Answer (A) is correct . In three-way analysis, the spending variance is the difference between actual total overhead and the sum of the budgeted (lump-sum) fixed overhead and the variable overhead budgeted for the actual input at the standard rate. It combines the variable overhead spending and the fixed overhead budget (spending) variances used in four-way analysis.
Answer (B) is incorrect because A budget allowance based on actual input and the actual factory overhead are used in the computation of the spending variance. A budget allowance based on standard input is used to calculate the efficiency variance in a three-way analysis.
Answer (C) is incorrect because A budget allowance based on actual input and the actual factory overhead are used in the computation of the spending variance. A budget allowance based on standard input is used to calculate the efficiency variance in a three-way analysis.
Answer (D) is incorrect because A budget allowance based on actual input and the actual factory overhead are used in the computation of the spending variance. A budget allowance based on standard input is used to calculate the efficiency variance in a three-way analysis.
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