Direct Labor Yield Variance:
Learning Objective of
the article:
 Define and explain labor yield variances.
 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.
labor rate variance is calculated as
explained on
direct labor rate variance page.
Actual
payroll 
$23,104 
Actual
hours (3,800) × Standard labor hours ($6) 
$22,800 

 
Labor rate
variance 
$304 unfavorable 

======== 
Actual
hours (3,800) × Standard labor hours ($6) 
$22,800 
Standard
hours allowed for expected output (3,850) × Standard labor rate ($6) 
$23,100 

 
Labor
efficiency variance 
$(300) favorable 

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

Time 
× 
Rate 
= 
Amount 
Actual hours worked 
3,800 

$6 

$22,800 
Standard hours allowed 
4,000 

$6 

$24,000 

 

 

 
Labor efficiency variance 
(200) 

$6 

$(1,200) favorable 

====== 

===== 

========= 
Standard hours allowed for expected output
(3,850) × Standard labor rate ($6) 
$23,100 
Standard hours allowed for actual output
(4,000) × Standard labor rate ($6) 
24,000 

 
Labor yield variance 
$(900) favorable 

======== 
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.
