True or false: Volume variances are due to not producing at the predicted activity level. Therefore, the volume variance does not need to be investigated.

True or false: Volume variances are due to not producing at the predicted activity level. Therefore, the volume variance does not need to be investigated.

• A. True
• B. False
• C. Not necessarily
• D. It depends on the context

Answer: (B)

Volume variances come from differences between what was planned to be produced and what was actually produced. If actual production matches the planned level, there’s no volume variance. When production deviates from the plan, a volume variance arises, reflecting how fully or underutilized capacity was during the period. This variance can be favorable or unfavorable depending on whether you produced more or less than planned, but it’s still a signal about activity level and capacity use, not just a nuisance to ignore. Because it reveals how capacity, scheduling, downtime, demand, and forecasting affected actual output, it’s important to investigate the cause of any volume variance. Understanding why production diverged from the plan helps with better budgeting, capacity decisions, and forecasting in the future. So the statement is not correct; volume variances should be analyzed rather than dismissed.

Volume variances come from differences between what was planned to be produced and what was actually produced. If actual production matches the planned level, there’s no volume variance. When production deviates from the plan, a volume variance arises, reflecting how fully or underutilized capacity was during the period. This variance can be favorable or unfavorable depending on whether you produced more or less than planned, but it’s still a signal about activity level and capacity use, not just a nuisance to ignore.

Because it reveals how capacity, scheduling, downtime, demand, and forecasting affected actual output, it’s important to investigate the cause of any volume variance. Understanding why production diverged from the plan helps with better budgeting, capacity decisions, and forecasting in the future. So the statement is not correct; volume variances should be analyzed rather than dismissed.