Mix And Yield Variances

Where two materials are combined to form a final compound, it is entirely possible to analyse the materials usage variance further to better understand the financial impact of the operations of an organisation.  In essence, the total usage variance can be broken down into two distinct elements:

The mix variance explains how much of the usage variance is made up of using different proportions of materials.

The yield variance the remainder of the usage variance which is due to using more or less then the standard amount.

Consider, for example, a company who manufactures a product from two raw materials as follows:

Steel is made in 25Kg 'Units' each requiring the following inputs:

Material 1 = Iron Ore = 15Kg x £7/kg
Material 2 = Carbon   = 10Kg x £8/kg

In a particular production run 20 Units are manufactured using 370Kg of Iron Ore and 180Kg of Carbon.

Total Usage Variance

This is the financial impact of the process compared with the standard cost.

The standard usage is thus as follows:

Material 1 = 20 Units produced x 15Kg/unit = 300Kg
Material 2 = 20 Units produced x 10Kg/unit = 200kg

Actual materials used and variances:

Material 1 = 370Kg = 70Kg (A) x £7/Kg = £490 (A)
Material 2 = 180Kg = 20Kg (F) x £8/Kg = £160 (F)
                                                      £330 (A)

Mix Variance

This is the impact of alterations to the mixture of materials from the standard.

From the standard cost card the total materials should be in the proportion 60:40.

Standard mixture:

Material 1 = 550Kg x 60% = 330Kg
Material 2 = 550Kg x 40% = 220Kg

Comparing to the actual mixture and thus calculating the financial impact:

Material 1 = 370Kg = 40Kg (A) x £7/Kg = £280 (A)
Material 2 = 180Kg = 40Kg (F) x £8/Kg = £320 (F)
                                                      £40 (F) 

Yield Variance

This is the volume difference between the standard output and the actual output.

550Kg total usage should have yielded 22 Units (ie 550Kg/25Kg standard input = 22 Units)

However, only 20 Units were actually produced, resulting in the loss of 2 Units at the standard cost of £185/Unit = £370 (A)

In order to check working the mix and yield variances should equal the total usage variance.

Total Materials Usage Variance = £330 (A)
Mix Variance                          = £40 (F)
Yield Variance                        = £370 (A)