Materials Mix and Yield Variance:
Learning Objective of the article:
- Define and explain materials mix and yield variances.
- What are the formulas of materials mix and yield variances?
- Calculate materials mix and yield variance.
Price and quantity variances of direct materials are explained on direct materials price variance and direct materials quantity variance pages respectively. Here, our focus is to explain the calculation of materials mix variance and materials yield variance.
Formulas of Material Mix and Yield Variance:
1. Materials Mix Variance:
Actual quantities at individual standard materials costs – Actual quantities at weighted average of standard materials costs
2. Materials Yield Variance:
Actual quantities at weighted average of standard materials costs – Actual output quantity at standard materials cost
An example can help us calculation of materials mix and yield variance. Consider the following example:
Example:
To illustrate the calculation of materials mix and yield variances assume that the springmint Company, a manufacturer of chewing gum, uses a standard cost system. Standard product and cost specifications for 1,000 lbs. of chewing gum are as follows:
Quantity | × | Price | = | Cost | ||
Gum base | 800 | $0.25 | $200 | |||
Corn syrup | 200 | $0.40 | 80 | |||
Sugar | 200 | $0.10 | 20 | |||
——– | ——– | |||||
Input | 1,200 lbs | $300 |
$300 / 1,200 lbs = $0.25 per lb.* |
|||
===== | ==== | |||||
Output | 1,000 | $300 |
$300 / 1,000 lbs = $0.30 per lb.* |
|||
===== | ==== |
*Weighted average.
The production of 1,000 lbs. of chewing gum required 1,200 lbs of raw materials. Hence the yield is 1,000 lbs / 1,200lbs. or 5/6 of input. Materials records indicate.
Materials | Beginning Inventory | Purchases in January | Ending Inventory |
Materials | Beginning Inventory | Purchases in January | Ending Inventory |
Gum base | 10,000 lbs | 162,000 lbs@ 0.24 | 15,000 lbs |
Corn Syrup | 12,000 lbs | 30,000 lbs @ 0.42 | 4,000 lbs |
Sugar | 15,000 lbs |
32,000 lbs @ 0.11 |
11,000 lbs |
To convert 1,200 lbs. of raw materials into 1,000 lbs of finished product required 20 hours at $6.00 per hour or $0.12 per lbs. of finished product. Actual direct labor hours and cost for January are 3,800 hours at $23,104. Factory overhead is applied on a direct labor hour basis at a rate of $5 per hour ($3 fixed , $2 variable), or $ 0.1 per lb. of finished product. Normal overhead is $20,000 with 4,000 direct labor hours. Actual overhead for the month is $22,000, Actual finished production for January is 200,000 lbs.
The standard cost per pound of finished chewing gum is:
Materials |
$0.30 per lb. |
Labor | $0.12 per lb. |
Factory overhead |
$0.10 per lb |
Required: Calculate:
Calculation of Materials Price Variance:
The materials variances for January consists of price variance, mix variance, yield variance, and quantity variance. The company calculates the materials price variance using the procedure explained on “direct materials price variance” page and recognizes variances when materials are purchased.
Materials |
Quantity |
Actual Price |
Standard Price |
Unit Price Variance |
Price variance |
Gum base |
$162,000 |
$0.24 |
$0.25 |
$(0.01) |
$(1,620) |
Corn syrup | 30,000 | $0.42 | $0.40 | $0.02 | $600 |
Sugar | 32,000 |
$0.11 |
$0.10 |
$0.01 |
$320 |
——— | ——— | ——— | ——— | ——— | |
materials price variance | $(700)F |
Calculation of Materials Mix Variance:
The materials mix variance results from combining materials in a ratio different from the standard materials specifications. It is computed as follows:
Actual quantities at individual standard materials costs: | ||
Gum base 157,000 @ $0.25 | $39,250 | |
Corn syrup 38,000 @ $0.40 | $15,200 | |
Sugar 36,000 @ $0.10 | $3,600 | |
——– | $58,050 | |
Actual quantity at weighted average of standard materials cost input 231,000 lbs × $0.25 | $57,750 | |
——– | ||
Materials mix variance (unfavorable) | $300U | |
====== |
Calculation of Materials Yield Variance:
Material yield variance is computed as follows:
Actual quantity at weighted average of standard materials cost input 231,000 lbs × $0.25 | $57,750 |
Actual out put quantity at standard materials cost (200,000 lbs × $0.30) | $60,000 |
——– | |
Material yield variance (Favorable) | $(2,250)F |
F = Favorable
U = Unfavorable
The yield variance occurred because the actual production of 200,000 lbs. exceeded the expected output of 192,500 lbs. (5/6 of 231,000) by 7,500 lbs. The yield difference multiplied by the standard weighted materials cost of $0.30 per output pound equals the favorable yield variance of $2,250.
