Direct Material Yield Variance is a subdivision of material usage variance. It measures the effect on the cost of any difference between the actual usage of material and that justified by the output produced.
Simply, it measures differences between output produced on a given dimension or level and the level of output achieved during the period.
Direct Material Price Variance
= (Actual Yield – Standard Yield) * Standard Price
Direct material yield variance measures the impact of the material cost of change in production yield from the standard.
It provides a different dimensional explanation of material usage variance after material mix variance.
The material yield variance is different from other material variances in that it is based on output, unlike other variances based on input.
Favorable material yield variances depict improved productivity than standard yield resulting in lower material cost.
On the other hand, adverse material yield represents lower production achieved during a period for a given level of input resulting in high material cost.
Marvel Inc produced 20,000 items of idols from the Marvel franchise in November 2018. Following raw materials were purchased and consumed by Marvels Inc during the period
|Material||Quantity Used||Standard mix per item||Actual Price||Standard Price|
|Cloth||100 kgs||11 kg||$ 75 per kg||$ 70 per kg|
|Paint||150 kgs||14 kg||$ 21 per kg||$ 20 per kg|
|Clay||250 kgs||26 kg||$ 11 per kg||$ 10 per kg|
A direct Material variance shall be calculated as follows:
We calculate the standard yield for total materials input as:
500 kgs of materials should yield 9804 kgs
Standard yield = 500 * 1000/51 = 9804 kgs
Now we proceed to calculate the standard cost of materials per bag as
Cloth = 11 * 70 = $770
Paint = 14 * 20 = $280
Clay = 26 * 10 = $260
Total standard cost = $ 1310
We calculate the material yield variance in totality as
Material Yield variance
= (Actual yield – Standard Yield) * Standard Price Per Unit
= (10,000 – 9,804) * 1310
= $ 256,760
We can also yield variance for each product as:
|Cloth||196 * 770||$ 150920|
|Paint||196 * 280||$ 54880|
|Clay||196 * 260||$ 50960|
Adding all the variances together,
Direct Material Yield Variance = $ 256,760 Favorable