Matina, Davao City

Phone No.: (082)300-5456 Local 137

MAS 1: STANDARD COSTING & VARIANCE ANALYS

Management Advisory Services

Standard Costing
- Is a valuation method that uses predetermined norms for direct materials, direct labor and overhead to
assign costs to the various inventory accounts and cost of goods sold.

Standard is a model or budget against which actual results are compared and evaluated; a benchmark or norm
used for planning and control purposes. It is a norm or benchmark used to evaluate performance.

Standard Cost
- Is a budgeted or estimated cost to manufacture a single unit of product or perform a single service.
- Is a management tool to help control costs and may be used for either job order or process costing, in
mass production industries and/or service industries.
- Standards may fall into either of two categories – practical or ideal.
- Practical standards are those that are set with allowance for breakdown and normal lost time (such as
machine breakdown or employee’s breaktime). Usually tight but attainable.
- Ideal standards are those that can be attained only by working at top efficiency 100% of the time. They
provide no allowance for machine breakdowns or lost time.
- Most managers feel that practical standards provide better motivation than ideal standards. The use of
ideal standards can easily lead to frustration.
- Standard costs are revised periodically (usually once a year) to reflect changes in previously determined
standards due to
o Inflation
o Cost saving machinery, etc.

Standard Costs – Management by Exception

A standard is a benchmark or “norm” for measuring performance. In managerial accounting, standards relate to
the cost and quantity of inputs used in manufacturing goods or providing services.

Setting Standard Costs

 Standards should be set so that they encourage efficient operations.

 Ideal versus practical standard – standards tend to fall into one of two categories – either ideal or practical
 Ideal standards allow for no machine breakdowns or work interruptions, and require that workers
operate at peak efficiency 100 percent of the time. Since ideal standards are rarely met, most managers
believe they tend to discourage even the most diligent workers.
 Practical standards are “tight, but attainable.” They allow for normal machine downtime and employee
rest periods and can be attained through reasonable, but highly efficient, efforts by the average worker.

Standard Costs of Materials

 Direct material standards are set for both the price and quantity of inputs that go into units of product.
 Price standards should reflect the final, delivered cost of materials. This price should include freight,
handling, and other costs necessary to get the material into a condition ready to use. It should also
reflect any cash discounts allowed.
 Quantity standards should reflect the amount of materials going into each finished product, as well as
allowances for unavoidable waste, spoilage, and other normal inefficiencies.

Standard Costs of Direct Labor

 Direct labor price and quantity standards are usually expressed in terms of labor rate and labor hours.
 The standard direct labor rate per hour would include not only wages earned but also an allowance for
fringe benefits, employment taxes, and other labor-related costs.
 The standard labor hours per unit should include allowance for coffee breaks, personal needs of
employees, clean-up and machine downtime.

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Standard Costs of Manufacturing Overhead
 As with direct labor, the price and quantity standards for variable overhead are generally expressed in
terms of a rate and hours. The rate represents the variable portion of the predetermined overhead rate.
The quantity is usually expressed in terms of direct labor hours.
 The price and quantity standards for materials, labor and overhead are summarized on a standard cost
card.
 Essentially, the standard cost per unit represents the budgeted variable production cost for a single unit
of product.

Variance Analysis
 Variances are differences between actual and standard costs.
 The total variance is generally sub-divided into sub-variances to further pinpoint the causes of the
variance.
 Variance analysis is a form of input/output analysis.
 The inputs represent the actual cost or quantity of materials, labor and overhead used in production;
the output represents the good production of the period.
 The standard quantity allowed for the output represents the amount of inputs that should have been
used in completing the output of the period.

A General Model for Variance Analysis

A variance is the difference between standard prices and quantities on the one hand and actual prices and
quantities on the other hand.

