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- May 18, 2021 at 8:38 am #620917
Question: Rome Co is a business which sells fresh pizza from a number of mobile food vans based at several key locations in the city centre. It offers a variety of toppings and dough bases for the pizzas and has a good reputation for providing a speedy service combined with hot fresh and tasty food to customers.
Each van employs a chef who is responsible for making the pizzas to Rome Co’s recipes and two sales staff who give the customers. All purchasing is done centrally to enable Remeo Co to negotiate bulk discounts and build relationships with suppliers.
Romeo Co operates a standard costing and variances system and the standard cost card for Remeo Co’s basic tomato pizza is as follows:
Ingredient Weight Price
Dough 0.20 7.6
Tomato sauce 0.08 2.5
Cheese 0.12 20.00
Hers 0.02 8.4In Month 3 Romeo Co sold 90 basic tomato pizzas and actual results were as follows:
Ingredient Kgs bought and used Actual cost per kg
Dough 18.9 6.5
Tomato sauce 6.6 2.45
Cheese 14.5 21.00
Herbs: 2.0 8.10In month 4, Remeo Co, sold 110 basic tomato pizzas. Actual results were as follows:
Ingredient Kgs bought and used Actual cost per kg
Dough 21.3 6.60
Tomato sauce 7.5 2.45
Cheese 14.2 20.00
Herbs 2.0 8.5
Total 45What I don’t understand in the above question is that when calculating the materials yield variance, why are the standard cost card values multiplied by 110.
Another thing that I don’t understand is that when calculating the materials mix variance, why are the standard cost card values not multiplied by 90.
May 18, 2021 at 9:01 am #620923The mix variance and the yield variance are analysing the usage variance (the usage variance is equal to the mix variance plus the yield variance).
So just as when we calculate the usage variance in basic Paper MA variance analysis, we always compare the actual usage with the standard usage for the actual production.
Therefore for month 3 the variances are calculated using the actual production of 90 pizzas, whereas for month 4 they are calculated using the actual production of 110 pizzas.
Have you watched my free lectures on mix and yield variances?
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