ExpertHard2 marksMultiple Choice
ACCA · Question 21 · Budgeting and control
Section B - Case 2: GreenYield Agri
GreenYield Agri produces 'CropBoost', a specialized liquid fertilizer. The standard mix for 10,000 liters of input is:
- Chemical A: 6,000 liters at $10 per liter
- Chemical B: 4,000 liters at $15 per liter
Standard normal loss is 20% of input (so 10,000 liters input yields 8,000 liters of CropBoost).
In May, GreenYield inputted 10,000 liters in total, consisting of 7,000 liters of Chemical A and 3,000 liters of Chemical B. Actual yield was 7,600 liters of CropBoost.
Calculate the Material Mix Variance for May.
Section B - Case 2: GreenYield Agri
GreenYield Agri produces 'CropBoost', a specialized liquid fertilizer. The standard mix for 10,000 liters of input is:
- Chemical A: 6,000 liters at $10 per liter
- Chemical B: 4,000 liters at $15 per liter
Standard normal loss is 20% of input (so 10,000 liters input yields 8,000 liters of CropBoost).
In May, GreenYield inputted 10,000 liters in total, consisting of 7,000 liters of Chemical A and 3,000 liters of Chemical B. Actual yield was 7,600 liters of CropBoost.
Calculate the Material Mix Variance for May.
Answer options:
A.
$5,000 Adverse
B.
$5,000 Favorable
C.
$10,000 Favorable
D.
$6,000 Adverse
How to approach this question
Compare the actual mix of inputs at standard prices to the standard mix of the actual total inputs at standard prices.
Full Answer
B.$5,000 Favorable✓ Correct
1. Actual total input = 10,000 liters.
2. Standard mix of actual total input: 6,000L of A, 4,000L of B.
3. Standard cost of standard mix: (6,000 * $10) + (4,000 * $15) = $60,000 + $60,000 = $120,000.
4. Actual mix of actual total input: 7,000L of A, 3,000L of B.
5. Standard cost of actual mix: (7,000 * $10) + (3,000 * $15) = $70,000 + $45,000 = $115,000.
6. Mix Variance = $120,000 - $115,000 = $5,000 Favorable (because actual mix was cheaper).
Common mistakes
Calculating the variance as adverse despite using more of the cheaper material.
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