Price Variance – The price variance is the difference between the actual quantity of inputs at the actual price
and the actual quantity of inputs at the standard price. The “actual quantity of inputs” ordinarily refers to the
actual quantity of inputs purchased, which may differ from the actual quantity of inputs used

Quantity Variance – The quantity variance is the difference between the actual quantity of inputs used at the
standard price and the standard quantity of inputs allowed for the actual output at the standard price. The
“standard quantity allowed for the actual output” means the amount of the input that should have been used
to produce the actual output of the period. It is computed by multiplying the standard quantity of input per unit
of output by the actual output

Alternative Methods

 As an alternative to the general model, variances can be computed by the use of formulas. The formulas for
the price variance are:
o Price (rate) variance = (AQXAP) – (AQXSP) or AQ(AP-SP)

 The formulas for the quantity variance are:

o Quantity (efficiency) variance = (AQXSP) – (SQXSP) or SP(AQ-SQ)

Computation and Interpretation of Standard Cost Variances

 Since direct material, direct labor, and variable overhead are all variable manufacturing costs, the process
of computing price and quantity variances for each cost category is the same. The general model can be
used in each case to compute the variances. The only complication is deciding in each case whether the
actual quantity of inputs refers to the actual quantity purchased or the actual quantity used.

Pre-determined Overhead Rates

Pre-determined = Overhead from the flexible budget at the denominator level of activity
Overhead Rate Denominator level of activity

Applying Overhead in a Standard Cost System

Overhead can be applied to units based on actual hours or standard hours allowed for the actual output. In a
standard cost system it is simplest to apply overhead on the basis of standard hours allowed for the actual
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output. This result in each unit being assigned the same overhead cost – regardless of how many hours were
actually required to make the unit.

OVERHEAD VARIANCES

2 – WAY
AFOH XXX
Less: BASH:
Fx FOH XXX
Std. VFOH XXX XXX
Controllable Variance XXX

If actual fixed overhead is equal to the budgeted fixed overhead:

Actual VFOH XXX
Less: Std. Variable Overhead (SH x VR) XXX
Controllable Variance XXX

BASH XXX
Less: Std FOH (SH x SR) XXX
Volume Variance XXX

3 – WAY
AFOH XXX
Less: BAAH:
Fx OH as budgeted XXX
V OH based on actual hrs. (AH x SVR) XXX XXX
Spending Variance XXX

BAAH XXX
Less: AH x SR XXX
Idle Capacity Variance XXX

Or alternatively,

Normal capacity (in hours) XXX

Less: Actual hours worked XXX
Underabsorbed (obverabsorbed) capacity XXX
X Std. FOH Rate XXX
Idle Capacity Variance XXX

AH x SOH Rate XXX

Less: Std. FOH (SH x SR) XXX
Efficiency Variance XXX

Or,
AH – SH x SR = Efficiency Variance

4 – WAY
AFOH XXX
Less: BAAH
Fx FOH as budgeted XXX
V FOH (AH x VR) XXX XXX
Spending Variance XXX

BAAH XXX
Less: AH x SR XXX
Idle Capacity XXX

AH – SH x VR = Variable Efficiency
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 AH – SH x FxR = Fixed Efficiency

PRACTICE PROBLEMS:

Materials Variance Analysis.

1. Energy Modification 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. Loss of output and efficiency may result if the
controls are not effective. The standard cost of producing a 500-liter batch of Gas Gain is P135. The
standard materials mix and related standard costs of each chemical used in a 500-liter batch are presented
below:

Chemical Standard Input Quantity in Liters Standard Cost per Liter Total Cost
Echol 200 ₱0.20 ₱40.00
Protex 100 0.43 42.50
Benz 250 0.15 37.50
CT-40 50 0.30 15.00
600 ₱135.00

The quantities of chemicals purchased and used during the current production period are shown in the
schedule below. A total of 140 batches of Gas Gain were manufactured during the current production period.
Silly Willy, the controller of Energy Modification Company, determines its costs and chemical usage variations
at the end of each production period.

