General Mtg. Co. budgeted fixed overhead costs of $25,000 per quarter and 1,000 units per quarter in its normal absorption costing system. Any volume variance is carried forward and closed at year end. The company experienced the following activity: Quarter Units Produced Units Sold
1 900 600
2 1,200 1,000
3 1,400 1,200
4 1,000 1,500
The volume variance was favourable in quarter(s)?

Question

Quizplus · Accepted Answer

To calculate the volume variance, we need to compare the actual units produced/sold to the budgeted units.

Quarter 1: 
Budgeted units = 1,000 
Actual units produced = 900 
Volume variance = (1,000 - 900) * fixed overhead rate = $2,500 U

Quarter 2: 
Budgeted units = 1,000 
Actual units produced = 1,200 
Volume variance = (1,200 - 1,000) * fixed overhead rate = $5,000 F

Quarter 3: 
Budgeted units = 1,000 
Actual units produced = 1,400 
Volume variance = (1,400 - 1,000) * fixed overhead rate = $10,000 F

Quarter 4: 
Budgeted units = 1,000 
Actual units produced = 1,000 
Volume variance = (1,000 - 1,000) * fixed overhead rate = $0

Since the volume variance is only favourable in quarters 2 and 3, the answer is B.