Subtracting the allocated fixed overhead for actual output from the budgeted fixed overhead calculates the _______________?
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Answer: B. production volume variance
Explanation
Production volume variance measures the difference between budgeted fixed overhead and the applied overhead based on actual output. It highlights the economic impact of operating above or below planned capacity levels. The formula subtracts the fixed overhead allocated for actual production from the static budget fixed overhead. A favorable variance occurs when actual output exceeds the denominator level used to set rates.
Manufacturing firms track this variance to evaluate how effectively fixed factory capacity is utilized. It helps management identify idle capacity losses or efficiency gains in overhead absorption. Budget, price, and cost volume variances track different types of discrepancies such as spending deviations or material price shifts. They do not calculate the specific gap between budgeted and applied fixed overhead.
- Subject
- Accounting and Finance
- Category
- Accounting
- Topic
- —
- Difficulty
- medium
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