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Sir, could you please help me with an open question in Kit.
Material A costs $1.70
Material B costs $1.20
After calculations we have Adverse materials mix variance and Material A price variance (F), Materail B price variance (A). Possible explanation for this is given as following:
The adverse material mix variance indicates that more of more expensive material A was used in the actual input than indicated by the std. mix. The favorable material A price variance suggests this may be due to the use of the poorer quality material.I didn’t get “this may be due to the use of the poorer quality material”. To what does “this” refer? If they mean Material Mix variance then I can’t understand, how favorable material price variance may be related with adverse material mix… Can you please explain the logic under this? If to suggest that there is an adverse price variance for A, then how it would result in material mix variance?..
Or do they mean under “this” the Favorable material A price variance?
The mix variance occurs because you are buying more of one material and less of the other material, and it is costed at standard cost.
So because the mix variance is adverse it must mean that they are buying more of material A and less of B. Since A has a favourable price variance it is costing less so it is costing less than it should, and because B has an adverse price variance, that is costing more than it should.
I do suggest that you watch our free lectures on mix and yield variances – our lectures are a complete course for Paper F5 and cover everything needed to be able to pass the exam well.
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