If actual output exceeds budgeted output, the fixed overhead volume variance is generally considered...

• A. Unfavorable.
• B. Favorable.
• C. Neutral.
• D. Not defined.

Answer: (B)

When fixed overhead is applied on a per-unit basis, the volume variance shows how the actual level of activity compares with what was planned. If you produce more than you budgeted, more fixed overhead is absorbed into production because the overhead rate is spread over more units. The volume variance is calculated as the difference between actual and budgeted output multiplied by the fixed overhead rate per unit. A positive result comes from actual output exceeding budget, and that positive figure is treated as favorable because it means fixed costs are being absorbed over a larger output, improving cost efficiency per unit. For example, if the fixed overhead rate is constant and actual output is higher than planned, the volume variance increases in a favorable direction. Conversely, producing less than planned would yield an unfavorable volume variance.