ACCA PM Syllabus D. Budgeting And Control - Material Mix and Yield Variances - Notes ^{1 / 4}

The total material variance is divided into the price and usage variances.

Moving a step forward, the usage variance is divided into mix and yield variances.

The mix variance is calculated as the difference between the actual total quantity used in the standard mix and the actual quantities used in the actual mix, valued at standard costs.

The standard mix shows the proportion of a material that we expect to use in a given mix.

The mix variance identifies the amount by which the actual proportion differs from the standard mix.

A favourable material mix variance would suggest that a higher proportion of a cheaper material is being used, hence reducing the overall average cost per unit.

An adverse material mix variance indicates that more of the expensive material was used in the actual input than indicated by the standard mix.

The yield variance is calculated as the difference between the standard input for what was actual output, and the actual total quantity input (in the standard mix), valued at standard costs.

The yield variance identifies if the inputs (in total) are greater or less than expected for a given output.

A favourable material yield variance indicates that more output was produced from the quantity of material used than expected by the standard.

The increase in yield is likely to be the result of employing more skilled labour, or introducing more efficient working practices.

An adverse material yield variance suggests that less output has been achieved for a given input, i.e. the total input in volume is more than expected for the output achieved.

It is only appropriate to calculate and interpret material mix and yield variances if quantities in the standard mix can be varied.

It has also been argued that calculating yield variances for each material is not useful, as yield is related to output overall rather than to particular materials in the input mix.

A further complication is that mix variances for individual materials are inter-related and so an explanation of the increased use of one material cannot be separated from an explanation of the decreased use of another.