Question

Porter Ltd produces a single product. Three different materials are used in the manufacturing process. The materials may be substituted one for another within defined limits and the choice of the proportion of the various materials used is considered to be matter for the exercise of managerial discretion. The standard material cost for one unit of the final product is as follows: Standard cost: £ Material A: 3kg at 50p per kg = 1.50 Material B: 5kg at 80p per kg = 4.00 Material C: 2kg at 1.20p per kg = 2.40 7.90 During January the actual output was 30,000 units of the final product and the actual material cost was as follows: £ Material A: 95,000kg 47,000 Material B: 153,000kg 126,000 Material C: 57,000kg 75,000 305,000kg Required a) Calculate total material variance. (2 marks) b) Calculate the material price variance and material usage variances and discuss the benefits which can be gained by Porter Ltd from these calculations. (3 marks) c) Split the material usage variance into mix and yield and calculate the variances. (6 marks) d) Explain the meaning and implications of the mix and yield variances calculated in (c) above. (9 marks) (Total 20 marks)

          Porter Ltd produces a single product. Three different materials are used in the manufacturing process. The materials may be substituted one for another within defined limits and the choice of the proportion of the various materials used is considered to be matter for the exercise of managerial discretion. The standard material cost for one unit of the final product is as follows:

Standard cost: £
Material A: 3kg at 50p per kg = 1.50
Material B: 5kg at 80p per kg = 4.00
Material C: 2kg at 1.20p per kg = 2.40
7.90

During January the actual output was 30,000 units of the final product and the actual material cost was as follows:

£
Material A: 95,000kg 47,000
Material B: 153,000kg 126,000
Material C: 57,000kg 75,000
305,000kg

Required
a) Calculate total material variance.
(2 marks)
b) Calculate the material price variance and material usage variances and discuss the benefits which can be gained by Porter Ltd from these calculations.
(3 marks)
c) Split the material usage variance into mix and yield and calculate the variances.
(6 marks)
d) Explain the meaning and implications of the mix and yield variances calculated in (c) above.
(9 marks)
(Total 20 marks)

Porter Ltd produces a single product. Three different materials are used in the manufacturing process. The materials may be substituted one for another within defined limits and the choice of the proportion of the various materials used is considered to be matter for the exercise of managerial discretion. The standard material cost for one unit of the final product is as follows:

Standard cost: £
Material A: 3kg at 50p per kg = 1.50
Material B: 5kg at 80p per kg = 4.00
Material C: 2kg at 1.20p per kg = 2.40
7.90

During January the actual output was 30,000 units of the final product and the actual material cost was as follows:

£
Material A: 95,000kg 47,000
Material B: 153,000kg 126,000
Material C: 57,000kg 75,000
305,000kg

Required
a) Calculate total material variance.
(2 marks)
b) Calculate the material price variance and material usage variances and discuss the benefits which can be gained by Porter Ltd from these calculations.
(3 marks)
c) Split the material usage variance into mix and yield and calculate the variances.
(6 marks)
d) Explain the meaning and implications of the mix and yield variances calculated in (c) above.
(9 marks)
(Total 20 marks)

Added by Ryan S.

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