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Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher
Edition 3ISBN: 0073527114Materials Mix and Yield Variances
John’s Weed-B-Gone yard service sprays lawns to rid them of weeds. John mixes the two chemicals, Weed-X and Pest-O, in proportions depending on the climate and the particular weed problems of the season. A standard mix calls for a gallon of the mixture to combine equal parts of Weed-X and Pest-O. Weed-X has a standard cost of $8 per gallon and Pesto-O has a standard cost of $20 per gallon. Each gallon can treat 100 square yards of lawn. John expects to treat 900,000 square yards of lawn.
?For the past season, John treated 1,080,000 square yards. He used 6,600 gallons of Weed-X and 5,280 gallons of Pest-O. He paid a total of $51,150 for the Weed-X and $110,880 for the Pest-O.
Required
a. Compute the materials price and efficiency variances for the season.
b. Compute the materials mix and yield variances for the season.
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Step 1 of 7
JW mixes two chemicals WX and PO to sprays lawn to get rid of weeds. The company uses equal proportion to mix the chemicals for each gallon of mixture. The standard cost of WX is $8 per gallon and PO is $20 per gallon. The standard area to treat is 900,000 square yard. Each gallon treats 100 square yards of lawn.
In the last season, JW treated 1,080,000 square yards. The standard gallons used for treating 1,080,000 square yards would be 10,800 gallons of mixture of WX and PO chemicals.
The company has actually used 6,600 gallons of WX at a cost of $1,150 and 5,280 gallons of PO at a cost of $110,880.
a.
Material price variance and efficiency variance of the JW for the season is calculated as under:
The material price variance is the difference between standard cost of gallons used for treating the weeds and the actual cost incurred.
| Standard cost of WX per gallon (SP) | $8 |
| Actual gallons used WX | 6,600 |
| Standard cost of WX for actual gallons used (6,600*$8) | $52,800 |
| Actual price per meal (Actual revenues/actual meals ordered) ($17,820/324 meals) | $55 |
| Standard cost of PO per gallon (SP) | $20 |
| Actual gallons used PO | 5,280 |
| Standard cost of WX for actual gallons used (5,280*$20) | $105,600 |
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