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	24	units of input at	$	8.00
Beta	48	units of input at	$	16.50

The company had the following results in June:

Units of output produced 3,800 units
Materials purchased and used
Alpha	99,200	units at	$	7.50
Beta	174,400	units at	$	16.80

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

a, Material Price Variance = (Standard Price – Actual Price) x Actual Quantity

Material Price Variance for Alpha = (8 - 7.50) x 99,200 = 49,600 F

Material Price Variance for Beta = (16.50 - 16.80) x 174,400 = -52,320 U

Total Material Price Variance = -2,720 or $ 2,720 Unfavorable

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

Material Efficiency Variance for Alpha = (3,800 x 24 - 99,200) x 8 = -64,000 U   

Material Efficiency Variance for Beta = (3,800 x 48 - 174,400) x 16.5 = 132,000 F

Total Material Efficiency Variance = 68,000 F

b. Direct material mix variance = (Standard cost of actual mix - Standard cost of standard mix)

= (Actual Mix Quantity - Standard Mix Quantity) x Standard Price

Let us first calculate the standard mix.

Total Materials Consumption = 99,200 + 174,400 = 273,600 units

We need to calculate the quantity of each raw material which would have been consumed had the total usage of materials (273,600 units) been based on the standard mix.

Alpha = 273,600 x 24 / 72 = 91,200

Beta = 273,600 x 48 / 72 = 182,400

Now mix variance is calculated as under:

for Alpha = (99,200 - 91,200) x 8 = 64,000 U

for Beta = (174,400 - 182,400) x 16.5 = -132,000 F

Total Mix Variance = -68,000 or 68,000 Favorable

Material yield variance = (Standard output - Actual output) x Standard Cost

Standard Output for 273,600 units of material = 273,600 / (24 + 48)   

= 273,600 / 72

= 3,800

Therefore, Material yield variance = (3,800 - 3,800) x (8 + 16.50) = 0

Thus Material Yield Variance is nil.