The difference between the actual amount paid and the standard price paid to purchase an overhead item is called a ______.

The difference between the actual amount paid and the standard price paid to purchase an overhead item is called a ______.

• A. volume variance
• B. efficiency variance
• C. usage variance
• D. spending variance

Answer: (D)

The main idea is comparing what you actually paid for an overhead item to the price you expected to pay. That difference is a spending variance, also called the price variance. It shows whether you paid more or less per unit than the standard price set in the cost system. For example, if the standard price is $4.00 per unit and you actually pay $4.50 for 1,000 units, the spending variance is (4.50 − 4.00) × 1,000 = $500 unfavorable—you're spending more than planned. If you paid $3.80 per unit, the variance would be (3.80 − 4.00) × 1,000 = −$2000, which is favorable because you spent less than the standard.

The main idea is comparing what you actually paid for an overhead item to the price you expected to pay. That difference is a spending variance, also called the price variance. It shows whether you paid more or less per unit than the standard price set in the cost system.

For example, if the standard price is $4.00 per unit and you actually pay $4.50 for 1,000 units, the spending variance is (4.50 − 4.00) × 1,000 = $500 unfavorable—you're spending more than planned. If you paid $3.80 per unit, the variance would be (3.80 − 4.00) × 1,000 = −$2000, which is favorable because you spent less than the standard.