A company has budgeted overhead of $8,750 and standard overhead applied of $9,250. The volume variance is:

A company has budgeted overhead of $8,750 and standard overhead applied of $9,250. The volume variance is:

• A. $500 Favorable
• B. $500 Unfavorable
• C. $0
• D. $1,000 Favorable

Answer: (A)

Volume variance shows how much overhead absorbed by production differs from what was budgeted, based on actual production volume. It is calculated as overhead applied to production minus the budgeted overhead. If this number is positive, it’s favorable because more overhead is allocated to products than planned, usually due to higher production volume which spreads fixed overhead over more units. Here, overhead applied is 9,250 and budgeted overhead is 8,750. 9,250 minus 8,750 equals 500, which is a favorable variance. So the volume variance is a $500 favorable amount.

Volume variance shows how much overhead absorbed by production differs from what was budgeted, based on actual production volume. It is calculated as overhead applied to production minus the budgeted overhead. If this number is positive, it’s favorable because more overhead is allocated to products than planned, usually due to higher production volume which spreads fixed overhead over more units.

Here, overhead applied is 9,250 and budgeted overhead is 8,750. 9,250 minus 8,750 equals 500, which is a favorable variance. So the volume variance is a $500 favorable amount.