Markku Antero Oy produces perfume. To make this perfume, Markku Antero uses three different types of fluid. Tartarus, Erebus and Uranus are used in standard proportions of -14-0, -3- 10 and -3- 10, 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 €449500. The actual number of litres used and costs per litre for the three fluids are as follows:
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.