Direct material mix variance definition
/What is the Direct Material Mix Variance?
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 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.
How to Calculate the Direct Material Mix Variance
To calculate the direct material mix variance, subtract the standard cost of a standard mix of direct material costs from the standard cost of the actual mix. The formula is as follows:
Standard cost of actual mix - Standard cost of standard mix
= Direct material mix variance