Yield variance definition
/What is Yield Variance?
Yield variance is the difference between the amount of finished product expected from a given amount of raw materials, and the amount of finished product actually produced. The concept is used to measure the effectiveness of a production process in creating finished products. It is one of the more common manufacturing metrics.
How to Calculate Yield Variance
The calculation of yield variance is as follows:
(Actual output in units - Expected output in units) x Standard cost per unit of raw materials = Yield variance
The yield variance is favorable if the production process manufactures more finished product from a specific amount of raw materials than expected. Generally, a yield variance is unfavorable, since it is more likely that a production process will contain errors that result in extra usage of raw materials.
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Problems with the Yield Variance
The yield variance can give unexpected results if the standard (expected amount) is set at an unattainable level. For example, the theoretical yield from a process may be 1,000 units, but the practical yield may be only 800 units. If the theoretical yield is always used as the baseline from which the yield variance is calculated, then there will always be an unfavorable variance.
Example of Yield Variance
ABC Company expects to produce 1,000 pounds of hard candy for every 1,200 pounds of corn syrup used as ingredients. In the most recent production batch, ABC used 1,200 pounds of corn syrup, but only produced 800 pounds of hard candy. The cost of corn syrup is $0.50 per pound. The yield variance is:
(800 Pounds actual output - 1,000 Pounds expected output) x $0.50 Standard cost/pound of corn syrup
= $100 Unfavorable yield variance