MIX & YIELD VARIANCES

Kappa Co produces Omega, an animal feed made by mixing and heating three ingredients:
Alpha, Beta and Gamma. The company uses a standard costing system to monitor its costs. The
standard material cost for 100 kg of Omega is as follows:

Input Kgs Cost per kg Cost per 100 kg

of Omega
($) ($)
Alpha 40 2·00 80·00
Beta 60 5·00 300·00
Gamma 20 1·00 20·00
–––– –––––––
Total 120 400·00
–––– –––––––
Notes

(1) The mixing and heating process is subject to a standard evaporation loss.
(2) Alpha, Beta and Gamma are agricultural products and their quality and price varies
significantly from year to year. Standard prices are set at the average market price over the last
five years. Kappa Co has a purchasing manager who is responsible for pricing and supplier
contracts.

Last month 4,600 kg of Omega was produced, using the following inputs:

Input Kgs Cost per kg Total cost

($) ($)
Alpha 2,200 1·80 3,960
Beta 2,500 6·00 15,000
Gamma 920 1·00 920
–––––– –––––––
Total 5,620 19,880
–––––– –––––––
At the end of each month, the production manager receives a standard cost operating statement
from Kappa Co’s performance manager. The statement contains material price and usage
variances, labour rate and efficiency variances.

REQUIRED:

Calculate the following variances for the last month:

(ii) material mix variance;

(ii) material yield variance.
SOLUTION

Standard Input 120kgs

Standard Output 100kgs
Therefore Normal Loss = 20kgs

Normal Loss as a percentage of input is 20 ÷ 120 = 1/6 (one sixth)

Standard cost of input is $400 ÷ 120 = $3 per kg
Standard cost of output is $400 ÷ 100 = $4 per kg

kgs
Actual Input 5620.00
Normal Loss 1/6 x 5620 = 936,67
Standard Output 4683.33

If normal loss is 1/6 (one sixth), expected output is 5/6 (five sixth)
Actual output is 4600 kgs, therefore, standard usage on actual output is (6 ÷ 5) x 4600 = 5520kgs

Standard mix ratios are 40 ÷ 120 (Alpha) = 1/3

60 ÷ 120 (Beta) = 1/2
20 ÷ 120 (Gamma) = 1/6

Standard Usage in Standard Mix

Standard usage (Alpha)= 1/3 x 5520 = 1840kgs
Standard usage (Beta)= 1/2 x 5520 = 2760kg
Standard usage (Gamma)= 1/6 x 5520 = 920kgs

Actual Usage in Standard Mix

Standard usage (Alpha)= 1/3 x 5620 = 1873.33kgs
Standard usage (Beta)= 1/2 x 5620 = 2810kgs
Standard usage (Gamma)= 1/6 x 5620 = 936.67kgs

i) Mix variance
AQSM AQAM Difference Std cost/kg Variance
(kg) (kg) (kg) ($) ($)
Alpha 1,873·33 2,200 326·67 A 2·00 653·34 A
Beta 2,810·00 2,500 310·00 F 5·00 1,550·00 F
Gamma 936·67 920 16·67 F 1·00 16·67 F
–––––––– –––––– –––––––––
5,620 5,620 913·33 F
–––––––– –––––– –––––––––
(ii) Yield variance
SQSM AQSM Difference Std cost/kg Variance
(kg) (kg) (kg) ($) ($)
Alpha 1,840 1,873·33 33·33 A 2·00 66·66 A
Beta 2,760 2,810·00 50·00 A 5·00 250·00 A
Gamma 920 936·67 16·67 A 1·00 16·67 A
–––––– –––––––– –––––––––
5,520 5,620 333·33 A
–––––– –––––––– –––––––––

Planning and Operational Variances (See notes)