Final answer:
The formula for factory overhead volume variance is typically the difference between the budgeted and the actual overhead applied to production at standard rates. Average variable cost can be calculated by dividing total variable costs by output. Knowing the average variable cost is vital for a firm to determine profitability, excluding fixed costs.
Step-by-step explanation:
The formula for factory overhead volume variance is not provided in the referenced information. However, the concept of variance typically involves the comparison between expected or standard costs and the actual costs incurred. For factory overhead volume variance, it generally refers to the difference between the budgeted factory overhead for the expected level of production and the overhead applied to actual production, based on standard rates. This variance illustrates the fixed costs that are over or under-applied because of differences in the volume of production.
To calculate other cost-related variables, such as average variable cost, you would divide the variable cost by the total output at each level of output. If the average variable cost of production is lower than the market price, the firm could be realizing profits when excluding fixed costs. Cost structures can be understood further by looking at total cost, average variable cost, average total cost, and marginal cost, following the formulas provided in the Production, Costs, and Industry Structure chapter.