Detailed Answer
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 × $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.