How to approach it
- Price materials issued using the stated inventory method (FIFO layers) to get actual cost of the quantity used.
- Price variance on quantity used: actual quantity × (standard price − actual price).
- Mix: actual total quantity in standard proportions vs actual quantities, at standard prices.
- Yield: standard quantity for actual output vs actual total quantity, at the standard average price per kg.
- Overheads: expenditure (budget vs actual), efficiency (standard hours vs actual hours × rate), capacity (actual hours vs budgeted hours × fixed rate).
Key rules to apply
- Mix + yield = usage variance.
- Fixed overhead efficiency + capacity = volume variance.
- Only compute what is asked: usage or labour variances earn nothing here.
Common mistakes
Drawn from the examiners' comments for this sitting (summarised in our words) and from typical errors on this topic.
- Computing the price variance on purchases instead of usage (examiners' point).
- Computing usage instead of yield, or both.
- Wrong formulas for fixed overhead efficiency and capacity.
Similar question with worked solution
Written by us with our own numbers; it tests the same skills as Q9 without copying it.
Original practice question
Mix, yield and fixed overhead variances
Standard per unit: M1 3 kg at Rs 50 and M2 2 kg at Rs 30 (5 kg, Rs 210). Output 1,000 units used M1 3,300 kg at Rs 52 and M2 1,900 kg at Rs 29.
Fixed overhead budget Rs 360,000 for 12,000 hours (Rs 30/hour). Actual fixed overhead Rs 375,000, actual hours 12,500, standard hours for actual output 12,200.
Required: Calculate price, mix and yield variances and the three fixed overhead variances.
Worked solution
| Variance | Working | Rs |
|---|---|---|
| Price M1 | 3,300 × (50 − 52) | 6,600 A |
| Price M2 | 1,900 × (30 − 29) | 1,900 F |
| Mix M1 | (5,200 × 60% − 3,300) × 50 | 9,000 A |
| Mix M2 | (5,200 × 40% − 1,900) × 30 | 5,400 F |
| Yield | (5,000 − 5,200) × 42 | 8,400 A |
| FOH expenditure | 360,000 − 375,000 | 15,000 A |
| FOH efficiency | (12,200 − 12,500) × 30 | 9,000 A |
| FOH capacity | (12,500 − 12,000) × 30 | 15,000 F |
Answer: Price Rs 4,700 A; mix Rs 3,600 A; yield Rs 8,400 A (usage Rs 12,000 A). Fixed overhead total Rs 9,000 A = under-absorption (366,000 absorbed vs 375,000 incurred).