 3 = -$3,020.57 (Favorable)
For Material H: (8 / 35) x (33,300 - 144 / 35) x 6 = $3,725.71 (Unfavorable)
iii) Material Usage Variances: This variance measures the cost difference due to the difference in actual quantities used compared to the standard quantities.
Formula: Standard Price x (Actual Quantity - Standard Quantity)
For Material F: 4 x (59,800 - 144 / 35) = -$29,789.71 (Favorable)
For Material G: 3 x (53,500 - 144 / 35) = $16,543.43 (Unfavorable)
For Material H: 6 x (33,300 - 144 / 35) = -$38,506.29 (Favorable)
iv) Material Yield Variances: This variance compares the actual yield with the standard yield.
Formula: Standard Price x (Actual Quantity - Standard Quantity)
For Product W: $260 x (4,100 - 4,500) = -$104,000 (Favorable)
b) Labour Variances for each Production Department:
i) Labour Cost Variance: This variance compares the standard cost with the actual cost.
Formula: (Standard Rate - Actual Rate) x Actual Hours
For Department P: (10 - 10.60) x 20,500 = $12,300 (Favorable)
For Department Q: (6 - 5.40) x 9,225 = $6,555 (Unfavorable)
ii) Labour Efficiency Variance: This variance measures the cost difference due to the difference in actual hours used compared to the standard hours.
Formula: Standard Rate x (Actual Hours - Standard Hours)
For Department P: 10 x (20,500 - 196) = $206,040 (Favorable)
For Department Q: 5.4 x (9,225 - 196) = $48,147.20 (Favorable)
iii) Labour Rate Variance: This variance compares the standard rate with the actual rate.
Formula: (Standard Hours - Actual Hours) x Actual Rate
For Department P: (196 - 20,500) x 10.60 = -$223,360 (Favorable)
For Department Q: (196 - 9,225) x 5.40 = $49,499.40 (Unfavorable)
c) Sales Variances:
Sales Variance = (Actual Sales Quantity x Actual Selling Price) - (Budgeted Sales Quantity x Budgeted Selling Price)
= (4,100 x $260) - (4,500 x $260)
= $1,115,800 - $1,170,000
= -$54,200 (Adverse)
d) Comment on the Yield Variance:
The yield variance measures the cost difference due to the difference in actual production compared to the standard production. In this case, there is a favorable yield variance of -$104,000, indicating that the actual production was less than the standard production. This could be due to factors like inefficiencies in production processes, wastage, or lower productivity. Further investigation is needed to identify the specific reasons behind this variance.