The effect of the production volume variance on absorption costing income

A review of the managerial accounting literature reveals a misconception that the Production Volume Variance (PVV) affects absorption costing (AC) income. This paper uses an innovative presentation of the AC income statement to demonstrate that the magnitude and direction (favourable or unfavourable) of the PVV has no effect on AC income—the PVV Irrelevance Proposition. This paper confirms the real cause of changes in AC income. The literature also implies that the PVV is relevant to the reconciliation of AC and variable costing (VC) income. This paper's unique presentation demonstrates that the PVV is irrelevant to the reconciliation, and in addition, clearly illustrates the real reason for the difference between AC and VC income.