Direct Material Yield Variance

Direct material yield variance is 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. 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. Direct material yield variance can be calculated only for a product made from two or more direct materials. The formula is:

DM Yield Variance = ( SQ − SM ) × SP

Where,
   SQ is the standard quantity of direct material
   SM is the standard mix quantity of material used
   SP is the standard price per unit of direct material used

Standard mix quantity is calculated by multiplying standard mix percentage of a given material by 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

A positive value of DM mix variance is favorable whereas as a negative value is unfavorable.

Example

Using the same example which we used in calculating the direct material mix variance:

A product T is produced by mixing three materials: P, Q and R in a standard mix ratio of 1:2:2. Actual materials consumed during the month ended May 31, 20X2 were 4,670g, 8,450g and 8,390g respectively. Standard prices are $0.04/g $0.03/g and $0.02/g per gram respectively whereas standard quantities allowed are 4,310g, 8,620g and 8,620g respectively. 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

MaterialPQR
Total Actual Quantity (g)21,51021,51021,510
× Standard Mix %0.20.40.4
Standard Mix Quantity (g)4,3028,6048,604
 
MaterialPQR
Standard Quantity (g)4,3108,6208,620
− Standard Mix Quantity (g)4,3028,6048,604
Difference (g)81616
× Standard Price ($/g)0.040.030.02
Individual Material Yield Variance ($)0.320.480.32
Total DM Yield Variance ($)1.12

Written by Irfanullah Jan