Houston Corporation manufactures a wide variety of chemical compounds and liquid

Question

Houston Corporation manufactures a wide variety of chemical compounds and liquids for industrial uses. The standard mix for producing a single batch of 1,000 liters of Rust-Off is as follows: Input Chemical Quantity (in liters) Cost (per liter) Total Cost z-Alpha 600 $ 9 $ 5,400 z-Beta 450 12 5,400 z-Gamma 200 24 4,800 1,250 $ 15,600 There is a 20 percent loss in liquid volume during processing due to evaporation. The finished liquid is put into 5-liter bottles for sale. Thus, the standard material cost for a 5- liter bottle is $78 [= ($15,600 ÷ 1,000 liters) × 5 liters per bottle]. The actual quantities of direct materials and the cost of the materials placed in production during March were as follows (materials are purchased and used at the same time): Input Chemical Quantity (in liters) Total Cost z-Alpha 50,400 $ 423,360 z-Beta 37,040 400,464 z-Gamma 16,960 417,216 104,400 $ 1,241,040 A total of 16,000 bottles (80,000 liters) were produced during March.

Required: Calculate the total direct material variance for the liquid product for the month of March and then further analyze the total variance into: (a) & (b) Materials price and efficiency variances, materials mix and yield variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Do not round your intermediate calculations. Round “Standard mix values” to 2 decimal places and the final answers to the nearest dollar amount.)

Explanation / Answer

Answer a. Material Price Variance = (SR - AR) X AQ SR SQ for 1000 Ltrs SQ (for 8000 Ltrs) TSC AQ AR TAC z-Alpha                       9                     600            48,000              432,000            50,400           8.40          423,360 z-Beta                     12                     450            36,000              432,000            37,040         10.81          400,464 z-Gamma                     24                     450            36,000              864,000            16,960         24.60          417,216          120,000          1,728,000          104,400 Material Price Variance = (SR - AR) X AQ z-Alpha (9-8.40) X 50400      30,240.00 (F) z-Beta (12 - 10.81) X 37040      44,016.00 (F) z-Gamma (24 - 24.60) X 16960      10,176.00 (U) Total Material price Variance      64,080.00 (F) Answer b. Material Efficiency /quantity Variance = (SQ - AQ) X SR z-Alpha (48000- 50400) X 9            21,600 (U) z-Beta (36000 - 37040) X 12            12,480 (U) z-Gamma (36000 - 16960) X 24          456,960 (F) Total Material Quantity Variance          422,880 (F) Answer c. Material Mix Variance = (ASQ - AQ) X SR SR SQ for 1000 Ltrs ASQ SQ (for 8000 Ltrs) TSC AQ AR TAC z-Alpha                       9                     600 41760                48,000          432,000       50,400                 8.40    423,360 z-Beta                     12                     450 31320                36,000          432,000       37,040              10.81    400,464 z-Gamma                     24                     450 31320                36,000          864,000       16,960              24.60    417,216          104,400              120,000      1,728,000    104,400 Material Mix Variance = (ASQ - AQ) X SR z-Alpha (41760- 50400) X 9            77,760 (U) z-Beta (31320 - 37040) X 12            68,640 (U) z-Gamma (31320 - 16960) X 24          344,640 (F) Total Material Mix Variance          198,240 (F) Answer d. Material Yield Variance = (SQ - ASQ) X SR z-Alpha (48000 - 41760) X 9            56,160 (F) z-Beta (36000 - 31320) X 12            56,160 (F) z-Gamma (36000 - 31320) X 24          112,320 (F) Total Material Yield Variance          224,640 (F)

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