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ACIS 2116 Chapter 11 PowerPoints Spring 2009 - Volume Variance

# ACIS 2116 Chapter 11 PowerPoints Spring 2009 - Volume Variance

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1 ACIS 2116 – Part of Chapter 11 Understanding the Fixed Overhead Volume Variance

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2 Understanding Volume Variance Recall that under absorption costing, we calculate product cost per unit by adding direct materials per unit, direct labor per unit, variable overhead per unit, and fixed overhead per unit. We calculate fixed overhead per unit (also called the fixed-overhead rate) as follows: fixed expenses ÷ number of units produced
3 Understanding Volume Variance For budgeting purposes the fixed- overhead rate is calculated using estimates of expected fixed expenses and expected number of units produced (i.e., expected volume). We will refer to this rate as the predetermined fixed overhead rate.

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4 Understanding Volume Variance Budgeted fixed overhead is based on expected volume of production and the predetermined fixed overhead rate. Applied fixed overhead is based on actual

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Unformatted text preview: volume of production and the predetermined fixed overhead rate. • Thus, the difference in budgeted and applied fixed overhead is due to the difference in expected and actual production volume. 5 Formula for Volume Variance Volume Variance = Budgeted Fixed Overhead – Applied Fixed Overhead Volume Variance = (Expected volume x Predetermined fixed overhead rate) – (Actual volume x Predetermined fixed overhead rate) OR Volume Variance = (Expected volume – Actual volume) x Predetermined fixed overhead rate OR 6 Interpretation of Volume Variance • We cannot interpret the volume variance as favorable or unfavorable because: 1. The variance is caused by a difference in actual and expected volume of production and 2. We would need to know why the company produced more or less units than expected....
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ACIS 2116 Chapter 11 PowerPoints Spring 2009 - Volume Variance

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