Detailed Answer
Answer (B) is correct.
Overhead is applied according to a rate found by dividing budgeted
overhead for a period by an estimated activity level. If actual activity
differs from the denominator value (the predetermined activity level), a
volume variance will occur. This variance equals the amount of over- or
underapplied overhead attributable solely to the difference between
budgeted and actual activity. The expected volume is that predicted for
the period. Thus, the use of expected volume as a denominator should
minimize expected over- or underapplied overhead.
