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 in quarter 1 was:

Question

Quizplus · Accepted Answer

The volume variance is calculated as the difference between the budgeted and actual production units, multiplied by the fixed overhead rate per unit. In quarter 1, the company produced 900 units instead of the budgeted 1,000 units, resulting in a 100-unit shortfall. The fixed overhead rate is $25,000 / 1,000 units = $25 per unit. Therefore, the volume variance is 100 units x $25 = $2,500 Unfavourable.