A(n) _____ variance occurs when management pays an amount different from the standard price to acquire an overhead item.

A(n) _____ variance occurs when management pays an amount different from the standard price to acquire an overhead item.

• A. Volume
• B. Spending
• C. Efficiency
• D. Budgeting

Answer: (B)

In standard costing, overhead costs are tracked using a standard price per unit of the cost driver, and variances arise from differences between what was planned and what happened. When the amount paid for an overhead item differs from the standard price, that difference is called the spending variance (also known as the price variance). It captures the impact of paying more or less for overhead inputs than the standard rate, regardless of how much activity occurred. For example, if the standard price for an indirect materials item is $2 per unit and you actually pay $2.10 for the units used, the spending variance is unfavorable by the amount of the higher price times the quantity. This is distinct from a volume variance, which relates to differences in production level, and from an efficiency variance, which relates to how efficiently resources are used. Budgeting variance refers to differences between budgeted and actual overhead in total, not the price paid for individual overhead items.

In standard costing, overhead costs are tracked using a standard price per unit of the cost driver, and variances arise from differences between what was planned and what happened. When the amount paid for an overhead item differs from the standard price, that difference is called the spending variance (also known as the price variance). It captures the impact of paying more or less for overhead inputs than the standard rate, regardless of how much activity occurred. For example, if the standard price for an indirect materials item is $2 per unit and you actually pay $2.10 for the units used, the spending variance is unfavorable by the amount of the higher price times the quantity. This is distinct from a volume variance, which relates to differences in production level, and from an efficiency variance, which relates to how efficiently resources are used. Budgeting variance refers to differences between budgeted and actual overhead in total, not the price paid for individual overhead items.