Answer (C) is correct . A denominator level of activity must be used to establish the standard cost (application rate) for fixed overhead. The production volume variance is the difference between budgeted fixed costs and the standard cost per unit of input times the standard units of input allowed for the actual production.
Answer (A) is incorrect because The fixed overhead spending variance is the difference between actual fixed costs and budgeted costs.
Answer (B) is incorrect because The efficiency variance is applicable to variable overhead.
Answer (D) is incorrect because The flexible budget variance is the difference between actual and budgeted amounts in a flexible budget.
| 
