Answer (D) is correct . The volume (production volume or idle capacity) variance is the amount of under- or overapplied fixed overhead. It is the difference between budgeted fixed overhead and the amount applied based on a predetermined rate and the standard input allowed for actual output. It measures the use of capacity rather than specific cost outlays. The predetermined rate equals the budgeted overhead divided by a measure of capacity. Consequently, when the standard input allowed for actual output exceeds the budgeted capacity, fixed overhead is overapplied, and the volume variance is favorable. If the master budget capacity is the denominator value, the volume variance is unfavorable. Conversely, when the standard input allowed for actual output is less than the budgeted capacity, fixed overhead is underapplied, and the volume variance is unfavorable. If the normal capacity is the denominator value, the volume variance is favorable.
Answer (A) is incorrect because The standard input for the actual output exceeds normal capacity. Thus, use of normal capacity results in a favorable volume variance.
Answer (B) is incorrect because The standard input for the actual output exceeds normal capacity. Thus, use of normal capacity results in a favorable volume variance.
Answer (C) is incorrect because Use of master budget capacity results in an unfavorable variance.
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Which of the following capacity measures for the denominator-level of activity would have resulted in an unfavorable volume variance?