Direct Material Yield Variance


Definition

Direct Material Yield Variance is a measure of cost differential between output that should have been produced for the given level of input and the level of output actually achieved during a period.

Formula

Direct Material Price Variance:

=(Actual Yield - Standard Yield)xStandard Material Cost Per Unit


Example

Cement PLC manufactured 10,000 bags of cement during the month of January. Consumption of raw materials during the period was as follows:


MaterialQuantity UsedStandard Mix Per BagActual PriceStandard Price
Limestone100 tons11 KG$75/KG$70/KG
Clay150 tons14 KG$21/KG$20/KG
Sand250 tons26 KG$11/KG$10/KG

Material Yield Variance shall be calculated as follows:


Step 1: Calculate the Standard Yield for the total materials input

500 tons of materials should have yielded 9,804 bags

Standard Yield = 500 tons x 1000 / 51 KG = 9,804 bags


Step 2: Calculate the Standard Cost of materials per bag

Total material cost of 1 bag of cement:

Limestone:11 KGx$70=$770
Clay:14 KGx$20=$280
Sand:26 KGx$10=$260
Total$1,310 per bag

Actual material price should be ignored since the variance between actual and standard price is accounted for in the material price variance.


Step 3: Calculate the Total Yield Variance

Material Usage Variance = [Actual Yield - Standard Yield (Step 1)] x Standard Cost / Unit (Step 2)

Actual Yield - Standard Yield = 10,000 - 9,804 (Step 1) = 196 bags

Total Material Yield Variance = 196 bags x $1,310 (Step 2)

= $256,760 Favorable

As the actual output achieved during the period is higher than the standard yield, the variance is favorable. Favorable material yield variance indicates the amount of savings in material costs as a result of better output yield than the standard.


Step 4: Calculate the Material Wise Yield Variances

Individual material yield variance can be calculated in a similar way to the total yield variance.

Materials:Actual Yield - Standard Yield
(Step 3)
xStandard Cost per bag
(Step 2)
=Yield Variance
Limestone:196 bagsx$770=$150,920
Clay:196 bagsx$280=$54,880
Sand:196 bagsx$260=$50,960
$256,760

Note that sum of individual material yield variances equals the total yield variance calculated in step 3.


Explanation

Material Yield Variance measures the effect on material cost of a change in the production yield from the standard.

Material yield variance is used in conjunction with material mix variance in order to provide additional analysis of the material usage variance.

The difference between material usage and material yield variance is that the former focuses on the utilization of input at the start of production process whereas latter focuses on the efficiency in terms of the output yield during a period.

Analysis

A favorable material yield variance indicates better productivity than the standard yield resulting in lower material cost.

Conversely, an adverse material yield variance suggests lower production achieved during a period for the given level of input resulting in higher material cost.