Fixed overhead volume variance arises from differences between actual output and budgeted output and indicates whether fixed overhead was under- or over-absorbed due to activity level.

• A. It is calculated as (actual output − budgeted output) × fixed overhead absorption rate per unit and indicates under- or over-absorption due to activity level.
• B. It is the difference between actual fixed overhead and budgeted fixed overhead, regardless of activity.
• C. It is the same as overhead expenditure variance.
• D. It measures the cost of materials used per unit.

Answer: (A)

Fixed overhead volume variance shows how the amount of overhead absorbed into production changes when actual output differs from what was budgeted. It is calculated as the difference between actual output and budgeted output, multiplied by the fixed overhead absorption rate per unit (which is budgeted fixed overhead divided by budgeted output). This tells you whether fixed overhead was under- or over-absorbed due to activity level: producing more than planned generally increases absorption (often viewed as favorable), while producing less reduces absorption (unfavorable). The other statements describe different ideas: the difference between actual and budgeted fixed overhead (regardless of output) is the expenditure variance, and materials-cost per unit is unrelated to fixed overhead volume.