The materials quantity variance can be calculated for each item as follows, using the procedure explained on direct materials quantity variance page.
Unit | × | Standard unit cost | = | Amount | Materials quantity variance | ||
Gum base: |
Actual quantity used |
157,000 lbs | $0.25 | $39,250 | |||
Standard quantity allowed | 160,000 lbs* | $0.25 | 40,000 | ||||
———– | $ (750) Favorable | ||||||
Corn Syrup: | Actual quantity used | 38,000 lbs | $0.40 | $15,200 | |||
Standard quantity allowed | 40,000 lbs** | $0.40 | 16,000 | ||||
———— | $ (800) Favorable | ||||||
Sugar: | Actual quantity used | 36,000 lbs | $0.10 | $3,600 | |||
Standard quantity allowed | 4,000 lbs*** | $0.10 | 4,000 | ||||
———— | $ (400) Favorable | ||||||
—————– | |||||||
Total materials quantity variance ———————————————- | $ (1,950) Favorable | ||||||
========== |
- *An output of 200,000 lbs. should require and output of 240,000 lbs., with a standard yield of 1,000 lbs. output for each 1,200 lbs input. Then the 240,000 lbs. × (800 lbs. / 1,200 lbs ) gum base portion of the formula = 160,000 lbs.
- **The 240,000 lbs. × (200lbs. / 1,200 lbs.) corn syrup portion of the formula = 40,000 lbs
- ***The 240,000 lbs. × (200lbs. / 1,200 lbs.) sugar portion of the formula = 40,000 lbs.
The total materials quantity variance can also be determined by comparing actual quantities at standard prices, $58,050 ($39250 + $15,200 + $3,600), to actual output quantity at standard materials cost, $60,000 (200,000 lbs × $0.30) for a total favorable variance of $1,950. The mix and yield variances separate the materials quantity variance into two parts:
Materials mix variance | $300 unfavorable |
Materials yield variance | (2,250) favorable |
—————- | |
Materials quantity variance | $(1,950) favorable |
The influence of individual raw materials on the total materials mix variance can be calculated in the following manner:
Materials | Actual quantity | Standard Formula | × | Total Actual Quantity | = | Actual quantity Using Standard Formula | Quantity Variation | × | Standard Unit Price | = | Materials Mix Variance |
Gum base | 157,000 lbs | 800 / 1,200 | 231,000 lbs. | 154,000 lbs | 3,000 lbs | $0.25 | $750 | ||||
Corn syrup | 38,000 lbs | 200 / 1,200 | 231,000 lbs. | 38,500 lbs | (500) | $0.40 | (200) | ||||
Sugar | 36,000 lbs | 200 / 1,200 | 231,000 lbs. | 38,500 lbs | (2,500) | $0.10 | (250) | ||||
——— | ———- | ———- | ———- | ||||||||
231,000 lbs | 231,000 lbs | -0- | $300 | ||||||||
====== | ====== | ====== | ====== |
You may also be interested in other articles from “standard costing and variance analysis” chapter
- Standard Costs and Management By Exception
- Setting Standard Costs – Ideal Versus Practical Standards
- Direct Materials Price and Quantity Standards
- Direct Materials Price Variance
- Direct Materials Quantity Variance
- Direct Labor Rate and Efficiency Standards
- Direct Labor Rate/Price Variance
- Direct Labor Efficiency | Usage | Quantity Variance
- Manufacturing Overhead Standards
- Overall or net factory overhead variance.
- Controllable variance
- Volume variance
- Spending variance
- Idle capacity variance
- Efficiency variance
- Spending variance
- Variable efficiency variance
- Fixed efficiency variance
- Idle capacity variance
- Mix and Yield Variance – Definition and Explanation
- Materials Mix and Yield Variance
- Labor Yield Variance
- Factory Overhead Yield variance
- Variance Analysis and Management By Exception
- Managerial importance and usefulness of variance analysis
- Advantages and Disadvantages of Standard Costing System
- Standard Costing Discussion Questions and Answers
- Standard Costing and Variance Analysis Formulas
- Standard Costing and Variance Analysis Problems and Solution
- Standard Costing and Variance Analysis Case Study
Other Related Accounting Articles:
- Direct Labor Yield Variance
- Factory Overhead Yield Variance
- Standard Costing and Variance Analysis Formulas
- Managerial Usefulness/Importance of Variance Analysis
- Overall or Net Factory Overhead Variance
- Factory Overhead Controllable Variance
- Manufacturing Overhead Cost Standards
- Fixed Overhead Efficiency Variance
- Factory Overhead Efficiency Variance
- Mix Variance and Yield Variance
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