FIN 073: Strategic Cost Management

Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Lesson title: Standard Costing Materials:

Lesson Objectives: Pen and non-scientific calculator
At the end of this module, you should be able to: Strategic Cost Management by
1. Calculate materials and labor mix and yield variances. Hansen and Mowen
2. Provide journal entries involving variances.
3. References:
Managerial Accounting by Hilton
principlesofaccounting.com
MAS reviewer by NFCPAR

Productivity Tip:
Follow a school-like schedule. The easiest way to mimic the focus and productivity that you have in
school is by working on the same schedule you would when you’re in school.

A. LESSON PREVIEW/REVIEW
1) Introduction
Standard costing is an accounting system used by some manufacturers to identify the differences
or variances. Having the ability to compare what actually happened with what “should have”
happened furnishes the accountant with another helpful tool, variance analysis. The action taken
with actual results are compared to planned or budgeted amounts for control purposes.

2) Activity 1: What I Know Chart, part 1

What I Know Questions: What I Learned (Activity 4)
1. What is material blend
variance?

2. What is material yield

variance?
3. What is labor mix variance?

B.MAIN LESSON
1) Activity 2: Content Notes
Lesson Objective 1
Mix & Yield Variance Analysis are used when production process involves combining or mixing
several materials and or labor classes in varying proportions to produce a unit of product.
 computation of variances as well as the related variance analysis is basically the same as
discussed above, with little changes due to integration of mixture in related materials and or labor
classes.

This document is the property of PHINMA EDUCATION 1

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

A. Materials Variance Analysis

a. MIX (BLEND) Variance – results from mixing the materials in a proportion different from
standard formula (specifications)
Actual Input @ Standard Price Σ (AQi x SPi) ₱xx
Actual Input @ WASIC* (xx)
Mix Variance Unfavorable (favorable) ₱xx

*Weighted Average Standard Input Cost (WASIC) = Total Std. Input Cost / Total Std. Input Qty.

b. YIELD Variance – results when the actual output differs from standard output expected from
actual input of materials.
Actual Input @ WASIC ₱xx
Actual output @ WASOC* (xx)
Materials Yield Variance ₱xx

* Weighted Average Standard Output Cost (WASOC) = Total Std. Input Cost / Total Std. Output Qty.

Illustration
Gutomna Co. manufactures breakfast cereal using the following proportion of ingredients for 200 kilos
of output:
Standard Quantity Standard Price Standard Cost
Wheat germ 25 kgs. ₱2.00 per kg. ₱ 50
Barley 100 kgs. 1.00 per kg. 100
Oats 125 kgs. 0.80 per kg. 100
During June, the following materials were used in producing 70,000 kilos of breakfast cereal:
Wheat germ 8,800 kilos at ₱2.05 per kilo
Barley 34,700 kilos at ₱1.10 per kilo
Oats 42,000 kilos at ₱0.75 per kilo
REQUIRED:
a. Materials price variance b. Materials mix / blend variance c. Materials yield variance

Solution
a. Materials price variance
Materials price variance of several products is similar to materials price variance of a single product.
We have to compute the materials price variance of individual products and get their sum.
(AP - SP) AQ Price variance
Wheat germ (2.05 - 2) 8,800 440 UF
Barley (1.1 - 1) 34,700 3,470 UF
Oats (0.75 - 0.80) 42,000 2,100 F
Total Materials Price Variance ₱ 1,810 UF

This document is the property of PHINMA EDUCATION 2

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

 In calculating materials price variance using several materials, actual quantity is based on actual
input of materials.

b. Materials mix variance

Actual Input @ Standard Price AQ SP
Wheat germ 8,800 kg x ₱ 2.00 = ₱ 17,600
Barley 34,700 kg x ₱ 1.00 = ₱ 34,700
Oats 42,000 kg x ₱ 0.80 = ₱ 33,600
Actual Input @ Standard Price ₱ 85,900
AQ ASIC
Less: Actual input @ WASIC 85,500 kg x ₱ 1.00 = ₱ 85,500
Materials mix variance ₱ 400 UF

 Actual input of 85,500 kg is the sum of the actual input quantity of all the materials:
AQ
Wheat germ 8,800 kg
Barley 34,700 kg
Oats 42,000 kg
Total Actual Input 85,500 kg

