Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 16

How could a hospital firm use the mix variances to analyze salary costs regarding emergency room services?

Step 1 of 2

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.

Cost variances

Cost variance is the difference between actual quantities (AQ) multiplied with actual price (AP) and standard quantities (SQ) multiplied with standard price (SP).

Material mix and yield variances

Production mix and yield variance comprises of material price variance and material efficiency variance i.e. combination of mix and yield variance.

Material efficiency variance indicate the variance between actual material quantity used and standard material quantity for budgeted production i.e. combination of mix and yield variance. If material efficiency variance is zero then it does not mean that mix and yield variances are also zero. Mix and yield variances could be of equal amount but with favorable and unfavorable status.