The Foggybottom Chemicals Produces a Product by Mixing Three Ingredients

question 124

Essay

The Foggybottom Chemicals produces a product by mixing three ingredients to make a finished product. The standard cost of producing a 50-gallon drum of the product is $19.50. The standard materials mix and related standard cost of each chemical used in a 50-gallon batch are: $$\begin{array} { l c c r } \text { Chemical } & \text { Std input quantity } & \begin{array} { c } \text { Std cost } \\\text { per gal }\end{array} & \begin{array} { c } \text { Total } \\\text { cost }\end{array} \\\text { A } & 30 & \$ 0.25 & \$ 7.50 \\\text { B } & 20 & 0.45 & 9.00 \\\text { C } & \underline{10} & 0.30 & \underline{3.00} \\ & \underline{ 60 }& & \underline{ \$ 19.50 }\\\end{array}$$
The quantities of chemicals purchased and used during the current production period are shown in the schedule below. A total of 520 batches were manufactured during the current production period. The costs and chemical usage variations at the end of the production period are: $$\begin{array} { l c c c } \text { Chemical Quantity}&\text{ Purchased } & \text { Total Cost } & \text { Quantity Used } \\\mathrm { A } & 17,800 & \$ 4,365 & 16,600 \\\mathrm {B} & 13,000 & 6,240 & 11,880 \\\mathrm { C } & \underline{ 5,500} & 1,520 & \underline{ 5,140} \\ & \underline{36,300}& & \underline{33,620} \\\end{array}$$
Required:
(Be sure to indicate whether the variance is favorable or unfavorable.)
a. If variances are recorded at the earliest possible moment, what is the material price variance (in total and for each ingredient)?
b. What is the material efficiency variance (in total and for each ingredient)?
c. What is the material yield variance (in total and for each ingredient)?
d. What is the material mix variance (in total and for each ingredient)?

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Definitions:

Time To Maturity

The remaining duration until the expiration date of a financial instrument, when its principal is due to be paid to holders.

Coupon Rate

The annual interest rate paid on a bond, expressed as a percentage of the bond's face value, and paid to bondholders at specified intervals until maturity.

Coupon Bond

A bond that entitles the holder to a fixed interest payment, or coupon, periodically until the bond matures.

Interest-Rate Risk

The potential for investment losses due to changes in interest rates, affecting the value of interest-bearing assets like bonds.