Fifth edition Alnoor Bhimani Charles T. Horngren Srikant M. Datar Madhav V. Rajan Farah Ahamed


Solution Exhibit Ab Columnar presentation of direct materials price and efficiency variances for Tropica AB



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Solution Exhibit Ab Columnar presentation of direct materials price and efficiency variances for Tropica AB





Actual costs
incurred
(Actual inputs
% Actual prices)
(1)



Actual inputs
% Budgeted Prices
(2)
Flexible budget
(Budgeted inputs
allowed for
actual output achieved
% Budgeted prices)
(3)
Pineapple
36,400
×
SFr 0.90
=
SFr 32,760 36,400
×
SFr 1
=
SFr 36,400 33,750
×
SFr 1
= Watermelons
18,200
×
SFr 0.60
=
SFr 10,920 18,200
×
SFr 0.50
=
SFr 9,100 20,250
×
SFr 0.50
= Mango
15,400
×
SFr 0.70
=
10,780 15,400
×
SFr 0.75
= SF 13,500
×
SFr 0.75
= All inputs
SFr 54,460

SFr 57,050
SFr 54,000


SFr 2,590 F

SFr 3,050 U Total price variance Total efficiency variance

SFr 460 U Total flexible-budget variance F = favourable effect on operating income U = unfavourable effect on operating income.
2
Solution Exhibit B presents the total direct materials yield and mix variances for Tropica, AB for October. The total direct materials yield variance can also be calculated as the sum of the direct materials yield variances for each input.

= Actual total quantity of all direct materials inputs used Budgeted total quantity of all direct materials inputs allowed for actual output achieved Budgeted direct materials input mix percentage Budgeted price of direct materials inputs
Pineapple = (70,000 – 67,500)
× 0.5 × SFr 1.00 = 2,500 × 0.5 × SFr 1.00 = SFr 1,250 U Watermelon = (70,000 – 67,500)
× 0.3 × SFr 0.50 = 2,500 × 0.3 × SFr 0.50 =
375 U Mango
= (70,000 – 67,500)
× 0.2 × SFr 0.75 = 2,500 × 0.2 × SFr 0.75 = 375 U Total direct materials yield variance
SFr 2,000 U
The total direct materials mix variance can also be calculated as the sum of the direct materials mix variances for each input Direct materials mix variance for each input = Actual direct materials input mix percentage – Budgeted direct materials input mix percentage Actual total quantity of all direct materials inputs used Budgeted price of direct materials inputs Pineapple
= (0.52 – 0.50)
× 70,000 × SFr 1.00 = 0.02 × 70,000 × SFr 1.00 =SFr 1,400 U Watermelon = (0.26 – 0.30)
× 70,000 × SFr 0.50 = –0.04 × 70,000 ×SFr 0.50 = 1,400 F Mango
= (0.22 – 0.20)
× 70,000 × SFr 0.75 = 0.02 × 70,000 ×SFr 0.75 = 1,050 U Total direct materials mix variance
SFr 1,050 U


Bhimani, Horngren, Datar and Rajan, Management and Cost Accounting, 5
th
Edition, Instructor’s Manual
© Pearson Education Limited 2012
3
Tropica, AB has traded off a favourable material-price variance of SFr 2,590 against an unfavourable material-efficiency variance of SFr 3,050. Tropica, AB should investigate if the favourable price variances on pineapples and mango were obtained by compromising quality. Both the yield and the mix variances are unfavourable. Tropica, AB could have used larger quantities of all fruits to produce the given output because of lower quality of pineapples and mango. The total direct materials mix variance is unfavourable because the actual mix of direct materials inputs had a greater proportion of the more costly inputs (pineapples and mango) than the budgeted mix.
4
Direct materials-yield and direct-materials mix variances are especially informative when management can substitute among the individual material inputs. Such substitution is possible in the processing of individual fruits into tropical fruit salad.

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