Cost Accounting 2

Fourth Year
Second Semester 2020-2021
Chapter (7)
Mix & Yield Variances
Part (Dr. El Ghareeb)(3)
Presented by: Dr. Ahmed Mokhtar
We have studied The Webb Company example
illustrates how to calculate price and efficiency
variances for production inputs when there is a
single form of each input.
Webb used a single material (cloth) and a single
type of direct labor. But what if managers have
leeway in combining and substituting inputs?
For example, Del Monte Foods can combine
material inputs (such as pineapples, cherries, and
grapes) in varying proportions for its cans of fruit
cocktail. Within limits, these individual fruits are
substitutable inputs in making the fruit cocktail.
• We illustrate how the efficiency variance
discussed in this chapter can be subdivided
into variances that highlight the financial
impact of input mix and input yield when
inputs are substitutable
• Example. Mode Company also manufactures
jackets but, unlike Webb, employs workers of
different skill (or experience) levels. Workers
are of Low, Medium, or High skill.
• They are compensated accordingly. Mode’s
production standards require 0.80 labor-hours
to produce 1 jacket; 50% of the hours are
budgeted to be Low skill, 30% Medium, and
20% High. The direct manufacturing labor
inputs budgeted to produce 1 jacket are as
follows:
With an expected $16 in labor cost for a jacket that requires 0.80 labor hours, note that
the production standards imply a weighted average labor rate of $20 per hour ($16 , 0.80
hours).
In April 2017, Mode produced 10,000 jackets using a total of 9,000 labor-hours. The
breakdown for this input usage is as follows:
• Direct Manufacturing Labor Price and Efficiency Variances for
Mode Company for April 2017a
• Direct Manufacturing Labor Yield and Mix Variances for
Mode Company for April 2017a
• Direct Manufacturing Labor Mix Variance The
total direct manufacturing labor mix variance
is the sum of the direct manufacturing labor
mix variances for each input:
The total direct manufacturing labor mix variance is favorable because, relative to the
budgeted mix, Mode substitutes 5% of the cheaper Medium skill labor for 5% of the
more-expensive High skill.
• Direct Manufacturing Labor Yield Variance
The yield variance is the sum of the direct
manufacturing labor yield variances for each
input:
 Assignment
• Solved Problems
• 7-27 Mix Variance focus on Exhibit A & B
• 7-29 Mix Variance focus on Exhibit A & B
• Solve yourself
• 7-40
• 7-42
• The coming lecture will be MCQ on Ch. 7