ExpertThis 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')
ACCA · Question 25 · 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
At the end of the year, BioGrow decides to split its total material price variance into a 'planning variance' and an 'operational variance' because global commodity prices for Material Alpha unexpectedly surged due to a supply chain crisis.
Which TWO of the following statements regarding planning and operational variances are correct?
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
At the end of the year, BioGrow decides to split its total material price variance into a 'planning variance' and an 'operational variance' because global commodity prices for Material Alpha unexpectedly surged due to a supply chain crisis.
Which TWO of the following statements regarding planning and operational variances are correct?
Answer options:
The planning variance reflects the difference between the original standard and a revised standard based on uncontrollable market changes.
The operational variance is a better measure of the purchasing manager's actual performance.
The planning variance is always controllable by operational management.
Splitting variances into planning and operational components is only applicable to material costs, not labor or overheads.
How to approach this question
Full Answer
Common mistakes
Practice the full ACCA PM — Performance Management Practice Exam 4
32 questions · hints · full answers · grading