7 Flashcards
How does variance analysis differ for substitutable and non-substitutable inputs?
Substitutable Inputs: These can be replaced or adjusted (e.g., using different types of materials). Both mix and yield variances matter to see if resources are used efficiently.
Example: Different types of fabrics for clothing.
Non-Substitutable Inputs: These cannot be swapped (e.g., specific materials for one product). Only the yield variance is relevant since the mix is fixed.
Example: Oranges used for orange juice.
What do direct materials yield and mix variances show?
Yield Variance: Tells if the total amount of materials used is more or less than expected to produce the output
Mix Variance: Checks if the proportion of different materials used matches the budget.
What are labor yield and mix variances?
Labor Yield Variance: Shows if the total hours worked are more or less than expected for the output.
Labor Mix Variance: Checks if the proportion of skilled and unskilled workers used matches the plan.
hy do we split sales-volume variance into mix and quantity variances?
Sales-Mix Variance: Tells if the proportion of products sold differs from the plan.
Sales-Quantity Variance: Tells if the total number of units sold is higher or lower than planned.
How do market-size and market-share variances explain sales-quantity variance?
Market-Size Variance: Shows if the total market grew or shrank compared to the plan.
Example: A larger market can create favorable results even if the market share stays the same.
Market-Share Variance: Shows if the company’s share of the market changed.
Example: Losing market share causes unfavorable results even if the market size grows.
Why are yield and mix variances important for managers?
They help managers:
Identify inefficiencies in resource use (yield variance).
Understand the impact of changing input proportions (mix variance).
Balance cost savings (mix) with efficiency (yield).
Example: Using cheaper materials may lower costs (mix variance) but increase waste (yield variance).
Why is sales-mix variance important?
Sales-mix variance identifies whether the company is selling more or less of high-margin or low-margin products than planned. It helps managers focus on shifting sales efforts towards higher-margin products to improve profitability.
Why is sales-quantity variance important?
Sales-quantity variance shows how changes in the total number of units sold impact profitability. It helps managers understand whether the business met overall sales goals, regardless of product mix.
What challenges might managers face with mix and yield variances?
Measuring Inputs and Outputs Accurately:
It can be hard to track exactly how much of each material or labor type is used, especially in complex production processes.
Example: If materials are wasted due to machine errors, it’s tricky to figure out whether the problem is with the mix or the yield.
Some causes of variances are beyond a manager’s control, like:
Supplier Quality: Poor-quality materials may lead to inefficiencies (bad yield) even if the mix was correct.
Customer Preferences: Customers may prefer low-margin products, affecting the mix variance.
Managers must decide between:
Using cheaper inputs to save money (positive mix variance).
Maintaining efficiency and quality (positive yield variance).
Example: Cheaper materials may save costs but increase waste or lower product quality.
