Tutorial 4 Advanced Variances - Mix & Yield Variance etc. PDF

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Advanced Variances. Mix & Yield Variances etc....

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SINGAPORE INSTITUTE OF TECHNOLOGY BACHELOR OF ACCOUNTANCY WITH HONOURS PROGRAMME ACC2008 MANAGEMENT ACCOUNTING & CONTROL (Trimester 2, 2020/21) TUTORIAL 4: ADVANCED VARIANCES Note: Questions 1,2 & 5 will be led by the Tutor. Questions 3,4 &6 are student led. 1. Product Tiritiri is made by mixing three materials X Y and Z which are substitutable with each other. This is the company’s first production run. There is an expected loss of 20% of the total input. The budgeted and actual results for Period 1 are shown below. There were no operating or closing inventories of any materials or of the finished product. You are the Financial and Planning Analysis (FP&A) Accountant and had worked out the total variance of $580 (A), made up of Direct Material(DM) Price Variance $40(A) and DM Efficiency Variance of $540(A). The CFO is particularly interested to know the breakdown of the DM Efficiency Variance to find out the appropriateness of the mix of material X,Y,Z and also the impact of the mix on the yield of product Tiritiri.

Output of XYZ

Budget 800kg

Actual 960kg

Material X Y Z Total input

500kg @ $5 per kg 300 kg @$6 per kg 200 kg @ $7 per kg 1,000 kg

600kg @$4.7 per kg 380 kg @$6.5 per kg 300 kg @ $7.1 per kg 1,280 kg

Calculate for Period 1: a. The total material mix variance; b. The total material yield variance. c. Show that the sum of material mix and yield variance = DM efficiency variance of $540(A) 1kg of input = 0.8 kg of output (Taking into account the 20% loss) Actual input = 1,280 kg Proportion: X = 50% Y = 30% 1

Z = 20% c) DM efficiency variance = $84 A + $456A = $540 (A)

2. Mindhunter Ltd makes a single product, of which the standard labour input per unit is: Skilled labour 6 hrs @ $12/hr Unskilled labour 4 hrs @ $7/hr During Period 1: 1,000 units were produced 5,250 hours of unskilled labour were used 5,250 hours of skilled labour were used For the 1,000 units produced, Jane the Production Supervisor worked out that 10,000 hours of both skilled and unskilled labour should have been used. However, she was not sure, if the actual mix of 50:50 was the most appropriate and she also was not sure what the impact of the mix has on the output. You are the FP&A analyst. You are required to assist her with the following: (i)

(ii)

Calculate the labour mix variances for each grade of labour and the labour yield variance in total. Use both the weighted average method and the individual units method. Explain the results to Jane.

3. Jellybean Chemicals has one product, which requires inputs from three types of material to produce batches of Synthon. Standard cost details for a single batch are shown below: Material type Standard quantity (kgs) Standard price per kg ($) S1 8 0.3 S2 5 0.5 S3 3 0.4 A standard loss of 10% of inputs is expected. Actual output was 15,408 kgs for the previous week. Details of material used were: Material Type S1

Quantity (kgs) 8,284 2

S2 S3

7,535 3,334

Required: Calculate the individual material mix variance, total yield variance and the total usage variance. 4. A business sells two products, X and Y, details for the current period as follows: Standard mix (units) standard profit ($ per unit) X

2

5

Y

3

6

Total

5

Average profit ($ per unit)

(10+18)/5

5.6

Budget sales: 200 units X and 300 Units Y Actual sales: 180 units X and 310 units Y Required: a. Calculate the sales quantity profit variance b. Calculate the sales mix profit variance using the individual method c. Calculate the sales mix profit variance using the weighted average method ($16 F)

5. The following data relates to Skilled labour grade ST1 Standard labour hours per unit 5 hours Standard labour rate $10 per hour Actual production 250 units Actual labour hours 1,450 hours Actual labour costs $13,050 During the month there was an unforeseen shortage of the skilled labour grade ST1. Semi-skilled workers ST2 were hired. As a consequence of this, the standard time was revised to 6 hours per unit. Required: Calculate labour rate and efficiency variance using a planning and operational approach.

3

6. Annabel makes and sells a single product. The standard cost and revenue per unit are as follows: Selling price Direct material A 5kg @$25 per kg Direct material B 3kg @$22 per kg Direct labour 3 hours @$10 per hour Variable Overhead 3 hours @ $7 per hour Standard contribution

$400 125 66 30 21 158

The budgeted production and sales for the period in question were 10,000 units. The mix of materials can be varied and therefore the material usage variance can be sub-divided into mix and yield variances. For the period under review, the actual results were as follows: Production and sales 9,000 units Sales revenue $4,455,000 Material cost A-35,000 kg 910,000 B-50,000 kg 1,050,000 Labour cost 30,000 hours 385,000 Variable overhead 230,000 The general market price at the time of purchase for material A and B were $21 and $19 per kg respectively. There were no opening or closing inventory during the period. Required: a. Prepare a statement detailing the variance (including planning and operational, and mix and yield variances) which reconciles the budgeted and the actual contribution. b. Prove that the sum of mix and yield variances computed in (a) will be equal to the sum of DM Quantity variances for Direct Material A and Direct Material B. c. Explain the results and usefulness to Annabel of the planning and operational , and mix and yield variances that you have calculated in a. Find out why the sales price increase – can approach the sales team. Look for team responsible for setting the standards. Management accountant....