Darch Co plans to produce 3,000 units of Product H. Each unit is budgeted to use 5 kg of materials. Darch Co’s normal supplier charges $4 per kg but is unable to supply the materials needed for the planned production of Product H. Instead Darch Co uses an alternative supplier that charges 10% more per kg. Darch Co purchases 15,500 kg of materials from the alternative supplier for the 3,000 units, costing $71,300.

What is the adverse material planning price variance for Product H?

Watton Co plans to produce 5,000 units of Product C. Each unit is budgeted to use 6 kg of materials. Watton Co’s normal supplier charges $8 per kg, but for this order Watton Co has had to use a different supplier that charged 5% more per kg. Watton Co purchased 31,200 kg of materials from the new supplier, costing $272,400.

What is the adverse material operational price variance for Product C?

Which of the following are possible problems of introducing a system of planning and operational variances?

1. Operational managers will claim that all favourable variances are due to external causes beyond their control.

2. Supervisors will be resistant to the system as they will be held responsible for poor standard setting.

Chemical X is made by combining two materials in a special process. It is normal for 10% of the volume of materials input to be lost during the process and this has been reflected in the expected yield of chemical X. In the most recent period, an adverse yield variance was recorded.

What is the most likely cause of the adverse yield variance?

The following statements have been made about the materials mix variance for a company manufacturing different products using the same type of material (measured in kg):

1. The mix variance can be calculated by taking the difference between the actual quantity in the standard mix and the actual quantity in the actual mix, then multiplying it by the actual cost per kg

2. The mix variance arises because there is a difference between what the input should have been for the output achieved and the actual output

Which of the above statements is/are correct?

Which of the following statements is NOT true about a sales mix variance?

Operation B, in a factory, has a standard time of 15 minutes. The standard rate of pay for operatives is $10 per hour. The budget for a period was based on carrying out the operation 350 times. It was subsequently realised that the standard time for Operation B included in the budget did not incorporate expected time savings from the use of new machinery from the start of the period. The standard time should have been reduced to 12 minutes.

Operation B was actually carried out 370 times in the period in a total of 80 hours. The operatives were paid $850.

What was the operational labour efficiency variance?

At the start of the year, the standard material cost of a product was estimated. The actual cost incurred during the recent month was higher than this, and the purchasing manager is suggesting that the standard should be revised. He has suggested two reasons why the standard should be revised:

1. A delay in placing some orders led to the supplier charging a premium for express delivery services. The delay was caused by poor organisation in the purchasing department

2. Market prices of the material in question have risen by 10% on world commodity markets

Which of the above would be valid reasons for revising the standard?