Direct Material Mix Variance

Direct material mix variance is the product of the standard price per unit of direct material and the difference between standard mix quantity and actual quantity of direct material used. Standard mix quantity is the quantity of a particular direct material which, if mixed with one of more different materials in a standard ratio, would have been consumed on the actual quantity of a product produced. Direct material mix variance can be calculated only for a product having two or more input materials. The formula is:

DM Mix Variance = ( SM − AQ ) × SP

Where,
   SM is the standard mix quantity of direct material
   AQ is the actual quantity of material used
   SP is the standard price per unit of direct material used

Standard mix quantity is calculated by multiplying standard mix percentage of a given material by total actual quantity of the material used. For example, if three materials A, B and C are mixed in ratio 5:3:2 and actual quantity of material used is 2.5 kg then,

Standard mix quantity of material A = 2.5 × 5 / (5 + 3 + 2) = 2.5 × 50% = 1.25 kg

A positive value of DM mix variance is favorable whereas as a negative value is unfavorable.

Example

A product T is produced by mixing three materials: P, Q and R in a standard mix ratio of 1:2:2. Actual materials consumed during the month ended May 31, 20X2 were 4,670g, 8,450g and 8,390g respectively. Standard prices are $0.04/g $0.03/g and $0.02/g per gram respectively. Calculate the direct material mix variance.

Solution

Total Actual Quantity = 4,670 + 8,450 + 8,390g = 21,510g

Material P's Standard Mix % = 1 ÷ (1 + 2 + 2) = 0.2

Material Q's Standard Mix % = 2 ÷ (1 + 2 + 2) = 0.4

Material R's Standard Mix % = 2 ÷ (1 + 2 + 2) = 0.4

MaterialPQR
Total Actual Quantity (g)21,51021,51021,510
× Standard Mix %0.20.40.4
Standard Mix Quantity (g)4,3028,6048,604
− Actual Quantity (g)4,6708,4508,390
Difference (g)-368154214
× Standard Price ($/g)0.040.030.02
Individual Material Mix Variance ($)− 14.724.624.28
Total DM Mix Variance ($)− 5.82

Written by Irfanullah Jan