Direct material mix variance is one of the germane variances to compute for a company using more than one type of direct material in its manufacturing process.
What this means is that the production of a single product requires the use of more than one direct material.
In this article, I will walk you through the meaning of material mix, we’ll also consider its calculation aspect so you can conveniently tackle scenario-based questions come what may!
What Is Material Mix Variance?
The materials mix variance measures the difference between the actual and standard mixture of materials.
How To Calculate Material Mix Variance
Without trying to impress you with fluff and what’s-not. Here is an explanation of what you need to do to accurately provide questions testing material mix.
- Determine the standard mix of materials.
- Compare the actual quantities of each individual material that was used and the standard quantities that would have been used.
- Find the difference between the standard mix and actual mix to get the material mix variance.
- Convert the mix variance for each individual material into a money value by multiplying by the standard price per unit of the material.
Let’s put these steps into practice by solving a question.
A company makes use of three direct materials in the production of its chemical product, the following information has been provided for you to calculate the direct materials mix variance.
|Material||Quantity (kg)||Standard price/kilo (₦)||Standard cost (₦)||Actual quantity used|
|Output||1 unit||300 unit|
Following the above steps.
- Actual mix:
X = 500kg
Y = 600kg
Z = 1000kg
- The mix of direct materials if they were used in the standard mix (3:3:4)
X = 30% X 2100 = 630 kg
Y = 30% x 2100 = 630 kg
Z = 40% x 2100 = 840 kg
- Mix variance = (Actual mix – Standard mix) x Standard cost
X = 130 kg Favourable x 20 = 2600F
Y = 30 kg Favourable x 25 = 750F
Z = 160 kg Adverse x 75 = 12000A
- The toal mix variance = 260F + 750F + 12000A = 10990 Adverse
If you add the mix variance together it should result in Zero. 130F +30F +160A = O
Advantages Of Material Mix Variance
- Material mix variance helps the company to assess its cost of production.
- It helps the management in budgeting.
- Helps the management to assess how it can reduce the cost of production.
- It tasks the management so it can transform unfavorable variances into favorable ones.
What Are The Disadvantages?
- The reporting manager could easily manipulate numbers to get a desirable result.
- Material mix variance involves a complex procedure and hence, it’s prone to errors.
It should not be difficult for you to solve questions on direct material mix going forward.
Also, reading this article must have buttressed your understanding of this topic.
Leave a comment in the section below if you have other questions you’d like me to answer on this topic, and I’ll provide a response as soon as I can.
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