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- This topic has 3 replies, 2 voices, and was last updated 3 years ago by John Moffat.
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- August 25, 2021 at 9:55 am #632852
Dear John,
I am having trouble understanding the materials yield variance example in the relevant PM technical article.To calculate the yield variance, I calculated the difference between actual qty of input and st.qty of input for actual production. Then I valued it at the std cost for each input.
The solution in the article calculates the diff between actual output & std. output for actual inputs. Then the variance in physical units is valued at std. cost per unit of output.
When I think about it, the solution in the article makes sense as they have calculated the difference in actual yield vs st. yield for actual input is calculated.
But based on my understanding the method I followed also makes sense, but evidently it is not the correct solution. Could you pls help me figure out the error in my calculation of finding the difference in actual & standard qty of input for actual production, instead of actual output – st. output for actual input).
I am confused trying to figure out how to not repeat this same mistake in other yield calculation question.Sincerely,
A very grateful student of yoursAugust 25, 2021 at 4:19 pm #632891Given that Mix 2 is the optimum, the standard mix for production of 19 litres is 8 litres of A and 12 litres of B. So a total input of 20 litres to produce 19 litres of C.
They actually produced 1,850 litres of C and so the total input should have been 20/19 x 1,850 = 1,947.36 and at standard mix it should be B: 8/20 x 1947.36 = 778.95 kg and B: 12/20 x 1947.36 = 1168.42 Kg
If you cost these out at standard cost it comes to $44,790.The actual total input is 900 + 1,100 = 2,000 kg. At standard mix it would be A: 8/20 x 2,000 = 800kg and B: 12/20 x 2,000 = 1,200 kg.
If you cost these out at standard cost it comes to $46,000Therefore there is an adverse variance of $1,210
The slight difference from the answer in the article is due to rounding, but this is irrelevant in the exam (and it is unlikely that the figures in an exam question on this will need any rounding anyway 🙂 )
September 3, 2021 at 5:12 pm #634186Thanks John. I revisited the question after reading your explanation, and that has helped me figure it out.
September 4, 2021 at 10:24 am #634244You are welcome 🙂
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