Interpreting the concept of Production-Volume Variance with myhomeworkhelp.com
Production-Volume Variance is the amount of overhead incurred number of units manufactured. Evaluation takes place when budgeted overhead rate per unit gets multiplied by the difference between actual units produced and the budgeted number of units.
Now, interpreting the production-volume variance homework help mentors express it as:
Interpreting the Production-Volume Variance = (Total units produced – Budgeted units) x Budgeted overhead rate
So in other words, it is the difference between a company’s budgeted fixed overhead costs and the actual fixed manufacturing overhead cost for production during a particular period.
Good Variance and Bad Variance
When fewer units are produced, it is bad or undesirable; and when production exceeds the budgeted units, its variance is good. This is because when volume is higher than budgeted, then overhead cost is distributed across a greater number of units, which makes the overhead rate lower. Now, to know more get that how our mentors of interpreting the production-volume variance homework help express every point properly.
Is Good Variance always good?
From an accounting perspective, it is always good to have excess volume than of budgeted number of units. However, according to a perspective of working capital, it is always better to have an exact number of units as per customer requirements which ensure a better cash flow.
Many such questions will be answered, and a lot of finer concepts will be addressed when you choose to opt for interpreting the production-volume variance Assignment Help
Production Volume Variance – Short Case Study
Let’s assume a budget of $100,000 for fixed manufacturing overhead costs. This means that if an organisation budgets the production of 10,000 units during the month, it must have assigned an overhead cost of $10 per unit.
Now if only 9,000 units are produced, the variance would be
(10,000 – 9,000) X $10
Which would be $10,000 and this would be bad variance as units produced are fewer which make the overhead per unit higher.
However, if 11,000 units are produced, it would be a favourable variance of $10,000
Now, it is clear that how interpreting the production-volume variance homework help is able to explain everything in a proper way.
Is Production-Volume Variance useful to an organisation?
Yes, especially since the variance can help managers understand the capability of the company to meet production needs and help in better allocation of overhead costs for the future.
However, one must keep in mind certain factors which can limit the use of this statistic –
- Fixed overheads like Rents, Salaries and Insurance, which are not directly linked to the number of units produced
- Long Term budgets, which mean that actual production time and the figures used in the budget should not get mismatched.
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