Bhimani, Horngren,
Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
Step 2: Fill in the flexible budget column (column 3) for Alpha, Gamma and in total for the 2,000 tonnes of fertiliser produced.
Step 3: Consider column 2 of Solution Exhibit 17.17. The total of column 2 in panel C is €875,000 (the total flexible-budget direct materials costs of €840,000 + the unfavourable total direct materials yield variance of €35,000 which was given in the problem. We need to find the actual quantities of all direct material inputs used, which we denote by
m. The
budgeted input mix is Alpha, 75% and Gamma, 25%. From column 2, we know that
(
m × 0.75 × €400) + (
m × 0.25 × €200) = €875,000 300
m + 50
m = €875,000
m = €875,000 ÷ 350 = 2,500 tonnes Hence, the total quantity of all direct materials inputs is 2,500 tonnes. This calculation allows us to fill in all the numbers in column 2.
Step 4: Fill in all the numbers in column 1 of Solution Exhibit 17.17, using actual quantities of all direct materials, the actual mix of inputs and budgeted prices of materials. Solution Exhibit 17.17 displays the following
total direct materials mix, total direct materials yield and direct materials efficiency variances
1Direct materials yield variances Alpha
€30,000 U
Gamma
5,000 U
Total direct materials yield variance
€35,000 U
2 Direct materials mix variances
Alpha
€250,000
F Gamma 125,000 U Total direct materials mix variance
€125,000 F
3 Direct materials efficiency variances
Alpha
€220,000 F Gamma
130,000 U Total direct materials efficiency variance
€ 90,000
F
4 Calypso SA has a total favourable efficiency variance of €90,000 F largely because of a favourable mix variance of €125,000. The favourable mix variance arises because Calypso uses a greater proportion of the cheaper Gamma input in its direct materials mix. Using more of Gamma may have caused the
unfavourable yield variance, but this unfavourable variance is more than offset by the favourable mix variance.
Bhimani, Horngren, Datar and Rajan,
Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
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