Answered: Crex Co was set up by Cynthia Rex who…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Transcribed Image Text:Crex Co was set up by Cynthia Rex who created her own brand of chalk paint 20 years ago. Using her background in fine art, she developed this specialist chalk paint to be used in the restoration of furniture and to decorate accessories. The chalk paints are exclusively available through Crex Co's network of over 800 independent stockists who are located in over 30 countries around the world. The manufacturing process begins with the three chemicals required for the paint being measured on electronic scales. A worker then takes the chemicals and places them into a machine for mixing. Once mixed the worker removes the mixture from the machine and transfers it to tin containers. The standard material costs per litre of chalk paint are as follows: Litres required $ per litre 0.80 1.20 0.15 1.40 0.10 0.80 1.05 Material Latex paint Plaster of Paris Calcium carbonate At the end of the last period, actual output of the chalk paint was 3,325 litres and actual data relating to this production is: Materials used Latex paint Plaster of Paris Calcium carbonate Litres 2,140 875 849 $ per litre 1.30 1.37 0.73

Over the last year, several periods have reported an adverse material yield variance.
Which of the following circumstances could have caused an adverse material yield variance?
(1) Failure to extract the expected amount of material from the mixing machine
(2) Temporary supply shortage which results in a price rise of one of the materials
(3) Poor management supervision over the workers in the manufacturing process
(4) Adverse chemical reaction during mixing which caused an abnormal loss
O2 and 3 only
O1 and 4 only
O 1, 2, 3 and 4
O 1, 3 and 4 only

Expert Solution

Step 1: Define adverse material yield variance

Material yield variance, also known as material quantity variance, is the difference between the actual quantity of material used in production and the standard quantity that should have been used. The difference is than multiplied by standard cost. An adverse material yield variance occurs when the actual quantity of material used in production is greater than the standard quantity that should have been used.

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