 Weighted Average Standard Input Cost (WASIC) of ₱1 is computed as:

 Total Standard Input Cost of ₱250 is computed as:

SQ SP
Wheat germ 25 kg x ₱ 2.00 = ₱ 50
Barley 100 kg x ₱ 1.00 = ₱ 100
Oats 125 kg x ₱ 0.80 = ₱ 100
Total Standard Input Cost ₱ 250

 Total Standard Input Quantity of 250 kg is calculated as:

SQ
Wheat germ 25 kg
Barley 100 kg
Oats 125 kg
Total Standard Input Quantity 250 kg

This document is the property of PHINMA EDUCATION 3

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

b. Materials yield variance

Actual Input @ WASIC
(85,500 kg x ₱1) ₱ 85,500
Actual output @ WASOC
(70,000 kg x ₱1.25) ₱ 87,500
Materials yield variance ₱ 2,000 F

 Actual input @ WASIC is computed the same as the computation in materials mix variance.
 The 70,000 kg is the actual output for the month of June while WASOC of ₱1.25 is computed
as:

B. LABOR VARIANCE ANALYSIS

a. MIX Variance results from mixing the labor hours in a proportion different from standard formula
(specifications)
Actual Hours @ Std. Rate Σ (AHi x SRi) ₱xx
Actual Hours @ WASCH* (xx)
Mix Variance Unfavorable (favorable) ₱xx

b. YIELD Variance
Actual Hours @ WASCH* ₱xx
Standard Direct labor cost (xx)
Labor Yield Variance ₱xx

* Weighted Average Standard Cost per Hour (WASCH) = Total Std. DL Cost / Total Std. Hours

Illustration
Ampogi Co. has this standard direct labor rates and standard hours allowed for output for the current
quarter:
Laborers Standard rate/hr Standard hrs allowed for output Total
Costs
Class 1 ₱12.00 300 ₱3,600
Class 2 10.50 400 4,200
Class 3 7.50 500 3,750
Total 1,200 ₱11,550

The wage rates for each labor class increased by 20% under the terms of a new union contract. The
standard wage rates were not revised. Actual direct labor costs incurred for the current quarter are as
follows:

This document is the property of PHINMA EDUCATION 4

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Laborers Actual rate/hr Actual labor Total

hours Costs
Class 1 ₱14.40 350 ₱5,040
Class 2 12.60 380 4,788
Class 3 9.00 520 4,680
Total 1,250 ₱14,508

REQUIRED:
a. Labor mix variance b. Labor yield variance

Solution
a. Labor mix variance
Actual hours @ Standard Rate AH SR
Class 1 350 x ₱ 12.00 = ₱ 4,200
Class 2 380 x ₱ 10.50 = ₱ 3,990
Class 3 520 x ₱ 7.50 = ₱ 3,900
Actual hours @ Standard Rate ₱ 12,090
AH ASCH
Less: Actual hours @ WASCH 1,250 x ₱ 9.625 = ₱ 12,031.25
Labor mix variance ₱ 58.75 UF

 Weighted Average Standard Cost per Hour of ₱9.625 is computed as:

a. Labor yield variance

Actual hours @ WASCH 12,031.25

Standard DL cost 11,550.00
Labor yield variance 481.25 UF

Lesson Objective 2

Journal Entries
When preparing journal entries, unfavorable balances are debited and favorable balances are credited.

1. To record purchase of raw materials at standard price and related unfavorable variance
Raw materials inventory xx
Materials price variance xx
Accounts payable xx

This document is the property of PHINMA EDUCATION 5

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

2. To record transfer raw materials to production at standard usage rates and related favorable quantity
variance
Work-in-process inventory xx
Raw materials inventory xx
Materials quantity variance xx

3. To increase work-in-process for the standard direct labor costs, and record the related unfavorable
efficiency and favorable spending variances
Work-in-process inventory xx
Labor efficiency variance xx
Labor rate variance xx
Factory overhead xx
4. To increase work-in-process for the standard variable overhead, and record the related unfavorable
efficiency and favorable spending variances
Work-in-process inventory xx
Variable overhead efficiency variance xx
Variable overhead spending variance xx
Factory overhead xx

