Calculating Material Yield Variance

The question asks us to determine the material yield variance based on the provided standard and actual data for input, yield, and cost.

Material yield variance measures the cost difference arising from the actual quantity of output (yield) obtained from the input materials compared to the standard quantity expected from the same input. A difference in yield means that the efficiency in converting input materials into finished product varied from the standard.

The formula for Material Yield Variance is:

\(\text{Material Yield Variance} = (\text{Actual Yield} - \text{Standard Yield for Actual Input}) \times \text{Standard Cost per unit of Output}\)

Step-by-Step Material Yield Variance Calculation

Let's break down the calculation:

1. Determine the Standard Yield Rate

The standard information tells us that 100 kg of input should yield 90 kg of output. The standard yield rate is the proportion of output expected from input.

\(\text{Standard Yield Rate} = \frac{\text{Standard Yield}}{\text{Standard Input}} = \frac{90 \text{ kg}}{100 \text{ kg}} = 0.9\)

This means that, under standard conditions, 90% of the input material should become output.

2. Calculate the Standard Yield for Actual Input

We used 200 kg of input. Based on the standard yield rate (0.9), the expected yield from this actual input quantity is:

\(\text{Standard Yield for Actual Input} = \text{Actual Input} \times \text{Standard Yield Rate}\)

\(\text{Standard Yield for Actual Input} = 200 \text{ kg} \times 0.9 = 180 \text{ kg}\)

3. Identify Actual Yield and Standard Cost per kg of Output

From the question:

• Actual Yield = 182 kg
• Standard Cost per kg of Output = Rs. 20

4. Calculate the Material Yield Variance

Now, we can apply the formula:

\(\text{Material Yield Variance} = (\text{Actual Yield} - \text{Standard Yield for Actual Input}) \times \text{Standard Cost per kg of Output}\)

\(\text{Material Yield Variance} = (182 \text{ kg} - 180 \text{ kg}) \times \text{Rs. } 20\text{/kg}\)

\(\text{Material Yield Variance} = (2 \text{ kg}) \times \text{Rs. } 20\text{/kg}\)

\(\text{Material Yield Variance} = \text{Rs. } 40\)

5. Determine if the Variance is Favourable or Unfavourable

The actual yield (182 kg) is greater than the standard yield expected from the actual input (180 kg). Getting more output than expected from the same amount of input is considered efficient and results in a favourable variance.

Therefore, the Material Yield Variance is Rs. 40 (Favourable).

Summary of Variance Calculation

The calculated material yield variance is Rs. 40 (Favourable).

Revision Table: Key Variance Formulas

Additional Information: Understanding Material Variances

Material variances are a critical part of standard costing and variance analysis. They help management identify the reasons for differences between actual material costs and standard material costs. The total material variance can be broken down into different components, such as price variance, usage variance, mix variance, and yield variance.

• Material Price Variance: This variance arises due to the difference between the actual price paid for materials and the standard price. It is calculated for the quantity of materials purchased or used.
• Material Usage Variance: This variance arises due to the difference between the actual quantity of materials used and the standard quantity that should have been used to produce the actual output.
• Material Mix Variance: This variance occurs when different types of materials are used in a different proportion than the standard mix. It affects the cost due to changes in the relative prices of the materials in the mix.
• Material Yield Variance: As calculated above, this variance arises due to the difference between the actual output (yield) obtained from the input and the standard output expected from that input. It reflects the efficiency of the conversion process.

Yield variance is particularly useful when the output quantity is directly dependent on the input quantity and potential losses or gains occur during processing. A favourable yield variance suggests that less material was lost or more output was obtained than planned, while an unfavourable variance suggests greater losses or less output than expected.