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Introduction to Management
Accounting

Functions of Management
Accounting

Management Accounting Concepts

Opportunity Cost

Introduction to Variance Analysis

Direct Material Price Variance

Direct Material Usage Variance

Direct Material Mix Variance

D ire c t Ma te ria l Y ie ld V a ria nc e

Direct Labor Rate Variance

Direct Labor Efficiency Variance

Direct Labor Idle Time Variance

Sales Price Variance

Sales Volume Variance

Sales Mix Variance

Sales Quantity Variance

Variable Overhead Spending

Variance

Variable Overhead Efficiency

Variance

Fixed Overhead Total Variance

 Fixed Overhead Spending Variance

Fixed Overhead Volume Capacity &

Efficiency Variance

Limitations of Standard Costing &

Variance Analysis

Relevant Cost and Decision Making

Relevant Cost of Labor

Relevant Cost of Materials

Limiting Factor Analysis

Single Limiting Factor Analysis

Linear Programming

Graphical Method

Graphical Method Example

Equation Method

Budgeting

High Low Method

Investment Appraisal

Time Value of Money

Accounting Rate of Return

Internal Rate of Return

Direct Material Yield Variance
Modified Internal Rate of Return

Payback Period Definition

Discounted Payback Period Direct Material Yield Variance is a measure of cost differential between output that should have been produced for the given
level of input and the level of output actually achieved during a period.

Contents:

1. Definition

2. Formula
 3. Example

4. Explanation

5. Analysis

Formula
Direct Material Yield Variance:

= (Actual Yield - Standard Yield) x Standard Material Cost Per Unit

Example
Cement PLC manufactured 10,000 bags of cement during the month of January. Consumption of raw materials during the
period was as follows:

Material Quantity Used Standard Mix Per Bag Actual Price Standard Price

Limestone 100 tons 11 KG $75/KG $70/KG

Clay 150 tons 14 KG $21/KG $20/KG
Sand 250 tons 26 KG $11/KG $10/KG

Material Yield Variance shall be calculated as follows:

Step 1: Calculate the Standard Yield for the total materials input

500 tons of materials should have yielded 9,804 bags

Standard Yield = 500 tons x 1000 / 51 KG = 9,804 bags

Step 2: Calculate the Standard Cost of materials per bag

Total material cost of 1 bag of cement:

Limestone: 11 KG x $70 = $770
Clay: 14 KG x $20 = $280
Sand: 26 KG x $10 = $260
Total $1,310 per bag

Actual material price should be ignored since the variance between actual and standard price is accounted for in the
material price variance.
 Step 3: Calculate the Total Yield Variance
Material Usage Variance = [Actual Yield - Standard Yield (Step 1)] x Standard Cost / Unit (Step 2)

Actual Yield - Standard Yield = 10,000 - 9,804 (Step 1) = 196 bags

Total Material Yield Variance = 196 bags x $1,310 (Step 2)

= $256,760 Favorable

As the actual output achieved during the period is higher than the standard yield, the variance is favorable. Favorable
material yield variance indicates the amount of savings in material costs as a result of better output yield than the
standard.

Step 4: Calculate the Material Wise Yield Variances

Individual material yield variance can be calculated in a similar way to the total yield variance.

Materials:
Actual Yield - Standard Yield
x
Standard Cost per bag
= Newsletter
Yield Variance
(Step 3) (Step 2)
Join our free Newsletter
Limestone: 196 bags x $770 = $150,920 for articles and updates
Clay: 196 bags x $280 = $54,880
Sand: 196 bags x $260 = $50,960 Email *
$256,760

Note that sum of individual material yield variances equals the total yield variance calculated in step 3.

Explanation
Material Yield Variance measures the effect on material cost of a change in the production yield from the standard.

Material yield variance is used in conjunction with material mix variance in order to provide additional analysis of the material
usage variance.

The difference between material usage and material yield variance is that the former focuses on the utilization of input at the
start of production process whereas latter focuses on the efficiency in terms of the output yield during a period.

Analysis
A favorable material yield variance indicates better productivity than the standard yield resulting in lower material cost.

Conversely, an adverse material yield variance suggests lower production achieved during a period for the given level of input
resulting in higher material cost.
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 Ryan Michael Shepard • 4 years ago
Thank you very much for the speedy response :)
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Ryan • 4 years ago

Where does the "1000" / 51 in step 1 come from ?
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AccountingSimplified Mod > Ryan • 4 years ago

Ryan, the 1000 is used here to convert tons into KGs. 51 KG is the sum of the standard mix
per bag of cement (11 + 14 + 26). Hope this helps!
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AccountingSimplified Mod > AccountingSimplified • 4 years ago

The question should have specified it is metric ton. Our bad.
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Kenneth Limosnero • 3 years ago

please put some quizzer in here. Thank you
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AccountingSimplified Mod > Kenneth Limosnero • 3 years ago

Thanks for the suggestion Kenneth. We'll add more soon.
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