PERFORMANCE MANAGEMENT
ADVANCE VARIANCE ANALYSIS
Interpretation of material mix and yield variances
Mix - a favourable total mix variance would suggest that a higher
proportion of a cheaper material is being used hence reducing the
overall average cost per unit.
Yield - an adverse total yield variance would suggest that less output
has been achieved for a given input, i.e. that the total input in volume
is more than expected for the output achieved.
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These variances may be interrelated. A favourable material mix
variance may lead to an adverse material yield variance. This is
due to differences in quality between the materials used.
Any change in mix should be judged by the impact on the
overall total materials variance.
The operating statement would include a separate line for each
variance
example
A company manufactures a chemical using two components, A and B.
The standard information for one unit of the chemical are as follows:
In a particular period, 160 units of the chemical were produced, using
1,000 kgs of material A and 1,460 kgs of material B.
Required:
Calculate the material usage, mix and yield variances for each
material.
PLANING AND OPERATIONAL VARIANCES
When applying planning and operating principles to cost
variances(material and labour), care must be taken over flexing the
budgets. The accepted approach for use in the exam is to flex both
the original and revised budgets to actual production levels:
The standard cost per unit of raw material was estimated to be$5.20
per unit. However, due to subsequent improvements in technology,
the general market price at the time of purchase was $5.00 per unit.
The actual price paid was $5.18 per unit. 10,000 units of the raw
materials were purchased during the period.
Required:
Calculate the planning and operational materials price variances.
Comment on the results.