NEVADA CORPORATION

makes MegaOats, a nutritional cereal. They manufacture MegaOats in 50-pound batches. The following standards have been established for one 50-pound batch:

Quantity Price Total Wheat 24 lbs $0.20 per pound $4.80 Barley 24 lbs 0.10 per pound 2.40 Corn 12 lbs 0.05 per pound 0.60 60 lbs

During the most recent month, the company actually produced 600 batches of MegaOats and the following amounts of materials were actually purchased and used:

Wheat 16,500 lbs @ $0.22 per pound $3,630 Barley 13,000 lbs @ 0.11 per pound 1,430 Corn 12,500 lbs @ 0.07 per pound 875 42,000 lbs $5,935

Required: DO THE FOLLOWING FOR LABOR 1. Calculate the total standard cost (do individual components and then use totals). 2. Determine the total standard cost variance. 3. Break the total cost variance up into the price and usage variances. 4. Further break down the usage variance into Mix and Yield variances.

Consider the following: In #3 above, you took the total variance (difference between actual and standard) and you realized that part of that was caused by the price being different, and part was because of the usage was different, and so you computed usage variance to show what part was caused by that factor.

Now think if we have more than one material, as we do here, this variance itself can be caused by two things: 1) a different mix of wheat, barley and corn was used as compared to the standard mix, or 2) the company just used a higher or lower total amount of stuff than they should have. We would like to further analyze our usage variance (above) by breaking it up into two variances that show this a mix variance and a yield variance. The mix variance will tell how much more (or less) it cost because of the different mix of ingredients. The yield variance will tell us how much of this usage variance was caused by a difference in the overall quantity of ingredients (than should have been used).