15.5 Mix And Yield Variances Flashcards
The efficiency variance for either direct labor or materials can be divided into
A. Spending variance and yield variance
B. Yield variance and price variance
C. Volume variance and mix variance
D. Yield variance and mix variance
D. Yield variance and mix variance
A direct labor or materials efficiency variance is calculated by multiplying the difference between standard and actual usage times the standard cost per unit of input. The efficiency variances can be divided into yield and mix variances. Mix and yield variances are calculated only when the production process involves combining several materials or classes of labor in varying proportions (when substitutions are allowable in combining resources).
Equation for yield variance
(STQ - ATQ) X SMSP
- SMSP = Weighted average standard using the standard mix
A firm manufactures a product by mixing two materials as shown by the following standards for one unit of finished goods.
Material A: 4 ounces at $1.50/ounce
Material B: 6 ounces at $2.50/ounce
The firm actually produced 25,000 units of finished goods using 105,000 ounces of Material A and 145,000 ounces of Material B. The actual costs of the materials were $1.48 per ounce for Material A and $2.55 per ounce for Material B. The firm’s direct material yield variance was
A. $5,000 unfavorable
B. $5,350 unfavorable
C. $5,000 favorable
D. $0
D. $0
The direct material yield variance = (standard total quantity (STQ) - actual total quantity (ATQ)) x standard mix of standard inputs at standard prices (SMSP).
Yield variance = (STQ - ATQ) X SMSP
STQ = 250,000 [(25,000 units of finished goods x 4 oz material A per unit) + (25,000 units of finished goods x 6 oz Material B per unit)].
ATQ = 250,000 (105,000 material A + 145,000 material B).
Since STQ = ATQ, the yield variance will be 0.
The labor mix and labor yield variances together equal the
A. Sum of the labor efficiency and overhead efficiency variances
B. Labor efficiency variances
C. Total labor variance
D. Labor rate variance
B. Labor efficiency variance
Labor mix and labor yield variances are the components of the total labor efficiency variance. For example, if the labor yield variance was $500 U and the labor mix variance was $320 U, the total labor efficiency variance would be $820 U.
Mountain View Hospital (MVH) has adopted a standard cost accounting system for evaluation and control of nursing labor. Diagnosis Related Groups (DRGs), instituted by the U.S. government for health insurance reimbursement, are used as the output measure in the standard cost system. A DRG is a patient classification scheme in which hospitals are regarded as multiproduct firms with inpatient treatment procedures related to the numbers and types of patient ailments treated. MVH has developed standard nursing times for the treatment of each DRG classification, and nursing labor hours are assumed to vary with the number of DRGs treated within a time period. The nursing unit on the fourth floor treats patients with four DRG classifications. The unit is staffed with registered nurses (RNs), licensed practical nurses (LPNs), and aides. The standard nursing hours and salary rates and actual numbers of patients for the month of May were as follows:
Standard Hours per DRG
DRG Classification 1
# of patients: 250
RN: 6, Total 1,500 hours
LPN: 4, Total 1,000 hours
Aide: 5, Total 1,250 hours
DRG Classification 2
# of patients: 90
RN: 26 Total 2,340 hours
LPN: 16, Total 1,440 hours
Aide: 10, Total 900 hours
DRG Classification 3
# of patients: 240
RN: 10, Total 2,400 hours
LPN: 5, Total 1,200 hours
Aide: 4, Total 960 hours
DRG Classification 4
# of patients: 140
RN: 12, Total 1,680 hours
LPN: 7, Total 980 hours
Aide: 10, Total 1,400 hours
Total Standard Hours
RN: 7,920
LPN: 4,620
Aide: 4,510
Standard Hourly Rates
RN: $12.00
LPN: 8.00
Aide: 6.00
The results of operations during May for the fourth floor nursing unit are presented below:
RN
- Actual Hours: 8,150
- Actual Salary: $100,245
- Actual hourly rate: $12.30
LPN
- Actual Hours: 4,300
- Actual salary: $35,260
- Actual hourly rate: $8.20
Aide
- Actual Hours: 4,400
- Actual salary: $25,300
- Actual hourly rate: $5.75
Because MVH does not have data to calculate variances by DRG, it uses a flexible budgeting approach to calculate labor variances for each reporting period by labor classification (RN, LPN, Aide). Labor mix and labor yield variances are also calculated because one labor input can be substituted for another. The variances are used by nursing supervisors and hospital administration to evaluate the performance of nurses. What is the labor mix variance?
A. $460 favorable
B. $460 unfavorable
C. $1,406 unfavorable
D. $1,406 favorable
C. $1,406 unfavorable
To calculate mix variance, the weighted-average standard price using the standard mix (SMSP) must be determined. Mountain View can calculate its AMSP and SMSP for the month as follows:
Flexible budget for
RN: AQ x SP = 8,150 x $12.00 = $97,800
LPN: AQ x SP = 4,300 x 8.00 = 34,400
Aide: AQ x SP = 4,400 x 6.00 = 26,400
Total AQ (total hours) = 16,850
Total Flexible budget = 158,600
158,600 / 16,850 = $9.41246 (AMSP per hour)
Static Budget for
RN: SQ x SP = 7,920 x $12.00 = $95,040
LPN: SQ x SP = 4,620 x 8.00 = 36,960
Aide: SQ x SP = 4,510 x 6.00 = 27,060
Total SQ (total hours) = 17,050
Total Static budget = 159,060
159,060 / 17,050 = $9.32903 (SMSP per hour)
The mix variance can now be calculated:
Labor mix variance = ATQ x (SMSP-AMSP)
= 16,850 hours x ($9.32903 - $9.41246)
= 16,850 hours x -0.08343
= $1,406 unfavorable
