Chapter-four
Measuring mix and yield variances
Sales mix and quantity variances
When calculating sales variances as part of variance analysis, one issue that arises is when a
company sells more than one product. Two possible scenarios can occur:
If customers are unlikely to buy one product instead of another from the same company, then
separate sales volume variances can be calculated
If, on the other hand, customers might substitute one product for another, then the concept of
sales mix is important and separate sales volume variances can be replaced by a combined sales
mix variance
Sales Quantity Variance
Sales Quantity Variance measures the change in standard profit or contribution margin arising
from the difference between the actual and anticipated number of units sold during a period.
Sales quantity variance is an extension of the sales volume variance which demonstrates the
impact of a higher or lower sales quantity as compared to budget. The difference between the
sales volume variance and sales quantity variance is that the former is calculated using the actual
sales volume, whereas the latter is calculated using the sales volume of products in the
proportion of standard mix.
Sales Quantity Variance may be calculated as follows:
Sales Quantity Variance =
Actual units of all - budgeted units of
Products sold
all product sold)
* Budgeted sales * budgeted contribution
mix percentage
margin per unit
Sales Mix Variance
Sales Mix Variance measures the change in profit or contribution attributable to the variation in
the proportion of the different products from the standard mix.
Sales Mix Variance is one of the two sub-variances of sales volume variance (the other being
sales quantity variance). Sales mix variance quantifies the effect of the variation in the
proportion of different products sold during a period from the standard mix determined in the
budget-setting process.
Sales Mix Variance= actual units of *
actual sales
1
- budgeted sales
*
budgeted
All products sold
mix percentage
mix percentage
contribution margin
Example
Etho. Inc. is a small company that specializes in the manufacture and sale of gaming computers.
Currently, the company offers two models of gaming PCs:


Turbox - A professional gaming PC with a water-cooling system priced at $2,500
Speedo - An entry level gaming PC with standard fan cooling priced at $1,000
Etho budgeted sales of 1,600 units of Turbox and 2,400 units of Speedo in the last year. The
standard variable costs of a single unit of Turbox and Speedo were set at $1,500 and $750
respectively. The sales team at Etho managed to sell 1,300 units of Turbox and 3,700 units of
Speedo during the last year.
Required: -A. Based on the above information compute Sales Quantity Variance?
B. compute sales mix variance?
Solution;
A. For sales quantity variance
1stcompute the budgeted mix ratio
Standard (budgeted) mix ratio: 40% Turbox* and 60% Speedo; i.e 1,600 / (1,600 + 2,400) % =
40% Turbox
2nd compute the budgeted contribution margin
Turbox= $2,500 - $1,500 = 1000 and Speedo= $1,000 – 750 = 250
3rd compute the variance
Sales quantity variance; for turbox = (5000-4000) * 0.4 * 1000 = $400,000
For Speedo = (5000-4000) * 0.6* 250 = $ 150,000
Total sales quantity variance = 400,000 + 150,000 = 550,000 Favorable
B. For sales mix variance
1stwe have to compute actual and budgeted sales mix ratio
2
Standard (budgeted) mix ratio: 40% Turboxand 60% Speedo; i.e 1,600 / (1,600 + 2,400) % =
40% Turbox
Actual mix ratio: 26% turbox and 74% Speedo; i.e 1,300/(1,300+2700)%= 26% turbox
2nd we have to determine the budgeted contribution margin
Turbox= $2,500 - $1,500 = 1000 and Speedo= $1,000 – 750 = 250
3rd compute the variance
Sales mix variance for turbox=5, 000 (0.26- 0.4) * 1000= 700,000 unfavorable
For Speedo= 5,000(0.74-0.6)*250= 175,000 favorable
Total sales mix variance……………………………….525, 000 unfavorable
Direct material Mix and yield variances
When calculating material variances using variance analysis, one issue that can arise is that a
product involves the use of more than one type of material.
If different materials are not interchangeable, then separate price and usage variances can be
calculated. However, if substitution of one material for another can occur, then it is more useful
to calculate mix and yield variances.
Direct material Mix variances
Direct Material Mix Variance is the measure of difference between the cost of standard
proportion of materials and the actual proportion of materials consumed in the production
process during a period.
A mix variance is used to monitor the cost of material. For instance; if more of an expensive
material and less of a cheap material has been used by the company, then the overall cost will be
higher and the variance adverse.
Direct Material Mix Variance: = (Actual Mix Quantity - Standard Mix Quantity) x Standard
Price
Yield variances
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A yield variance measures the efficiency of turning the inputs into outputs. If the yield variance
is adverse, it suggests that actual output is lower than the expected output. This could be due to
labor inefficiencies, higher waste, inferior materials, or using a cheaper mix with a lower yield.
Direct Material Yield Variance= (Actual Yield - Standard Yield) x Standard Material Cost Per
Unit
ExampleMesbo Cement PLC manufactured 10,000bags of cement during the month of January.
Consumption of raw materials during the period was as follows:
Material
Quantity Used
Standard Mix Per Bag
Actual Price
Standard Price
Limestone
100 tons
11 KG
$75/ton
$70/ton
Clay
150 tons
14 KG
$21/ton
$20/ton
Sand
250 tons
26 KG
$11/ton
$10/ton
Required: - A. computes Material Mix Variance?
B. Material yield variance?
A. solution
Step 1: Calculate the total consumption of raw materials
Total Raw Materials Consumption (100 + 150 + 250) = 500 tons
Step 2: Calculate the Standard Mix
Limestone:
500 tons units
x 11 / 51 = 108 tons
Clay:
500 tons units
x 14 / 51 = 137 tons
Sand:
500 tons units
x 26 / 51 = 255 tons
Total Quantity under Standard Usage (11 + 14 + 26) = 51 KG per bag
Step 3: Calculate the Variance
Material Usage Variance = [Actual Mix - Standard Mix (Step 2)] x Standard Price
Limestone:
(100 - 108)
x
$70
=
($560)
Favorable
Clay:
(150 - 137)
x
$20
=
$260
Adverse
Sand:
(250 - 255)
x
$10
=
($50)
Favorable
Total Usage Variance
($350) Favorable
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B. solution
Step 1: Calculate the Standard( budgeted) Yield for the total materials input
500 tons of materials should have yielded 9,804 bags
Standard Yield = 500 tons x 1000/ 51 KG = 9,804 bags; i.e. 1 tone = 1000 kg
Step 2: Calculate the Standard Cost of materials per bag
Total material cost of 1 bag of cement:
Limestone:
11 KG
x $0.070 =
$0.770
Clay:
14 KG
x $0.020 =
$0.280
Sand:
26 KG
x $0.010 =
$0.260
Total
$1.31 per bag
Step 3: Calculate the Total Yield Variance
Material Usage Variance = [Actual Yield - Standard Yield (Step 1)] x Standard
Cost / Unit (Step 2)
Actual Yield - Standard Yield = 10,000 - 9,804 (Step 1) = 196 bags
Total Material Yield Variance = 196 bags x $1.31 (Step 2)
= $256.76 Favorable
Step 4: Calculate the Material Wise Yield Variances
Individual material yield variance can be calculated in a similar way to the total yield
variance.
Materials:
Actual Yield - Standard
Yield
(Step 3)
x
Standard Cost per
bag
=
(Step 2)
Limestone:
196 bags
x
$770/1000
=
$150,920
Clay:
196 bags
x
$280/1000
=
$54,880
Sand:
196 bags
x
$260/1000
=
$50,960
Yield
Variance
$256.76
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