Quantity Purchased (Liters) Total Purchase Price Quantity Used (Liters)

Chemical 25,000 5,365 26,600
Echol 13,000 6,240 12,880
Protex 40,000 5,840 37,800
Benz 7,500 2,220 7,140
CT-40 85,500 19,665 4,420

a. What is the purchase price variance

b. What is the purchase price variance
c. What is the purchase price variance
d. What is the purchase price variance
e. What is the material usage variance
f. What is the material usage variance
g. What is the material usage variance
h. What is the material usage variance
i. What is the materials mix variance for this operation?
j. What is the materials yield variance for this operation?

2. Taba Dinners Inc. packages a frozen fish dinner that consists of 6 ounces of bulad, 4 ounces of paksiw, 5
ounces of rice, and 3 ounces of sauted swamp cabbage. On October 1, the following price standards were
set for each batch of 1,000 dinners:

Materials
Item Price Standard
Bulad ............................................................................................................................. P.60 per ounce
Paksiw............................................................................................................................ .25
Rice ................................................................................................................................ .10

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Sauted swamp cabbage ................................................................................................ .20

The actual cost for 1,000 dinners was: bulad, P.70 per ounce; paksiw P.20 per ounce; rice, P.12 per ounce; and
sauted swamp cabbage, P.22 per ounce.

Quantity variances arise from the cooking process. The materials used for the 1,000 dinners in Batch 1099
were:

Bulad ............................................................................................................................. 5,500 ounces

Paksiw............................................................................................................................ 3,800
Rice ................................................................................................................................ 4,900
Sauted swamp cabbage ................................................................................................ 3,150

Required: Determine the materials price usage variance and the materials quantity (or usage) variance for
Batch 1099. (Indicate whether each variance is favorable or unfavorable.)
SOLUTION

(Actual unit price - Standard unit price) x Actual usage = Materials price usage variance

Bulad: (P.70 per oz. - P.60 per oz.) x 5,500 oz. .............................................................. P 550 unfav.
Paksiw: (P.20 per oz. - P.25 per oz.) x 3,800 oz. ............................................................ (190) fav.
Rice: (P.12 per oz. - P.10 per oz.) x 4,900 oz. ................................................................ 98 unfav.
Sauted swamp cabbage: (P.22 per oz. - P.20 per oz.) x 3,150 oz. ................................. 63 unfav.
Materials price usage variance ..................................................................................... P 521 unfav.

(Actual quantity - Standard quantity allowed) x Standard price = Materials quantity variance

Bulad: (5,500 oz. - 6,000 oz.) x P.60 .............................................................................. P(300) fav.

Paksiw: (3,800 oz. - 4,000 oz.) x P.25 ............................................................................ (50) fav.
Rice: (4,900 oz. - 5,000 oz.) x P.10................................................................................. (10) fav.
Sauted swamp cabbage: (3,150 oz. - 3,000 oz.) x P.20 ................................................. 30 unfav.
Materials quantity variance .......................................................................................... P(330) fav.

Labor Variance Analysis.

1. Landeau Manufacturing Company has a process cost accounting system. A monthly analysis compares
actual results with both a monthly plan and a flexible budget. Standard direct labor rates used in the
flexible budget are established at the time the annual plan is formulated and held constant for the entire
year. Standard direct labor rates in effect for the fiscal year ending June 30 and standard hours allowed for
the output in April are:

Std. DL Rate per Hour Std. DLH Allowed for Output

Labor Class III 8.00 500
Labor Class II 7.00 500
Labor Class I 5.00 500

The wage rates for each labor class increased on January 1 under the terms of a new union contract negotiated
in December of the previous fiscal year. The standard wage rates were not revised to reflect the new contract.
The actual direct labor hours (DLH) worked and actual direct labor rates per hour experienced for the month of
April were as follows:
Actual Direct Labor Rate per Hour Actual Direct Labor Hours
Labor Class III 8.50 550
Labor Class II 7.50 650
Labor Class I 5.40 375

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 a. What is the total direct labor variance?
b. The direct labor rate variance is ______________.
c. The direct labor efficiency variance is _________________.
d. What is the labor yield variance for Landeau in April?
e. What is the labor mix variance for Landeau in April?

