What is Direct Material Yield Variance? Definition, Formula, Explanation, And Analysis

Definition:

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.

Formula:

Direct Material Price Variance

                = (Actual Yield – Standard Yield) * Standard Price

Explanation:

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.

Analysis:

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.

Example:

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:

See also  Direct Material Price Variance: Definition, Formula Explanation, Analysis, And Example

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