Question

If a company uses a predetermined rate for absorbing factory overhead, the volume variance is the _______________________.

• A. Underapplied or overapplied variable cost element of factory overhead.
• B. Underapplied or overapplied fixed cost element of factory overhead.
• C. Difference in budgeted costs and actual costs of fixed factory overhead items.
• D. Difference in budgeted costs and actual costs of variable factory overhead items.

Answer 1

The correct option is B Underapplied or overapplied fixed cost element of factory overhead.

The fixed overhead volume variance is the difference between the amount of fixed overhead actually applied to produced goods based on production volume and the amount that was budgeted to be applied on produced goods.