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Why is that if we use less mix of the required materials, it is considered favourable?
Suppose we had to make a cup of tea. That tea requires 3 spoons of sugar as a standard.
So suppose someone adds 1 spoon of sugar and makes around 10,000 units of tea.
Although on paper, the mix variance will be favourable, but in reality, the tea will taste horrible. Right?So just because someone adds extremely low amount of materials in a product, they will get a favourable mix variance, which I feel is wrong.
The example you give is not an example of a mix variance!
A mix variance occurs when there is more than one material used in the product and the proportions are changed.
There is no such thing as “less mix”. Either you use more of the expensive material (and therefore automatically less of the cheaper one) – in which case the variance is adverse; or you use more of the cheaper one (and therefore automatically less of the expensive one) – in which case the variance is favourable.
As I explain in my lectures, a different mix may result in a different product (in terms, for example, of the taste). But variance analysis is only ever looking at whether costs are higher or lower.
(Maybe your example is confusing the mix variance with the yield variance – the yield variance is seeing whether we waste more or less of the materials then we expect to waste).
My free lectures on mix and yield variances will help you.
Oh okay. For mix variances, it doesn’t matter what the taste of the product will be…what matters is whether we used a mix of cheaper materials
That should be a limitation of the mix varianceThe limitation is as to whether the change of mix affects either the sales or the sales price or the amount of material wasted.
If, for example, there is a favourable mix variance and an adverse sales variance because of the change of mix, then it was only a good idea to change the mix if the net of the two variances was favourable. If the net of the two variances was adverse then it would have been a bad idea.
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