Direct materials price and efficiency variances, direct materials yield and mix variances, perfume manufacturing. (SMA, adapted)

(40 minutes) Markku Antero, Oy, produces perfume. To make this perfume, Markku Antero uses three different types of fluids. Tartarus, Erebus and Uranus are used in standard proportions of 4/10, 3/10 and 3/10, and their standard costs are FMk 6.00, FMk 3.50 and FMk 2.50 per litre, respectively. The chief engineer reported that in the past few months the standard yield has been at 80% on 100 litres of mix. The company maintains a policy of not carrying any direct materials, as stock storage space is costly.

Last week, the company produced 75,000 litres of perfume at a total direct materials cost of FMk 449,500. The actual number of litres used and costs per litre for the three fluids are as follows: lop52

REQUIRED 1. Calculate the total direct materials price and efficiency variances for perfume made in the last week.

2. Calculate the total direct materials yield and mix variances for the last week.
3. Explain the significance of the price, yield and mix variances from management’s perspective.

Transcribed Image Text:

DIRECT MATERIALS ACTUAL LITRES COSTS PER LITRE Tartarus Erebus Uranus 45,000 35,000 20,000 FMK 5.50 4.20 2.75