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Medium2 marksMultiple Choice
Budgeting and controlVariance AnalysisPerformance EvaluationSection B
This question is part of a case study — click to read the full scenario(Case 21)

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')

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ACCA · Question 23 · 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

BioGrow's production manager deliberately changed the mix this month, using more of Material Beta (the more expensive material) and less of Material Alpha. This resulted in an adverse mix variance, but a highly favorable yield variance.

How should the performance of the production manager be evaluated regarding this decision?

Answer options:

A.

The manager should be penalized for the adverse mix variance, as standard costs must be strictly adhered to.

B.

The manager should be praised for the favorable yield variance, ignoring the mix variance.

C.

The manager's performance should be evaluated by looking at the net effect of the mix and yield variances combined.

D.

The mix and yield variances should be discarded, and only the material price variance should be reviewed.

How to approach this question

Recognize the interdependence of mix and yield variances. A more expensive mix often leads to less waste (better yield).

Full Answer

C.The manager's performance should be evaluated by looking at the net effect of the mix and yield variances combined.✓ Correct
Mix and yield variances are highly interdependent. Using a higher proportion of a more expensive, higher-quality material (adverse mix) will often result in less wastage and a better output (favorable yield). To evaluate the manager fairly, the net effect of both variances (which equals the total material usage variance) must be considered.

Common mistakes

Looking at variances in isolation rather than understanding their relationship.
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