General Ltd. budgeted fixed overhead costs of $25,000 per quarter and 1,000 units per quarter in its normal absorption costing system. Any volume variance is carried forward and closed at year-end. The company experienced the following activity: The volume variance in quarter 1 was
A) $2,500 Unfavorable
B) $10,000 Unfavorable
C) $7,500 Favorable
D) $5,000 Favorable

Question

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The budgeted fixed overhead rate is $25 per unit ($25,000 / 1,000 units). If the actual production was less than 1,000 units, the variance would be unfavorable. If it was more, the variance would be favorable. A $2,500 unfavorable variance suggests production was 100 units less than budgeted (100 units x $25).