Cost Accounting (14th Edition)

526 CHAPTER 14 COST ALLOCATION, CUSTOMER-PROFITABILITY ANALYSIS, AND SALES-VARIANCE ANALYSIS
(Flotoms). Delpino’s production standards require 1.60 tons of tomatoes to produce 1 ton of ketchup; 50% of the
tomatoes are budgeted to be Latoms, 30% Caltoms, and 20% Flotoms. The direct material inputs budgeted to produce
1 ton of ketchup are as follows:
0.80 (50% of 1.6) ton of Latoms at $70 per ton $ 56.00
0.48 (30% of 1.6) ton of Caltoms at $80 per ton 38.40
0.32 (20% of 1.6) ton of Flotoms at $90 per ton ƒƒ28.80
Total budgeted cost of 1.6 tons of tomatoes $123.20
Budgeted average cost per ton of tomatoes is $123.20 ÷ 1.60 tons = $77 per ton.
Because Delpino uses fresh tomatoes to make ketchup, no inventories of tomatoes are kept. Purchases are made
as needed, so all price variances relate to tomatoes purchased and used. Actual results for June 2012 show that a total
of 6,500 tons of tomatoes were used to produce 4,000 tons of ketchup:
3,250 tons of Latoms at actual cost of $70 per ton $227,500
2,275 tons of Caltoms at actual cost of $82 per ton 186,550
ƒƒ975 tons of Flotoms at actual cost of $96 per ton
ƒƒ93,600
6,500 tons of tomatoes 507,650
Budgeted cost of 4,000 tons of ketchup at $123.20 per ton ƒ492,800
Flexible-budget variance for direct materials
$ƒ14,850 U
Given the standard ratio of 1.60 tons of tomatoes to 1 ton of ketchup, 6,400 tons of tomatoes should be used to produce
4,000 tons of ketchup. At standard mix, quantities of each type of tomato required are as follows:
Latoms: 0.50 * 6,400 = 3,200 tons
Caltoms: 0.30 * 6,400 = 1,920 tons
Flotoms: 0.20 * 6,400 = 1,280 tons
Direct Materials Price and Efficiency Variances
Exhibit 14-12 presents in columnar format the analysis of the flexible-budget variance for direct materials discussed
in Chapter 7. The materials price and efficiency variances are calculated separately for each input material and then
added together. The variance analysis prompts Delpino to investigate the unfavorable price and efficiency variances.
Why did it pay more for tomatoes and use greater quantities than it had budgeted? Were actual market prices of tomatoes
higher, in general, or could the purchasing department have negotiated lower prices? Did the inefficiencies result
from inferior tomatoes or from problems in processing?
Exhibit 14-12 Direct Materials Price and Efficiency Variances for the Delpino Corporation June 2012
Actual Costs
Incurred:
Actual Input Quantity
Actual Price
(1)
Actual Input Quantity
Budgeted Price
(2)
Flexible Budget:
Budgeted Input Quantity
Allowed for
Actual Output
Budgeted Price
(3)
Latoms:
Caltoms:
Flotoms:
3,250 $70 = $227,500
2,275 $82 = 186,550
975 $96 = 93,600
$507,650
3,250 $70 = $227,500
2,275 $80 = 182,000
975 $90 = 87,750
$497,250
3,200 $70 = $224,000
1,920 $80 = 153,600
1,280 $90 = 115,200
$492,800
Level 3
Level 2
$10,400 U $4,450 U
Price variance
Efficiency variance
$14,850 U
Flexible-budget variance
F = favorable effect on operating income; U = unfavorable effect on operating income.