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material mix variance

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Definition of material mix variance

Material Mix Variance Image 1

material mix variance

(actual mix X actual quantity X standard price) - (standard mix X actual quantity X standardprice);
it computes the monetary effect of substituting a nonstandard mix of material



Related Terms:

Direct materials mix variance

The variance between the budgeted and actual mixes of
direct materials costs, both using the actual total quantity used. This variance isolates
the unit cost of each item, excluding all other variables.


Covariance

A statistical measure of the degree to which random variables move together.


Materials requirement planning

Computer-based systems that plan backward from the production schedule
to make purchases in order to manage inventory levels.


Mean-variance analysis

Evaluation of risky prospects based on the expected value and variance of possible outcomes.


Mean-variance criterion

The selection of portfolios based on the means and variances of their returns. The
choice of the higher expected return portfolio for a given level of variance or the lower variance portfolio for
a given expected return.



Mean-variance efficient portfolio

Related: Markowitz efficient portfolio


Minimum-variance frontier

Graph of the lowest possible portfolio variance that is attainable for a given
portfolio expected return.


Material Mix Variance Image 2

Minimum-variance portfolio

The portfolio of risky assets with lowest variance.
Minority interest An outside ownership interest in a subsidiary that is consolidated with the parent for
financial reporting purposes.


Portfolio variance

Weighted sum of the covariance and variances of the assets in a portfolio.


Raw material supply agreement

As used in connection with project financing, an agreement to furnish a
specified amount per period of a specified raw material.


Serial covariance

The covariance between a variable and the lagged value of the variable; the same as
autocovariance.


Variance

A measure of dispersion of a set of data points around their mean value. The mathematical
expectation of the squared deviations from the mean. The square root of the variance is the standard deviation.


Variance minimization approach to tracking

An approach to bond indexing that uses historical data to
estimate the variance of the tracking error.


Variance rule

Specifies the permitted minimum or maximum quantity of securities that can be delivered to
satisfy a TBA trade. For Ginnie Mae, Fannie Mae, and Feddie Mac pass-through securities, the accepted
variance is plus or minus 2.499999 percent per million of the par value of the TBA quantity.


Bill of materials

A listing of all the materials and quantities that go to make up a completed product.


Product/service mix

See sales mix.


Material Mix Variance Image 3

Raw materials

Unprocessed goods bought for manufacture, part of inventory.


Sales mix

The mix of product/services offered by the business, each of which may be aimed at different customers, with each product/service having different prices and costs.



Variance analysis

A method of budgetary control that compares actual performance against plan, investigates the causes of the variance and takes corrective action to ensure that targets are achieved.


Variance

The weighted average of the squared deviations from the
expected value


bill of materials

a document that contains information about
the product materials components and their specifications
(including quality and quantities needed)


budget variance

the difference between total actual overhead
and budgeted overhead based on standard hours allowed
for the production achieved during the period; computed
as part of two-variance overhead analysis; also
referred to as the controllable variance


controllable variance

the budget variance of the two variance approach to analyzing overhead variances


direct material

a readily identifiable part of a product; the cost of such a part


fixed overhead spending variance

the difference between the total actual fixed overhead and budgeted fixed overhead;
it is computed as part of the four-variance overhead analysis


fixed overhead volume variance

see volume variance


labor efficiency variance

the number of hours actually worked minus the standard hours allowed for the production
achieved multiplied by the standard rate to establish
a value for efficiency (favorable) or inefficiency (unfavorable)
of the work force


Material Mix Variance Image 4

labor mix variance

(actual mix X actual hours X standard rate) - (standard mix X actual hours X standard rate);
it presents the financial effect associated with changing the
proportionate amount of higher or lower paid workers in production



labor rate variance

the actual rate (or actual weighted average rate) paid to labor for the period minus the standard rate multiplied by all hours actually worked during the period;
it is actual labor cost minus (actual hours X standard rate)


labor yield variance

(standard mix X actual hours X standard rate) - (standard mix X standard hours X standard rate);
it shows the monetary impact of using more or fewer total hours than the standard allowed


material price variance

total actual cost of material purchased
minus (actual quantity of material  standard
price); it is the amount of money spent below (favorable)
or in excess (unfavorable) of the standard price for the
quantity of materials purchased; it can be calculated based
on the actual quantity of material purchased or the actual
quantity used


material quantity variance

(actual quantity X standard price) - (standard quantity allowed  standard price);
the standard cost saved (favorable) or expended (unfavorable)
due to the difference between the actual quantity
of material used and the standard quantity of material
allowed for the goods produced during the period


material requisition form

a source document that indicates
the types and quantities of material to be placed into production
or used in performing a service; it causes materials
and its cost to be released from the Raw material Inventory
warehouse and sent to Work in Process Inventory


materials requirements planning (MRP)

a computerbased information system that simulates the ordering and
scheduling of demand-dependent inventories; a simulation
of the parts fabrication and subassembly activities that are
required, in an appropriate time sequence, to meet a production
master schedule


material yield variance

(standard mix X actual quantity X standard price) - (standard mix X standard quantity X standard price);
it computes the difference between the
actual total quantity of input and the standard total quantity
allowed based on output and uses standard mix and
standard prices to determine variance


mix

any possible combination of material or labor inputs


mixed cost

a cost that has both a variable and a fixed component;
it varies with changes in activity, but not proportionately


noncontrollable variance

the fixed overhead volume variance;
it is computed as part of the two-variance approach to overhead analysis


