The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed for actual output equal this predetermined activity level for a given period, the volume variance will be:
Variance Analysis
In layman's terms, variance analysis is an analysis of a difference between planned and actual behavior. Variance analysis is mainly used by the companies to maintain a control over a business. After analyzing differences, companies find the reasons for the variance so that the necessary steps should be taken to correct that variance.
Standard Costing
The standard cost system is the expected cost per unit product manufactured and it helps in estimating the deviations and controlling them as well as fixing the selling price of the product. For example, it helps to plan the cost for the coming year on the various expenses.
The fixed factory overhead application rate is a function of a predetermined activity level. If standard hours allowed for actual output equal this predetermined activity level for a given period, the volume variance will be:
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