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14-36 (Cont'd.)

The total direct materials mix variance can also be computed as the sum of the direct materials mix variances for each input:

= × ×

Echol=(0.28 – 0.30)× 86,000 × $0.20  =  – 0.02 × 86,000 × $0.20= $344 F

Protex=(0.18 – 0.20)× 86,000 × $0.45  =  – 0.02 × 86,000 × $0.45=  774 F

Benz=(0.42 – 0.40)× 86,000 × $0.15  =     0.02 × 86,000 × $0.15=  258 U

CT40=(0.12 – 0.10)× 86,000 × $0.30  =     0.02 × 86,000 × $0.30=  516 U

Total direct materials mix variance$344 F

3.Energy Products used a larger total quantity of direct materials inputs than budgeted, and so showed an unfavorable yield variance.  The mix variance was favorable because the actual mix contained more of the cheapest input, Benz, and less of the most costly input, Protex, than the budgeted mix.  The favorable mix variance offset some, but not all, of the unfavorable yield variance––the overall efficiency variance was unfavorable. Energy Products will find it profitable to shift to the cheaper mix only if the yield from this cheaper mix can be improved.  Energy Products must also consider the effect on output quality of using the cheaper mix, and the potential consequences for future revenues.

Solution Exhibit 14-36

Columnar Presentation of Direct Materials  Efficiency,Yield and Mix Variances

for The Energy Products Company for August 2003

Actual Total Quantity

of All Inputs Used

× Actual Input Mix

× Budgeted Price

(1)

Actual Total Quantity

of All Inputs Used

× Budgeted Input Mix

× Budgeted Price

(2)

Flexible Budget:

Budgeted Total Quantity of  All Inputs Allowed for Actual Output Achieved

× Budgeted Input Mix

× Budgeted Price

(3)

Echol86,000 × 0.28 × $0.20 = $  4,816

Protex86,000 × 0.18 × $0.45 =6,966

Benz86,000 × 0.42 × $0.15 = 5,418

CT4086,000 × 0.12 × $0.30 =

$20,296

86,000 × 0.30 × $0.20 = $  5,160

86,000 × 0.20 × $0.45 =    7,740

86,000 × 0.40 × $0.15 =    5,160

86,000 × 0.10 × $0.30 =

$20,640

84,000 × 0.30 ×$0.20 = $  5,040

84,000 × 0.20 × $0.45 =    7,560

84,000 × 0.40 × $0.15 =    5,040

84,000 × 0.10 × $0.30 =     2,520

$20,160

$344 F$480 U

Total mix varianceTotal yield variance

$136 U

Total efficiency variance

14-51

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