Direct Material Mix variance is a subdivision of material usage variance. If different materials can be substituted the mix variance measures the cost of any variation from the standard mix of materials.
This variance separates the aggregate unit cost of each item excluding all the other variables.
Direct Material Mix Variance:
= Actual Quantity * Standard Price – Standard Mix Quantity * Standard Price
= Standard Cost of Actual Mix – Standard Cost of Standard Mix
= Standard Price (Actual Mix Quantity – Standard Mix Quantity)
Direct Material Mix Variance is useful tool to determine if lower cost mix of materials can be used in manufacturing a product.
The concept of mix variance becomes very useful as it gathers information in knowing if it is possible to alter mix of materials without declining quality of resulting product below a minimum level. Material mix variance is sub variance of material usage variance.
Hence, it is based on standard price other than actual price as material price variance accounts for variations in price related matters.
Material mix variance emphasizes aspect of proportion of raw materials used in the production process. Material mix variance is suitable for performance measurement.
It is not suitable in industries which require high precision of mixing materials such as pharmaceutical industries, dairy products, etc
The use of cheaper materials than what is required results in favorable mix variance. On the other hand, adverse mix variance presents that use of expensive materials has been made than the standard mix.
The reasons for favorable material mix variance includes:
- Use of lower quality of input materials.
- Variations in efficiency in material mix by labors in one input (lower quality) along with the other (higher quality).
The reasons for adverse material mix variance includes:
- Use of higher quality of input materials.
- Variations in efficiency in material mix by labors in other product (high quality) with lower quality product.
Marvel Inc produced 20,000 items of idols from marvels franchise during November, 2018. Following raw materials were purchased and consumed by Marvels Inc during the period
|Material||Quantity Used||Standard mix per item||Actual Price||Standard Price|
|Cloth||100 kgs||11 kg||$ 75 per kg||$ 70 per kg|
|Paint||150 kgs||14 kg||$ 21 per kg||$ 20 per kg|
|Clay||250 kgs||26 kg||$ 11 per kg||$ 10 per kg|
Direct Material Mix variance shall be calculated as:
We calculate the total consumption of raw materials as:
Total consumption = 100 + 150 + 250 = 500 kgs
Calculation of total quantity under standard usage = 11 + 14 + 26 = 51 kgs
Now we shall calculate the standard mix as:
|Cloth||500 * 11/51||108 kgs|
|Paint||500 * 14/51||137 kgs|
|Clay||500 * 26/51||255 kgs|
Now we calculate the variances as:
Material mix variance = (Actual mix – standard mix) * standard price
|Cloth||70 (100-108)||$ 560 Favorable|
|Paint||20 ( 150 – 137 )||$ 260 Adverse|
|Clay||10 (250 – 255)||$ 50 Favorable|
Adding all the variances together,
Direct Material Mix Variance = $ 350 Favorable