Material Mix Variance:
That portion of the material usage variance that occurs due to the difference between
the mixture’s standard & actual composition is known as material mix variance.
The variances in cost which arises because of change in the ratio in which the different
materials are used as compared to the standard which has been fixed for the purpose,
is represented by material mix variance. It could arise on account of temporary shortage
or price rise of a particular type of material. Depending upon the fact whether the
total of actual mix of material & the standard mix of material are the same or
not, the formula which may be used for the calculation of the variance will be different.
The formula, in the case where total standard quantity & actual quantity are the
same, is:
Standard price * (Standard quantity- Actual quantity)
The usage variance in such a case would be equal to the mix variance.
However, the formula, in the case where total standard quantity & actual quantity
are not the same, is:
Standard price * (Revised standard quantity-Actual quantity)
Revised standard is equal to actual quantity divided in the standard quantity ratio.
In such a case the usage variance shall be both due to mix as well as due to reasons
which are other than mix. Therefore, using the following formula, calculation can be
done of another sub-variance which is called revised usage (or sub usage) variance.
The formula is:
Standard price * (Standard quantity-Revised standard quantity)
Material Yield Variance:
That portion of the usage variance
which arise as a result of the difference between the standard yield which has been
specified & the actual yield which has been obtained, is material yield variance.
The formula is:
Standard cost per unit * (Standard yield for actual mix –Actual yield)
Due to abnormal contingencies like processing in wrong temperature, spoilage, chemical
reactions etc., this variance may arise.
On the basis of output or yield, calculation of yield variance may be done while on
the basis of input, calculation of revised usage variance may be done. Numerically,
both will be equal. However, revised variance is not that much popular & calculation
of the same should be done only when due to the lack of adequate information, the calculation
of the yield variance is not possible.
Relationship between the variances:
Total material cost variance = Price variance+ Usage variance
Usage Variance = Mix variance + Revised usage variance
Or,
Mix
variance + Yield variance
Illustration3: For 500 Kg of a finished product, the standard
material inputs required are given below:
Material Quantity
(in Kg) Standard
rate per kg (in $)
A 225 40.00
B 200 80.00
C 125 30.00
550
Standard Loss 50
Standard Output 500
10000 kg of the finished product has been actually produced during the period for which
the actual quantities of material used & the prices paid there for are as under:
Material Quantity
used (in Kg) Purchase
rate per kg (in $)
A 5000 38.00
B 4250 84.00
C 2250 32.50
Calculate: (a) Material Cost variance; (b) Material price variance; (c) Material usage
variance; (d) Material mix variance; & (e) Material yield variance.
Also make reconciliation among the variances.
Solution:
Standard Input of materials for actual output of 10000 kg = (550/500) * 10000
=
11000 kg
Standard Material cost for actual output: $
A (225/500)*10000 = 4500 kg @ $ 40 180000
B (200/500)*10000 = 4000 kg @ $ 80 320000
C (125/500)*10000= 2500 kg
@ $ 120 300000
11000
kg Input 800000
(-) 1000 kg
Loss Nil
10000 kg
Output 800000
Standard Cost per kg of standard mix = $ 800000/11000 = $ 72.727
Standard cost per kg of output = $ 800000/10000 = $ 80
Actual cost: $
A 5000 kg @ $38 190000
B 4250 kg @ $84 357000
C 2250 kg @ $130 292500
11500 kg Input 839500
(-) 1500 kg Loss Nil
10000 kg Output 839500
Revised Standard quantity = (Standard Quantity/Standard Mix)*Actual Mix
Kg
A (225/550) * 11000 4704
B (200/550) * 11000 4182
C (125/550) * 11000 2614
11500
(a) Material cost variance: =Standard Cost of Actual Output – Actual Cost
= $ 800000-$ 839500 $ 39500 Adverse
(b) Material Price variance: Actual Quantity * (Standard Price – Actual Price)
A 5000 * (40-38) 10000
Favourable
B 4250 * (80-84) 17000
Adverse
C 2250 * (120-130) 22500 Adverse $
29500 Adverse
(c) Material Usage Variance:
=Standard price * (Standard Quantity for actual output – Actual Quality)
A $ 40 * (4500-5000) 20000
Adverse
B $ 80 * (4000- 4250) 20000
Adverse
C $ 120 * (2500-2250) 30000 Favourable
10000
Adverse $
10000 Adverse
Check: Material Cost Variance = Price + Usage $
39500 Adverse
(d) Material Mix variance: Standard Price * (Revised Standard Quantity – Actual
Quantity)
A $ 40 * (4704 - 5000) 11840
Adverse
B $ 80 * (4182- 4250) 5440
Adverse
C $ 120 * (2614 – 2250) 43680 Favourable 26400
Favourable
(e) Material Yield Variance: Standard cost per unit * (Standard yield for actual
mix – Actual yield)
= $ 80 * (10455[see note below]-10000) 36400 Adverse
Check: Material Usage Variance = Mix + Yield 10000 Adverse
