An unfavourable overhead volume variance indicates that:  

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UGC NET Paper 2: Management 16th June 2023 Shift 1
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  1. Total fixed overhead has exceeded the standard budgeted amount  
  2. Variable overhead per unit has exceeded the standard budgeted amount 
  3. Actual production was less than the normal level of output . 
  4. Actual production was more than the normal level of output

Answer (Detailed Solution Below)

Option 3 : Actual production was less than the normal level of output . 
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UGC NET Paper 1: Held on 21st August 2024 Shift 1
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The correct answer is Actual Production was less than the normal level of output.

Key Points

  •  An unfavorable overhead volume variance indicates that actual production was less than the normal level of output.
  • The overhead volume variance is the difference between the budgeted overhead and the actual overhead incurred. The budgeted overhead is based on the normal level of output. The actual overhead is based on the actual level of output.
  • An unfavorable overhead volume variance occurs when the actual level of output is less than the normal level of output. This means that the fixed overhead costs were spread over a smaller number of units, which resulted in a higher per unit overhead cost.
  • There are a few reasons why actual production might be less than the normal level of output. For example, the company might have had a machine breakdown or a shortage of materials. The company might also have had a slowdown in sales.
  • The overhead volume variance can be corrected by adjusting the budgeted overhead to reflect the actual level of output. The company can also try to improve its production efficiency to reduce the amount of fixed overhead per unit
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