The Good Soap Co makes environmentally-friendly soap using three basic ingredients. The standard cost card for one batch of soap for the month of September was as follows:

Material Kilograms Price per kilogram ()

Lye 025 10

Coconut oil 06 4

Shea butter 05 3

The budget for production and sales in September was 120,000 batches. Actual production and sales were 136,000 batches. The actual ingredients used were as follows:

Material Kilograms

Lye 34,080

Coconut oil 83,232

Shea butter 64,200

Required:

(a) Calculate the total material mix variance and the total material yield variance for September. (8 marks)

In October the materials mix, and yield variances were as follows:

Mix: $6,000 adverse

Yield: $10,000 favourable

The production manager is pleased with the results overall, stating:

At the beginning of September, I made some changes to the mix of ingredients used for the soaps. As I expected, the mix variance is adverse in both months because we havent yet updated our standard cost card but, in both months, the favourable yield variance more than makes up for this. Overall, I think we can be satisfied that the changes made to the product mix are producing good results and now we are able to produce more batches and meet the growing demand for our product.

The sales manager, however, holds a different view and says:

Im not happy with this change in the ingredients mix. Ive had to explain to the board why the sales volume variance for October was $22,000 adverse. Ive tried to explain that the quality of the soap has declined slightly and some of my customers have realised this and simply arent happy, but no-one seems to be listening. Some customers are even demanding that the price of the soap be reduced and threatening to go elsewhere if the problem isnt sorted out.

Required:

(i) Briefly explain what the adverse materials mix and favourable materials yield variances indicate about production at Good Soap Co in October.

Note: You are NOT required to discuss revision of standards or operational and planning variances.

(ii) Discuss whether the sales manager could be justified in claiming that the change in the materials mix has caused an adverse sales volume variance in October.