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To produce 19 literes of product x, standard input mix of 8 literes of chemical A and 12 literes of chemical B is required. Chemical A has a standard cost of $20 per liter and chemical B has a standard cost of $25 per liter.
During September, the actual results showed that 1,850literes of product x were produced, using a total input of 900literes of chemical A and 1,100 literes of chemical B.
The actual costs of chemical A and B were at the standard cost of $20 and $25 per liter respectively.
Answer: The yield is Adverse and = 1220I understand the yield is for every 20 litres of total input, they should get 19 litres of output.
The actual total input was 2,000 litres (900 + 1100) and so they should get output of 19/20 x 2000 = 1900 litres.
The actual output was only 1850 litres and so the yield variance (-50) is adverse.
However, I really dont know how to arrive 1220. I calculated: with 19 kg at yield they paid 460usd (8*20+12*25), so 1kg of yield costs: 24.21usd, therefore, 50kg difference cost: 1210usd. The answer is 1220, can you help to advise where I am wrong?
Thank you very much, sir!
The answer is $1,210 (not $1,220) and the difference is due to rounding which is irrelevant in the exam.
I find it easier and more logical to do it the way that I show in my free lecture on mix and yield variances.
They actually input a total of 2,000 litres. If it had been at standard mix then 8/20 x 2,000 = 800 would have been A, and 12/20 x 2,000 = 1,200 would have been B. At standard cost this would have cost a total of $46,000.
For the actual production of 1,850 units, they should have used 8/19 x 1850 = 778.95 of A, and 12/19 x 1850 = 1168.42 of B. (A total of 20/19 x 1850 = 1947.37)
At standard cost this would have cost a total of $44,790Therefore the variance is 46,000 – 44,790 = $1,210.
Thank you very much sir,
I have watched all your lectures, always find easy to understand, but related to variance, especially the yield, when I work on actual questions, I got confuses as different text books have different approaches, and sometime different answers as in this case.
I hope that the examiners will take the result as long as it follows the methodology.Thank you very much again for all your wonderful lectures and efforts to help us. 😀
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