What Is the Difference Between a Budget to Actual Variance Caused by Volume vs. One Caused by Efficiency?

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A budget to actual variance caused by volume and one caused by efficiency have some very important differences that you're going to want to know about. Find out the difference between a budget to actual variance caused by volume and one caused by efficiency with help from a longtime and experienced accountant in this free video clip.

Part of the Video Series: Understanding Finance & Accounting
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Video Transcript

Hi, I'm Lori Greer from Atlanta, Georgia, and I'm here to discuss what is the difference between a budget to actual variance caused by volume versus one caused by efficiency. A budget to actual variance caused by volume is referred to as the no-controllable variance. This variance is cause solely by producing at a level that differs from that use to compute the pre-determined overhead rate which incorrectly treats fixed overhead as a variable cost. It can also be computed under three variance analysis as a plaid fixed overhead minus budgeted fixed overhead. A budget to actual variance caused by efficiency is the difference between budgeted variable overhead for actual hours and standard variable overhead. This variance quantifies the effect of using more or less overhead base inputs such as labor hours and machine hours than the standard allowed for the production achieved. I'm Lori Greer from Atlanta, Georgia and we just discussed the difference between budget to actual variance caused by volume versus one caused by efficiency.

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