(Appendix 11A)The Santos Corporation made an error when selecting a denominator level of activity and chose a much lower level than was realistic.This error would most likely result in a large:
A)favorable variable overhead efficiency variance.
B)favorable fixed manufacturing overhead budget variance.
C)favorable fixed manufacturing overhead volume variance.
D)unfavorable fixed manufacturing overhead budget variance.

Question

Quizplus · Accepted Answer

Choosing a lower denominator level of activity than realistic would result in a large favorable fixed manufacturing overhead volume variance because the actual production would likely exceed the underestimated level, leading to over-applied overhead.

(Appendix 11A)The Santos Corporation Made an Error When Selecting a Denominator