# Volume variance

A volume variance is the difference between the actual quantity sold or consumed and the budgeted amount expected to be sold or consumed, multiplied by the standard price per unit. This variance is used as a general measure of whether a business is generating the amount of unit volume for which it had planned.

If the variance relates to the sale of goods, the variance is called the sales volume variance, and the formula is:

(Actual quantity sold - Budgeted quantity sold) x Budgeted price

If the volume variance relates to direct materials, the variance is called the material yield variance, and the formula is:

(Actual unit quantity consumed - Budgeted unit quantity consumed) x Budgeted cost per unit

If the volume variance relates to direct labor, the variance is called the labor efficiency variance, and the formula is:

(Actual labor hours - Budgeted labor hours) x Budgeted cost per hour

If the volume variance relates to overhead, the variance is called the overhead efficiency variance, and the formula is:

(Actual units consumed - Budgeted units consumed) x Budgeted overhead cost per unit

Every volume variance involves the calculation of the difference in unit volumes, multiplied by a standard price or cost. As you can see from the various variance names, the term "volume" does not always enter into variance descriptions, so you need to examine their underlying formulas to determine which ones are actually volume variances.

The standard costs for products that are used in a volume variance are usually compiled within the bill of materials, which itemizes the standard unit quantities and costs required to construct one unit of a product. This usually assumes standard production run quantities. The standard costs for direct labor that are used in a volume variance are usually compiled within a labor routing, which itemizes the time required for certain classifications of labor to complete the tasks needed to construct a product.

A volume variance is more likely to arise when a company sets theoretical standards, where the theoretically optimal number of units are expected to be used in production. A volume variance is less likely to arise when a company sets attainable standards, where usage quantities are expected to include a reasonable amount of scrap or inefficiency.

If the standards upon which the volume variance is calculated are in error or wildly optimistic, employees will have a tendency to ignore negative volume variance results. Consequently, it is best to use standards that are reasonably attainable.

Similar Terms

The volume variance is also known as the quantity variance.