A company based its fixed overhead cost allocation upon the production of 1,000,000 units, but actually produced 900,000 units. The company should expect a positive or unfavorable fixed-overhead volume variance.

Question

Quizplus · Accepted Answer

Since the company produced fewer units than it based its fixed overhead cost allocation on, it will have a fixed-overhead volume variance that is unfavorable. This is because the fixed costs are spread over fewer units than planned, increasing the cost per unit.

A Company Based Its Fixed Overhead Cost Allocation Upon the Production