This lesson covers more advanced topics for those environments where a product is made from a mix of materials. It also addresses how to handle situations where the standard itself was unrealistic.

• Material Mix Variance: When a product uses a mixture of different materials, it is useful to isolate whether the cost impact was due to the price of the materials or the combination (mix) of materials used. The mix variance measures the financial impact of substituting one material for another .

• Material Yield Variance: The yield variance measures the difference between the total output (yield) that was achieved from a given input and the output that should have been achieved. It helps to identify inefficiencies in the production process itself .

• Planning vs. Operational Variances: Sometimes, the original standard was set based on assumptions that have now become invalid (e.g., an unforeseen change in market prices). To distinguish between poor planning and poor operational performance, standards can be revised after the period-end. The total variance is then split into a Planning Variance (uncontrollable by management) and an Operational Variance (controllable).

• Behavioural Implications of Variance Analysis: The calculation and reporting of variances can have significant behavioural consequences. Management by exception can be effective, but managers should be careful to avoid a “blame culture” that can discourage initiative and reporting of issues .