Question

The Big Beer Company is a craft brewery in a small town in Eastern Ontario. Their signature beer is an Indian Pale Ale (IPA). Budgeted costs to produce a barrel of IPA are as follows:

Input	Quantity	Price	Total Standard Cost
Direct materials	10 kg of Cascade Hops	$5.00 per kg	$ 50
	8 kg of Centennial Hops	$6.50 per kg	52

They had budgeted to make 10,000 barrels of IPA this year.

Actual results for the year were as follows:

• Produced 11,000 barrels of IPA
• Direct material purchased:
  • 125,000 kg of Cascade Hops at $5.20/kg
  • 85,000 kg of Centennial Hops at $6.40/kg
• Direct materials used:
  • 126,000 kg of Cascade Hops
  • 80,000 kg of Centennial Hops

Required:

1. Calculate the following:
   1. Direct Material Quantity (Efficiency)Variance for Centennial Hops
   2. Direct Material Mix Variance of Cascade Hops
   3. Direct Material Yield Variance of Centennial Hops
2. Give a reason for the Direct Material Yield Variance of Centennial Hops calculated above

Answer 1

Answer :

Material Quantity variance (Actual quantity - standard quantity*standard cost)

Product	Standard cost p.u	Standard quantity	Actual quantity
Centennial Hops	52.00	88,000	80,000
		(11000 units*8kg)	Given
Material quantity variance		- 416,000

Material mix variance (Actual mix - Standard mix*standard cost)

Product	Standard cost p.u	Standard Mix	Actual mix
Cascade Hops	50.00	100,000	126,000
		(10000 units * 10kg)	Given
Material Mix variance		- 1,300,000

Material Yield variance (Standard output - Actual output)*Standard costs

Product	Standard cost p.u	Standard output	Actual output
Centennial Hops	52.00	10,000	11,000
		Given	Given
Material Yield variance		- 52,000

Material yield variance is Favourable because with the standard costs $52,Big Beer Co,has produced 1000 additional units than budgeted

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