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.
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