Question

A fixed manufacturing overhead variance caused by the actual activity being different from the estimated activity used in calculating the predetermined overhead application rate is called:

Answer 1

Answer:

volume variance.

Explanation:

Generally the fixed manufacturing overhead is calculated by dividing total overhead costs by the number of estimated labor hours or machine hours. Since this overhead rate is calculated on an estimated production level, if that level changes, either increases or decreases, it will result in an overhead variance.

For example, if total output was higher than expected, then the applied overhead will be excessive, since the overhead rate should have been lower. The opposite happens if total output is lower than expected.