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What does an unfavorable volume variance indicate?

Author:
Harold Averkamp, CPA, MBA

An unfavorable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer’s output was less than the budgeted or planned amount of fixed manufacturing overhead costs for the same time period. The unfavorable volume variance indicates that the period’s output was less than the planned output.

The volume variance is also referred to as the production volume variance, the capacity variance, or the idle capacity variance.

In November 2004, the Financial Accounting Standards Board issued its Statement No. 151, which discusses the reporting of the fixed production overhead when less than normal capacity is utilized. The FASB’s Statements of Financial Accounting Standards are available at no cost at www.FASB.org/st.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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