- 10 Marks
MA – L2- Q27 – Advanced Variance Analysis
Question
Tamale Industries has the following standard cost for producing 1 unit of Product Z:
| Material | Quantity | Price per kilo | Cost |
|---|---|---|---|
| Material M | 5 kilos | GH¢8 | GH¢40 |
| Material N | 3 kilos | GH¢12 | GH¢36 |
Actual results showed that 9,600 kilos of materials were used during a particular period as follows:
| Material | Quantity | Cost |
|---|---|---|
| Material M | 6,700 kilos | GH¢51,400 |
| Material N | 2,900 kilos | GH¢39,500 |
During the period, 1,250 units of Product Z were produced.
Required:
(a) Calculate the following variances:
- Direct materials price variance
- Materials mix variance
- Materials yield variance
(b) Summarize the standard materials cost, materials price variance, materials mix variance, materials yield variance, and actual materials cost.
Answer
Direct materials price variance
| GH¢ | GH¢ | |
|---|---|---|
| 6,700 kilos of Material M should cost (× GH¢8) | 53,600 | |
| They did cost | 51,400 | |
| Material M price variance | 2,200 (F) | |
| 2,900 kilos of Material N should cost (× GH¢12) | 34,800 | |
| They did cost | 39,500 | |
| Material N price variance | 4,700 (A) | |
| Total direct materials price variance | 2,500 (A) |
Materials mix variance
| Material | Actual usage (kilos) | Actual standard | Actual usage in standard mix (kilos) | Mix variance (kilos) | Standard price per kilo (GH¢) | Mix variance (GH¢) |
|---|---|---|---|---|---|---|
| M | 6,700 | (5) | 6,000 | 700 (A) | 8 | 5,600 (A) |
| N | 2,900 | (3) | 3,600 | 700 (F) | 12 | 8,400 (F) |
| Total | 9,600 | 9,600 | 2,800 (F) |
Direct materials yield variance
| Kilos | |
|---|---|
| 1,250 units should use (× (3+5) kilos) | 10,000 |
| They did use | 9,600 |
| Materials yield variance in kilos | 400 (F) |
Standard weighted average cost per kilo of materials = GH¢76 / 8 kilos = GH¢9.50 per kilo
Direct materials yield variance in GH¢ = 400 × GH¢9.50 = GH¢3,800 (F)
(b) Summary
| GH¢ | |
|---|---|
| Standard materials cost of 1,250 units (× 76) | 95,000 |
| Materials price variance | 2,500 (A) |
| Materials mix variance | 2,800 (F) |
| Materials yield variance | 3,800 (F) |
| Actual materials cost | 90,900 |
- Topic: Advanced Variance Analysis
- Uploader: Salamat Hamid