Yield Variance

Yield variance is an indicator that is formed by subtracting the standard output of a manufacturing process from the actual output. Standard cost is considered to be the basis for valuation of the yield variance. In most cases, yield variance is negative, for example, if the actual output ends up being less than the standard or anticipated, nevertheless, in some other cases, the output is completely in line with expectations.

How to figure out Yield Variance

The yield variance indicator is formed as the difference between the actual and standard yields, which then should be multiplied by standard unit cost.

What is Yield Variance

Yield variance is considered a popular financial and operational measure in the manufacturing industry. Adjustment of input data by analysts for special scenarios is a frequent action carried out to boost and increase the metric.

Yield variance uses direct materials, which are considered to be goods that become finished products at the end of the manufacturing process. The material’s yield variance value is above zero when the amount of materials required for a particular output overestimated by a company, and vice versa, the value is below zero, when the amount of materials is underestimated. When the yield variance is zero, it means that the standard output equals the actual output.

In cases when the direct materials yield variance demonstrates that the actual output is less than planned, the company may review its operating policy in order to improve efficiency. Optimizing by producing more products with the same level of inventory while maintaining consistent quality will allow the company to increase profits.

Yield variance is an indicator that the result is effective or in line with expectations, however, this measure does not indicate the reason of this variance.

Yield variance shows the difference in output, but this measure should not be confused with the mix variance, which is responsible for the difference in total material usage or inputs. 

Example of Yield Variance

For example, the standard output assumes 100 kg of materials and eight-hour production unit for production of 100 units, but actual output is 98 units. There is a variance of 2 unit = 100-98. The unfavorable yield variance would be $40 (2 x $20), if the standard cost is $20 per unit.

Another one example. Company X produce 1M units of a microchip for every 1.5M units of specialized parts. Company X used 1.5 units of specialized parts, but produced 1.25 microchips. The standard unit cost of specialized parts is $0.50 per unit. 

To figure out the yield variance = (1.25M — 1.5M) * $0.50 = $125,000.