Question

Direct Labor Efficiency Variance, Direct Labor Mix and Yield Variances

Vet-Pro, Inc., produces a veterinary grade anti-anxiety mixture for pets with behavioral problems. Two chemical solutions, Aranol and Lendyl, are mixed and heated to produce a chemical that is sold to companies that produce the anti-anxiety pills. The mixture is produced in batches and has the following standards:

Direct Material	Standard Mix		Standard Unit Price		Standard Cost
Aranol	3,000	gallons	$4.00	per gallon	$	12,000
Lendyl	17,000		6.00			102,000
Total	20,000	gallons				$114,000
Yield	16,000	gallons

During March, the following actual production information was provided:

Direct Material	Actual Mix
Aranol	60,000	gallons
Lendyl	140,000
Total	200,000	gallons
Yield	166,000	gallons

Vet-Pro, Inc., also uses two different types of direct labor in producing the anti-anxiety mixture: mixing and drum-filling labor (the completed product is placed into 50-gallon drums). For each batch of 20,000 gallons of direct materials input, the following standards have been developed for direct labor:

Direct Labor Type	Mix		SP		Standard Cost
Mixing	2,000	hrs.	$15.00			$30,000
Drum filling	1,200		9.50			11,400
Total	3,200	hrs.				$41,400
Yield	16,000	gallons

The actual direct labor hours used for the output produced in March are also provided:

Direct Labor	Type Mix
Mixing	18,000	hrs.
Drum filling	12,000
Total	30,000	hrs.
Yield	158,400	gallons

Required:

1. Compute the direct labor mix and yield variances. (Round standard price of yield to four significant digits and mix proportion to three significant digits. Use the rounded numbers in the subsequent computations.)

Mix variance	$	Favorable
Yield variance	$	Favorable

2. Compute the total direct labor efficiency variance.
$  Favorable

Answer 1

Part (1)

Direct Labour Mix Variance = (Revised Standard Hours-Actual Hours)Standard Rate per hour

Revised Standard Hours(RSH) = Standard Ratio of standard hours* Actual hours worked

RSH for Mixing = 30,000 hrs*2,000 hrs./3,200 hrs.

= 18,750 hours

RSH for Drum filling = 30,000 hrs*1,200 hrs./3,200 hrs.

= 11,250 hrs.

Direct Labour mix variance =

For mixing = (18,750 hrs. -18,000 hrs.)$15

= $11,250 Favorable

For Drum filling = (11,250 hrs. -12,000 hrs.)$9.50

= S7,125 Unfavorable

Overall direct labour mix variance = $11,250-$7,125 = $4,125 Favorable

Direct Labour yield variance(DLYV) = (Standard hours-Revised standard hours)Standard rate per hour

Standard hours for mixing = (2,000 hrs./16,000 gallons)*158,400 gallons = 19,800 hrs.

Standard hours for Drum filling = (1,200 hrs./16,000 gallons)*158,400 gallons = 11,880 hrs.

DLYV for mixing = (19800 hrs. -18750 hrs.)$15 = $15,750 Favorable

DLYV for Drum filling = (11,880 hrs.- 11,250 hrs.)$9.5 = $5,985 Favorable

Overall DLYV = $21,735 Favorable

Part (2)

Direct labour efficiency variance(DLEV) = (Standard Hours-Actual Hours)Standard Rate

DLEV for mixing = (19,800 hrs. - 18,000 hrs.)$15 = $27,000 Favorable

DLEV for Drum filling = (11,880 hrs. - 12,000 hrs.)$9.5 = $1,140 Unfavorable

Overall DLEV = $25,860 Favorable