2. Last National Bank uses a standard cost accounting system for analyzing its labor costs in its Proof and
Transit Division. The primary task of this division is the encoding of checks with magnetic ink for reading
by the computer. The standard calls for an employee to process 900 checks per hour and to be paid P10
per hour. During the eight-hour night shift last Wednesday, the production levels attained by the four
employees on that shift, together with their hourly wages, were:

Employee Checks Encoded Hourly Wages

Wilson....................................................................................... 7,020 P11.00
Xavier........................................................................................ 6,480 9.25
Yelding ...................................................................................... 7,875 10.50
Ziachin ...................................................................................... 7,425 9.75

Required: Compute the labor rate variance and the labor efficiency variance for each employee and for the
entire night shift.

SOLUTION
Wilson Xavier Yelding Ziachin Total
Actual rate ............................................ P 11.00 P 9.25 P 10.50 P 9.75 P 40.50
Standard rate ....................................... 10.00 10.00 10.00 10.00 40.00
Rate difference ..................................... P 1.00 P (.75) P .50 P (.25) P .50
Multiplied by hours worked ................. x 8 x 8 x 8 x 8 x 8
Labor rate variance .............................. P 8.00 P (6.00) P 4.00 P (2.00) P 4.00
unfav. fav. unfav. fav. unfav.

Actual hours worked ............................ 8.0 8.0 8.00 8.00 32

Standard hours allowed ....................... 7.8 7.2 8.75 8.25 32
Difference in hours ............................... .2 .8 (.75) (.25) 0
Multiplied by standard rate ................. x P10 x P10 x P10 x P10 x P10
Labor efficiency variance ..................... P 2.00 P 8.00 P (7.50) P (2.50) 0
unfav. unfav. fav. fav.

3. Aristeo Company produced 3,200 units of product. Each unit requires 2 standard hours. The standard labor
rate is P15 per hour. Actual direct labor for the period was P79,200 (6,600 hours x P12).
a. What is the direct labor time variance?
b. What is the direct labor rate variance?

a. Time Variance = (Actual time – Standard time) x Standard rate

= (6,600 – [3,200 x 2]) x 15
= 3,000 Unfavorable

b. Rate Variance = (Actual rate – Standard rate) x Actual time

= (12 – 15) x 6,600 hours
= 19,800 favorable

4. Dagalangit Company uses a standard cost system. The following information pertains to direct labor for
Product A for the month of March:
Standard rate per hour P12.00
Standard hours allowed for actual production 3,000 hours
Actual rate per hour P12.60
Labor efficiency variance – unfavorable P2,400

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 a. What were the actual hours worked?
b. What is the standard time required for each unit of product?

a. Efficiency variance = Difference in time x Standard rate

2,400 U = Difference in time x 12
Difference I time = 2,400 /12
= 200 Unfavorable

Standard time 3,000 hours

Add: Unfavorable difference in time 200
Actual hours worked 3,200 hours

The difference in time is unfavorable because the efficiency variance is unfavorable. If this is so,
the actual time is greater than the standard time, that is why the difference in time is added to
the standard time.

