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PART A: MIX AND YIELD VARIANCE (10 MARKS)

The Organic Foods Limited (OFL) makes a range of breads for sale direct to the public. The production process begins with workers weighing out ingredients on electronic scales and then placing them in a machine for mixing. A worker then manually removes the mix from the machine and shapes it into loaves by hand, after which the bread is then placed into the oven for baking.

All baked loaves are then inspected by OFL's quality inspector before they are packaged up and made ready for sale. Any loaves which fail the inspection are donated to a local food bank. The standard cost card for OFL's "Wheaty Special", one of its most popular loaves, is as follows:

Processed flour 1800 grams $7.20/g

Soy blend flour 600 grams $8.80/g

Yeast 40 grams $20.00/g

TOTAL 2,440 $36

Budgeted production of Wheaty Special was 1,000 units for the quarter, although actual production was only 950 units. The total actual quantities used and their actual costs were:

Grams $ Gram

White Flour 1736 7.10

Whole grain flour 608 8.70

Yeast 40 24.00

Required:

a) Calculate the total material mix variance and the total material yield variance for OFL for the last quarter.

b) Explain the importance of calculating material mix and yield variances

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