Note: Standard output for actual mix:
= (500/550) * 11500 = 10455 kg
Alternative Calculations: $
Actual Cost (same calculation as done above) 839500
Actual Input at Standard price:
A 5000 kg @ $ 40 200000
B 4250 kg @ $ 80 340000
C 2250 kg @ $ 120 270000
11500Kg 810000
(a) Material Cost variance:
Standard cost of Actual output
10000 kg @ $ 80 800000
Actual cost 839500
Variance 39500
Adverse 39500 Adverse
(b) Material price variance:
Actual Input at Standard price 810000
Actual Input at Actual price 839500
Variance 29500
Adverse 29500 Adverse
(c) Material Usage Variance:
Standard cost of output 800000
Actual Input at Standard price 810000
Variance 10000
Adverse 10000 Adverse
Check: Material cost variance = Price + Usage 39500 Adverse
(d) Material Mix Variance:
Actual mix at standard price 810000
Standard mix of 11500 kg at standard cost
11500 kg * $ 72.727 836360
Variance 26360
Favourable 26360 Favourable
(e) Material Yield Variance:
Standard yield from 11500 kg input
= (500/550) * 11500 kg 10454.50
kg
Actual yield 10000.00 kg
Difference 454.50kg
Variance 455 @ $
80 36360 Adverse
Check : Material
Usage Variance = Mix + Yield 10000 Adverse
Reconciliation
Statement $
Standard Material cost for Actual output 800000
Variance: Price 29500
Adverse
Mix 26360
Favourable
Yield 36360 Adverse
Actual Material Cost 39500
Adverse 39500 Adverse
839500
Illustration4:
From the following data, calculate (a) material
cost variance, (b) material price variance, (c) material usage variance, (d) material
mix variance:
Material Standard Actual
X 3500
kg @ $ 2.10 3750
kg @ $ 2.40
Y 1500
kg @ $ 4.30 1650
kg @ $ 4.60
Z 1000
kg @ $ 6.60 1200
kg @ $ 7.00
Solution:
Standard Cost: $
X 3500
kg @ $ 2.10 7350
Y 1500
kg @ $ 4.30 6450
Z 1000 kg
@ $ 6.60 6600
6000 kg 20400
Actual Cost:
X 3750
kg @ $ 2.40 9000
Y 1650
kg @ $ 4.60 7590
Z 1200 kg
@ $ 7.00 8400
6600 kg 24990
Revised Standard quantity = Standard Quantity * Actual Mix
Standard
Mix
X 3500 *
6600 3850
kg
6000
Y 1500 *
6600 1650
kg
6000
Z 1000 *
6600 1100 kg
6000 6600
Note: The calculation of revised standard mix is necessary since the standard total quantity of material & actual total quantity of material are not the same.
(a) Material Cost Variance: Standard Cost – Actual Cost
= 20400 – 24990 4590
Adverse
(b) Material Price Variance: Actual quantity * (Standard Price – Actual Price)
X 3750
* (2.10-2.40) 1125
Adverse
Y 1650
* (4.30-4.60) 495
Adverse
Z 1200
* (6.60-7.00) 480 Adverse
2100
Adverse 2100
Adverse
(c) Material Usage Variance: Standard Price * (Standard Quantity – Actual
Quantity)
X $
2.10 * (3500-3750) 525
Adverse
Y $
4.30 * (1500-1650) 645
Adverse
Z $
6.60 * (1000-1200) 1320 Adverse
2490
Adverse 2490 Adverse
Check: Material Cost Variance = Price + Usage 4590 Adverse
(d) Material Mix Variance: Standard Price * (Revised Standard Quantity– Actual
Quantity)
X $
2.10 * (3850-3750) 210
Favourable
Y $
4.30 * (1650-1650) Nil
Z $
6.60 * (1100-1200) 660 Adverse
450
Adverse 450
Adverse
(e) Material Revised Usage Variance: Standard price * (Standard Quantity – Revised
Standard Quantity) (Refer Note)
X $
2.10 * (3500-3850) 735
Adverse
Y $
4.30 * (1500-1650) 645
Adverse
Z $
6.60 * (1000-1100) 660 Adverse
2040
Adverse 2040 Adverse
Check: Material Usage Variance = Mix + Revised
Usage 2490 Adverse
Note: Material Sub-usage variance is an alternative name of this variance. The calculation of this variance is to be done when due to lack of adequate information; it is not possible to calculate the yield variance.
Alternative Calculations: $
Standard Cost (As per earlier calculation) 20400
Average Standard Rate per Kg = 20400/6000 3.40
Actual Cost (As per earlier calculation) 24990
Actual Input at standard price:
X 3750
kg @ $ 2.10 7875
Y 1650
kg @ $ 4.30 7095
Z 1200
kg @ $ 6.60 7920 22890
(a) Material Cost Variance:
Standard Cost 20400
Actual Cost 24990
Variance 4590
Adverse 4590 Adverse
(b) Material Price Variance:
Actual Input at standard price 22890
Actual Input at actual price 24990
Variance 2100
Adverse 2100
Adverse
(c) Material Usage Variance:
Standard Cost of Actual Output 20400
Actual Input at standard price 22890
Variance 2490
Adverse 2490 Adverse
Check: Material Cost Variance = Price + Usage 4590 Adverse
(d) Material Mix Variance:
Actual Mix at standard price 22890
Standard Mix of actual input at average
Standard rate: (6600 kg * $ 3.40) 22440
Variance 450
Adverse 450
Adverse
Material Revised Usage Variance:
Standard Usage 6000
kg
Actual Usage 6600 kg
Difference 600 kg
Variance 600 kg
* $ 3.40 2040 Adverse
Check: Material Usage Variance = Mix + Revised
Usage 2490
Adverse
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- Establishment of Standards
- Fixed Overhead Variances
- Labour Mix Variance, Revised Efficiency Variance
- Labour Variances, Direct Labour Cost Variance
- Material Variances
- Sales Variances
- Setting of Standards
- Standard Costing- Introduction
- Standard Time Determination, Standard Rate Determination
- Types of Standards
- Variances based on Profit Margin, Total Sales Margin Variance
- Variable Overhead Variances
