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In a question, the following information is given:
Materials kilos price per kilo total
A 15 4 60
B 12 3 36
C 8 6 48
35 144
standard loss (3)
32
why in solution, while calculating, standard cost,
materials is taken to be (144/32) and not /35?Also, would you please explain, how do we calculate the yield when this type of ‘loss’ is involved.
The question is from Kaplan Kit: Question FERTICOM PLC
Help would be appreciated.
I do not have a Kaplan Revision Kit.
However, the reason that the standard cost per kg is 144/32 is that in order to produce 32kg the total cost is $144. If everything goes perfectly, then they will buy 32kg for every 32kg that they produce, they will mix the 35kg in the right way, and they will lose 3kg for every 35kg that they put in.
With regard to the variances, the expenditure variance compares the actual cost with standard cost of the actual input (actual purchases). The mix variance compared the actual mix with the standard mix for the actual input (actual purchases).
For the yield variance, we compare the actual total input (actual purchases) with what they should have input for the actual production. For example, if with the above figures, they actual produced 32,000 kg, then they should have input 35000kg (35 kg for every 32kg output). If they actually input 36000 kg, then they have lost more that they should have done and so there is an adverse yield variance.
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