Performance Management

C4: Budgeting and Control | Material Mix and Yield Variances (ACCA F5)

C4- Material Mix and Yield Variances

Material Mix and Yield Variances explains material mix and yield variances; examines the issues involved in changing the material mix; explains that relationship between the material mix and yield variances and suggests alternative methods of controlling production processes.

Material Mix and Yield Variances

A variance is the difference between the actual result and the expected result. Variance analysis is the method used analyse the difference. When actual results are better than expected results, this is called a favourable variance. When actual results are worse than expected results, this is called an adverse variance.

Types of Variances

  • Selling price variance
  • Sales volume variance
  • Material total variance
  • Material price variance
  • Material usage variance
  • Labour total variance
  • Labour rate variance
  • Labour efficiency variance
  • Variable production overhead variance
  • Variable production overhead expenditure variance
  • Variable production overhead efficiency variance
  • Fixed production overhead total variance
  • Fixed production overhead expenditure variance
  • Fixed production overhead volume variance
  • Fixed production overhead volume efficiency variance
  • Fixed production overhead volume capacity variance

For examples which show how to calculate variances, please refer to BPP’s ACCA F5 Performance Management Study Text.

a) Calculate, identify the cause of, and explain material mix and yield variances.

The materials usage variance consists of two variances – the materials mix variance and the materials yield variance. These variances are used for control purposes when management can control the mix of materials to be used in production.

 Note: A mix variance occurs when materials are mixed in different proportions and it measures if the actual mix is cheaper or more expensive than the standard mix. 

To calculate the mix variance:

  • Identify the total actual quantity of materials used
  • Divide the total quantity into the standard mix of the different materials used
  • For each material, the difference between the actual quantity and the standard quantity is the mix variance
  • Apply the standard price per unit for the material to convert the mix variance into a money value
  • The total materials mix variance is the total of the mix variance for each material
 Note: A yield variance occurs when there is a difference between the expected output and the actual input. 

To calculate the yield variance:

  • Calculate the total quantity of materials that should have been used for the actual number of units manufactured
  • Compare the standard materials that should have been used with the actual quantity of materials that should have used
  • Apply the weighted average cost per unit of material to convert this into a money value
  • The difference s the yield variance in material quantities

b) Explain the wider issues involved in changing material mix e.g. cost, quality and performance measurement issues.

A change in the material mix can affect the productivity of the manufacturing process, the quality of the final product and pricing.

c) Identify and explain the relationship of the material usage variance with the material mix and yield variances.

The materials usage variance consists of two variances – the material mix variance and the material yield variance. These variances are used for control purposes when management can control the mix of materials to be used in production.

d) Suggest and justify alternative methods of controlling production processes.

For control processes, the mix and yield variances might not be adequate. So other methods may have to be used. Some examples are:

  • Wastage rates
  • Average cost of input calculations
  • Percentage of deliveries on time
  • Customer satisfaction ratings
  • Output to input conversion rates

Resources Used

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