5. A major activity at the Professional Regulation Commission is the processing of application forms for the
Board Examinations of the various professions under its control. To analyze and control the costs incurred
in the Applications Department, the PRC’s accountant previously prepared the following budgeted data for
the year 2018:
Normal number of applications processed per year 150,000
Budgeted variable costs of processing the 150,000 applications P10,500,000
Fixed costs per year 2,500,000
Number of hours per 100 applications processed 200 hours
Wage rate per 100 applications P6,000

During the year 2018, the department processed a total of 120,000 applications using 250,000 hours.
The costs incurred were
Total costs P11,140,000
Labor costs 7,500,000

a. For 2018, the Application Department’s total cost to process the 120,000 applications assuming standard
performance should be __________.
b. The total labor cost variance for 2018 is ___________.
c. The direct labor spending variance is ___________.
d. The direct labor efficiency variance is ___________.

a. Assuming standard performance, the total cost to process the 120,000 applications is equal to the
flexible budget for each volume of application:
Variable cost (120,000 x 70)* 8,400,000
Add budgeted fixed costs 2,500,000
Total cost at standard performance 10,900,000

Std. variable cost per application = Budgeted variable cost/Normal number of applications processed
=10,500,000/150,000 = 70 per application
b.
Actual labor cost 7,500,000
Less Standard labor cost (240,000 hours x 30 per hour)* 7,200,000
300,000
Total labor cost variance Unfavorable

*Total standard labor cost = standard time x standard rate per hour

Actual applications processed 120,000

x Std time per application (200 hours/100 applications) 2 hours
Total standard time 240,000

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 Standard rate per hour = 6,000/200 hours = 30 per hour

The standard labor cost may also be computed as follows:

Standard labor cost = Actual number of applications processed x Std labor cost per application
=120,000 x 60*
= 7,200,000
*Standard labor cost per application = 6,000 per 100 applications = 60 per application

C&D

Time Rate Total

Actual labor cost 2,500,000 30 7,500,000
Standard labor cost 240,000 30 7,200,000
Differences 10,000 U - 300,000 U

Actual rate = 7,500,000/250,000 hours = 30 per hour

Total standard time = Actual applications processed x standard time per application
= 120,000 x 200 hours/100 applications = 240,000 hours
Standard rate per hour = 6,000/200 hours= 30 per hour

Analysis of the variance:

Spending or rate variance = zero (0), because there is no difference between the actual and standard rates
Efficiency or time variance = Difference in time x standard rate
= 10,000 U x 30
= 300,000 unfavorable

Factory Overhead Variance Analyses.

1. Edney Company employs a standard absorption system for product costing. The standard cost of its product
is as follows:

Raw materials 14.50

Direct labor (2 DLH x P8) 16.00
Manufacturing overhead (2 DLH x P11) 22.00
Total standard cost 52.50
The manufacturing overhead rate is based upon a normal activity level of 600,000 direct labor hours. Edney
planned to produce 25,000 units each month during the year. The budgeted annual manufacturing overhead is

Variable 3,600,000
Fixed 3,000,000

During November, Edney produced 26,000 units. Edney used 53,500 direct labor hours in November at a cost
of P433,350. Actual manufacturing overhead for the month was P260,000 fixed and P315,000 variable. The
total manufacturing overhead applied during November was P572,000.

a. The variable manufacturing overhead spending variance for November is ___________.

b. The variable manufacturing overhead efficiency variance for November is ___________.
c. The fixed manufacturing overhead spending variance for November is ___________.
d. The fixed manufacturing overhead volume variance for November is _____________.
e. The total variance related to efficiency of the manufacturing operation for November is
_________.

2. Tuxla Products Co. charges factory overhead into production at the rate of P10 per direct labor hour, based
on a standard production of 15,000 direct labor hours for 15,000 units; 60% of factory overhead costs are
variable. Production data for May and June are:
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 May June
Production ........................................................................................ 12,000 hrs. 14,200 hrs.
Units produced ................................................................................. 12,000 15,000
Actual factory overhead ................................................................... P140,100 P149,300

Required: Prepare a factory overhead variance analysis for May and June, using the two-variance method.
(Indicate whether each variance is favorable or unfavorable.)

SOLUTION

May June
Actual factory overhead ................................................................ P 140,100 P 149,300
Budget allowance based on standard:
Budgeted fixed expense (40% x P10 x
15,000 units) ..................................................................... (60,000) (60,000)
Variable expenses:
12,000 hrs. allowed x P10 x .60 ........................................ (72,000)
15,000 hrs. allowed x P10 x .60 ........................................ (90,000)
Controllable variance .................................................................... P 8,100 unfav. P (700) fav.