5. To increase work-in-process for the standard fixed overhead, and record the related unfavorable
volume and favorable spending variances
Work-in-process inventory xx
Fixed overhead volume variance xx
Fixed overhead spending variance xx
Factory overhead xx

This document is the property of PHINMA EDUCATION 6

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

1) Activity 3: Skill-building Activities

Exercise 1
Parrothead Corp. determines that the following variances arose in production during March:
Variance Amount
Materials purchase price ............................................................................ ₱2,400 favorable
Materials quantity....................................................................................... 1,000 favorable
Labor efficiency.......................................................................................... 500 favorable
Labor rate .................................................................................................. 750 unfavorable
Factory overhead volume .......................................................................... 1,700 favorable
Factory overhead controllable .................................................................... 2,950 unfavorable

Materials purchases totaled ₱90,000 at standard costs, while ₱77,000 in materials were taken from
inventory for use in production. Labor payroll totaled ₱144,000, and actual overhead incurred was
₱256,000.

Required: Prepare the journal entries to record the above variances.

1. To record purchase of raw materials at standard price and related variance

2. To record transfer raw materials to production at standard usage rates and related variance

3. To increase work-in-process for the standard direct labor costs, and record the related labor
variances

4. To increase work-in-process for the factory overhead (variable and fixed), and record the related
factory overhead variances

Check your answers against the Key to Corrections found at the end of this SAS. Be sure to complete
each activity before looking. Write your score on your paper.

This document is the property of PHINMA EDUCATION 7

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

2) Activity 4: What I Know Chart, part 2

Let us see how your knowledge changed by reviewing the questions in the What I Know Chart
from Activity 1. Write your answers to the questions based on what you now know in the third
column of the chart.

3) Activity 5: Check for Understanding

Test 1
Kreutzer Candle Co. manufactures candles in various shapes, sizes, colors, and scents. Depending on
the orders received, not all candles require the same amount of color, dye, or scent materials. Yields
also vary, depending upon the usage of beeswax or synthetic wax. Standard ingredients for 1,000 lbs.
of candles are:
Standard Cost
Standard Mix per Pound
Input:
Beeswax ............................................................................ 200 lbs. ₱1.00
Synthetic wax ..................................................................... 840 .20
Colors ................................................................................ 7 2.00
Scents ................................................................................ 3 6.00
Totals............................................................................ 1,050 lbs.

Standard output ....................................................................... 1,000 lbs.

Price variances are charged off at the time of purchase. During January, the company was busy
manufacturing red candles for Valentine's Day. Actual production then was:

Input:
Beeswax ................................................................................................. 4,100
Synthetic wax .......................................................................................... 13,800
Colors ..................................................................................................... 2,200
Scents ..................................................................................................... 60
Totals................................................................................................. 20,160 lbs.

Actual output................................................................................................. 18,500 lbs.

Required: Compute the materials (1) mix variance and (2) yield variance. (Indicate whether each
variance is favorable or unfavorable. Round off your weighted average costs into 3 decimal places.)

This document is the property of PHINMA EDUCATION 8

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Test 2
Clean Harry Corp. uses two different types of labor to manufacture its product. The types of labor,
Mixing and Finishing, have the following standards:
Labor Type Standard Mix Std Hourly Rate Standard Cost
Mixing 500 hours P10 P5,000
Finishing 250 hours P5 P1,250
Yield: 4,000 units

During January, the following actual production information was provided:

Labor Type Actual Mix
Mixing 4,500 hours
Finishing 3,000 hours
Yield: 36,000 units

This document is the property of PHINMA EDUCATION 9

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Required: Compute labor (1) mix, and (2) yield variances and indicate whether each variance is
favorable or unfavorable.

Check your answers against the Key to Corrections found at the end of this SAS. Be sure to complete
each activity before looking. Write your score on your paper.

C. LESSON WRAP-UP
Congratulations for finishing this module! Shade the number of this module that you just have finished.

This document is the property of PHINMA EDUCATION 10

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

What part of the topic did you find difficult? ______________________ ________________

_____________________________________________________________________________________________________________

Some question/s I want to ask my teacher about this module is/are: ______________________________________

_____________________________________________________________________________________________________________

FAQs
Question 1: Are there efficiency variances from using several materials to produce a product?
Answer: The sum of mix and yield variances represent efficiency variance. Mix and yield variances
represent efficiency of use of input to produce the expected output.

