Question

If your production-volume variance is $55,000 unfavorable it ________ . a. is not a good measure...

If your production-volume variance is $55,000 unfavorable it ________ .

a. is not a good measure of a lost production opportunity

b. takes into account the effect of additional revenues due to maintaining higher prices

c. measures the amount of extra fixed costs planned for but not used

d. indicates that the company had reduced its per unit fixed overhead cost to improve sales

Business   Accounting   
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Homework Answers

Answer #1

Answer : Option C

Explanation :

The production volume variance measures the amount of overhead applied to the number of units produced. It is the difference between the actual number of units produced in a period and the budgeted number of units that should have been produced, multiplied by the budgeted overhead rate.

The calculation of the production volume variance is:

(Actual units produced - Budgeted units produced) x Budgeted overhead rate

An excessive quantity of production is considered to be a favorable variance, while an unfavorable variance occurs when fewer units are produced than expected.

An unfavorable volume variance indicates that the amount of fixed manufacturing overhead costs applied (or assigned) to the manufacturer's output was less than the budgeted or planned amount of fixed manufacturing overhead costs for the same time period.

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