Direct material mix variance definition
/What is the Direct Material Mix Variance?
Direct material mix variance is the difference between the budgeted and actual mixes of direct material costs used in a production process. This variance isolates the aggregate unit cost of each item, excluding all other variables. The variance is useful for determining whether a lower-cost mix of materials can be used to create a product. The concept only yields useful information when it is possible to alter the mix of materials without reducing the quality of the resulting product below a minimum level.
How to Calculate the Direct Material Mix Variance
To calculate the direct material mix variance, subtract the standard cost of a standard mix of direct material costs from the standard cost of the actual mix. The formula is as follows:
Standard cost of actual mix - Standard cost of standard mix
= Direct material mix variance
Related AccountingTools Course
Example of the Direct Material Mix Variance
Suppose a company produces a product that requires two types of materials: Material A and Material B. Here is the budgeted information:
Standard mix:
Material A: 60% of total input
Material B: 40% of total input
Standard price per unit:
Material A: $5 per unit
Material B: $7 per unit
Total quantity required: 1,000 units
Based on this information, the company expects to use the following unit mix:
Material A: 1,000 × 0.60 = 600 units
Material B: 1,000 × 0.40 = 400 units
Now, let's say the actual usage 500 units of Material A and 500 units of Material B. The company’s cost accountant runs the following calculation to determine the direct material mix variance:
Calculate the actual mix in standard proportions:
Total quantity used = 1,000 units (500 + 500)
Material A (standard mix quantity at actual usage): 1,000 × 0.60 = 600 units
Material B (standard mix quantity at actual usage): 1,000 × 0.40 = 400 units
2. Calculate Mix Variance:
Standard cost of actual mix - Standard cost of standard mix
= Direct material mix variance
For Material A: (500 − 600) × 5 = −100 × 5 = −500
For Material B: (500 − 400) × 7 = 100 × 7 = 700
Total Mix Variance:
−500 + 700 = +200
The direct material mix variance is +200 (favorable). This means that by changing the mix (using more of Material B, which is more expensive), the overall material cost actually decreased by $200, potentially due to the reduced need for Material A in this case.