Page 233 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes From the early discussions, it is clearly understood that the revised standard mix of materials
will be the same only during the moment at which the total actual and standard quantity of
materials are equivalent to each other and vice-versa.

Example: From the following information, calculate the materials mix variance

Materials Standard Actuals
A 200 Units @ 12 160 Units @ 13
B 100 Units @ 10 140 Units @ 10

Due to shortage of material, it was decided to reduce the consumption of A by 15% and increase
that of material B by 30%.

The above problem does not have any difference in between the total actual quantity and
standard quantity of materials. In both the cases the total quantity of materials are equivalent to
300 units. If both are equivalent to each other, the standard mix would be the revised standard
mix of the materials.
Solution:

Revised Standard Mix:
200
Material A = × 300 Units = 200 units
300
100
Material B = × 300 Units = 100 units
300
After finding out the revised standard mix of the materials, the changes on the consumption
should be incorporated due to the shortage of materials to the tune of actual quantity of materials.
For material A, there is reduction in the actual consumption in the quantity of materials amounted
15%.
For material B, there is spurt increase in the consumption of material B due to fill up the shortage
of material A i.e 30% increase on material B.
Final Revised standard Mix of Material A : 200 units – 15% of 200 units = 170 units
B : 100 units + 30% of 100 units = 130 units

Material Mix Variance

Material Mix Variance = Standard Price (Revised Standard Quantity – Actual Quantity)
MMV Material A = 12 (170 units – 160 units) = 120 Favourable

MMV Material B = 10 (130 units – 140 units) = 100 Adverse
Total Material Mix Variance = 20 Favourable.

Notes The material mix variance is one of the components of material usage variance.

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