optimal mix of capital

the combination of capital sources at which the lowest weighted average cost of capital is achieved


overhead efficiency variance

the difference between total budgeted overhead at actual hours and total budgeted
overhead at standard hours allowed for the production
achieved; it is computed as part of a three-variance analysis;
it is the same as variable overhead efficiency variance


overhead spending variance

the difference between total actual overhead and total budgeted overhead at actual
hours; it is computed as part of three-variance analysis; it
is equal to the sum of the variable and fixed overhead
spending variances


sales mix

the relative combination of quantities of sales of the various products that make up the total sales of a company


total overhead variance

the difference between total actual overhead and total applied overhead; it is the amount of underapplied or overapplied overhead


total variance

the difference between total actual cost incurred
and total standard cost for the output produced during
the period


variable overhead efficiency variance

the difference between budgeted variable overhead based on actual input activity and variable overhead applied to production


variable overhead spending variance

the difference between total actual variable overhead and the budgeted amount of variable overhead based on actual input activity


variance

a difference between an actual and a standard or
budgeted cost; it is favorable if actual is less than standard
and is unfavorable if actual is greater than standard


variance analysis

the process of categorizing the nature (favorable or unfavorable) of the differences between standard and actual costs and determining the reasons for those differences


volume variance

a fixed overhead variance that represents
the difference between budgeted fixed overhead and fixed
overhead applied to production of the period; is also referred
to as the noncontrollable variance


Covariance

A measure of the degree to which returns on two assets move in
tandem. A positive covariance means that asset returns move together; a
negative covariance means they vary inversely.


Variance

The dispersion of a variable. The square of the standard deviation.


Bill of materials

An itemization of the parts and subassemblies required to create a
product, frequently including assumed scrap rates that will arise as part of the production
process.


Direct materials cost

The cost of all materials used in a cost object, such as finished goods.


Labor efficiency variance

The difference between the amount of time that was budgeted
to be used by the direct labor staff and the amount actually used, multiplied
by the standard labor rate per hour.


Labor rate variance

The difference between the actual and standard direct labor rates
actually paid to the direct labor staff, multiplied by the number of actual hours
worked.


Materiality

The proportional size of a financial misstatement. It can be construed as
the net impact on reported profits, or the percentage or dollar change in a specific
line item.


Material requirements planning (MRP)

A computer-driven production methodology
that manufactures products based on an initial demand forecast. It tends to result in
more inventory of all types than a just-in-time (JIT) production system.


Materials price variance

The difference between the actual and budgeted cost to
acquire materials, multiplied by the total number of units purchased.


Materials quantity variance

The difference between the actual and budgeted quantities
of material used in the production process, multiplied by the standard cost per
unit.


Production yield variance

The difference between the actual and budgeted proportions
of product resulting from a production process, multiplied by the standard unit cost.


Raw materials inventory

The total cost of all component parts currently in stock that
have not yet been used in work-in-process or finished goods production.


Selling price variance

The difference between the actual and budgeted selling price for
a product, multiplied by the actual number of units sold.


variance

Average value of squared deviations from mean. A measure of volatility.


Materiality

A characterization of the magnitude of a financial statement item's effect on a
company's overall financial condition and performance. An item is material when its size is
likely to influence decisions of investors or creditors.


Advance material request

Very early orders for materials before the completion
of a product design, given the long lead times required to supply some items.


Bill of materials (BOM)

A listing of all parts and subassemblies required to produce one
unit of a finished product, including the required number of units of each part
and subassembly.


Breeder bill of materials

A bill of material that accounts for the generation and
cost implications of byproducts as a result of manufacturing the parent item.


Earmarked material

Inventory that has been physically marked as being for a
specific purpose.


Indented bill of material

A bill of material reporting format under which successively
lower levels of components are indented farther away from the left
margin.


Material requirements planning

A computerized system used to calculate material
requirements for a manufacturing operation.


Material review board

A company committee typically comprising members representing
multiple departments, which determines the disposition of inventory
items that will not be used in the normal manufacturing or distribution process.


Materials requisition

A document listing the quantities of specific parts to be withdrawn
from inventory.


Matrix bill of material

A bill of materials chart listing the bills for similar products,
which is useful for determining common components.


Mix ticket

A list of the ingredients required for a blending operation.


Modular bill of material

A bill of material format in which components and subassemblies
are clustered by product option, so one can more easily plan for the
assembly of finished goods with different configurations.


Multilevel bill of material

An itemization of all bill of material components, including
a nested categorization of all components used for subassemblies.


Nonconforming material

Any inventory item that does not match its original design
specifications within approved tolerance levels.


Offal material

The waste materials resulting from a production process.


Phantom bill of material

A bill of materials for a subassembly that is not normally
kept in stock, because it is used at once as part of a higher-level assembly or
finished product.


Raw material

Base-level items used by the manufacturing process to create either
subassemblies or finished goods.


Repair bill of material

A special bill itemizing changes needed to refurbish an
existing product.


Reprocessed material

material that has been reworked and returned to stock.


Reserved material

material that has been reserved for a specific purpose.


Single-level bill of material

A list of all components used in a parent item.


Summarized bill of materials

A bill of materials format showing the grand total
usage requirement for each component of a finished product.


asset mix

The weighting of assets in an investment portfolio among different asset classes (e.g. shares, bonds, property, cash, overseas investments.



 

 

 

 

 

 

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