Direct material mix variance is the difference between the budgeted and actual mixes of direct material costs used in a production process. This variance isolates the aggregate unit cost of each item, excluding all other variables. The formula is:
Standard cost of actual mix - Standard cost of standard mix
= Direct material mix variance
The variance is useful for determining whether a lower-cost mix of materials can be used to create a product. The concept only yields useful information when it is possible to alter the mix of materials without reducing the quality of the resulting product below a minimum level.