Budgeted allowance based on standard

hours allowed ......................................................................... P 132,000 P 150,000
Standard hours allowed x Standard factory
overhead rate:
12,000 hrs. x P10 .............................................................. (120,000)
15,000 hrs. x P10 .............................................................. (150,000)
Volume variance............................................................................ P 12,000 unfav. 0

3. Standard direct labor hours budgeted for May production were 5,000, with factory overhead at that level
budgeted at P25,000, of which P15,000 is variable. Actual labor hours for the month were 4,800; however,
the number of standard labor hours allowed for actual May production is 5,200. Actual factory overhead
incurred during the month was P25,600.

Required: Compute the overall factory overhead variance and analyze it using the three-variance method (i.e.,
the spending variance, the variable efficiency variance, and the volume variance). Indicate whether the
variances are favorable or unfavorable.
SOLUTION

Actual factory overhead ................................................................ P 25,600

Standard overhead chargeable to production (5,200
standard hours allowed x P5 overhead rate).......................... 26,000
Overall factory overhead variance ................................................ P (400) favorable

Actual factory overhead ................................................................ P 25,600

Budget allowance based on actual hours:
Variable overhead (4,800 actual hours x P3) .......................... P14,400
Fixed overhead........................................................................ 10,000 24,400
Spending variance ......................................................................... P 1,200 unfavorable

Budget allowance based on actual hours (from above) ............... P 24,400

Budget allowance based on standard hours:
Variable overhead (5,200 standard hours x P3) ..................... P15,600
Fixed overhead........................................................................ 10,000 25,600
Variable efficiency variance .......................................................... P (1,200) favorable

Budget allowance based on standard hours (from above) ........... P 25,600

Standard factory overhead chargeable to production
(from above) ........................................................................... 26,000
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Volume variance............................................................................ P (400) favorable

Spending variance ......................................................................... P 1,200

Variable efficiency variance .......................................................... (1,200)
Volume variance............................................................................ (400)
Overall factory overhead variance ................................................ P (400) favorable

4. In May, the management of Kentucky Co. received the following data for its Bluegrass Products Division:

Standard1 Actual
Units produced ................................................................................................ 5,000 5,100
Direct labor hours ........................................................................................... 10,000 10,300
Fixed factory overhead.................................................................................... P12,000 P13,000
Variable factory overhead ............................................................................... P30,000 P34,500

1
Denotes normal capacity used for predetermined overhead rate computation.

Required: Prepare a factory overhead variance analysis for May, using the four-variance method. (Indicate
whether each variance is favorable or unfavorable.)

SOLUTION

Actual factory overhead ......................................................................... P 47,500

Budget allowance based on actual hours worked:
Fixed factory overhead .................................................................... P12,000
Variable factory overhead:

P30,000
10,300 actual hrs. x ---------------- ............................................... 30,900 42,900
10,000 DLH

Spending variance .................................................................................. P 4,600 unfav.

Budget allowance based on actual hours worked ................................. P 42,900

Actual hours x standard overhead rate:

P30,000 + P12,000
10,300 hrs. x -------------------------- .............................................. 43,260
10,000 DLH

Idle capacity variance ............................................................................. P (360) fav.

Budget allowance based on actual hours worked ................................. P 42,900

Budget allowance based on standard hours allowed:
Fixed expense................................................................................... P12,000
Variable expense (10,200 standard hours
allowed x P3 variable overhead rate) ........................................ 30,600 42,600
Variable efficiency variance ................................................................... P 300 unfav.

Actual hours (10,300) x fixed overhead rate (P1.20) ............................. P 12,360

Standard hours allowed (10,200) x fixed overhead
rate (P1.20) ...................................................................................... 12,240
Fixed efficiency variance ........................................................................ P 120 unfav.

