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Sorry I’ve been constantly posting here. So I’ll put two questions in this time.
1. Why would a favourable mix variance mean an adverse yield variance?
Does a favourable mix variance always mean that cheaper materials were used and thus always lead to more wastage?2. “Given that there will only be an opportunity cost if the seller does not have any spare capacity.” This is taken from the technical article of Transfer Pricing.
I am not getting it…🙁 Thank you~
Before I answer, two things 🙂
Firstly, although I appreciate your thought in putting two questions together, please in future create separate threads. (It is so that other students can see the heading and can more easily benefit from the answers)
Secondly, have you actually watched my free lectures (because both these points are dealt with in the lectures and I obviously cannot type out all the lectures here!)?
1. It won’t necessarily mean an adverse yield variance, but it certainly could do. A favourable mix variance always means they used more of the cheaper material (and less of the expensive), and this is therefore likely to lead to more wastage.
2. There is only an opportunity cost if sales externally are being lost. If they have spare capacity then they can still supply externally and therefore they will not lose any external sales. (For a fuller explanation, with examples, then again you need to watch the lecture)
@johnmoffat said:
Before I answer, two things 🙂Firstly, although I appreciate your thought in putting two questions together, please in future create separate threads. (It is so that other students can see the heading and can more easily benefit from the answers)
Secondly, have you actually watched my free lectures (because both these points are dealt with in the lectures and I obviously cannot type out all the lectures here!)?
1. It won’t necessarily mean an adverse yield variance, but it certainly could do. A favourable mix variance always means they used more of the cheaper material (and less of the expensive), and this is therefore likely to lead to more wastage.
2. There is only an opportunity cost if sales externally are being lost. If they have spare capacity then they can still supply externally and therefore they will not lose any external sales. (For a fuller explanation, with examples, then again you need to watch the lecture)
Oh ok thank you. I’ll keep it in mind to make separate threads in the future.
I did go through all the lectures but it was some time ago.. So I did the Transfer Pricing examples again. Everything is clear except that last bit from example 8. Where the lost contribution is 10 hours of the labour time x $4..
But isn’t $3 dollars the contribution for product Y…
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