A company has budgeted overhead of $10,000 and standard overhead applied of $10,400. The volume variance is:

A company has budgeted overhead of $10,000 and standard overhead applied of $10,400. The volume variance is:

• A. $0
• B. $400 Favorable
• C. $400 Unfavorable
• D. $400 Not material

Answer: (B)

Volume variance shows how much of the fixed overhead was absorbed into production versus what was budgeted, based on actual volume. Here, overhead absorbed is 10,400 and the budgeted overhead is 10,000. The difference is 400, and because absorption exceeded the budget, this is a favorable variance. It reflects higher-than-expected production spreading the fixed overhead over more units, reducing the fixed overhead cost per unit.

Volume variance shows how much of the fixed overhead was absorbed into production versus what was budgeted, based on actual volume. Here, overhead absorbed is 10,400 and the budgeted overhead is 10,000. The difference is 400, and because absorption exceeded the budget, this is a favorable variance. It reflects higher-than-expected production spreading the fixed overhead over more units, reducing the fixed overhead cost per unit.