One of the reasons for material usage variance is change in the composition of the materials mix. It results from a variation in the material mix used in production. Thus, if a larger proportion of the more expensive material is used than that lay down in the standard mix, materials usage will reflect a higher cost than the standard. Contrarily, the use of cheaper materials in large proportions will indicate a lower cost of materials usage than the standard.
It is that portion of the material usage variance which is due to the difference between the standard and actual composition of a mixture of materials. In other words, this variance arises due to a change in the ratio of actual material mix from the standard ratio of material mix. It is calculated as the difference between the standard price of standard mix and the standard price of actual mix.
Suppose for producing an article the materials standard is 6 kg. of material A @ 5 per Kg. and 4 Kg. of material B @ 6 per kg. and the actual quantities used are 5 kg. of material A and B each. The total quantity used is still 10 kg. but the materials cost will increase as shown below:
Standard: Material A 6 kg. @ 5 30.00
Material B 4 kg. @ 6 24.00 54.00
Actual: Material A 5 kg. @ ` 5 25.00 55.00
Material B 5 kg. @ ` 6 30.00
Due to the change in the relative proportions of the two materials, the total cost has risen; this is the nature of the mix variance. It is calculated by comparing (revised) standard mix at standard prices and the actual mix at standard prices.
Material Mix Variance = Standard Price (Revised Standard Quantity – Actual Quantity) i.e. SP (RSQ – AQ)
Revised Standard Quantity (RSQ)
= Total of Actual quantities of all types of material (TAQ) x Actual Quantity)
Total of Standard quantities of all types of material (TSQ)
