How do you measure and improve the yield of your products or services using CVP analysis?

1 What is yield variance?

Yield variance is the difference between the actual yield and the standard yield of your products or services. The standard yield is the expected output per unit of input, based on your production or service standards. The actual yield is the output you actually achieve per unit of input, based on your performance data. Yield variance can be positive or negative, depending on whether you produce more or less than the standard yield. A positive yield variance means you have a higher efficiency and lower unit cost, while a negative yield variance means you have a lower efficiency and higher unit cost.

2 How to calculate yield variance using CVP analysis?

To calculate your yield variance using CVP analysis, you need to know your fixed costs, variable costs, sales price, and sales volume. You also need to know your standard yield and actual yield for each unit of input. You can use the following formula to calculate your yield variance:

Yield variance = (Actual yield - Standard yield) x (Sales price - Variable cost per unit)

This formula shows how your yield variance affects your contribution margin, which is the difference between your sales revenue and your variable costs. A higher contribution margin means a higher profit, while a lower contribution margin means a lower profit.

3 What are the main causes of yield variance?

There are many factors that can cause your yield variance to deviate from the standard, such as the quality of input, process efficiency, external factors, and performance measurement. Poor quality raw materials, labor, or equipment can reduce your output or increase your waste. Additionally, if your production or service processes are not optimized, they can cause delays, errors, or rework. Unexpected events like market changes, customer demand, or environmental conditions can also affect your output or input. Moreover, if your standards are not realistic, accurate, or updated, they can create unrealistic expectations or inaccurate comparisons.

4 How to improve your yield using CVP analysis?

To improve your yield using CVP analysis, you should analyze the yield variance and identify the root causes of the deviation. Subsequently, it is essential to implement corrective actions and monitor the results. This can include sourcing better raw materials, training staff, upgrading equipment, streamlining production or service processes, eliminating waste, adopting best practices, adjusting prices or costs to match market conditions, customer preferences, or environmental challenges, and revising standards, data collection, or analysis methods.

5 How to use CVP analysis to make decisions?

CVP analysis can be used to make decisions that affect yield and profit. It can help you determine your break-even point, evaluate different scenarios, and choose the best alternative. This powerful tool allows you to measure and improve the yield of your products or services. You can use it to calculate yield variance, identify the causes of deviation, implement corrective actions, and make informed decisions. Ultimately, this can increase efficiency, lower costs, and boost profit.

6 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?