Material Mix and Yield Variance
1. Introduction
- In many industrial products (e.g., pharmaceuticals, food), multiple materials or ingredients are used.
- Each material's variance can be computed individually if:
- Materials are independent.
- However, when materials form a mix, the interaction affects overall quality and cost.
- Thus, variance must also account for:
2. Standard vs Actual Mix
- A standard mix is predefined for ideal quality.
-
Deviations in mix may:
- Improve product quality (e.g., food, cosmetics).
- Reduce efficiency or increase cost.
- Some variation is acceptable; excessive variation may compromise the output.
3. Real-Life Example: Sweet Preparation
Standard Recipe (Total: 4 KG)
| Ingredient |
Quantity (KG) |
Standard Mix Ratio |
Rate (Rs./KG) |
| Gram Flour |
1.00 |
0.25 |
— |
| Sugar |
2.00 |
0.50 |
— |
| Ghee |
1.00 |
0.25 |
— |
| Total |
4.00 |
— |
— |
| Standard Cost |
— |
— |
Rs. 630 |
Actual Usage
| Ingredient |
Quantity (KG) |
Actual Mix Ratio |
| Gram Flour |
1.00 |
0.23 |
| Sugar |
2.10 |
0.49 |
| Ghee |
1.20 |
0.28 |
| Total |
4.30 |
— |
| Actual Cost |
— |
— |
4. Total Variance
-
Total Variance = Actual Cost − Standard Cost
= Rs. 738.50 − Rs. 630 = Rs. 108.50 Adverse
5. Components of Material Variance
To analyze the total variance in case of mixes, we compute 4 key cost values:
| Value No. |
Description |
| 1 |
Actual Quantity × Actual Price = Actual Material Cost |
| 2 |
Actual Quantity × Standard Price |
| 3 |
Standard Mix × Actual Quantity × Standard Price |
| 4 |
Standard Quantity × Standard Price = Standard Cost |
Using the 4 Values, We Compute:
| Type of Variance |
Formula |
Example Value |
| Price Variance |
Value (1) − Value (2) |
Rs. 24.50 Adverse |
| Mix Variance |
Value (2) − Value (3) |
Rs. 36.75 Adverse |
| Yield Variance |
Value (3) − Value (4) |
Rs. 47.25 Adverse |
| Total Variance |
Value (1) − Value (4) |
Rs. 108.50 Adv. |
6. Insights from the Example
-
Change in Mix:
- Standard mix: 1:2:1 → 0.25:0.50:0.25
- Actual mix: 1:2.1:1.2 → 0.23:0.49:0.28
- More Ghee (costliest material) was used, increasing overall cost.
- Such deviations are intentional in food/cooking for:
- Better taste
- Texture
- Quality
⚠️ Practical Note:
Don't explain mix/yield variances to a cook—they aim for taste, not cost control!
7. Business Context vs Home Context
- In a business, adverse variance must be investigated:
- Was it due to raw material quality?
- Was more Ghee needed due to low-quality supply?
- May lead to decisions like:
- Changing suppliers
- Adjusting standards
8. Labour Mix Variance
- Similar concept applies to Labour Mix:
- When different types of workers (e.g., skilled, semi-skilled, unskilled) are employed.
- Labour Mix Variance occurs when:
- Actual labour combination differs from standard mix.
- Affects overall cost and efficiency.
9. Summary Table
| Variance Type |
Description |
| Price Variance |
Difference due to change in rates/prices |
| Mix Variance |
Difference due to actual vs. standard material ratios |
| Yield Variance |
Difference due to overall quantity of inputs used |
| Labour Mix Var. |
Occurs with multiple types of workers and labour types |
