Question

1. The production volume variance should be charged to the production manager. Do you agree? Why or why not?

Answer 1

The production volume difference quantifies the measure of overhead applied to the quantity of units delivered. It is the distinction between the real number of units created in a period and the planned number of units that ought to have been delivered, duplicated by the planned overhead rate. The estimation is utilized to determine whether the materials the executives and generation representatives can create products as per long-go arranged desires, with the goal that a normal measure of overhead can be allotted.

From the point of view of the generation procedure, a generation volume fluctuation is probably going to be futile, since it is estimated against a spending that may have been made months back. A superior measure would be the capacity of a creation activity to meet its generation plan for that day.

The calculation of the production volume variance is:

(Actual units produced - Budgeted units produced) x Budgeted overhead rate

An unnecessary amount of generation is viewed as a great change, while a horrible fluctuation happens when less units are created than anticipated.

The motivation behind why a bigger generation volume is viewed as positive is that this implies manufacturing plant overhead can be designated crosswise over more units, which lessens the all out allotted expense per unit. Alternately, if less units were to be created, this implies the measure of overhead assigned on a for each unit premise would be higher. In this way, the assignment of the generation volume fluctuation as being good or negative is just from the bookkeeping point of view, where a lower for each unit cost is viewed as better. From an income viewpoint, it may be smarter to just create only that number of units quickly required by clients, in this way lessening the organization's working capital speculation.

The generation volume change depends on the presumption that plant overhead is straightforwardly connected with units of creation, which isn't really the situation. Some overhead, for example, office lease or building protection, will be brought about regardless of whether there is no generation, while different kinds of overhead, for example, the board pay rates, just fluctuate crosswise over enormous scopes of creation volume. Rather, there might be various different manners by which production line overhead can be broken into littler units, known as cost pools, and apportioned utilizing a few strategies that speak to a progressively keen relationship of exercises with costs brought about.

For example:
Actual Production = 100 units Budgeted Production = 200 Units
Budgeted Overhead rate = 10/unit

Hence, Production Volume Variance = (100-200) × 10 = (1000) -> Unfavorable
In case, we change the Actual Production to 300 units

Production Volume Variance = (300-200) × 10 = 1000 -> Favorable
As it is clear from the above example, the Production Volume Variance is positive when the actual Production is more than the Budgeted Production.

Since the variance is dependent upon the actual production, the production manager shall be held responsible for the Unfavorable variance.

YES, IT SHOULD BE CHARGED TO THE PRODUCTION MANAGER AND HE IS ANSWERABLE FOR THE DEVIATIONS IF ANY.