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

**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**

**BPP’s ACCA F5 Performance Management Study Text****ACCA F5 Syllabus and Study Guide****Open Tuition’s ACCA F5 Performance Management Study Materials****Acowtancy Free ACCA F5 Course**

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