Variance: Mix, Yield and Investigation

Cost and Management Accounting Assignment

Hope University College

Group Members:

Obed Markos RAC/089/18

Yonas Teklu RAC/KJH/18

Firehiwot Mulugeta RAC/131/18

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ACCOUNTING YEAR 2 SECTION 3

November 26, 2019

SALES VARIANCE
SALES VOLUME VARIANCE

Sales-volume variance is the variance that arises from the difference between the actual otput level and
the budgeted output level. Sales-volume variance represents the difference caused solely and singly by
the difference in quantity of units sold from those assumed to be sold in the static budget. It is
calculated by the formula:

 Sales-volume variance=Flexible budget amount- Static Budget amount

The sales-volume variance only arises because expected quantities of revenue and cost drivers used to
develop the static budget do not equal the actual quantities of revenue and cost drivers used to develop
the fixed budget.

Sales-volume variance is classified into two parts. These are sales-mix variance and sales quantity
variance. Sales quantity variance is further variance into market share variance and market size variance.

SALES MIX VARIANCE

Sales mix variance is the difference between the budgeted amount for the actual sales mix and the
budgeted amount for the budgeted sales mix. The formula of sales mix in terms of contribution is:

 Actual units of all *(actual sales mix percentage – budgeted sales mix percentage) * budgeted contribution margin
Products sold

A favorable sales mix variance arises for individual products when the actual sales mix percentage
exceeds the budgeted sales-mix percentage.

SALES QUANTITY VARIANCE

Sales quantity variance is the difference between the budgeted amount based on the actual units sold of
all products and the budgeted mix and the amount based on budgeted nits to be sold of all products and
the budgeted mix (or simply the amount in the static budget). The formula of sales quantity variance in
terms of contribution margin is:

(Actual units of all – budgeted units of all) * budgeted sales mix * budgeted contribution margin
products sold products sold percentage per unit

A favorable variance occurs when the actual units of all products sold exceed the budgeted units of all
products sold.
MARKET SHARE AND MARKET SIZE VARIANCE

MARKET SHARE VARIANCE

The market share variance is the difference between two amounts:1) the budgeted amount based on
actual market size in units, actual market share and budgeted contribution margin per composite unit
for budgeted mix and 2) the budgeted amount based on actual market size in units for budgeted mix.

The formula for computing market share variance is:

Actual market size * (actual market share – budgeted market share) * budgeted contribution margin
In units per composite unit for budgeted
mix

MARKET SIZE VARIANCE

Market size variance is the difference between two amounts:1) the budgeted amount based on actual
market size in units, budgeted market share and budgeted contribution margin per composite unit for
budgeted mix and 2) the static budget amount based on budgeted market size in units, budgeted
market share and budgeted contribution margin per composite unit for budgeted mix. The formula for
computing market size variance in terms of contribution margin is:

(Actual market size – budgeted market size) * Budgeted market * Budgeted contribution margin per
In units In units share composite unit for budgeted mix

It is necessary and appropriate to be cautious when computing market size variances and market share
variances. This is because reliable information is available in some industries but this information may
not be acquired in other industries.
INPUT VARIANCE
MIX AND YIELD VARIANCE FOR MATERIAL AND LABOR

Mix refers to the relative proportion of various ingredients of input factors such as materials
and labor.

Yield is a measure of productivity.

DIRECT MATERIALS- MIX AND YIELDS VARIANCE

The material quantity variance is divided in to a material mix variance and a material yield variance.

The material mix variance measures the impact of the deviation from the standard mix on material
costs, while the material yield variance reflects the impact on material costs of the deviation from the
standard input material allowed for actual production.

We compute the material mix variance by holding the total input unit constant at their actual amount,
and the material yield variance by holding the mix constant at the standard amount.

Direct material mix variance is the difference between:

 Budgeted cost for actual mix of actual total quantity of direct materials used.
 Budgeted cost of budgeted mix of actual total quantity of direct materials used.

Direct actual tota Actual direct Budgetedbudgeted

Materials mix = quality of all * (material input _ direct material )*price of

Variance for direct material mix percentage input mix direct material
For each input inputs used percentage input

Direct material yield variance is the difference between:

 Budgeted cost of direct materials based on actual total quantity of direct material used.
 Flexible budget cost of direct materials based on budgeted total quantity of direct material.

Direct Actual total Budgeted total Budgeted Budgeted

Material (
= quantity of _ )*
quantity of all direct material * price of
Yield variance all direct direct materials input mix direct materials
For each input materials inputs allowed percentage input
Input used for actual output
 Direct labor – mix, yields variance
 Direct labor mix variance measures the impact of changes in the labor mix on
labor costs.

Labor Actual Hrs.Actual Hrs.Standard

Mix =( used at - used at ) *Hourly

Variance standard mix Actual mix price

 Direct labor yield variance is the variance is the variance used to analyze effect of
changes in labor yield on labor cost.

Labor Actual Hrs. Actual out put. standard

Yield = ( used at - Hrs. At )* Hourly

Variance standard mix mix standardprice
If there is no mix, the yield variance is the same as the quantity or usage variance.