Kaplan Q no 40 Material variances(june 94)

I am sorry, but I do not have the Kaplan book so I cannot answer your question about question 40.

For mix and yield variances, a loss is relevant for the yield variance. Suppose that on the standard cost card you input 100 kg of material in total and expect to lose 10% (10 kg) and therefore produce or output 90kg. The if the actual production is (say) 900kg then the input should have been 100/90 x 900 = 1000kg. If the actual input is more than 1000 kg then you have lost more than you should have done, so there is an adverse yield variance. If the actual input is less than 1000 kg, then you have input less than you expected and so there is a favourable yield variance.

So John, why do we not include the expected loss as part of the standard cost card and just gross it up there if we are expecting it?

The expected loss is shown on the cost card.

The cost might show (for example):

40Kg of material A
60 Kg of material B
for production of 90kg
Because 100 kg is input, it means they expecting to lose 10kg.

For the mix variance you take the actual total input and compare the way it is actually mixed with the way it should be mixed (for the example about 40% A and 60% :).

For the yield variance you are comparing what was actually input in total with what the standard input should have been for the actual production.

So (using the above figures again), if the actual production was 9,000 kg, then the standard input (from the cost card) should have been 9000 x 100/90 = 10,000kg. If the actual input was more that 10,000kg then it means we have lost too much and there will be an adverse yield variance.