What Is Yield Variance and How Do You Calculate It?

Yield variance is a cost accounting metric that measures the efficiency of a manufacturing process by comparing the actual output achieved to the expected output based on the materials used. This calculation provides insight into production productivity, highlighting whether more or less output was generated than anticipated for a given level of input.

This analysis is part of standard costing, a system that compares actual costs and quantities against predetermined standards. By isolating the variance related to material yield, managers can identify potential problems or successes in production operations.

The Yield Variance Formula

The formula to determine yield variance isolates the efficiency of material usage from its cost. It is expressed as: Yield variance = (Actual Yield – Standard Yield) × Standard Cost per Unit of Output.

Actual Yield is the total quantity of finished goods that were actually produced from the inputs used. This is a physical count of the completed units at the end of a production run.

Standard Yield is the expected quantity of finished goods that should have been produced from the amount of material that was actually consumed. This figure is calculated based on a pre-established input-to-output ratio. For example, if the standard dictates that 10 pounds of material should produce one finished unit, and 1,000 pounds of material were used, the standard yield would be 100 units.

The Standard Cost per Unit of Output is the planned cost to produce one complete unit of finished goods. It is calculated by multiplying the standard quantity of inputs required for one unit by the standard cost for each unit of input. This standard cost ensures that the yield variance measures only the efficiency of material conversion, not the impact of paying more or less for those materials than planned.

Calculating Yield Variance

To illustrate the calculation, consider a company that makes coffee. For its “Morning Roast” blend, the standard is 100 pounds of beans per batch at a standard cost of $8 per pound. In a recent period, the company used 1,200 pounds of beans and produced 11 batches.

The first step is to determine the standard yield. Based on the actual input of 1,200 pounds of beans and the standard of 100 pounds per batch, the company should have produced 12 batches. The actual yield was 11 batches.

Next, these figures are inserted into the yield variance formula. The calculation is (11 Actual Batches – 12 Standard Batches) × ($8 Standard Cost × 100 pounds per batch). This simplifies to (-1 Batch) × $800 Standard Cost per Batch, resulting in a yield variance of -$800, which is an unfavorable variance.

Interpreting the Yield Variance

A negative or unfavorable variance, as in the coffee example, indicates that the actual output was less than what was expected from the materials used. This suggests inefficiencies or problems within the production process that led to excess material consumption or waste. An unfavorable variance could be caused by lower-quality raw materials, machine malfunctions, or inexperienced employees.

Conversely, a positive or favorable variance occurs when the actual yield exceeds the standard yield. This means the production process was more efficient than anticipated, generating more finished goods from the materials than the standard allowed. Such an outcome could result from using higher-quality raw materials, improved machine calibration, or the efforts of skilled labor. A favorable variance signals an opportunity to study and replicate these successful conditions.

Relationship to Mix Variance

Yield variance is one of two components that make up the total material quantity variance; the other is the material mix variance. While yield variance measures the overall efficiency of converting inputs into final outputs, mix variance focuses on the cost impact of using a different combination of materials than specified in the standard. This distinction is important for companies that use multiple raw materials to create a single product.

The mix variance arises when the proportion of materials used differs from the standard mix. For example, if a standard recipe calls for a 60/40 split of two ingredients, but the actual production used a 50/50 split, a mix variance would occur. This variance calculates the financial effect of that substitution, which could be favorable if a cheaper ingredient was used in a higher proportion.

The yield and mix variances together explain why the total quantity of materials used differed from the standard. The yield variance shows how efficiently the total volume of materials was converted to output, while the mix variance isolates the cost effect of altering the recipe. Calculating both provides a complete understanding of material usage.