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Hi John!
I have actually have watched your lectures on mix and yield variances, however I still have some issue concerning yield variance.
1.Could you explain, what does yield variances measure?
2.In your lectures, why have you used 10133 kg and 5067 kg, and not 9900 kg and 5300 kg, for X and Y respectively?( What i am trying to say is that, why have you used the standard mix and not actual mix to calculate the yield variance)?Thanks in advance.
Just suppose that 1 unit should take 100 gms of material.
Suppose you produced 50 units, then it should take 5,000 gms.
But suppose you actually used 5,200 gms, In that case some material has been wasted and there is an adverse yield variance (the yield (i.e. output) is less than it should have been).Suppose instead you actually used 4,900 kg.. In that case you have used the material more efficiently and there is a favourable yield variance (the yield (i.e output) is more than you expected).
We use standard mix because we are looking at each bit separately and we have already looked at the affect of changing the mix (the mix variance).
I’ve got your point here.
However, my issue is that, why have you used the actual total input at std mix(which is 10133 kg and 5067 kg for X and Y respectively) and not the actual mix(which is 9900 kg and 5300 kg) because at the end of the day, they have actually used 9900 kg and 5300 kg. Therefore what’s the logic of using the actual total input at std mix?
Thanks.
As I wrote before, we have already looked at the effect of changing the mix (when calculating the mix variance). So with the yield variance all we are concerned with is whether or not we used more or less in total than we should have done – assuming everyone else went perfectly (i.e. the mix was correct and the price was correct).
The whole purpose of analysing the variance is to look at the effect of wrong price, wrong mix, and wrong yield separately – in each case as though everything else went ‘perfectly’.
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