17.3 The text of Chapter 17 gives three sources of the standards used in calculating the direct materials yield and direct materials-mix variances 1 Internally generated actual costs of the most recent accounting period adjusted for expected improvement. 2 Internally generated standard costs based on best performance standards or currently attainable standards. 3 Externally generated target cost numbers based on an analysis of the cost structures of the leading competitors in an industry. 17.4 Disagree. Changes in the mix of direct materials from the budgeted mix could improve yield, for example, if the mix of direct materials shifts in favour of using more of the higher-quality, costlier materials. This could potentially have the effect of hurting mix but improving yield, if the actual total quantity of direct materials used to produce the actual output is lower than the budgeted total quantity. 17.5 The direct-labour mix variance helps managers to understand how costs (calculated at budgeted prices) change as the actual mix varies from the budgeted mix. The direct- labour yield variance indicates the total amount of hours taken and costs incurred (at budgeted prices) relative to budgeted hours to complete a given task. If the mix variance is unfavourable, say, but the yield variance is favourable, the manager can evaluate if the mix-versus-yield tradeoff reduced cost, that is, improved the direct-labour efficiency variance. If it did not, for example, managers will understand that shifting to a higher skills mix would only be worthwhile if the total time taken can be further reduced. Managers would then have to consider ways to achieve this goal – better training for lower-costs workers, improved work procedures, etc. 17.6 Yield and mix variances might be useful in managing inputs such as energy. For example, calculating these variances could further be a company's understanding of how changing the mix of energy inputs – self-generated versus purchased – would affect the operating income. Managers can then take actions that would improve operating income performance.
