Chapter five measuring yield, mix and quantity effects learning Objectives

Total direct materials mix variance

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Total direct materials mix variance
Compare columns 2 and 1 in Exhibit 17.2. Both columns calculate cost using the actual total quantity of all inputs used (6500 tonnes) and budgeted input prices (Golden Delicious, British Coxes and Jonagold, $90). The only difference is that column 2 uses budgeted

input mix (Golden Delicious, 50%; British Coxes, 30%; and Jonagold, 20%), and column 1 uses actual input mix (Golden Delicious, 50%; British Coxes, 35%; Jonagold, 15%). The difference in costs between the two columns is the total direct materials mix variance, attributable solely to differences in the mix of inputs used. The total direct materials mix variance is the sum of the direct materials mix variances for each input.
Direct materials mix Actual Budgeted
Actual total
Variance for each input = Direct materials Direct materials quantity of all x price of input mix - input mix direct materials direct materials percentage percentage inputs used input The direct materials mix variances are:
Golden Delicious (0.50 - 0.50) xxx x = British Coxes (0.35 - 0.30) xxx x $80 =
26000 U
Jonagold (0.15 - 0.20) xxx x $90 29250 F
Total direct materials mix variance $3 250 F
The favorable total direct materials mix variance (3250 F) occurs because the average budgeted cost per tonne of apples in the actual mix [$497 250 (Exhibit 17.2, column 1) ÷ 6500
= $76.50] is less than the average budgeted cost per tonne of apples in the budgeted mix [$500 500 (Exhibit 17.2, column 2) ÷ 6500 = $77]. The favourable mix variance represents the difference in cost of the budgeted mix and the actual mix for the 6500 tonnes of apples used - $77) x 6500 = €3250 F. The total direct materials mix variance helps managers understand how total budgeted costs change as the actual direct materials mix varies from the budgeted mix. The mix variance of an individual input is favorable (unfavorable) if Aliya uses a smaller (greater) percentage of that input in its actual mix relative to the budgeted mix. The individual variances help managers identify the reasons why the total mix variance is favorable — substituting some lower (budgeted) priced British Coxes (€80 per tonne) in place of the more costly Jonagold (€90 per tonne) while using the budgeted mix of Golden
Delicious reduces costs.
How should we interpret the analysis in Exhibit 17.2? The total direct materials yield variance is $7700 U, and the total direct materials mix variance is $3250 F. There was a trade-off among ingredients (perhaps because of the high cost or lack of availability of
Jonagold) that reduced the (budgeted) cost of the mix of inputs used but hurt yield. That is,
the benefit of the cheaper mix was more than offset by the lower yield. This analysis helps

Aliya’s managers to understand that using the cheaper mix of inputs in the future will only be worthwhile if they can improve yield. Managers would need to understand the reasons for the poor yield - for example, did the poor yield result from inadequate testing of the apples received, from lax quality control during processing, or simply from using a cheaper mix?
Identifying these reasons enables managers to find ways to overcome these problems and improve performance. The direct materials variances calculated in Exhibits 17.1 and 17.2 can be summarized as follows:

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