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Mix and Yield Variance:

Basically, the establishment of a standard product cost requires the determination of price and quantity standards. In many industries, particularly of the process type, materials mix and materials yield play significant parts in the final product cost, in cost reduction, and in profit improvement.

Materials specification standards are generally set up for various grades of materials and types of secondary materials. In most cases, specifications are based on laboratory or engineering tests. Comparative costs of various grades of materials are used to arrive at a satisfactory materials mix, and changes are often made when it seems possible to use less costly -grades of materials or substitute materials. In addition, a substantial cost reduction might be achieved through the improvement of the yield of good product units in the factory. At times, trade offs may occur; e.g., a cost saving resulting from use of a less costly grade of materials may result in a poorer yield, or vice versa. A variance analysis program identifying and evaluating the nature, magnitude, and causes of mix and yield variances is an aid to operating management.

Mix Variance:

Definition and Explanation:

After the standard specification has been established, a variance representing the difference between the standard cost of formula materials and the standard cost of the materials actually used can be calculated. This variance is generally recognized as a mix (or blend) variance, which is the result of mixing basic materials in a ratio different from standard materials specifications. In a woolen mill, for instance, the standard proportions of the grades of wool for each yarn number are reflected in the standard blend cost. Any difference between the actual wool used and the standard blend results in a blend or mix variance.

Industries like textiles, rubber, and chemicals, whose products must possess certain chemical or physical qualities, find it quite feasible and economical to apply different combinations of basic materials and still achieve a perfect product. In cotton fabrics, it is common to mix cotton from many parts of the world with the hope that the new mix and its cost will contribute to improved profits. In many cases, the new mix is accompanied by either a favorable or unfavorable yield of the final product. Such a situation may make it difficult to judge correctly the origin of the variances. A favorable mix variance, for instance, may be offset by an unfavorable yield variance, or vice.

Yield Variance:

Definition and Explanation:

Yield can be defined as the amount of prime product manufactured from a given amount of materials. The yield variance is the result of obtaining a yield different from the one expected on the basis of input. In a gray iron foundry, the materials charged into the cupola include coke, flux material, and all alloy materials and inoculants used as ladle additions. Cupola operation involves the application of heat to melt the metal as well as a complex thermochemical reaction. This process results in yield, meaning good castings made from the melted metal, expressed as a percent of total metal charged.

In sugar refining, a normal loss of yield develops because, on the average, it takes approximately 102.5 pounds of sucrose in raw sugar form to produce 100 pounds of sucrose in refined sugars. Part of this sucrose emerges as blackstrap molasses, but a small percentage is completely lost.

In the canning industry, it is customary to estimate the expected yield of grades per ton of fruit purchased or delivered to the plant. The actual yield should be compared to the one expected and should be evaluated in terms of cost. If the actual yield deviates from predetermined percentages, cost and profit will differ.
Since the final product cost contains not only materials but also labor and factory overhead, a yield variance for labor and factory overhead should be determined when the product is finished. The actual quantities resulting from the processes are multiplied by the standard cost, which includes all three cost elements. A labor yield variance must be looked upon as the result of the quality and/or quantity of the materials handled, while the factory overhead yield variance is due to the greater or smaller number of hours worked. It should be noted that the overhead yield variance may have a significant effect on the amount of over- or under-absorbed factory overhead.

Relevant Articles:

Definition and Explanation of Standard Cost
Purposes and Advantages of Standard Costing System
Setting Standards
Materials Price Standard
Materials Price Variance
Materials Quantity Standard
Materials Quantity Variance
Direct Labor Rate Standard
Direct Labor Rate Variance
Direct Labor Efficiency Standard
Direct Labor Efficiency Variance
Factory Overhead Cost Standards
Overall or Net Factory Overhead Variance
Overhead Controllable Variance
Overhead Volume Variance
Overhead Spending Variance
Overhead Idle Capacity Variance
Overhead Efficiency Variance
Variable Overhead Efficiency Variance

Fixed Overhead Efficiency Variance

Mix and Yield Variance
Variance Analysis Example
Standard Costing and Variance Analysis Formulas
Management by Exception and Variance Analysis
International Uses of Standard Costing System
Advantages, Disadvantages, and Limitations of Standard Costing

 

 

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Financial Accounting Topics


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  Special Journals
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Bank Reconciliation Statement
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 

 

 

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