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.
