Chemical Mix Variances at Vasant Coatings
Vasant Coatings produces a protective coating to a standard mix. For every 1,000 litres of finished coating, the standard requires 600 kg of material X at ₹40 per kg and 400 kg of material Y at ₹25 per kg; there is no normal loss in the standard. During September the company produced 9,200 litres. It used 5,700 kg of X, which cost ₹2,39,400, and 3,600 kg of Y, which cost ₹82,800. Actual input was therefore 9,300 kg. The purchasing officer bought X at ₹42 per kg because the usual supplier could not deliver; the production supervisor used more X and less Y than standard to speed up mixing, and 100 kg of input was lost as abnormal processing loss. The standard cost card is used for variance analysis, and the company reports material price, mix, yield and usage variances separately. The production manager argues that the total material variance is the only figure top management needs.
1. Compute the material price, mix, yield and total usage variances, and reconcile them to the total material cost variance.
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Standard cost of actual output: X = 600 × 9.2 = 5,520 kg × ₹40 = ₹2,20,800; Y = 400 × 9.2 = 3,680 kg × ₹25 = ₹92,000. Total standard cost = ₹3,12,800.
Actual cost: X = 5,700 × ₹42 = ₹2,39,400; Y = 3,600 × ₹23 = ₹82,800. Total actual cost = ₹3,22,200. Total material cost variance = ₹3,22,200 − ₹3,12,800 = ₹9,400 adverse.
Price variance: X = (₹42 − ₹40) × 5,700 = ₹11,400 A; Y = (₹23 − ₹25) × 3,600 = ₹7,200 F. Net price variance = ₹4,200 A.
Usage variance at standard prices: actual quantity at standard price = (5,700 × ₹40) + (3,600 × ₹25) = ₹3,18,000. Usage variance = ₹3,18,000 − ₹3,12,800 = ₹5,200 A.
Mix variance: standard mix for actual input of 9,300 kg = X 5,580 kg and Y 3,720 kg. Standard mix at standard price = (5,580 × ₹40) + (3,720 × ₹25) = ₹2,23,200 + ₹93,000 = ₹3,16,200. Actual mix at standard price = ₹3,18,000. Mix variance = ₹3,18,000 − ₹3,16,200 = ₹1,800 A.
Yield variance = standard mix for actual input at standard price − standard cost of actual output = ₹3,16,200 − ₹3,12,800 = ₹3,400 A. Check: mix ₹1,800 A + yield ₹3,400 A = usage ₹5,200 A; price ₹4,200 A + usage ₹5,200 A = total ₹9,400 A.
2. Assess whether the purchasing officer or the production supervisor should be held responsible for each variance. Recommend two control actions.
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The price variance of ₹11,400 adverse on X is primarily a purchasing responsibility if the ₹42 price was avoidable. However, if the market price genuinely rose because of a shortage, the variance is largely external; purchasing should still be assessed on whether it explored alternative suppliers, substitutes or forward contracts. The favourable ₹7,200 price variance on Y shows that buying below standard is not automatically good if it causes quality or mix problems.
The mix variance of ₹1,800 adverse and yield variance of ₹3,400 adverse point to production. Using more of the expensive X and less Y raised cost, and the abnormal loss of 100 kg reduced yield. The supervisor’s explanation about speeding up mixing does not remove responsibility unless the standard mix is technically impossible. If Y’s quality forced extra X, purchasing and quality control share responsibility.
Control actions: (1) investigate the supplier shortage and approve alternative suppliers or substitute materials in advance; (2) monitor mix and yield daily against the standard recipe and investigate deviations beyond a set tolerance, separating price, mix and yield effects so that responsibility is not blurred.