Material yield variance definition
/What is the Material Yield Variance?
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 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. An unfavorable variance means that the unit usage was greater than anticipated.
How to Calculate the Material Yield Variance
To calculate the material yield variance, subtract the standard amount of unit usage from the actual unit usage, and then multiply the result by the standard cost per unit. The formula is as follows:
(Actual unit usage - Standard unit usage) x Standard cost per unit = Material yield variance
Cause of a Material Yield Variance
There are a number of possible causes of a material yield variance. Here are several reasons:
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.
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Example of the Material Yield Variance
As an example of the material yield variance, the engineering staff of Hodgson Industrial Design estimates that eight 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 nine 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
Terms Similar to the Material Yield Variance
The material yield variance is also known as the material usage variance and the direct material yield variance.