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 Yield Variance:

= (Actual Yield – Standard Yield) x Standard 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:

Material Quantity Used Standard Mix Per Bag Actual Price Standard Price

Limestone

100 tons

11 KG

\$75/ton

\$70/ton

Clay

150 tons

14 KG

\$21/ton

\$20/ton

Sand

250 tons

26 KG

\$11/ton

\$10/ton

Material Yield Variance shall be calculated as follows:

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

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

500 tons of materials should have yielded 9,804 bags

Step 2: Calculate the Standard Cost of materials per bag

Total material cost of 1 bag of cement:

Limestone

11 KG

x

\$70

=

\$770

Clay

14 KG

x

\$20

=

\$280

Sand

26 KG

x

\$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 Yield 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) x Standard Cost per bag (Step 2) = Yield Variance

Limestone

196 bags

x

\$77o

=

\$150,920

Clay

196 bags

x

\$280

=

\$54,880

Sand

196 bags

x

\$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 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.