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14-37 (Cont'd.)

Solution Exhibit 14-37B

Columnar Presentation of Direct Materials  Yield and Mix Variances

for Greenwood Inc. for November 2003

Actual Total Quantity

of All Inputs Used

× Actual Input Mix

× Budgeted Prices

(1)

Actual Total Quantity

of All Inputs Used

× Budgeted Input Mix

× Budgeted Prices

(2)

Flexible Budget:

Budgeted Total Quantity of All Inputs Allowed for Actual Output Achieved ×

Budgeted Input Mix

× Budgeted Prices

(3)

Tolman310,000 × 0.20 × $0.30= $18,600

Delicious310,000 × 0.50 × $0.26 = 40,300

Ribston310,000 × 0.30 × $0.22 =  20,460

$79,360

310,000 × 0.15 × $0.30 = $13,950

310,000 × 0.60 × $0.26 = 48,360

310,000 × 0.25 × $0.22 =

$79,360

300,000 × 0.15 × $0.30 = $13,500

300,000 × 0.60 × $0.26 = 46,800

300,000 × 0.25 × $0.22 =  16,500

$76,800

0$2,560 U

Total mix varianceTotal yield variance

$2,560 U

Total efficiency variance

F = favorable effect on operating income; U = unfavorable effect on operating income.

14-38 (15–20 min.)  Customer profitability, responsibility for

environmental clean-up, ethics.

1.Customer-profitability analysis examines how individual customers differ in their profitability.  The revenues and costs of each customer can be estimated with varying degrees of accuracy.  Revenues of IF typically would be known at the time of sale.   Many costs also would be known, e.g., the cost of materials used to manufacture the fluids sold to each customer.  A major area of uncertainty is future costs associated with obligations arising from the sale.  There are several issues here:

a.Uncertainty as to the existence and extent of legal liability.  Each customer has primary responsibility to dispose of its own toxic waste.  However, under some U.S. laws (such as the "Superfund" laws), suppliers to a company may be partially liable for disposal of toxic material.  Papandopolis needs to determine the extent of IF's liability.  It would be necessary to seek legal guidance on this issue.

b.Uncertainty as to when the liability will occur.  The further in the future, the lower the amount of the liability (assuming discounting for the time-value of money occurs.)

14-55

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