Which variance is not caused by price changes but by volume of activity?

• A. Material price variance.
• B. Labour rate variance.
• C. Fixed overhead volume variance.
• D. Overhead expenditure variance.

Answer: (C)

The variance driven by the level of activity is the fixed overhead volume variance. It comes from how much you actually produce compared with what you planned, not from changes in prices. Fixed overhead is allocated to units at a fixed rate per unit, so if actual output differs from the budgeted output, the amount absorbed into product costs changes, creating a volume variance. For example, producing more units than planned increases the fixed overhead absorbed (a favorable result), while producing fewer units decreases absorption (an adverse result). By contrast, material price variance and labour rate variance come from changes in input prices, and overhead expenditure variance comes from actual spending versus budget, regardless of production volume.