MIX, & YIELD VARIANCES

When calculating materials variances using variance analysis, one issue that can arise is that a product involves
the use of more than one type of material.
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If the different materials are not interchangeable, then separate price and usage variances can be calculated.
However, if substitution of one material for another can occur, then it is more useful to calculate mix and yield
variances.

ASIC (Average Standard Input Cost) = Total Std. Input Cost/Total Std. Input Quantity
Yield % = Standard Output Cost/Standard Input Quantity
ASOC (Average Standard Output Cost) = Total Standard Input Cost/Total Standard Output Quantity
Mix Variances

A mix variance is used to monitor the cost of material. For instance, if more of an expensive material has been
used and less of a cheap material, then the overall cost will be higher - and the variance adverse.

Yield Variances

A yield variance measures the efficiency of turning the inputs into outputs. If the yield variance is adverse, it
suggests that actual output is lower than the expected output. This could be due to labor inefficiencies, higher
waste, inferior materials, or using a cheaper mix with a lower yield.

PRACTICE PROBLEMS:

Materials Mix and Yield Variance Analysis.

Kreutzer Candle Co. manufactures candles in various shapes, sizes, colors, and scents. Depending on the
orders received, not all candles require the same amount of color, dye, or scent materials. Yields also vary,
depending upon the usage of beeswax or synthetic wax. Standard ingredients for 1,000 lbs. of candles are:

Standard Cost
Standard Mix per Pound
Input:
Beeswax ........................................................................................ 200 lbs. P1.00
Synthetic wax ................................................................................ 840 .20
Colors ............................................................................................ 7 2.00
Scents ............................................................................................ 3 6.00
Totals ...................................................................................... 1,050 lbs.

Standard output .................................................................................. 1,000 lbs.

Price variances are charged off at the time of purchase. During January, the company was busy manufacturing
red candles for Valentine's Day. Actual production then was:

Input:
Beeswax ............................................................................................................... 4,100
Synthetic wax ....................................................................................................... 13,800
Colors ................................................................................................................... 2,200
Scents ................................................................................................................... 60
Totals ............................................................................................................. 20,160 lbs.

Actual output ............................................................................................................. 18,500 lbs.

Required: Compute the materials mix variance and the materials yield variance. (Indicate whether each
variance is favorable or unfavorable and round to three decimal places.)

SOLUTION

Actual quantities at individual standard materials cost............................................. P 11,6201

Actual input quantity at weighted average of standard
materials cost (20,160 x P.3812) .......................................................................... P 7,681
Materials mix variance ............................................................................................... P 3,939 unfav.
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Actual input quantity at weighted average of standard
materials cost (20,160 x P.3812) .......................................................................... P 7,681
Actual output quantity at standard materials cost per
pound of output (18,500 lbs. x P.403) .................................................................. 7,400
Materials yield variance ............................................................................................. P 281 unfav.

1
Beeswax .................................................... 4,100 lbs. @ P1 per lb. ..................................... P 4,100
Synthetic wax............................................ 13,800 lbs. @ P.20 per lb. .................................. 2,760
Colors ........................................................ 2,200 lbs. @ P2 per lb. ..................................... 4,400
Scents........................................................ 60 lbs. @ P6 per lb. ..................................... 360
20,160 lbs. ......................................................... P 11,620

2
Weighted average standard materials costs:
Beeswax .................................................... 200 lbs. @ P1 ................................................ P 200
Synthetic wax............................................ 840 lbs. @ P.20 ............................................. 168
Colors ........................................................ 7 lbs. @ P2 ................................................ 14
Scents........................................................ 3 lbs. @ P6 ................................................ 18
1,050 lbs. ......................................................... P 400

$400
Standard materials cost = = $.381 per lb .
1,050 lbs .

3
Standard materials costs $400
= = $.40 per lb . cost per unit of output
Standard output 1,000 lbs .

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