"In fact,a 'favorable' production-volume variance of a 'non-bottleneck' machine or operation is not favorable to the firm as a whole;rather,it increases work and costs for the firm." Why?

Question

Quizplus · Accepted Answer

Feedback: A machine or operation that is "non-bottleneck" can easily enjoy a favorable fixed factory overhead production-volume variance by producing units above the maximum production level of the "bottleneck." Since the "bottleneck" equipment or division cannot handle more than its maximum capacity,at the bottleneck,the excess production by one or more "non-bottleneck" machines or operations creates excess inventories,which are costly to maintain and in fact counter to JIT and "lean manufacturing" strategies.The important point to stress here is that there are behavioral consequences associated with the choice of the denominator activity volume for purposes of determining a fixed overhead cost allocation rate.Such consequences can lead to goal-congruency problems for the organization.

"In Fact,a 'Favorable' Production-Volume Variance of a 'Non-Bottleneck' Machine or Operation