Question

Stacy, Inc., produces a product using a process that allows for substitution between two materials, Alpha and Beta. The company has the following direct materials data for its product:

Standard costs for one unit of output
Alpha	40	units of input at	$	5.00
Beta	80	units of input at	$	7.50

The company had the following results in June:

Units of output produced 2,000 units
Materials purchased and used
Alpha	88,000	units at	$	4.50
Beta	152,000	units at	$	8.00

Required:

a. Compute materials price and efficiency variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

b. Compute materials mix and yield variances. (Do not round intermediate calculations. Indicate the effect of each variance by selecting "F" for favorable, or "U" for unfavorable. If there is no effect, do not select either option.)

Answer 1

Units of Output = 2,000 units

Standard Cost for 2,000 units is as follows:

	Quantity	Price	Total
Alpha	80,000	5	400,000
Beta	160,000	7.50	1,200,000
Total	240,000		1,600,000

Actual Data is as under:

	Quantity(Actual)	Price	Amount
Alpha	88,000	4.5	396,000
Beta	152,000	8	1,216,000
	240,000		1,612,000

a.Material Price Variance = (Standard Price – Actual Price)*Actual Quantity

Alpha: (5-4.5)*88,000 = 44,000F

Beta: (7.50-8)*152,000 = 76,000 U

Total Material Price Variance = 32,000 U

Material Efficiency Variance = (Standard Quantity – Actual Quantity)*Standard Price

Alpha: (80,000 -88,000)*5 = 40,000 U

Beta: (160,000 – 152,000)*7.5 = 60,000 F

Total Material Efficiency Variance = 20,000 F

b. Material Mix Variance = (Standard Mix for Actual Output – Actual Mix for Actual Output)*Standard Price

Alpha: (80,000-88,000)*5 = 40,000 F

Beta: (160,000 – 152,000)*7.5 = 60,000 F

Total Material Mix Variance = 20,000 F

Material Yield Variance = (Standard Quantity for Actual Output – Actual Quantity for Actual Output)*Standard Price

= (240,000-240,000)*Standard Price = 0