Question

Modern Furniture Ltd. makes classic computer workstations. One of their products is a wooden workstation. The exterior is made of walnut, a high quality wood, but the interiors are made of pine, a less expensive wood. The budgeted direct material quantities and prices for one workstation are:

                                                                        Rate per           Cost for

                                                Quantity            Input Unit          One Unit

Walnut                               6 square metres $58/square metre        $348

Pine                                   2 square metres $20/square metre          $40

During the month of September 440 desks were produced. The actual material volume and costs were:

                                                Total                  Total

                                                Quantity                Cost

Walnut                         2,552 square metres      $153,120

Pine                                638 square metres      $ 11,484

Calculate the direct materials mix and yield variances for the walnut. (4)

Answer 1

Calculation of direct materials yield variance for walnut:

Firstly, we have to calculate Revised Actual Quantity of Input as per Budgeted Mix:

Total Actual Input = 2552 + 638 = 3190 sq. meters

Ratio of Inputs in Budgeted Quantity = Walnut : Pine = 6 : 2 = 3 : 1

Applying the same ratio to the Actual Input used:

Revised Actual Walnut Input as per Budgeted Ratio of Inputs=  3190 x 3/4 = 2392.50 sq. meters

Now,

Yield Variance = (Budgeted Quantity for actual output x Budgeted Price) - (Revised Actual Quantity as per Budgeted Mix x Budgeted Price)

= ( 6sq. meters x 440 desks x $58 ) - (2392.50 sq. meters x $58)

= $153,120 - $138,765

= $14,355 (Favorable) - Answer

Mix Variance = (Revised Actual Quantity as per Budgeted Mix x Budgeted Price) - (Actual Quantity x Budgeted Price)

= (2392.50 sq. meters x $58) - (2552 x $58)

= $138,765 - $148,016

= $9,251 (Unfavorable) - Answer

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