975 tones of Jonagold at actual cost of per tone 93600 6500 tones of apples 507 Standard cost of 4000 tones of cider at €123.20 per tone
Total variance to be explained
$
14 850 UGiven the standard ratio of 1.6 tonnes of apples to 1 tonne of cider, 6400 tonnes of apples should be used to produce 4000 tonnes of cider. At the standard mix, the quantities of each type of apple required are:
Golden Delicious 0.50 x 6400 = 3200 tonnes
British Coxes 0.30 x 6400 = 1920 tonnes
Jonagold 0.20 x 6400 = 1280 tonnes Exhibit 17.1 presents the familiar approach to analyzing the flexible-budget direct materials variance discussed in Chapter 15. The direct materials price and efficiency variances are calculated separately for each input material and then added together. The variance analysis prompts Aliya to investigate the unfavorable price and efficiency variances why did they pay more for the apples and use greater quantities than they should have Were the market prices of apples higher,
in general, or could the Purchasing Department have negotiated lower prices Did the inefficiencies result from inferior apples or from problems in processing?
The analysis in Exhibit 17.1 may suffice when the three direct materials used are not substitutes. Managers control each individual input, and no discretion is permitted regarding the substitution of materials inputs. For example, there is often a specified mix of parts needed
for the assembly of cars, radios and washing machines. A car needs both an engine and a gearbox one cannot be substituted for the other. In these cases, all deviations from the input—output relationships are due to efficient or Inefficient usage of individual direct materials. Thus, the price and efficiency valances individually calculated for each material typically provide the information necessary for decisions.
Exhibit 17.1 Direct materials price and efficiency variances for Aliya Ltd for June Flexible budget
Actual costs Budgeted inputs
incurred allowed for actual(Actual inputs Actual inputs outputs achieved x Actual prices) x Budgeted prices x Budgeted prices (1)
(2) Golden Delicious 3250 xxx British Coxes 2275 xxx 153600
Jonagold 975 xxx U $4450 U Total price variance Total efficiency variance
$14850 U
Total flexible-budget variance
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