What is Volume Variance?
Volume variance, in costing, is the difference between fixed overhead applied to production based on actual output and budgeted fixed overhead. It indicates whether actual production was above or below the level used to set the standard cost.
How It Works
- Calculate fixed overhead applied using a predetermined rate and actual output.
- Compare with budgeted fixed overhead.
- A favorable variance means actual output exceeded planned levels.
- Use it to evaluate capacity utilization.
Saudi Context
Saudi manufacturers running monthly variance analyses use volume variance to see how plant utilization influenced unit costs.
Example
Budgeted fixed overhead SAR 100,000 at 10,000 units. Actual production 12,000 units applied at SAR 10 = SAR 120,000. Volume variance = SAR 20,000 favorable.