The correct answer is: C. Increase or decrease in actual output as compared to the budgeted output.
Volume variance is the difference between the budgeted fixed overheads and the actual fixed overheads, adjusted for the difference between the actual production volume and the budgeted production volume.
A. Increase in overhead rate per hour will result in a fixed overhead rate variance, not a volume variance.
B. Decrease in overhead rate per hour will result in a fixed overhead rate variance, not a volume variance.
D. Difference in budgeted overheads and actual overheads will result in a spending variance, not a volume variance.
Volume variance is caused by the difference between the actual production volume and the budgeted production volume. If the actual production volume is higher than the budgeted production volume, the volume variance will be favorable. If the actual production volume is lower than the budgeted production volume, the volume variance will be unfavorable.
Volume variance is an important measure of efficiency because it indicates how well a company is using its fixed resources. A favorable volume variance indicates that the company is using its fixed resources efficiently, while an unfavorable volume variance indicates that the company is not using its fixed resources efficiently.