Answer (A) is correct . The fixed overhead volume variance results when production varies from the denominator amount. The denominator amount is the level of production used to determine the standard cost per unit. Because production was expected to be 200,000 units (the denominator level), but actual production was only 198,000 units, an unfavorable volume variance of 2,000 units occurred. Thus, 2,000 units were not charged with $3 per unit of overhead, and the volume variance in dollars was $6,000U (2,000 units ¡Á $3). This underapplication of fixed overhead is unfavorable because it indicates an underuse of facilities; that is, activity was less than budgeted. Unlike other variances, this variance does not measure deviations from expected costs but rather the departure from the expected use of productive capacity.

Answer (B) is incorrect because The fixed overhead volume variance is unfavorable because actual activity is less than budgeted.
Answer (C) is incorrect because The fixed overhead volume variance is unfavorable because actual activity is less than budgeted.
Answer (D) is incorrect because The fixed overhead volume variance equals the difference between the budgeted fixed factory overhead and the product of the budgeted application rate and the standard input allowed for the actual output.

Answer (C) is incorrect because The fixed overhead volume variance is unfavorable because actual activity is less than budgeted.
Answer (D) is incorrect because The fixed overhead volume variance equals the difference between the budgeted fixed factory overhead and the product of the budgeted application rate and the standard input allowed for the actual output.