DIRECT MATERIALS USAGE VARIANCE, DIRECT MATERIALS MIX AND YIELD VARIANCES

Limpio, Inc., produces a key ingredient for liquid laundry detergents. Two chemical solutions, Chem A and Chem B, are mixed and heated to produce a cleansing chemical that is sold to companies that produce liquid detergents. The cleansing ingredient is produced in batches and has the following standards:

Direct Material

Standard Mix

Standard Unit Price

Standard Cost

Chem A

15,000 gallons

$2.00 per gallon

$30,000

Chem B

5,000

3.00

 15,000

 

Total

20,000 gallons

 

$45,000

Yield

15,000 gallons

   

During March, the following actual production information was provided:

Direct Material

Actual Mix

Chem A

140,000 gallons

Chem B

60,000

 

Total

200,000 gallons

Yield

158,400 gallons

Required:

1. Compute the direct materials mix and yield variances.

2. Compute the total direct materials usage variance for Chem A and Chem B. Show that the total direct materials usage variance is equal to the sum of the direct materials mix and yield variances.