Tropica AB processes tropical fruit into fruit salad mix, which it sells to a food-service company. Tropica has in its budget the following standards for the direct materials inputs to produce 80 kg of tropical fruit salad:
Note that 100 kg of input quantities are required to produce 80 kg of fruit salad. No stocks of direct materials are kept. Purchases are made as needed, so all price variances are related to direct materials used. The actual direct materials inputs used to produce 54 000 kg of tropical fruit salad for the month of October were
1. Calculate the total direct materials price and efficiency variances in October.
2. Calculate the total direct materials yield and mix variances for October.
3. Comment on your results in requirements 1 and 2.
4. How might the management of Tropica use information about the direct materials yield and mix variances?