ExpertHard2 marksShort Answer
ACCA · Question 21 · Budgeting and control
Section B - Case 2: BioGrow Agriculture
BioGrow is an agricultural company producing a premium organic fertilizer. The standard material mix for one batch of fertilizer is:
- Material Alpha: 60 kg at $10 per kg
- Material Beta: 40 kg at $15 per kg
During the last month, BioGrow produced several batches. The actual total input was 10,000 kg of material, consisting of:
- 5,500 kg of Material Alpha
- 4,500 kg of Material Beta
Calculate the total material mix variance in dollars. (Enter the numerical value only. Assume the variance is Adverse, do not enter 'A' or 'Adverse')
Section B - Case 2: BioGrow Agriculture
BioGrow is an agricultural company producing a premium organic fertilizer. The standard material mix for one batch of fertilizer is:
- Material Alpha: 60 kg at $10 per kg
- Material Beta: 40 kg at $15 per kg
During the last month, BioGrow produced several batches. The actual total input was 10,000 kg of material, consisting of:
- 5,500 kg of Material Alpha
- 4,500 kg of Material Beta
Calculate the total material mix variance in dollars. (Enter the numerical value only. Assume the variance is Adverse, do not enter 'A' or 'Adverse')
How to approach this question
1. Calculate the standard cost of the actual total input (10,000 kg) if it had been mixed in the standard ratio (60:40).
2. Calculate the standard cost of the actual input in the actual ratio.
3. The difference is the mix variance.
Full Answer
Standard mix for 10,000 kg total input:
Alpha: 60% of 10,000 = 6,000 kg. Standard cost = 6,000 x $10 = $60,000
Beta: 40% of 10,000 = 4,000 kg. Standard cost = 4,000 x $15 = $60,000
Total standard cost of actual input = $120,000
Actual mix at standard prices:
Alpha: 5,500 kg x $10 = $55,000
Beta: 4,500 kg x $15 = $67,500
Total actual mix at std prices = $122,500
Mix Variance = $122,500 - $120,000 = $2,500 Adverse.
Common mistakes
Using actual prices instead of standard prices, or calculating the yield variance instead.
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