Measure of Volume Homework Help

Measure of Volume

The volume measure selected for any given department/firm should be that quantity which displays the greatest degree of correlation with those costs that vary with the level -of operating activity. Different departments may use different measures of volume. In the first place, the measure of volume may be expressed in terms of the activity or factor that causes costs to vary, for example, labor costs vary on the basis of number of hours worked, material costs vary due to quantity of materials consumed. Secondly, the volume measure should be related to factors controllable by management, that is, number of hours worked, the quantity of materials, consumed and number of machine hours operated. Further, the activity chosen as a unit of measure should be one that is not greatly affected by factors other than volume, that is, quantity more useful than cost as indicator of volume. In brief, volume should be expressed in terms of some unit of input, such as direct labor hours, direct labor cost or machine hours. The measure applied in any particular case will depend on the peculiarities. For instance. in the light machinery department, direct labor hours may be an appropriate measure. But for the heavy machinery department, machine hours may be the best indicator of cost behavior.

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