Paint Mixers Inc manufactures and sells a range of paints, including a high performance green paint that will attach to any surface without flaking or peeling.

The purchasing manager is responsible for buying the three ingredients (blue paint, yellow paint and a specialist bonding agent)that are used to make green paint whilst the production manager irresponsible for mixing the paints and the volume and quality of Greenpoint that is produced. Both the purchasing manager and the production manager joined the company on January 1st in the current year.

The standard ingredients of the green paint mix are as follows:

The Managing Director wishes to compare the performance of thepurchasing manager and the production manager during their first threemonths at the company. The Sales Director has commented that sales aresignificantly up and appear to be on a rising trend, customers beingvery happy with the quality of the paint they have purchased in thefirst quarter of the year.

The Finance Director has produced the table below showing the variance results for the first three months of the year.

Table 1

F = Favourable A = Adverse

Production activity levels throughout the period varied little andthe standard monthly material total cost was approximately $20,000.

Required:

(a) Using the information in Table 1:

Iexplain the significance of the threevariances above (the price, mix and yield variances) and assess theextent to which each variance is controllable by the purchasing managerand the production manager.

(6 marks)

II Compare the performance of thepurchasing manager and the production manager taking into account thecost variance results and the comments of the sales director.

(10 marks)

(b) The Finance Director has provided the following data in relation to April's production of 5000 litres of green paint.

Purchases in April

Required:

Calculate the material price, mix and yield variances for April.
 
 
 

$ 2 litres blue paint 7 litres yellow paint @ $2.5 per litre = 5.0 @ $3.0 per litre = 21.0 1 litre bonding agent @ $10.0 per litre = 10.0 Total cost to produce 9 litres of green paint = 36.0 Standard cost of one litre of green paint = 4.0