Direct material yield variance

By: Rashid Javed | Updated on: October 24th, 2021

Direct material yield variance (also known as direct material usage variance) is the result of producing an amount of output that is different from planned or standard amount of output using a certain standard amount of input.

A favorable direct material yield variance means higher production than standard production based on the standard input quantity which results in lower materials cost. An unfavorable variance means lower production than standard production based on standard input quantity which results in higher materials cost.

Formula

The formula of direct materials yield variance is given below:

Direct material yield variance = (Standard output × Standard cost) – (Actual output × Standard cost)

Or

Direct material yield variance = (Actual quantity used × Standard cost) – (Standard quantity allowed for actual output × Standard cost)

Example

The Beta Company processes three materials (material A, material B, and material C) to produce its only product known as product K. Product K is produced in powder form and packed into bags before it is sold to customers and whole sellers.

The material A, material B and material C are mixed in a standard ratio of 5:4:1 respectively. The standard quantities and costs of all three types of materials to produce 1,000 tons of product K are given below:

During the month of March, the following quantities of materials were sent to the factory and 32,340 tons of product K was produced.

Solution

Computation using output quantities (first formula):

We can compute material yield variance by comparing standard output quantity and actual output quantity based on standard input quantity. Under this approach, we would use the standard materials cost per unit of output (i.e., $41,800/1,000 tons = $41.80) to convert the quantity variance into dollar variance. Computations are given below:

Direct material yield variance = (Standard output × Standard cost) – (Actual output × Standard cost)
= (*31,000 tons × $41.80**) – (32,340 tons × $41.80)
= $1,295,800 – $1,351,812
= $56,012 Favorable

*34,100 × (1,000/1,100)
**$41,800/1,000 tons = $41.80

The material yield variance for March was favorable because company actually produced 32,340 tons of output which was higher than the standard output of 31,000 tons based on input quantity of 34,100 tons.

Computation using input quantities (second formula):

The computation of above variance is also possible by using input quantities of materials. Under this approach we would compare actual quantity of materials used and standard quantity of materials allowed for actual output. To convert the quantities into dollars, we would use the weighted average of standard materials cost (i.e., $41,800/1,100 tons = $38.00). Computations are given below:

Direct material yield variance = (Actual quantity used × Standard cost) – (Standard quantity allowed for actual output × Standard cost)
= (34,100 tons × $38*) – (**35,574 tons × $38)
= 1,295,800 – 1,351,812
= $56,012 Favorable

*$41,800/1,100 tons = $38.00
**32,340 × (1,100/1,000) = 35,574 tons

According to standards, the company was allowed to use an input of 35,574 tons to produce an output of 32,340 tons (actual output). However, it used only 34,100 tons of materials which resulted in a favorable direct material yield variance.

A D V E R T I S E M E N T
One Comment on Direct material yield variance
  1. Sean Condron

    How do you find the actual output if it is not given in the question

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