Which variance arises when actual production volume differs from the budgeted activity?

Which variance arises when actual production volume differs from the budgeted activity?

• A. Overhead variance
• B. Labor efficiency variance
• C. Volume variance
• D. Controllable variance

Answer: (C)

Volume variance measures how much the fixed overhead allocated to production changes when actual production differs from the budgeted activity. Since fixed overhead is spread over the planned level of output, producing more than budgeted means more fixed overhead is absorbed into the cost of goods (generally favorable, because the overhead is allocated across more units). Producing less than budgeted means less overhead is absorbed (unfavorable). This variance is tied to the level of activity, not the per-unit cost or efficiency, and it differs from spending or efficiency variances.

Volume variance measures how much the fixed overhead allocated to production changes when actual production differs from the budgeted activity. Since fixed overhead is spread over the planned level of output, producing more than budgeted means more fixed overhead is absorbed into the cost of goods (generally favorable, because the overhead is allocated across more units). Producing less than budgeted means less overhead is absorbed (unfavorable). This variance is tied to the level of activity, not the per-unit cost or efficiency, and it differs from spending or efficiency variances.