Azzurra Corporation manufactures computer chips used in aircraft and automobiles.Manufacturing overhead at Azzurra is applied to production on the basis of standard machine-hours.Which overhead variance(s)at Azzurra would be affected in an unfavorable manner if fire and theft insurance rates increase by 25% unexpectedly during the period?
A)variable overhead rate variance
B)variable overhead efficiency variance
C)fixed manufacturing overhead budget variance
D)fixed manufacturing overhead volume variance

Question

Quizplus · Accepted Answer

The increase in fire and theft insurance rates would affect the fixed portion of manufacturing overhead costs, causing an unfavorable fixed manufacturing overhead budget variance. Neither the variable overhead rate variance nor the variable overhead efficiency variance is affected by changes in insurance rates, as they are based on machine hours and direct labor hours, respectively. The fixed manufacturing overhead volume variance is affected by changes in the level of activity, but not by insurance rates.

Azzurra Corporation Manufactures Computer Chips Used in Aircraft and Automobiles