Farwars that post helped me understand the volume variance analysis better. But I think that formula has to add that volume variance is focused on Fixed OH. And if the company produces less volume than budgeted then its safe to safe tgat the company would have an unfavorable volume variance. This is bc the stantard fixed OH rate per unit of volume is based on a budgeted volume and if the company producess less volume it would be applied that budgeted rate on less volume when in fact the budgeted rate per unit was based on a higher volume. I think I found a mcq that can explain what I am trying to say.
Baby Frames, Inc., evaluates manufacturing overhead by using variance analysis. The following information applies to the month of May:
Actual Budgeted
———– ————————
Number of frames manufactured 19,000 20,000
Variable overhead costs $4,100 $2 per direct labor hour
Fixed overhead costs $22,000 $20,000; $1 per unit
Direct labor hours 2,100 hours 0.1 hour per frame
What is the production volume variance?
A. $1,000 favorable
B. $1,000 unfavorable
C. $2,000 favorable
D. $2,000 unfavorable
Production volume variance measures the under- or over-usage of volume or productive capacity and focuses on fixed overhead cost.
Specifically:
Production volume variance = Budgeted fixed overhead – Applied fixed overhead
Production volume variance = $20,000 – 19,000 ($1)
= $20,000 – $19,000
= $1,000
The $1 per unit rate was based on fixed overhead budgeted cost of $20,000 and an expectation of producing 20,000 frames. Since actual production was only 19,000 frames, the calculated volume variance was unfavorable.
So for PRODUCTION VOLUME = Look for rate applied from fixed OH per unit.
I looked at my book to make sure if the volume variance rate can be based on variable OH but what I saw is more or less what I am saying. But if your book says otherwise please let me know bc for me this is the last piece of my variance puzzle using the parenthesis approach 🙂
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