Volume variance pertains to the production-volume variance for fixed overhead, comparing budgeted fixed overhead against fixed overhead applied to actual production. $400,000 - Budgeted fixed overhead$396,000 - Applied fixed overhead (9,900 Standard hours based on actual output X $4 Std FOH rate)$ 4,000 - Unfavorable Production Volume Variance The company has a budget of $400,000 yet they were able to apply only $396,000 in to production. JoyT has under-applied fixed overhead; therefore, an unfavorable variance of $4,000. $400,000/10,000 = $4 Std fixed overhead rate
Ozge, Thank you for this follow-up question. Recall that under standard costing, manufacturing overhead is applied to production on the basis of the amount of the allocation base (direct labor hours in this case) allowed for the actual production. The basis of the application is different if normal costing is used, where manufacturing overhead would be applied based on the amount of the allocation base actually used (10,300 hours) for the actual units of output rather than on the standard (9,900 hours) allowed. This is where the Volume Variance is "odd-man-out" because it does not measure a difference between an actual incurred cost and a budgeted cost. Rather, it measures the difference between budgeted and applied fixed overhead costs.
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