Definition:
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.
Formula:
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)
Explanation:
Direct Material Mix Variance is a useful tool to determine if the 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 the mix of materials without declining the quality of the resulting product below a minimum level.
Material mix variance is the sub variance of material usage variance.
Hence, it is based on standard prices other than actual prices as material price variance accounts for variations in price-related matters.
Analysis:
Material mix variance emphasizes the aspect of the proportion of raw materials used in the production process. Material mix variance is suitable for performance measurement.
It is not suitable for industries that require high precision in 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 the use of expensive materials has been made more than the standard mix.
The reasons for favorable material mix variance include:
- Use of lower quality input materials.
- Variations in efficiency in the material mix by laborers in one input (lower quality) and the other (higher quality).
The reasons for adverse material mix variance include:
- Use of higher quality input materials.
- Variations in efficiency in the material mix by laborers in other products (high quality) with a lower quality product.
Example:
Marvel Inc produced 20,000 items of idols from the Marvel franchise in 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 follows:
| Cloth | 500 * 11/51 | 108 kgs |
| Paint | 500 * 14/51 | 137 kgs |
| Clay | 500 * 26/51 | 255 kgs |
Now we calculate the variances as follows:
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
