Material yield variance

Material Yield Variance Overview

The material yield variance is the difference between the actual amount of material used and the standard amount expected to be used, multiplied by the standard cost of the materials. The formula is:

(Actual unit usage - Standard unit usage) x Standard cost per unit = Material yield variance

An unfavorable variance means that the unit usage was greater than anticipated. There are a number of possible causes of a material yield variance. For example:

  • Scrap. Unusual amounts of scrap may be generated by changes in machine setups, or because changes in acceptable tolerance levels are altering the amount of scrap produced. A change in the pattern of quality inspections can also alter the amount of scrap.

  • Material quality. If the material quality level changes, this can alter the amount of quality rejections. If an entirely different material is substituted, this can also alter the amount of rejections.

  • Spoilage. The amount of spoilage may change in concert with alterations in inventory handling and storage.

  • Freight in issues. The transport service that ships materials to the company may have damaged them in transit, rendering them unusable.

The standard unit usage is developed by the engineering staff, and is based on expected scrap rates in a production process, the quality of raw materials, losses during equipment setup, and related factors.

Material Yield Variance Example

The engineering staff of Hodgson Industrial Design estimates that 8 ounces of rubber will be required to produce a green widget. During the most recent month, the production process used 315,000 ounces of rubber to create 35,000 green widgets, which is 9 ounces per product. Each ounce of rubber has a standard cost of $0.50. Its material yield variance for the month is:

(315,000 Actual unit usage - 280,000 Standard unit usage) x $0.50 Standard cost/unit
= $17,500 Material yield variance 

Similar Terms

The material yield variance is also known as the material usage variance and the direct material yield variance.

Related Courses

Cost Accounting Fundamentals