USA Production Volume Variance

[JR.]

EXPENSE:
Company ABC has forecasted $190,000 in Fixed Overhead for the month of April 2018, but actual fixed overhead was $160,000 netting a favorable spending variance of $30,000.

ABSORPTION:
Company ABC has forecasted $114,000 in FOH absorption with 7,000 earned hours (rate of $16.29/hr), and actuals were $150,000 in FOH absorption with 8,300 hours (rate of $18.07 applied per hour).

How do I calculate the volume variance? Am I missing any components for the calculation? The scenario and numbers above are made up, this isn't in a text book, but I am trying to get a better understanding.

 

[Yash]

Hi, Volume Variance can be calculated by using the formula (ACTUAL VOLUME ABSORBED- BUDGETED VOLUME)* STANDARD PROFIT PER UNIT. But from the above question I am slightly confused, are you looking for Sales volume variance or FOH variance? Because I cannot see any sales figures. Txs.

 

[JR.]

I am looking for FOH variance. With your formula, I would come up with 8300-7000*16.29

I’m assuming the volume measure would be hours.

Do you agree?

 

[Yash]

I am looking for FOH variance. With your formula, I would come up with 8300-7000*16.29

I’m assuming the volume measure would be hours.

Do you agree?

Budgeted FOH 114000
Budgeted Hours 7000
Actual Hours 8300

FOH rate= 114000/7000= 16.29$
Actual Fixed Overhead rate= 8300*16.29$= 135,207$

Fixed overhead Volume variance= 135,207$ - 114000$= 21,207 (Favourable)

Sorry did not notice Qty is Hrs previously

 

[JR.]

Hi Yash , thanks for validating. Your calculation was another one I used and that’s why I was a bit confused. I used a couple different sources and they seemed slightly different. It appears that expense does not factor into the calculation/analysis. We are only using absorption?

At high level, I would say that our volume mix was more favorable. How would you summarize a favorable or unfavorable volume variance ?