Question

1) Modern Furniture Ltd. makes classic computer workstations. One of their products is a wooden workstation. The exterior is made of walnut, a high quality wood, but the interiors are made of pine, a less expensive wood. The budgeted direct material quantities and prices for one workstation are:

                                                                        Rate per           Cost for

                                                Quantity           Input Unit         One Unit

Walnut                              6 square metres $58/square metre       $348

Pine                                  2 square metres $20/square metre         $40

During the month of September 440 desks were produced. The actual material volume and costs were:

                                                  Total                  Total

                                                Quantity               Cost

Walnut                       2,552 square metres    $153,120

Pine                              638 square metres     $ 11,484

Calculate the direct materials mix and yield variances for the walnut. (4)

Answer 1

	Standard Quantity	Standard Price	Standard Cost	Actual Quantity	Actual Price	Actual Cost	Standard Mix
Walnut	2,640 (6*440)	$58	$153,120 (2,640*$58)	2,552	$60 ($153,120/2,552)	$153,120	2,392.5 [(2,640/3,520)*3,190]
Pine	880 (6*440)	$20	$17,600 (880*$20)	638	$18 ($11,484/638)	$11,484	797.5 [(880/3,520)*3,190]
Total	3,520		$170,720	3,190		$164,604	3,190

1. Direct Material Mix Variance = Standard Price(Standard Mix - Actual Quantity)

Walnut = $58(2,392.5-2,552) = $58*159.5= $9,251 Unfavourable

Pine = $20(880-638) =$20*242= $4,840 Favourable

Total Direct Material Variance= $4,411 ($9,251- $4,840)

2. Direct Material Yield Variance = Standard Price(Standard Quantity - Standard Mix)

Walnut = $58(2,640-2,392.5) = $58*247.5 = $14,355 Favourable

Pine = $20(880-797.5) = $20*82.5 = $1,650 Favourable

Total Material Yield Variance = $16,005 Favourable ($14,355+1,650)