Material Mix and Yield Variances.
Where it is possible to combine 2 or more raw materials to produce an output, input standards
should be established to indicate the target mix of raw materials required to produce a unit (or a
specified number of units) of output. e.g to produce bricks, what is the standard mix (ratio) of
cement and gravel required. Some materials are cheaper and it will save costs to use more of
these cheaper materials in the mix. Nevertheless care should taken to avoid compromising
quality or quantity of output (yield).
Material usage variance can be analysed into material mix variance and material yield variance.
These variances analyse how actual production deviated from the standard mix. Any cost savings
that came from using more of the cheaper materials (this will be denoted by a favourable
material mix variance). Any decrease in yield/output as a result (this will be reflected by an
adverse material yield variance).
Simple example.
Consider a fertilizer manufactured by mixing two chemicals, A and B. The following standard
cost information for 1bag of fertilizer is given as:
$
Material A
3kg @ $3
9
Material B
7kg @ $5
35
44
10% loss is expected in the process. Therefore 1 bag of fertilizer weighs 9kg and has material
cost of $44. Standard cost (SC) of output is therefore $44. From experience, students commonly
confuse the standard cost (SC) of output i.e $44 per bag, with the standard price (SP) of input i.e.
$3per Kg for material A and $5 per Kg for material B.
.
A: 3kg @ $3
10% loss
B: 7kg @ $5
9kg of out put worth $44/9
Note:
If 10kg are input into the process, the expected mix is 3:7 for A and B respectively. Therefore if
a mix is done as 4kg of A and 6kg of B, then more of the cheaper material has been used (more
of A) this will result to a favourable material mix variance. The favourable mix variance implies
that the mix has saved the company $2.
Additionally, by inputting 10kg into the process the expectation is to have 1 bag of fertilizer as
output, with a weight of 9Kg. If instead an output of 8kg is realized instead of nine then the
process is said to have had a poor yield. In fact the output is not even enough for 1 bag of
fertilizer. In that case we say that there an adverse material yield variance of 1kg. we compare
what we expected from the actual quantity input i.e 9kg or 1 bag and the actual yield we got from
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the actual quantity input i.e. 8kg or 8/9 of a bag, the difference is valued at standard cost per unit
1
44 $4.89
of output.
All along notice that when referring to actual quantity (AQ) input we are looking at the
combination of all types of materials used in a process.
Required:
If actual result for the period was an output of 17kg after inputting 8kg of A and 12kg of B.
Calculate material mix and material yield variances for the period.
Solution
Material mix variance. This variance compares the actual quantity (AQ) input into a process at
standard mix(SM) proportions and the actual quantity (AQ) input at actual mix (AM) proportion.
To establish which one is more expensive, the difference is valued at standard price (SP) of
materials.
In our illustration the actual quantity input is 20kg (i.e 8 of plus 12 of B), at standard mix 3:7 this
would have been 6kg:14kg but at actual mix proportions its 8kg:12kg.
20
3
10
8 3
$6
20
7
10
12 5
$10
$
Material Yield Variance. This variance compares the actual yield (AY) obtained from the
actual quantity (AQ) input and the yield that was expected (expected yield is standard yield - SY)
from the actual quantity (AQ) input, the difference is valued at standard cost of output.
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17
9
20
2
44
$ .
Note. Material usage variance = material mix variance + material yield variance
Illustration. (This question has been borrowed from: Drury (2007) )
XYZ Company Ltd. has established the following standard mix for producing 9 Litres of product
A
(Notice that the table does not give standard cost information per unit of output but instead it gives standard information per 9
units of output)
5 Litres of material x at $. 7 per litre 35
3 Litres of material y at $. 5 per litre 15
2 Litres of material z at $. 2 per litre 4
54
A standard loss of 10% of input is expected to occur. Actual input was.
53000 litres of material x at $. 7 per litre
371,000
28000 litres of material y at $. 5.30 per litre 148,400
19000 litres of material x at $. 2.20 per litre 41,800
561,200
Actual output for the period was 92,700 litres of product A.
Required
Compute the direct material mix variance and direct material yield variance.
Solution
100,000
100,000
100,000
5
10
3
10
2
10
53,000 7
21,000
28,000 5
10,000
19,000 2
2,000
$ ,
92,700
3
100,000
0.9
,
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Material usage variance = 9,000A+16,200F = 7,200F
Causes of Variances
Material mix variance comes about when more of the cheaper material is used in production (for
a favourable variance) reasons for this could be:
• Change in production manager’s strategy
• Change in standard specification s for the product
• Intent of altering the quality of the product
• Availability/scarcity of certain materials
Material yield variance on the other hand occurs when the actual yield is different from expected
given actual quantity input into a production process. Causes could be (but not limited to)
• The mix of materials used
• (In)efficiency of the process
• (In)efficiency of employees
• Change of material quality
Reference:
Drury, C. (2007). Management and cost accounting. Cengage Learning EMEA.
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