Definition
Direct Materials Yield Variance (Direct Materials Quantity Variance) is an accounting metric used within standard costing systems to measure the efficiency of a company’s use of direct materials in production. This variance is calculated by comparing the standard quantity of materials that should have been used for the actual output achieved to the actual quantity of materials used, all valued at standard prices.
Examples
Example 1
A company manufacturing widgets has a standard material requirement of 5 kilograms per widget. If the company produces 100 widgets, the standard material usage would be \(5 \times 100 = 500\) kilograms. Suppose the actual material used is 520 kilograms, the Direct Materials Yield Variance at a standard price of $2 per kilogram would be calculated as:
\[ \text{Direct Materials Yield Variance} = (500 - 520) \times 2 = -40 \text{ kilograms} \times 2 = -$80 \]
This unfavorable variance indicates that more material was used than the standard allows, resulting in inefficiencies.
Example 2
Consider a bakery producing 500 loaves of bread with each loaf requiring 3 pounds of flour. The standard material usage would therefore be \(500 \times 3 = 1500\) pounds. If the actual flour used is 1450 pounds and the standard price per pound is $1.50, the Direct Materials Yield Variance is:
\[ \text{Direct Materials Yield Variance} = (1500 - 1450) \times 1.5 = 50 \text{ pounds} \times 1.5 = $75 \]
This favorable variance shows that less material was used than the standard, representing efficiency in production.
Frequently Asked Questions
What is a favorable Direct Materials Yield Variance?
A favorable Direct Materials Yield Variance occurs when the actual amount of material used is less than the standard amount allowed for the production output. This indicates efficient use of materials.
What is an unfavorable Direct Materials Yield Variance?
An unfavorable Direct Materials Yield Variance occurs when the actual amount of material used is more than the standard amount allowed for the production output. This indicates inefficiency and potential waste in the use of materials.
How is Direct Materials Yield Variance relevant to management?
Management can use Direct Materials Yield Variance to identify inefficiencies in material usage, understand variances from expected norms, and take corrective actions. This can improve cost control and operational efficiency.
How are standard prices in Direct Materials Yield Variance determined?
Standard prices are typically determined based on historical data, market trends, and negotiated contracts with suppliers. They represent an estimated cost that should prevail under normal circumstances.
What factors can cause Direct Materials Yield Variance?
Several factors can cause Direct Materials Yield Variance, including issues with material quality, machinery inefficiencies, labor skill levels, and process deviations.
Related Terms
- Standard Costing: A costing method that assigns expected material, labor, and overhead costs to products, helping in performance measurement and cost control.
- Direct Materials Usage Variance: The difference between the actual amount of materials used and the standard amount expected to be used, valued at the standard cost.
- Standard Mix: The predetermined proportion of different materials expected to be used in production.
- Standard Purchase Price: The pre-determined cost assumed for material purchases in the standard costing system.
- Standard Selling Price: Expected selling price of goods based on historical and market data.
Online References
Suggested Books for Further Studies
- “Cost Accounting: A Managerial Emphasis” by Charles T. Horngren, Srikant M. Datar, and Madhav V. Rajan
- “Management and Cost Accounting” by Colin Drury
- “Accounting for Decision Making and Control” by Jerold Zimmerman
Accounting Basics: “Direct Materials Yield Variance” Fundamentals Quiz
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