Page 235 - DMGT403_ACCOUNTING_FOR_MANAGERS

Accounting for Managers

Notes 11.2.5 Material Yield Variance

It is one of the components of the material usage variance which arises only due to the deviation
in between the standard yield determined and the actual yield accrued. This variance highlights
either the abnormal loss of materials or saving of materials. This variance plays most important
role in the process industries, to assess the loss/wastage of materials. If the actual loss of materials
is different from the standard loss of materials will result the variance in two different situations.
When the standard and actual do not differ from each other:
In this case, the yield variance is calculated as follows

Yield Variance = Standard Rate/Cost per unit (Actual Yield – Standard Yield)
Standard Rate has to be calculated from the following.
Standard cost of Standard Mix
Standard Rate =
Net Standard Output (Gross Standard Output – Standard Loss)
When the actual mix differs from the standard mix: In the second case, standard mix has to be
tuned to the requirement of actual mix, which is revised standard mix, realistic in sense for
meaningful comparison, to highlight the deviation in between two different yields viz. actual
yield and revised standard yield. The standard rate has to be calculated only for the revised
standard mix of materials.

Standard Costof RevisedStandardMix
Standard Rate =
Net StandardMix/Output(GrossStandardOutput – StandardLoss)
Calculate Material Yield Variance

Example: The total standard mix is equivalent to total actual mix

Particulars Standard Actual
Qty in Kg Price Qty in Kg Price
Material A 90 6 60 5
Material B 60 8 90 9
150 150

Normal loss is allowed 10% Actual output 130 units.

Revised standard output has to be computed. In this problem, the total mixes are equivalent to
each other, but, the normal loss is a loss 10% expected on the normal output. Though, this
problem does not have the difference between the mixes, the revised standard mix should have
to be computed to register the expected loss (normal loss) on the standard output.
Revised standard mix = Standard Mix – Normal Loss (Expected Loss)

= 150 Kgs – 10% on 150 Kgs = 135 Kgs
The next step is to find out the standard rate/price
Standard price per unit
StandardCost/Priceof StandardMix
=
Net Standard Mix/Output (GrossStandardOutput – StandardLoss)

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