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Standard Cost (price) - a predetermined cost that usually is expressed on a per unit basis

Price Variance - measures how well the business keeps unit prices of material and labor within

established standards

(DM or DL) = (Price/unit - Price/unit) * Quantity

Step One: you need to first find out the price variance for: pineapple, watermelon, and

strawberry respectively. I will show you how to do for pineapple, and leaving the other two for

you to finish yourself.

= (3640)

Hence, in actual the company spent $3640 less than what was budgeted, so it is $3640

favourable.

Finish the variance analysis for watermelon and strawberry yourself; method is the same as

pineapple. Keep in mind, if spending in actual was less than budgeted = favourable; in contrast, if

spending in actual was more than what has been budgeted = adverse/ not favourable.

Step Two: add the 3 variances you have calculated in step one, and compute the total (final)

variance. I will let you do this step yourself, but it should be looking like this:

(*Important: Here I am only making up the variances for both watermelon and

strawberry just to show you how to do the question watermelon $1000 favourable,

whereas strawberry $(2000) adverse for you to calculate the correct amount, you will

need to use the amount you calculated in step one)

Total Price Variances: (P) $3640 FAV + (W) $1000 FAV + (S) $(2000) ADV

= $2640 Favourable

Efficiency Variance - measures whether the quantity of materials or labor used to make the

actual number of units is within the standard quantity allowed for that level of production.

Same as Price Variance above actually, the method is pretty much the same in fact. It is however,

a bit trickier than price variance analysis, because you will need to find out the standard quantity

for 3 fruits respectively first before going on.

You see from the question, 54000kg of tropical fruit salad was being produced in Oct. Based on

the standard budgeted quantity, the total kg of fruits required to produce 54000kg of fruits salad

will be:

54,000kg / 80kg * 100kg = 67,500kg

67,500kg will only be needed comparing to actual spending of 70,000kg. Whats more you also

need to find out the total kg of the 3 fruits required based on budgeted amount and based their

consumption ratio:

50kg P = 5/10

30kg W = 3/10

20kg S = 2/10

100kg

Watermelon: 3/10*67,500 = 20250kg

Strawberry: 2/10*67,500 =13500kg (these are the standard kg that were budgeted)

(DM or DL) = (Quantity - Quantity) * Price/unit

Step One: you need to first find out the efficiency variance for: pineapple, watermelon, and

strawberry respectively. I will show you how to do for pineapple only, again, and leaving the

other two for you to finish yourself.

= $2650

Hence, in actual the company spent $2650 more than what was budgeted, so it is ($2650)

not favourable/adverse.

Finish the variance analysis for watermelon and strawberry yourself; method is the same as

pineapple. Keep in mind again that, if spending in actual was less than budgeted = favourable; in

contrast, if spending in actual was more than what has been budgeted = adverse/ not favourable.

Step Two: add the 3 variances you have calculated in step one, and compute the total (final)

variance. I will let you do this step yourself, but it should be looking like this:

(*Important: Here I am only making up the variances for both watermelon and

strawberry just to show you how to do the question watermelon $1000 favourable,

whereas strawberry $(2000) adverse for you to calculate the correct amount, you will

need to use the amount you calculated in step one)

= $(3650) Not Favourable

(2.) Mix and Yield Variances:

Basically you just total material into price and usage, then break down the usage into mix and yield:

Usage Mix

Yield

Price Variance

Material: Pineapple Watermelon Strawberry Total

AQSP (36400kg*1) (18200kg*0.5) (15400kg*0.75)

= 36400 = 9100 = 11550 57050

Variance 3640 FAV (1820) ADV 770 FAV 2590 FAV

AQAP = actual quantity* Actual price

AQSP = actually quantity*Standard price

Workings:

Material Part 1:

P + W + S = Total

(Actual quantity at actual mix) Mix

2. AQSM 35000 + 21000 + 14000 = 70000

(Standard Quantity at standard mix

for actual output)

The above may look confusing to you, heres the explanation: firstly, in step (1.) its pretty straight

forward. You just put in the actual amount (kg) used for each 3 fruits, and then added up together you will

get 70000kg.

Secondly, and very importantly, put this 70,000kg under step (2.)s Total, then how you get 35000,

21000 or 14000 is as followed: (using the consumption ratio I computed for you in question (1) efficiency

variance analysis) 5/10*70000 = 35000; 3/10*70000 = 21000; 2/10*70000 = 14000.

Thirdly in step (3.) how you get the amount is a bit trickier than step (2.):

From the question it said, 80kg fruit salad required 50kg P + 30kg W + 20kg S

So based on this, compute the ratio out:

P: 50/80 = 5/8

W: 30/80 = 3/8

S: 20/80 = 2/8

After you got this ratio, you will be able to calculate the amount out, BASED ON OUTPUT! (*Output

means, 54000kg actually produced out by the company)

5/8*54000 = 33750; 3/8*54000 = 20250; and last one for strawberry you can calculate yourself to see how

it worked out.

After finishing the workings above, you can now move on to part 2 to find out mix and yield variances.

Pineapple Watermelon Strawberry Total

Mix (2 1)*4 (35-36.4)*1 (21-18.2)*0.5 (14-15.4)*0.75

= (1.4) ADV = 1.4 FAV = (1.05) ADV (1.05) ADV

Yield (3 2)*4 (33.75-35)*1 (20.25-21)*0.5 (13.5-14)*0.75

= (1.25) ADV = (0.375) ADV = (0.375) ADV (2.00) ADV

Usage (3 1)*4 (33.75-36.4)*1 (20.25-18.2)*0.5 (13.5-15.4)*0.75

= (2.65) ADV = 1.025 FAV = (1.425) ADV (3.05) ADV

Notice the above (2 1)*4 means step 2s amount minus step 1s amount, and then times step 4s amount. I

found it the most useful way to remember how to get the number.

In requirement (2):

Mix a favourable variance would suggest that more lower value material is being used hence reducing

the overall average cost per unit. Vice versa.

Yield an adverse variance would suggest that less output has been achieved for a given input, i.e. that the

total input in volume is more than expected for the output achieved.

In requirement (1):

I want you to think yourself, but I will tell you some factors that cause variances:

Operational factors:

Material Price: If favourable: Bulk discounts good purchasing

If Adverse: Market price increase (shortage), Bad purchasing, delivery cost

(Different supplier? Different material? Change in quality?)

If Adverse: Defective material, theft, excessive waste/spoilage, stricter quality control

(Different batch size? Change in mix?)

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