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di r ect materials pri c e and ef 64257 ciency v arian c es di r ect materials yield 737113

Di r ect materials pri c e and efficiency v arian c es, di r ect materials yield and mix v arian c es, perfume manu f acturing.

Markku Antero Oy produces perfume. To make this perfume, Markku Antero uses three dif ferent types of fluid. Tartarus, Erebus and Uranus are used in standard proportions of 4 , 3

10 10

10

and

3
, and their standard costs are €6.00, €3.50 and €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

€449 500. The actual number of litres used and costs per litre for the three fluids are as follows:

Direct materials

Actual litres

Costs per litre

Tartarus

45 000

€5.50

Erebus

35 000

4.20

Uranus

20 000

2.75

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 per spective.

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