Question

Direct Materials Usage Variances: Direct Materials Mix and Yield Variances

Energy Products Company produces a gasoline additive, Gas Gain. This product increases engine efficiency and improves gasoline mileage by creating a more complete burn in the combustion process.

Careful controls are required during the production process to ensure that the proper mix of input chemicals is achieved and that evaporation is controlled. If the controls are not effective, there can be a loss of output and efficiency.

The standard cost of producing a 500-liter batch of Gas Gain is $135.00. The standard direct materials mix and related standard cost of each chemical used in a 500-liter batch are as follows:

Chemical	Mix		SP		Standard Cost
Echol	200	liters	$0.200		$40.00
Protex	100		0.425		42.50
Benz	250		0.150		37.50
CT-40	50		0.300		15.00
Total	600	liters			$135.00

The quantities of chemicals purchased and used during the current production period are shown in the following schedule. A total of 160 batches of Gas Gain were manufactured during the current production period. Energy Products determines its cost and chemical usage variations at the end of each production period.

Chemical	Quantity Used
Echol	30,400	liters
Protex	14,720
Benz	43,200
CT-40	8,160
Total	96,480	liters

Required:

Compute the total direct materials usage variance, and then break down this variance into its mix and yield components. Do not round intermediate computations and round final answers to the nearest cent. (CMA adapted)

Answer 1

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