Chapter 17, Problem 32E

Labor Mix and Yield Variances

Matt’s Eat ’N Run has two categories of direct labor: unskilled, which costs $10 per hour, and skilled, which costs $20 per hour. Management has established standards per “equivalent friendly meal,” which has been defined as a typical meal consisting of a hamburger, a drink, and french fries. Standards have been set as follows:

For the year, Matt’s sold 180,000 equivalent friendly meals and incurred the following labor costs:

Required

1. a.      Compute labor price and efficiency variances.
2. b.      Compute labor mix and yield variances.

To determine

Compute materials price and Materials efficiency variances.

Answer to Problem 32E

The value of materials price variance is $5,000 U and ,materials efficiency variance is $0 for skilled labor, and for unskilled labor, the materials price variance is $90,000 U and materials efficiency variance is $30,000 F.

Explanation of Solution

Materials price variance:

Materials price variance is resultant materials price that has been computed or derived at the end of the accounting period for which the computations are being done.

Materials efficiency variance:

Materials efficiency variance is the resultant Materials efficiency that has been computed or derived at the end of the accounting period for which the computations are being done.

Compute the materials price variance:

Particulars	Skilled labor	Unskilled labor
Materials variance:
Actual $\left(\text{AP×AQ}\right)$	$125,000	$240,000
Standard $\left(\text{SP×AQ}\right)$	$120,000	$150,000
Materials variance $\left(\text{Actual}-\text{Standard}\right)$	$5,000 U	$90,000 U

Table: (1)

Compute the Materials efficiency variance:

Particulars	Skilled labor	Unskilled labor
Materials mix variance:
Actual $\left(\text{SP×AQ}\right)$	$120,000	$150,000
Standard $\left(\text{SP×ASQ}\right)$	$105,000	$157,500
Materials mix variance $\left(\text{Actual}-\text{Standard}\right)$	$15,000U	$7,500F
Materials yield variance:
Actual $\left(\text{SP×ASQ}\right)$	$105,000	$157,500
Standard $\left(\text{SP×SQ}\right)$	$120,000	$180,000
Materials yield variance $\left(\text{Actual}-\text{Standard}\right)$	$15,000F	$22,500F
Materials efficiency variance $\left(\text{Mix variance }-\text{ Yield variance}\right)$	$0	$30,000F

Table: (2)

Measure	Skilled labor	Unskilled labor
AQ	6,000	15,000
SP	$20.00	$10.00
ASQ	5,250(1)	15,750(2)
SQ	6,000(3)	18,000(4)

Table: (3)

Thus, the value of materials price variance is $5,000 U and materials efficiency variance is $0 for skilled labor and for unskilled labor, the materials price variance is $90,000U and materials efficiency variance is $30,000F.

Working note 1:

Compute the ASQ for Skilled labor:

$\begin{array}{c}\text{ASQ = Ratio of skilled labor }\times \text{Total AQ}\\ \text{=0}\text{.25 }\times \text{ 21,000}\\ =5,250\end{array}$

Working note 2:

Compute the ASQ for unskilled labor:

$\begin{array}{c}\text{ASQ = Ratio of unskilled labor }\times \text{Total AQ}\\ \text{=0}\text{.75 }\times \text{ 21,000}\\ =15,750\end{array}$

Working note 3:

Compute the SQ of Skilled labor:

$\begin{array}{c}\text{SQ = Units appropriation in for SP}\times \text{ Acutal output}\\ \text{= 2/60}\times 180\text{,000}\\ \text{=6,000}\end{array}$

Working note 4:

Compute the SQ of Unskilled labor:

$\begin{array}{c}\text{SQ = Units appropriation in for SP}\times \text{ Acutal output}\\ \text{= 6/60}\times 180\text{,000}\\ \text{=18,000}\end{array}$

To determine

Compute materials mix and materials yield variances.

Answer to Problem 32E

The value of materials mix and materials yield variances of skilled labor is $15,000 U and $15,000 F respectively, and the value of materials mix and materials yield variances of unskilled labor $7,500 and $22,500 respectively.

Explanation of Solution

Materials mix variance:

Materials mix variance is the resultant market Materials mix that has been computed or derived at the end of the accounting period for which the computations are being done for two or more than two products.

Materials yield variance:

Materials yield variance is the resultant difference between the costs of finished goods expected from a specific amount of raw material that has been computed or derived at the end of the accounting period for which the computations are being done.

Compute the materials mix variance and materials yield variance for skilled labor and unskilled labor:

Particulars	Skilled labor	Unskilled labor
Materials mix variance:
Actual $\left(\text{SP×AQ}\right)$	$120,000	$150,000
Standard $\left(\text{SP×ASQ}\right)$	$105,000	$157,500
Materials mix variance $\left(\text{Actual}-\text{Standard}\right)$	$15,000 U	$7,500 F
Materials yield variance:
Actual $\left(\text{SP×ASQ}\right)$	$105,000	$157,500
Standard $\left(\text{SP×SQ}\right)$	$120,000	$180,000
Materials yield variance $\left(\text{Actual}-\text{Standard}\right)$	$15,000 F	$22,500 F
Materials efficiency variance $\left(\text{Mix variance }-\text{ Yield variance}\right)$	$0	$30,000 F

Table: (4)

Measure	Skilled labor	Unskilled labor
AQ	6,000	15,000
SP	$20.00	$10.00
ASQ	5,250(1)	15,750(2)
SQ	6,000(3)	18,000(4)

Table: (5)

Thus, the value of materials mix and materials yield variances of skilled labor are $15,000 U and $15,000 F respectively, and the value of materials mix and materials yield variances of unskilled labor $7,500 and $22,500 respectively.