A Chemical Company in the Midwest Produces a Solvent Used

question 15

Essay

A chemical company in the Midwest produces a solvent used by manufacturers of plastics. Three basic chemicals go into this solvent. The standards for one-liter of this product are:
Chemical A: 500 ml. @ $10 per liter
Chemical B: 100 ml. @ $50 per liter
Chemical C: 400 ml. @ $20 per liter
During the last period, 10,000 liters of the solvent were produced and the company purchased the following amounts of each chemical:
Chemical A: 6,400 liters @ $9.00 per liter
Chemical B: 900 liters @ $75.00 per liter
Chemical C: 4,200 liters @ $20.00 per liter
Because these chemicals are volatile, the company uses them immediately upon purchase, so there are no beginning and ending inventories.
Required:
(Be sure to indicate whether the variance is favorable or unfavorable.)
a. Compute the direct material price variances for the three basic chemicals.
b. Compute the direct material efficiency variances for the three basic chemicals.
c. Compute the direct material mix variances for the three basic chemicals.
d. Compute the direct material yield variances for the three basic chemicals.

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Definitions:

Urban Land

Urban land refers to land that is used or designated for use in cities or towns, and includes a range of uses from residential to commercial and industrial.

Long-Run Cost Function

A relationship that shows the lowest cost at which a firm can produce any given level of output in the long run, where all inputs are variable.

Marginal Cost Function

is a mathematical representation that shows how the cost of producing one additional unit of a good varies as the quantity of production changes.

Telecommunication Tax

Taxes that are applied specifically to telecommunication services provided to consumers, including telephone and internet services.