The volume variance is computed as:

The volume variance is computed as:

• A. The difference between actual overhead and budgeted overhead
• B. The difference between standard overhead applied and actual overhead
• C. The difference between budgeted overhead and actual overhead
• D. The difference between budgeted overhead and standard overhead applied

Answer: (D)

Volume variance shows how the actual level of production changed overhead absorption compared with what was budgeted. It’s found by taking the budgeted overhead for the period and subtracting the overhead that was actually applied to production using the standard overhead rate (based on actual activity). If production turns out higher than planned, more overhead is absorbed than budgeted, so the variance tends to be negative (often treated as favorable). If production is lower than plan, less overhead is absorbed and the variance tends to be positive (often treated as unfavorable). This focuses on the impact of volume, not on actual spending.

Volume variance shows how the actual level of production changed overhead absorption compared with what was budgeted. It’s found by taking the budgeted overhead for the period and subtracting the overhead that was actually applied to production using the standard overhead rate (based on actual activity).

If production turns out higher than planned, more overhead is absorbed than budgeted, so the variance tends to be negative (often treated as favorable). If production is lower than plan, less overhead is absorbed and the variance tends to be positive (often treated as unfavorable). This focuses on the impact of volume, not on actual spending.