Direct Labor Yield Variance:

Learning Objective of the article:

1. Define and explain labor yield variances.
2. Calculate labor yield variance.

Rate and efficiency variances of labor are explained on direct labor rate variance page and direct labor efficiency variance page respectively. Here, our focus is to explain the calculation of labor yield variance.

Formula of Labor Yield Variance:

[(Standard hours allowed for expected output × Standard labor rate) – (Standard hours allowed for actual output × Standard labor rate)]

An example can help us explain the calculation of labor yield variance.

Example:

To illustrate the calculation of labor yield variances assume that the springmint Company, a manufacturer of chewing gum, uses a standard cost system. Standard product and cost specifications for 1,000 lbs. of chewing gum are as follows:
 

	Quantity	×	Price	=	Cost
Gum base	800		$0.25		$200
Corn syrup	200		$0.40		80
Sugar	200		$0.10		20
	--------				--------
Input	1,200 lbs				$300	$300 / 1,200 lbs = $0.25 per lb.*
	=====				====
Output	1,000				$300	$300 / 1,000 lbs = $0.30 per lb.*
	=====				====

*Weighted average.

The production of 1,000 lbs. of chewing gum required 1,200 lbs of raw materials. Hence the yield is 1,000 lbs / 1,200lbs. or 5/6 of input. Materials records indicate.
 

Materials	Beginning Inventory	Purchases in January	Ending Inventory
Materials	Beginning Inventory	Purchases in January	Ending Inventory
Gum base	10,000 lbs	162,000 lbs@ 0.24	15,000 lbs
Corn Syrup	12,000 lbs	30,000 lbs  @ 0.42	4,000 lbs
Sugar	15,000 lbs	32,000 lbs  @ 0.11	11,000 lbs

To convert 1,200 lbs. of raw materials into 1,000 lbs of finished product required 20 hours at $6.00 per hour or $0.12 per lbs. of finished product. Actual direct labor hours and cost for January are 3,800 hours at $23,104. Factory overhead is applied on a direct labor hour basis at a rate of $5 per hour ($3 fixed , $2 variable), or $ 0.1 per lb. of finished product. Normal overhead is $20,000 with 4,000 direct labor hours. Actual overhead for the month is $22,000, Actual finished production for January is 200,000 lbs.

The standard cost per pound of finished chewing gum is:
 

Materials	$0.30 per lb.
Labor	$0.12 per lb.
Factory overhead	$0.10 per lb

Required: Calculate:

• Labor rate variance
• Labor efficiency variance
• Labor yield Variance

The expected output of 192,500 lbs. of chewing gum should require 3,850 standard labor hours (20 hours per thousand pounds of chewing gum produced). Similarly, the actual out put of 200,000 lbs. of chewing gum should require 4,000 standard labor hours.

The labor variances are labor rate variance, labor efficiency variance and labor yield variance.

Calculation of Labor Rate Variance:

labor rate variance is calculated as explained on direct labor rate variance page.

Calculation of Labor Efficiency Variance:

The traditional labor efficiency variance, as explained on direct labor efficiency variance page, is calculated as follows:

Calculation of Labor Yield Variance:

The labor yield variance identifies the portion of the labor efficiency variance attributable to obtaining an unfavorable or, as in this example, a favorable yield [(3,850 standard hours allowed for expected output – 4,000 standard hours allowed for actual output) × $6 standard labor rate = $900].

The favorable labor efficiency variance of $300 is the portion of the traditional labor efficiency variance that is attributable to factors other than yield. The sum of the two variances, $900 plus $300, equals the $1,200 traditional labor efficiency variance.

 

You may also be interested in other relevant articles: Standard Costs and Management By Exception Setting Standard Costs - Ideal Versus Practical Standards Direct Materials Price and Quantity Standards Direct Materials Price Variance Direct Materials Quantity Variance Direct Labor Rate and Efficiency Standards Direct Labor Rate | Price Variance Direct Labor Efficiency | Usage | Quantity Variance Manufacturing Overhead Standards Overall or net factory overhead variance Factory Overhead Controllable variance Factory Overhead Volume variance Factory Overhead Spending variance Factory Overhead efficiency variance Variable Overhead efficiency variance Fixed overhead efficiency variance Factory Overhead idle capacity variance Mix and Yield Variance - Definition and Explanation Materials Mix and Yield Variance Labor Yield Variance Factory Overhead Yield variance Variance Analysis and Management By Exception Managerial importance and usefulness of variance analysis Advantages and Disadvantages of Standard Costing System Standard Costing Discussion Questions and Answers Standard Costing and Variance Analysis Formulas Standard Costing and Variance Analysis Problems and Solution Standard Costing and Variance Analysis Case Study

 

Our Request Dear visitor! Do you like this article? If you like, then please bookmark this page and also share with your friends. Thank you for your support.  [Report Errors and Omissions]

Back to Home Page | Back to Standard Costing and Variance Analysis Main Page