Production Volume Variance

You run a business that makes shoes for Civil War reenactors. You expect to make 5,000 units in a month. Last month, you made 4,500 units. The difference from the typical output represents production volume variance. The figure tracks the fluctuation in the number of items created.

The concept becomes important when related to overhead expenses. You have some costs that stay the same no matter how many items you produce. Rent, insurance, animal topiaries for the employee “rest gardens,” etc. These costs become comparably cheaper (on a per-unit basis) the more items you can make.

The ad you posted in Rebel Monthly cost $500. When you make 5,000 units in a month, that means the ad cost $0.10 per unit. When you only make 4,500 units in a month, the same ad, taken on a per-unit basis, cost $0.11 for each pair of shoes you make.

This type of overhead accounting makes tracking production volume variance important.