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14-37 (Cont'd.)

2.Solution Exhibit 14-37B presents the total direct materials yield and mix variances for Greenwood Inc. for November 2003.  

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

=

×

×  

Tolman= (310,000 – 300,000) × 0.15 × $0.30 = 10,000 × 0.15 × $0.30 = $   450 U

Golden Delicious= (310,000 – 300,000) × 0.60 × $0.26 = 10,000 × 0.60 × $0.26 =     1,560 U

Ribston= (310,000 – 300,000) × 0.25 × $0.22 = 10,000 × 0.25 × $0.22 =     550 U

Total direct materials yield variance$2,560 U

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

= × ×

Tolman= (0.20 – 0.15) × 310,000 × $0.30 =     0.05  × 310,000 × $0.30 =$4,650 U

Golden Delicious= (0.50 – 0.60) × 310,000 × $0.26 =  – 0.10  × 310,000 × $0.26 =  8,060 F

Ribston= (0.30 – 0.25) × 310,000 × $0.22 =     0.05  × 310,000 × $0.22 =  3,410 U

Total direct materials mix variance$       0 U

3.Greenwood paid less for  Tolman and Ribston apples and, so, had a favorable direct materials price variance of $3,100.  It  also had an unfavorable efficiency variance of $2,560.  Greenwood would need to evaluate if these were unrelated events or if the lower price resulted from the purchase of apples of poorer quality that affected efficiency.  The net effect in this case from a cost standpoint was favorable––the savings in price being greater than the loss in efficiency.  Of course, if the applesauce is of poorer quality, Greenwood must also evaluate the potential effects on current and future revenues that have not been considered in the variances described in requirements 1 and 2.

The unfavorable efficiency variance is entirely attributable to an unfavorable yield.  The actual mix does deviate from the budgeted mix but at the budgeted prices, the greater quantity of Tolman and Ribston apples used in the actual mix exactly offsets the fewer Golden Delicious apples used.  Again, management should evaluate the reasons for the unfavorable yield variance.

14-54

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