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Managers and other supervisors in manufacturing plants often create budgets that project the general expectations of the company regarding different aspects of its operations, including the volume of production and the consequent financial expectations. The production volume variance is derived from the projections of such manufacturing plants regarding production, something that is usually calculated within a certain defined business cycle. As such, the production volume variance can be calculated by analyzing the expectations of that particular manufacturing company regarding production for the time period under consideration in consonance with the actual reality in terms of production. The difference between the two disparate factors will result in the production volume variance. Due to the fact that there might be factors affecting the total volume of production on a daily, monthly or quarterly basis, the projected production estimate and the actual production volume are hardly ever the same.
For example, the estimated production volume for the production of orange juice for a business quarter could be set at 500,000 packs of juice. Such a calculation does not take into consideration factors like delays in the supply of oranges to the factory, unexpected overhead like machinery breaking down, and other factors that may negatively affect this projection. As such, the total number or orange juice packs for the quarter may either be less or more than the projected volume, creating a production volume variance.
From the example above, it is clear that the production volume variance may be positive when the total estimated volume is surpassed by the actual production volume. For example, where the orange juice manufacturers estimated the production of 500,000 packs of orange juice and ended up producing 550,000, there is a production volume variance in favor of the company due to the increase in the actual production volume from that previously projected. In this case, the positive production volume variance is to the tune of 50,000 more packs of orange juice for the business quarter under consideration. The same principle can also be applied in determining if the projection volume variance is to the detriment of the company, in which case it may be said to be negative. For example, where the total volume for the projected period actually comes to 450,000 packs of orange juice, the variance may be said to negative to the tune of 50,000 packs of juice.
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