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Home Standard Costing and Variance Analysis Overhead Volume Variance
 
 

Overhead Volume Variance:

Definition and Explanation:

The Volume variance represents the difference between the budget allowance and the standard expenses charged to work in process.

If budget allowance is more than the standard expenses charged to production, the variance is called unfavorable volume variance.

If budget allowance is less than the standard expenses charged to production, the variance is called favorable volume variance.

Overhead volume variance is calculated when overall or net overhead variance is further analyzed using two variance method. Other variance that is calculated in two variance method is Controllable variance.

Formula:

Following formula is used for the calculation of this variance:

Controllable variance = Budgeted Allowance Based on Standard Hours Allowed - Overhead charged to production

Example:

From the following data calculate factory overhead volume variance:

Actual overhead   $7,384
Actual hours used   3,475
Units produced during the period   850
Standard hours for one unit   4
Standard factory overhead rate:    
     Variable

$1.20

 
     Fixed

$0.80

$2.00
 
 
Normal Capacity in labor hours   4000 hours

Solution:

Budgeted allowance based on standard hours allowed:    
   Fixed expenses budgeted $3,200  
   Variable expenses (3,400* standard hours allowed $1.20 variable overhead rate) 4,080 $7,280
 
 
Overhead charged to production (3400 standard hours allowed $2.00 standard rate)   $6,800
 

Volume variance   $480 unfav
   
*Standard hours allowed = Units produced during the period Standard time allowed for one unit
3,400 = 850 units 4 hours    

This variance consists of Fixed expense only and can also be computed as follows:

Normal capacity hours 4,000
Standard hours allowed for actual production 3,400
 
  600
 
Volume variance (600 hours $08.0*) $480 unfav.
 
*Fixed expenses rate at normal capacity

Who is Responsible For Volume Variance?

The overhead volume variance indicates the cost of capacity available but not utilized efficiently and is considered the responsibility of executive and departmental management.
Definition and Explanation of Standard Cost
Purposes and Advantages of Standard Costing System
Setting Standards
Materials Price Standard
Materials Price Variance
Materials Quantity Standard
Materials Quantity Variance
Direct Labor Rate Standard
Direct Labor Rate Variance
Direct Labor Efficiency Standard
Direct Labor Efficiency Variance
Factory Overhead Cost Standards
Overall or Net Factory Overhead Variance
Overhead Controllable Variance
Overhead Volume Variance
Overhead Spending Variance
Overhead Idle Capacity Variance
Overhead Efficiency Variance
Variable Overhead Efficiency Variance

Fixed Overhead Efficiency Variance

Mix and Yield Variance
Variance Analysis Example
Standard Costing and Variance Analysis Formulas
Management by Exception and Variance Analysis
International Uses of Standard Costing System
Advantages, Disadvantages, and Limitations of Standard Costing

 

 

 

 

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Financial Accounting Topics


  Introduction to Accounting
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  Transactions and Accounting Equation
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  Analysis of Business Transactions
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  Journal, Ledger and Trial Balance
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  Accounting for Bills of Exchange
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  Special Journals
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  Cash Book
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Bank Reconciliation Statement
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  Final Accounts
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  Work Sheet
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  Capital and Revenue Items
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  Valuation of Inventories
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  Accounts of Non-profit Making Organizations
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  Statement of Cash Flows
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  Accounting Ratios Analysis
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  Depreciation, Provisions and Reserves
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  Accounting Dictionary
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  Financial Calculators
 
 
 
Managerial Accounting Topics

  Financial Statements
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  Cost Volume Profit Relationship
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  Variable Costing System
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  Materials and Inventory Cost Control
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  Activity Based Costing System
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  Standard Costing and Variance Analysis
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  Balanced Scorecard
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  Capital Investment Analysis/Capital Budgeting
 
 

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