# Direct Material Yield Variance

Direct material yield variance is the difference between the standard cost of the standard usage of direct material, and the standard cost of actual material used but in standard mix ratio i.e. had the material actually used been in the standard proportion.

It is the same as the product of:

• the standard price per unit of direct material, and
• the difference between standard quantity of direct material allowed for actual production and the standard mix quantity of direct material.

## Formula

The formula to calculate material yield variance is:

Direct Material Yield Variance
= Standard Cost of Standard Quantity – Standard Cost of Actual Usage in Standard Mix
= SQ × SP − SM × SP
= (SQ − SM) × SP

Where,
SQ is the standard quantity of direct material allowed for actual production,
SM is the standard mix quantity of material used, and
SP is the standard price per unit of direct material used.

Standard mix quantity is the total quantity of two or more types of direct materials which, if mixed in the standard ratio, would have been consumed on the actual quantity of the product produced. It is calculated by multiplying the standard mix percentage of a given material by the total actual quantity of the material used. For example, if three materials A, B and C are mixed in ratio 5:3:2 and actual quantity of material used is 2.5 kg then,

Standard mix quantity of material A
= 2.5 × 5 / (5 + 3 + 2)
= 2.5 × 50%
= 1.25 kg

## Analysis

Direct material yield variance is relevant where the production of a single product takes two or more direct materials. In such cases, the material quantity variance is further refined into material mix variance and material yield variance. The sum of direct material yield variance and direct material yield variance is the same as direct material quantity variance. That is:

Material Quantity Variance = Material Yield Variance + Material Mix Variance

As indicated by the name, the material yield variance measures the efficiency with which direct material is used in production. It measures whether material usage was wasteful. A positive value of direct material yield variance as calculated above, is favorable and indicates that less material was used than what was expected per unit of the output produced. To best evaluate it, we need to study material yield variance in the context of relevant factors such as direct material quality, which if poor, will likely result in a favorable material price variance but an unfavorable material usage and yield variances.

## Example

Using the same example as the one used in direct material mix variance:

A product T is produced by mixing three materials.

1. Materials P, Q and R are mixed in a standard ratio of 1:2:2.
2. Actual materials consumed during the month ended May 31, 20X2 were 4,670g, 8,450g and 8,390g respectively.
3. Standard prices are \$0.04/g \$0.03/g and \$0.02/g per gram respectively.
4. Standard quantities allowed for actual production levels: 4,310g, 8,620g and 8,620g respectively.

Required: Calculate the direct material yield variance.

### Solution

Total Actual Quantity
= 4,670 + 8,450 + 8,390g
= 21,510g

Material P's Standard Mix %
= 1 ÷ (1 + 2 + 2)
= 0.2

Material Q's Standard Mix %
= 2 ÷ (1 + 2 + 2)
= 0.4

Material R's Standard Mix %
= 2 ÷ (1 + 2 + 2)
= 0.4

 Material P Q R Total Actual Quantity (g) 21,510 21,510 21,510 × Standard Mix % 0.2 0.4 0.4 Standard Mix Quantity (g) 4,302 8,604 8,604 Material P Q R Standard Quantity (g) 4,310 8,620 8,620 − Standard Mix Quantity (g) 4,302 8,604 8,604 Difference (g) 8 16 16 × Standard Price (\$/g) 0.04 0.03 0.02 Individual Material Yield Variance (\$) 0.32 0.48 0.32 Total DM Yield Variance (\$) 1.12