Question 2: What is the normal balance of favorable and unfavorable variance when preparing journal
entries?
Answer: The normal balance of unfavorable variances are debit and the normal balance of favorable
variances are credit.

KEY TO CORRECTIONS

Skill Building Activities

Exercise 1
1. Materials ......................................................................................... 90,000
Materials Purchase Price Variance .......................................... 2,400
Accounts Payable .................................................................... 87,600

2. Work in Process.............................................................................. 78,000

Materials .................................................................................. 77,000
Materials Quantity Variance ..................................................... 1,000

3. Work in Process.............................................................................. 143,750

Labor Rate Variance ....................................................................... 750
Payroll...................................................................................... 144,000
Labor Efficiency Variance ........................................................ 500

4. Work in Process.............................................................................. 254,750

Factory Overhead Controllable Variance ........................................ 2,950
Factory Overhead Control ........................................................ 256,000
Factory Overhead Volume Variance ........................................ 1,700

This document is the property of PHINMA EDUCATION 11

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

Check for Understanding

Test 1
1.) Actual quantities at individual standard materials cost ............................. ₱11,6201
Actual input quantity at WASIC (20,160 x ₱0.3812) ....................................... ₱ 7,681
Materials mix variance................................................................................ ₱ 3,939 unfav.

2.) Actual input quantity at WASIC (20,160 x ₱0.3812) .................................. ₱ 7,681

Actual output quantity at WASOC (18,500 lbs. x ₱0.403) .............................. 7,400
Materials yield variance ₱ 281 unfav.

1
Beeswax ............................................. 4,100 lbs. @ ₱1 per lb. .............................. ₱ 4,100
Synthetic wax ..................................... 13,800 lbs. @ ₱.20 per lb............................. 2,760
Colors ................................................. 2,200 lbs. @ ₱2 per lb. .............................. 4,400
Scents ................................................ 60 lbs. @ ₱6 per lb. .............................. 360
20,160 lbs. .................................................. ₱11,620
2
Weighted average standard input costs:
Beeswax............................................. 200 lbs. @ ₱1 ......................................... ₱200
Synthetic wax ..................................... 840 lbs. @ ₱.20 ...................................... 168
Colors ................................................. 7 lbs. @ ₱2 ......................................... 14
Scents ................................................ 3 lbs. @ ₱6 ......................................... 18
1,050 lbs. .................................................. ₱400

Test 2
1.
Actual hours @ Standard Rate AH SR
Mixing 4,500 x ₱ 10.00 = ₱ 45,000
Finishing 3,000 x ₱ 5.00 = ₱ 15,000
Actual hours @ Standard Rate ₱ 60,000
AH WASCH
Less: Actual hours @ WASCH 7,500 x ₱ 8.333 = ₱ 62,500.00
Mix variance ₱ 2,500.00 F

This document is the property of PHINMA EDUCATION 12

 FIN 073: Strategic Cost Management
Student Activity Sheet #16

Name: _________________________________________________________ Class number: _______

Section: ____________ Schedule: ________________________________ Date: ________________

2.
Actual hours @ WASCH 62,500
Standard Cost 56,250
Yield variance 6,250 UF

 Standard Cost is computed as:

SH SR Standard Cost
Mixing 4,500 x ₱ 10 = ₱ 45,000
Finishing 2,250 x ₱ 5 = ₱ 11,250
Total ₱ 56,250

 To get the standard hours:

Standard hrs on 4,000 units Std Units Std Hour per unit
Mixing 500 ÷ 4,000 = 0.1250
Finishing 250 ÷ 4,000 = 0.0625

Remember that standard costs are based on actual units. If there are 36,000 actual units, then
standard hours are:
Std Hour per unit Actual Units Std Hour per unit
Mixing 0.1250 x 36,000 = 4,500
Finishing 0.0625 x 36,000 = 2,250

Assignment:
After your Second Periodic Examination, read Chapter 4 Budgeting for Planning and Control on your
book starting on page 164.

This document is the property of PHINMA EDUCATION 13