Direct Labor Yield Variance
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 [email protected] 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.
Actual payroll  $23,104 
Actual hours (3,800) × Standard labor hours ($6)  $22,800 
————  
Labor rate variance  $304 unfavorable 
======== 
Calculation of Labor Efficiency Variance:
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  
======  =====  ========= 
Calculation of Labor Yield Variance:
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.
You may also be interested in other articles from “standard costing and variance analysis” chapter
 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.
 Controllable variance
 Volume variance
 Spending variance
 Idle capacity variance
 Efficiency variance
 Spending variance
 Variable efficiency variance
 Fixed efficiency variance
 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