Chapter five measuring yield, mix and quantity effects learning Objectives

93000 kg of rye at €0.20 per kg REQUIRED) Calculate the total direct materials price and efficiency variances for November 2001.
2) Calculate the total direct materials mix and yield variances for November 2001.
3) Comment on your results in requirements 1 and 2.
5. Direct materials price and efficiency variances, direct materials yield and mix variances,
perfume manufacturing. (SMA, adapted) (40 minutes)
Markku Antero Oy produces perfume. To make this perfume, Markku Antero uses three different types of fluid. Tartarus, Erebus and Uranus are used in standard proportions of 3
,
10 4
,
and ,
10 3
their standard costs are $6.00, $3.50 and $2.50 per liter, respectively.
The chief engineer reported that in the past few months the standard yield has been at on 100 liters of mix. The company maintains a policy of not carrying any direct materials, as stock storage space is costly.
Last week, the company produced 75 000 liters of perfume at a total direct materials cost of €449 500. The actual number of liters used and costs per liter for the three fluids areas follows:
Direct materials Actual liters Costs per liter
Tartarus
45000
Erebus
35000 Uranus
20,000 REQUIRED. Calculate the total direct materials price and efficiency variances for perfume made in the last week. Calculate the total direct materials yield and mix variances for the last week. Explain the significance of the price, yield and mix variances from management’s perspective 6. Direct materials price and efficiency variances, direct materials yield and mix variances, food processing. (50 minutes)
Tropica, AB, processes tropical fruit into fruit salad mix, which it sells to a food- service company. Tropica has in its budget the following standards for the direct materials inputs to produce 80 kg of tropical fruit salad kg of pineapple at SFr 1.00 per kg
SFr 50 30 kg of watermelon at SFr 0.50 per kg
15 20 kg of mango at SFr 0.75 per kg
15 25

100
SFr Note that 100 kg of input quantities are required to produce 80 kg of fruit salad. No stocks of direct materials are kept. Purchases are made as needed, so all price variances are related to direct materials used. The actual direct materials inputs used to produce 54000 kg of tropical fruit salad for the month of October were kg of pineapple at SFr 0.90 per kg SFr 32 760 18200 kg of watermelon at SFr 0.60 per kg
10920 kg of mango at SFr 0.70 per kg
10780 70000
SFr REQUIRED Calculate the total direct materials price and efficiency variances in October Calculate the total direct materials yield and mix variances for October Comment on your results in requirements 1 and 2.
4 How might the management of Tropica use information about the direct materials yield and mix variances. Direct materials efficiency variance, mix and yield variances working backward minutes)
Calypso, SA, manufactures and sells fertilisers. Calypso uses the following standard direct materials costs to produce 1 tonne of fertiliser of the input materials is Alpha at $400 per tonne $360 25% of the input materials is Gamma at $200 per tonne
Total standard cost of 1.2 tonnes of inputs Note that 1.2 tonnes of input quantities are required to produce 1 tonne of fertiliser. No stocks of direct materials are kept. Purchases are made as needed, so all price variances are related to direct materials used. Calypso produced 2000 tonnes of fertiliser in a particular period.
The total direct materials yield variance for the period was €35 000 U. The actual input mix for the period was 50% of Alpha and 50% of Gamma.
REQUIRED
1 Calculate the individual direct materials yield variances for the period Calculate the individual and total direct materials mix variances for the period Calculate the individual and total direct materials efficiency variances for the period Briefly describe the conclusions you would draw from the variance analyses.
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8. Direct service labour price, efficiency, yield and mix variances. (40 minutes) O’Connell Associates, a firm of architects, has three levels of professional staff principals
(managers), who manage all aspects of the architectural job senior architects, who are responsible for the main designs and junior architects, who provide technical support.
Budgeted costs for five architectural jobs done over a recent period areas follows principal-hours at $105 per hour
$63,000 18000 senior-hours at $75 per hour
135,000 3,600 junior-hours at $25 per hour Actual hours worked and the actual rates per hour to complete the five jobs are
295 principal-hours at $108 per hour 2360 senior-hours at $70 per hour 3245 junior-hours at $30 per hour
97,350
REQUIRED
1 Calculate the total direct labour price and efficiency variances for the five jobs Calculate the total direct labour mix and yield variances for the five jobs Comment on your results in requirements 1 and 2.
4 How might managers use information about the direct labour yield and mix variances 9. Variance analysis of contribution margin, multiple products working backwards. (30
minutes)
Rusti-Verres, SNC, sells two brands of wineglasses Choc and Chic. RustiVerres provides the following information for sales in the month of June 2002:
Static-budget total contribution margin
SFr Budgeted units to be sold of all glasses in June 2002 2000 units Budgeted contribution margin per unit of Choc
SFr 2 per unit Budgeted contribution margin per unit of Chic
SFr 6 per unit Total sales-quantity variance
SFr 1400 U Actual sales-mix percentage of Choc
60%
All variances are to be calculated in contribution-margin terms.
REQUIRED
1 Calculate the sales-quantity variances for each product for June 2002.
2 Calculate the individual product and total sales-mix variances for June. Calculate the individual product and total sales-volume variances for
June 2002.
3 Briefly describe the conclusions you would draw from the variances.
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PART III
Case study problems
Zeros plc
Falconer Mitchell, University of Edinburgh
This case is concerned with the use of ROI to measure divisional performance. It also addresses the use of an integrated standard costing system to produce meaningful profit statements where standard setting is problematic.
The board of Zeros plc assesses divisional performance within the company primarily on the basis of a return on investment ratio. This is computed as follows:
ROI
assets
total
of
value
Book
rofit
Operatingp


100
The figure of operating profit is obtained from a standard-costing-based profit statement (see
Exhibit 301.1 for the two most recent such statements).
The Blank Division
In terms of turnover the Blank Division is the second largest division within the company.
The divisional manager is Joe Cool who has worked in the division for over 30 years, initially as a management accountant and then as manager from 1990. He is 63 years old and will retire in 18 months time. In accordance with aboard policy introduced to improve motivation at divisional level, his current remuneration contains a substantial bonus element based on divisional operating profit. In addition, his retirement pension will be based upon his average total earnings in his last three working years.
The Blank Division was resituated in a town-centre freehold site which was purchased in 1989. A custom-built factory was erected on the site with considerable financial aid from the government, and was equipped with what were, at the time the most modern machines available. It is a matter of considerable pride to Joe that much of this equipment has been conscientiously maintained and is still in use today. In the accounting records the freehold site and factory building are still valued at historic cost.
The Blank Division produces a wide range of sizes of surgical needles, although all are sold at a standard price (see Exhibit 301.2). Although the market is growing the competition is intense, being based on both price and, particularly, product quality. Standard costs are revised at the start of each financial year (see Exhibit 301.2) and are based on the middle- range size of surgical needle produced in the division. It is frequently pointed out at board meetings by Joe Cool that the Blank Division can still achieve a 33% markup on its standard unit cost, and that no competing firm can approach this level of margin.

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